It was not so many years ago that managed care in general, and HMOs in particular, were hailed as the solution to ever-rising health insurance costs. President Clinton made HMOs the cornerstone of his elaborate managed competition proposal. Congress embraced HMOs for Medicare. The states rushed to HMOs to fix their Medicaid woes. Business enrolled employees by the millions.
But as more people became insured by HMOs, it became apparent that another price was being paid. Specifically, HMOs controlled costs by controlling utilization. People learned their Primary Care Physicians—also known as “gatekeepers”—would not authorize treatments and procedures the patients thought they needed. And when they did authorize specialized care, HMOs harshly limited the treatments, services, and lengths of hospital stays. Many persons discovered they had to get preauthorization even when faced with a bona fide emergency needing immediate emergency room treatment.
And there was more. Patients were required to give up lifetime family physicians, and instead choose among a few HMO doctors. Restrictive drug formularies prevented people from obtaining the prescription drugs they preferred. Horror stories like “drive-through mastectomies” started surfacing.
State legislators felt the heat. At first, they employed band aids. They mandated minimum lengths of stays for maternity deliveries. They required that people in emergency situations be able to get to an emergency room and get treatment without calling a far-away bureaucrat for permission.
But it became clear more serious measures were needed. The states began embarking on more elaborate and thorough “patient protection” laws.
Public policy gone awry
By way of example, Virginia passed sweeping patient protection legislation in 1998. It applies to MCHIPs: Managed Care Health Insurance Plans. The 21-page law gave rise to 42 pages of regulations, 83 pages of interpretative guidelines, and numerous other opinions and statements of intent. My company, Golden Rule Insurance, filled five large three-ring binders of material needed to make an application just to continue to do PPO business in the state as a licensed MCHIP.
On the surface, the law and regulations appeared to mandate reasonable requirements for HMOs. National quality of health care standards had to be met. Network doctors had to be properly credentialed. Networks had to be adequately staffed with general practitioners, specialists, and facilities. HMOs had to install meaningful grievance response systems. They had to do a thorough job of communicating with and educating enrollees. The quality of the health care delivered had to be assessed and systems had to be installed to improve it.
So what’s wrong?
The problem is that the legislature made the law applicable to virtually all types of health insurance and labeled them all “managed care.” It did not distinguish between HMOs and fee-for-service PPOs. It created a one-size-fits-all solution.
HMOs and PPOs not the same thing
HMOs are in the business of managing care. They employ or directly contract with doctors who decide what care enrollees will receive, and they compensate the doctors based on how well they hold down utilization.
Fee-for-service PPOs, by contrast, are in the business of managing costs. Here is how it typically works: A fee-for-service insurance carrier wants to offer a lower-cost plan to its insureds. It enters an agreement with an existing PPO network that will create an incentive for its insureds to use the network’s providers, in exchange for lower premiums. For example, the plan may pay at 90 percent instead of 80 percent if the insured uses a provider in the network; in exchange, premiums can often be reduced by 15 to 20 percent.
The plan is still a fee-for-service plan. There are no gatekeepers. There are no incentives paid to providers to deny medical care. A patient need not “preauthorize” a needed emergency room visit. There is still coverage even when the insured seeks care outside of the network. All a PPO does is give insureds an incentive to voluntarily reduce the universe of providers from whom they will seek advice and treatment.
By treating HMOs and fee-for-service PPOs the same, the Virginia legislature essentially required fee-for-service PPOs to become HMOs.
And so, fee-for-service PPOs found themselves saddled with all kinds of inappropriate requirements. They were expected to assume full responsibility for the quality of health care provided, even though all they did was pay for it.
PPO administrators were told to go to doctors’ offices and make sure their handwriting was legible, and that the advice and care being delivered was good. PPOs were expected to police drive-times to doctor’s offices, and appointment and waiting times once there. It bordered at times on being silly.
Instead of cleaning up the abuses of HMOs, the legislature was turning most of the health insurance sold in Virginia into HMO coverage. The market was on the brink of disaster because the most popular form of coverage, the fee-for-service PPO plan, was about to become extinct. Not one of the 42 fee-for-service PPOs that applied for MCHIP licenses in Virginia was approved.
Reforms now underway
The looming disaster was enough to cause Virginia policymakers to revisit the regulations and tailor them more appropriately to the different forms of health insurance business in Virginia. Reform is a slow process, but the fee-for-service PPO carriers are optimistic the regulations will be changed.
To their credit, the HMOs in Virginia have agreed reform is needed. That has not been the case in other states. HMOs are very good at deflecting the charges of abuses and calling for a “level playing field.”
Policymakers must recognize the important distinctions between HMOs, fee-for-service PPOs, and other forms of health insurance. One size most definitely does not fit all.
Lee Tooman is vice president of government relations for Indianapolis, Indiana-based Golden Rule Insurance Company.