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Managed Care
Man Care I ..... Man Care II ..... Man Care III

The many extracts on this page are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" in the common interest and for the common good. They should not be reproduced for commercial purposes. The material is selective and I have not included denials and explanations. I am not claiming that all of the allegations are true. The intention is to show the general thrust of corporate practices as well as the nature and extent of the allegations of dysfunctional conduct made.

Managed Care Part I

The issues, the problems and the crisis.

So the crisis of health care is not really one of budget escalation and under- insurance, but of a perverse system. Managed care itself has become a complete perversion of what was originally intended by the radicals who invented prepaid group health insurance half a century ago.Incremental Reform Toward What? By Robert Kuttner The American Prospect February 14, 2000

And, according to a recent Washington Post-ABC poll, only 30% of the public have a good opinion of HMOs; 52% have a bad one. About 40% say HMOs treat most people fairly; 43% think they do not. A right to sue The Economist October 16, 1999

"This shows that the issue that is driving the consumer debate is the fear that plans are looking over the shoulder of doctors and are denying what a doctor perceives to be medically necessary," Larry Levitt, a health analyst with the Kaiser Family Foundation, told the Wall Street Journal on Thursday. The Kaiser Family Foundation is health think tank in Menlo Park, Calif., that is not affiliated with Kaiser Permanente, the HMO based in Oakland, Calif. Aetna to Appeal Landmark Damages for Denying Care Medical Industry Today January 22, 1999

If the plan designs its physician contracts and payment strategies effectively, they can essentially make each physician a "medical director" of the plan -- i.e. someone who holds the plan's interest pre-eminent over the needs of the patient before him or her. This can be done negatively (e.g. penalty clauses), positively (e.g. bonuses), or through some combination of both (e.g. withholds). As a result of this, we are approaching something akin to "economic totalitarianism," in which physicians are willing agents of health plans in exchange for a patient base and continued revenue. Few can afford the distinction of being a "difficult" player. Even worse, no savvy physician today can afford the label: "unsuited for managed care." Managed care's stronghold in many communities ensures that even necessary care is being denied, not just by medical directors protecting the plan, but now by the practicing physicians themselves who have many reasons themselves to protect the plan over the patient. Economics reigns over ethics.


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What is managed care?

It is not always clear just what people are talking about when they use the term managed care. In Australia the Medical profession has run a successful public campaign against it. They have used the term in a very general way to refer to the use of market forces to drive health care and as synonymous with US style corporate health care. They have successfully turned the words "US health care" and "managed care" into a big "No No".

As a consequence politicians and economic theorists assure the public that what they plan is not US health care and use a variety of other names, even as they introduce and use market forces, managed care techniques, and large corporations to drive health care delivery. In this sense of the word this whole web site is all about managed care.

In a narrower sense we can talk about managed care companies by referring much more specifically to Insurers and Health Maintenance Organisations (HMOs).  I have not written extensively about these companies before as the medical profession in Australia united and refused to enter managed care contracts. The US HMOs stayed away and there were other threats to our system. I am now catching up on this omission.

HMOs are a key component of the US system and the prime focus of attempts by ideologists to use market forces to contain costs. They are no less dysfunctional than the corporations I have described. These pages examine the central role of the HMOs in the US system.

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The managed care marketplace

The insurers and HMOs are the people who sell health insurance to employers, to government, and to more wealthy members of the public. The groups buying health care insurance from them are the "payers" (or funders). They buy this insurance competitively for employees, Medicare patients, Medicaid patients, veterans, and sometimes themselves. Government run Medicare in the USA has traditionally operated as the purchaser of health care for government but this is changing as ideologically driven governments push the elderly Medicare covered (and even state Medicaid covered) patients into private for profit HMOs and contract insurance cover for them. Medicare and Medicaid have become payers.

The HMO's and the insurers are the "purchasers" of health care and they purchase health care from hospitals, doctors and a host of other facilities as well as professionals who all make up the "providers" of health care. This system of payers, purchasers, and providers is remarkably similar to the more complex model of care which the chairman of Australia's National Competition Council, Graeme Samuel has promoted not only for Australia but also unbelievably for developing countries. He emphasises that it is critically different to the US system but the differences are minor. Dr. Michael Wooldridge, Australia's minister for health between 1996 and 2001 was partly successful in setting up a competitive market system in Australia. Health care is now regulated by competition policy, adjudicated by the ACCC, which in 2003 is chaired by Graeme Samuel.

The US system operates as a competitive market. The patterns of thinking and mode of operation are set by the share market and its institutional investors. They exert a profound influence on the way in which care is ultimately delivered, not only by market listed companies but by not for profit charitable institutions who must compete to survive. Purchasers compete for insured patients usually paid for by government or employer. Purchasers and providers then bargain competitively to set the fees to be paid to providers for providing services to the citizens whose health care is insured.

The payers and purchasers prime interest is not in providing care or in providing the best care possible. Their interests are commercial. They make more profits by not providing care or by spending as little as possible when they do. A variety of incentives and disincentives are built into the contracts they enter to harness the commercial self interest of the providers, particularly doctors to the purchaser's profit mission. In addition to this the purchasers reserve the right to refuse to pay for the service and doctors usually must get their permission before they refer or treat patients. Purchasers commercial interest is to refuse treatment whenever they can get away with it.

Corporate providers are primarily interested in providing as much care as they possibly can but also in providing it as cheaply as possible. They are not rewarded for good care. The more patients they treat and the less it costs them to provide the care the more money they make out of the money paid by the purchaser. Doctors who work in association with and have financial arrangements with large corporate providers will be under pressure to provide more care and perform more tests for which the corporate provider can charge the purchaser.

The idea behind all this is that intense competition of this sort will balance out the different forces and the patient will get cheaper and better care provided more efficiently because of it. This is ensured by the legally binding contracts which competitors make with one another during the bargaining process. Part of the argument is that the market provides choice and that the patient acts as an effective customer shopping around for quality. As we have seen this rarely happens and the assumptions are false. When the patient shops around she is likely to be duped into a corporate owned facility by deceptive marketing, rather than into a not for profit facility which provides better care because it spends less on competitive market practices and in paying shareholders. Not unexpectedly given the intense pressures generated the motives and humanitarian norms which underpin health care are lost. Balance and common sense are the first to suffer in the chase for profit.

Robert Kuttner has been one of the most trenchant academic critics of managed care in the USA. He has clearly identified market forces as the prime cause of the problems. Dr Linda Peeno an equally devastating critic writes superbly from real experience of what happens inside the system. The first extract is from Peeno describing the public face of managed care. The second an article Kuttner wrote in The American Prospect. The third desribes Peeno's actual experience in the system.

I was attracted to the belief that pooling resources under a single umbrella of care could provide better access, comprehension, coordination and prevention. In fact, the original HMO Act of 1973 referred to the delivery of health care without regard to time or cost. If the delivery of care remains publicly controlled, managed more like a public trust with primary commitment to equity and universality for all the beneficiaries, then the social ethic of managed care retains its potential to meet its original goals. Presentation to the Romanow Commission on the Future of Health Care in Canada by Linda Peeno, MD Louisville, Kentucky USA May 31, 2002 (This is an outstanding review of corporate for profit medicine concentrating on managed care but the insights are as applicable to all market controlled for profit care. Dr Peeno writes from the heart of the corporate system of which she has vast experience. The full presentation is well worth reading )

Herewith a very different view of the crisis in health care: Greater reliance on market forces cannot be the solution because marketization is the main problem.
But health care is not, and cannot be, a free market. For one thing, we subsidize demand because we don't let people die if they can't pay the doctor. We necessarily subsidize and regulate supply (of doctors and hospitals). - - - - The health market has significant, structural failures of information and free choice. Sick people lack the knowledge, and often lack the right, to "shop around" for health plans, doctors, and hospitals. We further complicate the whole affair with insurance, which is a cross-subsidy from well to sick and from young to old.

By marketizing something that cannot be an efficient market, our system has created crazy inefficiencies. An ordinary industry maximizes profits by attracting and keeping satisfied customers. But the "customers" of health insurance are often sources of loss, not profit, because they have the effrontery to get sick. Profit-maximizing health plans, therefore, seek to market their products to consumers with above-average health, to minimize the costs of treatment, and to drive away people with expensive or chronic conditions. These outlays on risk selection, marketing, and second-guessing of doctors drain tens of billions of dollars that could otherwise be spent on care. They fragment insurance pools. The cost of claims processing wastes tens of billions more. Additional billions are squandered in a cops-and-robbers game between nimble health entrepreneurs and fraud-and-abuse inspectors.

So the crisis of health care is not really one of budget escalation and under- insurance, but of a perverse system. Managed care itself has become a complete perversion of what was originally intended by the radicals who invented prepaid group health insurance half a century ago. Originally, the idea was that people would pay a flat fee to a health plan that welcomed all comers. In exchange, all health expenses would be covered. Salaried doctors would have no financial incentive either to overtreat or undertreat. Money saved from unnecessary treatments could be redirected to prevention. Physicals, screenings, inoculations, and sick care were covered. - - - -

Under the Nixon administration, prepaid group health mutated into managed care. Nonprofits became for-profits. An agency of wellness became mainly an agent of cost containment. Managed-care companies began devising payment systems that rewarded doctors for denying treatment and hospitals for ordering early discharges. Insurance companies that once used community ratings--charging all subscribers the same premium--began discriminating against the sick and marketing to the well.

By the 1990s, so-called health maintenance organizations - - - were nothing of the sort. Mostly, they had become conventional health insurance plans with stringent discounting and financial incentives to deny treatment. They had become private bureaucracies, hated by doctors and patients alike. - - - - - Moreover, the bad health plans are driving out the good.
In California, with the highest penetration of for-profit plans, nonprofit, community-oriented Kaiser Permanente finds itself under similar pressures to behave just like the industry's sharks, or go under.
Any increases in government health outlay should move us toward universal, social provision, and away from the false idol of "competitive reform" and the travesty of private, for-profit managed care. Some forms of incrementalism are worse than nothing.
Incremental Reform Toward What? By Robert Kuttner The American Prospect February 14, 2000 Another extract from this paper is given on the second page

I wish to begin by making a public confession: In the spring of 1987, as a physician, I caused the death of a man.

Although this was known to many people, I have not been taken before any court of law or called to account for this in any professional or public forum. In fact, just the opposite occurred: I was "rewarded" for this. It bought me an improved reputation in my job, and contributed to my advancement afterwards. Not only did I demonstrate I could indeed do what was expected of me, I exemplified the "good" company doctor: I saved a half million dollars!
The man died because I denied him a necessary operation to save his heart. I felt little pain or remorse at the time. The man's faceless distance soothed my conscience. Like a skilled soldier, I was trained for this moment. When any moral qualms arose, I was to remember: I am not denying care; I am only denying payment.

At the time, this helped avoid any sense of responsibility for my decision. Now I am no longer willing to accept this escapist reasoning that allowed me to rationalize this action. I accept my responsibility now for this man's death, as well as for the immeasurable pain and suffering many other decisions of mine caused.

For me, "ethics" must be done close range. Distance blurs the complexities of human experiences. Those who argue that "the further removed, the clearer the thinking" are those who too often use "ethics" as legalism, public relations, or high-sounding rationalization.


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History of the HMOs

The HMO's started in the 1940s. Without a national health system or universal insurance poorer citizens needed some form of insurance to help those who struggled to meet the costs of their health care. The HMO's were initially socially motivated not for profit groups who acted for their members, encouraged preventive health care and kept costs down. What started in a small way as a good idea went very wrong when it became part of the competitive marketplace system. Large market listed insurers, looking for profits and supported by government policy entered the area and imposed the competitive commercial basis under which the system now operates. Large institutional investors put up the money essential for survival. Their support is dependent on the generation of profits through growth or revenue. It is a dog eat dog environment and they have little interest in how profit is secured. Cost cutting at the expense of care is consequently integral to the system and concepts are generated to make it legitimate.

In the USA there is no government health insurance for ordinary citizens. Health care insurance became part of the pay package of employees. Larger employers paid for the health insurance of employees and their families. This was part of negotiated employment contracts. Employees of smaller businesses either pay themselves or are uninsured, paying out of pocket. During the 1980's health costs increased rapidly. The increased costs for employers pushed up the price of US products in the international marketplace. They were no longer competitive.

Led by a past Reagan health adviser Joseph Califano, now working for Chrysler the market set out to control the money spent and the health care provided. The doctors ordered the treatment and were held responsible for the expensive care given. They became the axis of evil of the 1980s. To control them the companies set out to get control of doctors' incomes and link these inversely to the money they spent in providing care. This became the way managed care operated. It was successful in temporarily holding down the cost of health care. In essence they were paying kickbacks to the doctors for not caring for their patients. Managed care depended for its success on financial arrangements which financially advantaged the parties providing care when they spent less and disadvantaged them when they spent more. This was widely supported by politicians and thought to be legitimate. At the same time kickbacks were illegal but this was not considered a kickback. This has resulted in complex revisions of the Stark kickback legislation to the extent that no one knows what is a legal and desirable incentive and what is a kickback. Using different words to describe differences between the same thing does not change the undesirable consequences.

The crisis in managed care exploded between 1997 and 1999. Robert Kuttner describes how it developed below. The second set of extracts is from an article which looks at managed care largely through the eyes of managed care supporters, asking where they went wrong. Not many working in the marketplace see the market itself as the cause. The third extract is a schizophrenic article extolling the virtues on managed care but indicating its problems in the USA. The answer international expansion.

Prepaid group health care began in the 1940s as an insurgent, even radical form of medicine. At the time, few Americans had health insurance. The early programs would later be called group or staff models -- closed systems with salaried doctors and an emphasis on prevention. The members sacrificed an often hypothetical freedom of choice for security and continuity of care. The doctors sacrificed independent, fee-for-service practice for a stable salary, a collegial setting, and a social ethic. Such plans were fiercely resisted by organized medicine.

The shift in prepaid group health care from an insurgent social movement to the most entrepreneurial and occasionally ruthless part of the health care system represents a stunning reversal. The turning point was in the early 1970s, when then President Richard Nixon rebaptized prepaid group health care plans as health maintenance organizations (HMOs), with legislation that provided for federal endorsement, certification, and assistance. HMOs today are widely seen as entrepreneurial agents of cost containment. The proportion of HMO members enrolled in for-profit plans has increased from 12 percent in 1981 to about 62 percent today. Nearly three HMOs in four are now for-profit, shareholder-owned plans.
Managed care sneaked up on physicians; by the time they fully grasped the implications, it was a fait accompli. Physicians are now caught between patients anxious about the availability and reliability of care and payers demanding further cost control through often perverse financial pressure on doctors.
Must Good HMOs Go Bad? First of Two Parts: The Commercialization of Prepaid Group Health Care by Robert Kuttner The New England Journal of Medicine -- May 21, 1998

Such mistrust is especially striking because HMOs were born in a burst of idealism by progressives who viewed them as a path to better medicine.
There are other reasons for the bruised image. They include physicians' influence on the thinking of politicians and the public, employers' decisions to shift millions of Americans into managed-care systems without asking them first and the capture of HMOs by insurance corporations that twisted managed care away from its original ideals.

Together, those forces have demonized managed care in popular culture in a way that is virtually unparalleled among any sector of the economy except for the tobacco industry, according to historians and public-policy specialists.
Although the first HMOs date to the 1940s, the ''competitive health maintenance strategy,'' as it was originally known by proponents such as Mr. Ellwood, really took root in the 1960s as a reaction to a medical system that was becoming increasingly fragmented and was overlooking preventive medicine in a zeal for high-technology care
Doctors would be paid a salary, patients would pay for a year's care up front, and the health organizations would have a say in how much and what kind of treatment members needed.

It was this last part, the ability of HMOs to control the amount of care, that captured the attention of American employers in the late 1980s and early 1990s, a period of rampant medical inflation. From 1988 to 1991, the percentage of U.S. workers in medium-sized and large companies with traditional ''fee-for-service'' coverage plummeted from 71 percent to 42 percent, then dropped to 14 percent last year, according to figures from KPMG Peat Marwick
As their popularity soared, HMOs largely became the province not of nonprofit groups that employed salaried doctors but of commercial insurance companies that created networks of resentful community physicians and reported to investors. Contrary to what he had expected, Mr. Ellwood said, employers selected their workers' health plans based on their price, not their caliber.
Spectacular Rise in HMOs' Unpopularity Fuels the U.S. Cry of Patients' Rights International Herald Tribune (Neuilly-sur-Seine, France) October 12, 1999

HMO profitability declined sharply in 1998. According to the Weiss Ratings service in Palm Beach Gardens, Fla., 56% of the nation's 576 HMOs lost money. Overall, HMOs recorded a net loss of $1.25 billion that year. The final numbers for 1999 will likely be as bad or worse. Only the fiscal life raft of rising premiums will satisfy Wall Street, but this is likely to provoke further political intrusion into the marketplace.

More ominous for American health insurers, the U.S. workplace is mutating. The traditional employer-provided healthcare benefit is being undercut by outsourcing, weaker labor unions, more part-time jobs and the continued shift from manufacturing to a service economy. Employment-based healthcare coverage in the U.S. is decreasing. The universal solution: Nations worldwide are turning to managed care by Jonathan Lewis president of the Academy for International Health Studies. Modern Healthcare International April 24, 2000

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Graeme Samuel's Model for International Health Care

The ideas behind managed care are congruent with modern economic theory and its advocates believe implicitly in its effectiveness. Many in the USA have invested their lives "reforming" health care and are extremely enthusiastic. The ideas are not localised to the USA and many in other countries have adopted the same ideas. Theorists have invited in US expertise and welcomed US managed care companies. The medical profession and sometimes the public have been more objective. Attempts to introduce this sort of system into Australia have been only partly successful. Its prime exponent has been Graeme Samuel, previous chairman of the National Competition Council (NCC) and now chairman of the ACCC, the watchdog overseeing competitive marketplace activity in Australia.

In his speech to the World Bank in 2000 Samuel, chairman of Australia's National Competition Council urged developing countries to adopt his model of payers, purchasers and providers urgently! He introduces his model this way "The model I will describe is primarily built around the idea of increasing reliance on the market mechanism in achieving health care outcomes." Samuel uses emotive words with positive associations to hide the essential contradictions in his proposals. He describes his purchaser cost containment agencies as "corporatised Health Improvement Agencies" or HIAs.

Staff are both the major cost and the critical determinant of health care. As we now know cost containment in such a system is accomplished by culling staff and deskilling. Both impact negatively on care so that Health Compromising Agency or HCA might be more a more appropriate description of Samuel's purchaser. This is not to accuse Samuel of dishonesty. He genuinely believes in his model and the words are used in order to deceive himself as well as his audience. This is how humans blinded by belief systems behave.

Samuel's model depended for its success on competition between funders (i.e. payers), purchasers, and providers. This is exactly what the US managed care system is. Samuel defined his purchaser as "determining what services will be purchased and in what quantities. It also includes the question of what providers will be engaged to provide those services and on what terms". This is where Samuel considers the "potential benefits of competition are greatest". He sees no impediment to this role being privatised. The purchaser is the critical competitive operator in managed care and the entire US effort to contain costs centres on the role of purchasers called Health Maintenance Organisations (HMO). Samuel claims "The aspect of the reforms which is central to all of these concerns is the much greater level of private sector involvement that competition must inevitably bring with it".

Samuel considers that the evils of US managed care are often exaggerated. He claims his model is crucially different to the US system. He says "However, the model I have outlined differs crucially in having a greater reliance on competition and market mechanisms and in relying on a better flow of information." The material on this web site indicates that the problems with the US system is its reliance on competition and market forces principally those generated by the private sector share market.

The logical conclusion is that the crucial difference between the health model which Samuel so carefully copies from the USA but which he plans to make more competitive and market based will simply be the use of a different set of words. If it is the competitive market of private sector corporations which is the cause of the problems in the USA then Samuel's system is likely to create problems larger than those which exist in that country.

As in the USA Samuel relies on contracts "In fact, the major determinants of the degree of control the government can exercise over a private institution are the contractual and regulatory arrangements that are in place." An examination of the US system shows that it is the contracts reached in competitive bargaining which cheat the patients. The regulations are experienced as onerous by all parties and are seldom adequately enforced. The simple answer is that it has not worked and Samuel does not explain how his contracts will work differently.

Samuel adds two additional roles, that of regulator and that of monitor. The USA has been struggling to monitor and regulate a similar system for years and has failed miserably. This regulatory failure is most readily apparent in aged care and the reasons are intrinsic to the system itself. I dealt with this issue on a web page written in 2001 and there is much more information about this in material available since that time and added in 2003.

As Samuel states and as his model and the US system illustrate it is the "starting points" which we use which determine how we understand our activities and how we act. If the starting points are not congruent with the activities then the activities are likely to have adverse outcomes. Samuel's model is based on aggressive arms length competition - its starting point. Over 2000 years of experience indicates that effective health care is built around the empathy and concern of individuals who seek to serve and help their fellows - an intimate and caring Samaritan tradition. This is the very antithesis of arms length. It depends on relationships which embody trust and trustworthiness. It involves the sharing of the sort of intimate information which we usually share only with those who are very close. Like all grand theorists Samuel does not explain what the impact of his impersonal system based on economic levers utilising economic self-interest will be on empathy, trust and trustworthiness. The US managed care health system shows us quite conclusively what that is.

The response to such a system in the USA has been a public backlash. There is something very wrong when citizens and their doctors have taken to the courts in their millions, and when government has been forced to legislate repeatedly to protect citizens from being exploited and misused by those entrusted by society to care for them. This is not something any sensible country would want to import.

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Mergers, takeovers, sales, market share and bankruptcy

"Kaiser has been successful in California, but this area of the country is not ready for that model," said Jane Laffner, a senior consultant in Stamford, Conn., with the Watson Wyatt consulting firm. "The Northeast is still a few years behind California, and this is a Darwinian market," where only the strongest survive. Kaiser Permanente Is Shutting Down Its H.M.O. in the Northeast The New York Times June 19, 1999

Social Darwinism:- The for profit HMOs are subject to the same Darwinian forces in the marketplace as the corporate providers. Either they grow or they themselves become victims of more powerful and aggressive predators. The first step is growth by increasing sales i.e. increasing membership. This occurred in the 1970s and 1980s with many entrepreneurs seizing the opportunities.

As membership plateaus expansion centres on mergers and takeovers. Competitive pressures drive down profits accentuating the process and driving companies into debt. After the market has consolidated to a small number of heavily in debt players the corporations grow by globalising. They enter other countries and sell their wares. It is usually around this time that competition at home further reduces profits and companies start to lose money, can't service their loan and even enter bankruptcy. Dysfunctional profit generating behaviour intensifies. There is a public outcry and often a scandal. This impacts negatively on their international expansion.

International opportunities are seen as a means of bolstering profits but all too often international communities do not welcome US market thinking. They examine what is happening in the USA, and have enough insight to resist these efforts. This market globalisation grew in health care during the 1980s and 1990s. Pressures to globalise became intense in 1997 and 1998. Managed care was part of this.

How far does it go? It seems reasonable to ask to what extent market advocates supported by an extreme right wing republican government are now using US power in international trade agreements to further their aims and overcome local resistance to US corporate practices. Health care is not excluded from these negotiations. Many also believe that the US is currently embarking on imperial adventures using its military might in order to open defeated countries to US corporations and the US corporate dominated version of democracy. This is an extreme view but the "freedom is beautiful" protagonists undoubtedly believe in the rightness of what they are doing and in the universality in the US version of democracy. That this "democracy" is heavily skewed towards the corporate sector escapes them. That said commercial self-interest and corporate influence is apparent in what is happening in both trade negotiations and the restructuring of conquered nations. Commercial entities will seize any opportunities they can and as the US health system illustrates so well, they show no interest in community sensibilities.

Bargaining power:- Managed care is about negotiating contracts. Survival depends on bargaining power. This is a competitive business and the more powerful a company and the greater market share it has the more effective it is at the bargaining table. This has meant that mergers and takeovers in all sectors have mushroomed. Size matters. Companies have sought to dominate specific markets or specific geographic locations where they can bargain effectively.

As part of this dumbing down efficiency, the market has consolidated into a small number of massive impersonal rigid corporate entities providing standardised trimmed down Macmedicine to a patient group with widely different disease processes and personal needs. In this context it is difficult to provide empathic and genuine personal care, and almost impossible to foster the mutual trust and trustworthiness on which successful care depends.

Dominance:- Of the for profit HMOs Aetna has been by far the most aggressive. It had the worst reputation for denying care and for making contracts with doctors which limited care. It was consequently the most successful in the marketplace. It has become by far the largest of the HMO's and dominates what happens there.

Corporations need profit streams to fund their expansion and the loans they raise for this. In areas where they don't make a profit or have insufficient market share to bargain successfully they sell or simply close up shop. The decisions are entirely commercial. Both the citizens whose health is insured, and the contracted medical groups are units to be traded. They have no input.

Consequences:- HMOs contract doctors and most of these commercial activities result in a disruption of the links between patients and their doctors. Patients are either dumped and find themselves uninsured or else they find that their doctor is no longer listed by the new entity to which they now belong. No one asked them.

Continuity of care and ongoing bonds between patients and the doctors who know their illnesses well are the basis of health care in most western countries. This has been disrupted by managed care in the USA to the extent that it was necessary to introduce legislation to force HMOs to continue paying the doctor with whom the patient had embarked on treatment until the course of treatment was completed.

Not for profit:- Not for profit groups have had no option but to compete. Citizens not unreasonably expect a human face from these charitable institutions and are particularly disturbed by the misbehaviour of not for profits like Kaiser Permanente.

Opposition to mergers and dominance:- As with corporate hospital providers and nursing home chains only the most socially dysfunctional HMOs dominate and succeed. Doctors and patient advocacy groups have been alarmed at their growing power, and their own weakness in a system dominated by these ruthless megacorps. They have made every effort to object to mergers and takeovers but the courts have sided with the for profit giants.

Illustrative extracts:- Some extracts from press reports illustrate what happens. This material starts in 1996 after the stage of membership growth. Competitive pressures are cutting into profits and competitive cost containment is reaching crisis point. The market is consolidating with mergers and takeovers. International expansion starts at this time but I have addressed that elsewhere.

1996 - still growing
Oxford Health Plans, he says, is showing explosive membership growth. And he expects Healthsource to rebound from a disappointing first quarter. Both companies are active in areas where a lot of people haven't joined HMOs yet, he says, so they can gain members rapidly.
All-Star Analysts 1996 Survey: Hospitals & HMOs The Wall Street Journal June 20, 1996

1997 -- mergers
The HMO merger wave continues, as Foundation Health Corp.'s merger with Health Systems International closes. The deal follows PacifiCare Health Systems' acquisition of FHP, WellPoint Health Networks' acquisition of the health plan business of John Hancock Mutual Life Insurance Co., and Kaiser Permanente's affiliation with Group Health Cooperative of Puget Sound. Later in the year, Blue Shield of California buys UniHealth's CareAmerica managed-care subsidiaries. 1997: THE YEAR IN REVIEW Modern Healthcare Dec. 22, 1997

Not for profits struggling to compete

Kaiser Permanente said Friday that its hospitals and health plan operations will post a $270 million loss for 1997, the first loss in its history, and significantly higher than the $50 million loss predicted earlier. Kaiser said it will raise premiums and is considering divesting money-losing plans in the Kansas City market, New England, North Carolina, Ohio and Texas. NEWS AT DEADLINE Modern Healthcare Feb. 16, 1998

Cigna Corp., the last major insurance company to combine health-care and employee benefits with other traditional insurance products, is negotiating to sell its property and casualty business for about $ 3 billion, the company confirmed Tuesday.

In its efforts to shed this part of its business, Cigna joins other insurers that have decided that the only way to survive in the difficult era of managed care is to specialize.

"Our goal is to become a global employee benefits company," said Michael Monroe, Cigna's vice president for corporate communications. The idea, he said, is to position the company to provide not only health care but also other employee benefits for employers, including pension management, investments and life insurance. CIGNA SHIFTING FROM TRADITIONAL PRODUCT LINES; INSURANCE: SALE OF PROPERTY AND CASUALTY BUSINESS WOULD CHANGE FOCUS TO HEALTH AND BENEFITS COVERAGE. Los Angeles Times December 23, 1998


This is bound to be a better year for the health-care industry than 1998, which, to borrow Queen Elizabeth's mournful phrase, was an annus horribilis for some of the United States' biggest insurance, hospital and physician practice companies.
The difficult conditions are likely to be reflected in another round of health-care mergers and acquisitions. Aetna Inc. agreed last month to buy the Prudential Health Care unit of Prudential Insurance Co. of America, making Aetna the nation's biggest managed-care company.
H.M.O.'s Are Set for Many More Mergers The New York Times January 4, 1999

T he health insurance industry is rapidly whittling itself down to a few giant companies that dominate the health systems of some of the country's biggest cities.

Doctors and hospitals are increasingly concerned, and the trend is also raising questions about the cost and availability of care to millions of patients and their employers.
One worry is that payments to doctors will be trimmed, leading them to spend less time with each patient, which could hurt the quality of care. And patients fear that they will be forced to switch doctors.

For doctors and hospitals, the concern is not only that insurers dictate prices, but that if one or two insurers dominate a market, some doctors and hospitals will be left out in the cold. And employers worry about having fewer plans competing for their business, a trend already translating into higher premiums.
In only five years, a dozen companies have been scooped up by six survivors: Aetna, Cigna, United Healthcare, Foundation Health Systems, Pacificare and Wellpoint Health Networks.
Ron Pollack, executive director of Families USA, a national health care consumers organization, said consumers "would have good reason to be concerned" in markets where Aetna, which has adamantly opposed patient protection legislation, took a dominant position. "Other H.M.O.'s have been much more forthcoming in trying to be patient-sensitive and consumer-sensitive," he said.
Concern Rising About Mergers in Health Plans The New York Times January 13, 1999

Aetna sold off several of its mainstay businesses -- property-casualty went to Travelers Group for $4.1 billion -- and went on a health-care buying spree. Aetna's mission was to instantly transform itself into the largest HMO in the United States: It did so by purchasing one of the nation's largest HMOs -- hard-charging Pennsylvania company U.S. Healthcare.
Aetna didn't stop with U.S. Healthcare: It also picked up the health insurance businesses of New York Life Insurance Co. in 1998 and Prudential Insurance Company of America in 1999.
Aetna's Unmet Claims : Insurer's Makeover Has Come Up Short On Promise of Change, Long on Lawsuits Washington Post February 25, 2001

bargaining can impact on patients
Columbia/HCA Health Corp. is in the middle of another battle over reimbursement fees with a Florida HMO. The current disputes involves AvMed, the leading non-profit managed care insurer in the state, and this battle marks the fourth disagreement Columbia has faced in recent months. The hospital company could pull 14 facilities from AvMed's provider network, including nine Tampa Bay hospitals. Columbia claims it's losing money on the AvMed contracts, but the HMO claims Columbia is merely using a hard-handed negotiating tactic. Both companies have financial considerations at stake: AvMed is trying to absorb a money-losing HMO acquired in 1998, and Columbia is making efforts to breathe life into a Florida network that has lost millions of dollars while competitors have posted profits. SUFFERING LARGE LOSSES IN THE STATE, COLUMBIA IS FIGHTING FLORIDA HMOs FOR LARGER REIMBURSEMENT FEES Medical Industry Today February 5, 1999

commercial wheeling and dealing has other consequences for patients and their doctors
Thousands of Connecticut employees and employers insured by Aetna may soon face tough choices -- switching doctors, paying steep rate increases, or changing insurers -- as the company plays out the final drama of its 1996 merger.

Aetna, which merged with U.S. Healthcare, is now trying to move employers from the old Aetna HMO in Connecticut to the newer Aetna U.S. Healthcare health plans. AS AETNA ADJUSTS, SO MUST CLIENTS; HEALTH CARE MERGER FORCES HARD CHOICES ON THOUSANDS THE HARTFORD COURANT February 10, 1999

Aetna Inc. said Wednesday its first-quarter earnings grew 15%, more than expected, as it raised premiums on employer health plans and shed unprofitable Medicare business. AETNA PROFIT, UP 15%, BEATS ESTIMATES Los Angeles Times April 29, 1999

Most health maintenance organizations lost money for a second year in a row in 1998, prompting many plans to raise premiums and cut benefits.
``This is not good news for the consumer,'' said Martin Weiss, chairman of Weiss Ratings. That's because HMOs that lose money are more likely to go out of business, quit unprofitable markets or raise premiums.
Few large HMOs have gone bankrupt in recent years, but when they do, consumers can be left scrambling for insurance coverage.

Nearly 200,000 New Jersey residents last fall had to find a new health insurance coverage when HIP Health Plan of New Jersey went bankrupt in one of the biggest fiscal collapses in the industry's history. HMOs Lost $490 Million Last Year The Associated Press August 9, 1999

not for profits are also rationalising - leaving citizens in the lurch
Kaiser Permanente, one of the nation's largest health maintenance organizations, said Friday that it was closing its money-losing Northeast division, effective Jan. 1, 2000. The move affects 575,000 members in four states, including 29,500 in the New York City suburbs of Westchester County, N.Y., and Fairfield County, Conn.

The HMO said it lost almost $90 million on nearly $1 billion in revenue in the Northeast last year. Dr. David Lawrence, the chief executive of Kaiser Foundation Health Plans and Hospitals, said the company decided against investing more money into the region.

It was the fourth regional pullback by Kaiser, a nonprofit company that has been losing money for two years. Kaiser sold its Texas HMO, with 130,000 members in the Dallas-Fort Worth area, last year. It also plans to close health plans with 107,000 members in Charlotte and Raleigh-Durham in North Carolina this year.

The latest shutdown also includes 28,000 Medicare members in upstate New York, adding to a nationwide pullback by other managed care companies, which has forced hundreds of thousands of elderly Americans to switch health plans. Kaiser Permanente Is Shutting Down Its H.M.O. in the Northeast The New York Times June 19, 1999

objecting to consolidation
Doctors and consumer advocates have flooded the Justice Department with evidence they say suggests that Aetna's plan to buy Prudential Health Care would harm competition in the health insurance industry. But Federal antitrust officials say they have found potential problems in only a few states, including Texas and New Jersey. U.S. Scrutinizing Aetna Proposal to Buy Prudential Unit The New York Times April 30, 1999

Over the objections of doctors' groups and consumer advocates, the federal government on Monday approved the $1 billion acquisition of Prudential Health Care by Aetna Inc., which will create the nation's biggest managed-care company.
Critics had petitioned the government to impose far more conditions on the deal, saying it would vastly increase Aetna's ability to negotiate fees and working rules for doctors and hospitals, squeezing the medical profession for greater cost savings while possibly raising premiums and controlling practices.

"Unfortunately for the patients and doctors around the nation, this means the industry leviathan has control of the whole pond," said Jamie Court, director of Consumers for Quality Care, a consumer group based in Santa Monica, Calif. "We will likely see doctors with more complaints and patients with fewer services." Court called the decision "a black eye for the Clinton administration in terms of patient protection." U.S. Approves Deal Creating Huge Managed Care Concern The New York Times June 22, 1999

This week, the Medical Association of Georgia (MAG), on behalf of its 8,000 physician members, formally opposed the proposed merger between Georgia Blue Cross/ Blue Shield and California-based Wellpoint Health Networks and the proposed acquisition by Aetna, Inc. of Prudential Insurance Company of America's healthcare insurance business.

In comments filed with Georgia Insurance Commissioner John Oxendine, MAG asserts that the GA Blues/ Wellpoint merger, if approved by the Commissioner, would allow Wellpoint, one of the largest publicly traded managed care conglomerates in the country, to take over one-third of Georgia's healthcare insurance market. Citing numerous abusive managed care practices utilized by Wellpoint in its physician contracts in California, MAG told the Commissioner that such a merger would have a detrimental effect on patients and their access to quality healthcare through the largest health insurer in Georgia. MAG stated that "the combination of market share dominance and a pattern of abusive managed care practices could be a lethal dose of bad medicine for Georgians."

In a similar letter to the US Justice Department, MAG objected to the Aetna/Prudential acquisition. MAG Opposes Healthcare Insurance Mergers; Georgia Blues/Wellpoint -- Aetna/Prudential Deals Will Adversely Affect Patient PR Newswire October 21, 1999

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International Expansion

Beginning in 1996 and extending through 1998 and 1999 insurers and HMOs began a massive international expansion. Articles described the opportunities for profit and reveal the blind enthusiasm with which devoted adherents were planning to take all the advantages of managed care to foreign countries. The material provides an insight into the remarkable thought processes behind managed care. The material also mentions the early rebuffs and difficulties. Initially Australia, Canada and Europe were on the menu but it seems that they were not as warmly welcoming as the initial enthusiasm suggested. Fertile fields then became South Africa, South America and the East, where greater success was claimed.

I have not followed this through to see what happened in these countries. The big differences in wealth between a small wealthier employed community and a massive largely unemployed poor majority in South Africa have meant that universal health cover is not practical and the state services are poor. Private insurance for the wealthy has been the only option and managed care has filled the vacuum left by not for profits who have more urgent projects. It is likely that the same has happened in South America and the East. Ironically the market has turned a system designed to serve the poor in the USA into the exclusive province of the rich minorities in poor countries.

Because of the insights and the wider relevance of this I have devoted a separate page to it. The patterns of thought and the morality of the HMO business are exposed.

Click Here to explore the globalisation of managed care


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The problem of the uninsured and the underinsured

The most prominent feature of American health insurance coverage is its slow erosion, even as the government seeks to plug the gaps in coverage through such new programs as Medicare+Choice, the Health Insurance Portability and Accountability Act (HIPAA), expansions of state Medicaid programs, and the $24 billion Children's Health Insurance Program of 1997. Despite these efforts, the proportion of Americans without insurance increased from 14.2 percent in 1995 to 15.3 percent in 1996 and to 16.1 percent in 1997, when 43.4 million people were uninsured. Not as well appreciated is the fact that the number of people who are underinsured, and thus must either pay out of pocket or forgo medical care, is growing even faster. The American Health Care System -- Health Insurance Coverage Robert Kuttner The New England Journal of Medicine -- January 14, 1999

Almost all developed countries provide some sort of medical service or system of medical insurance to their citizens so that the rich and the young subsidise the poor and the elderly. The exception is the USA where this is left to the market. There are two exceptions in the USA. Federally run Medicare subsidises health care for the elderly but does not pay the high costs of drugs. State run but jointly funded Medicaid provides limited funding to some poor and disabled, and pays a low fee for nursing home care when other funds run out.

Traditionally the not for profit US system provided care for all charging each according to his or her means and providing charitable care to the destitute. An informal system ensured the rich subsidised the poor. Market pressures have squeezed that kindly Samaritan system almost out of existence.

Most health care insurance is provided through employers contracting with HMOs and the variety of arrangements is extensive. The unemployed have no cover. Most smaller employers do not provide health insurance for low paid employees. These people are either uninsured paying out of pocket or else enter plans which do not adequately cover their needs.

Another problem for those who insure themselves is that without universal coverage the insurer is under no obligation to insure everyone. If you have a preexisting condition, or are a poor risk for some other reason then you are not going to be covered by an HMO if you insure yourself. Those most in need of cover are denied it and have to pay more for care when they need it.

Those who fall outside the contracts negotiated by HMOs have no bargaining power. As a consequence they are charged fees which are often double those paid by HMOs for the same service. Providers aggressively pursue them for payment. Many are forced to sell their homes. Medical bills after a major illness are one of the commonest precipitants of bankruptcy in the USA.

These excessive payments by the poor help the HMOs to keep costs and premiums for their wealthy members down. In a strange reversal of humanitarian ideas about medicine it is the poor who now subsidise the health care given to the wealthy. This is well illustrated by the price gouging which is part of the current Tenet Healthcare scandal.

In an attempt to capitalise on this low income group some companies, like Aetna have sought to market pared down cover. This provided little real protection and was not embraced by US citizens. Aetna eventually abandoned the venture.

Most Americans rely on their employers for health insurance. In 1997, of the 167.5 million nonelderly Americans with private health insurance, 151.7 million belonged to employer-provided health plans. In response to the escalating cost of health insurance coverage in the 1980s, employers began devising new strategies of cost containment. These included contracting with health plans that practiced a stringent form of managed care, substituting cheaper forms of health coverage for more expensive ones, limiting employees' choice of health plans, and shifting costs to employees in a variety of ways. These measures have stabilized health insurance costs for employers. However, they have left many employees paying more out of pocket and often with inferior forms of health coverage, and they have contributed to an overall increase in the proportion of Americans who are uninsured. The American Health Care System -- Employer-Sponsored Health Coverage Robert Kuttner The New England Journal of Medicine -- January 21, 1999

Aetna launched its campaign to sell what it called affordable health insurance with a big Washington pep rally Wednesday -- but while the star-studded political roster took turns gushing over the company, no one was eagerly embracing its plan.
The plan,--which has been approved in Connecticut, Texas and Maine and is pending review in other states,--is designed to make it easier for many of the nation's 43 million uninsured people to get coverage.

But it is an idea brimming with controversy, because its benefits are limited and it is being touted as supplemental coverage. Aetna would pay certain amounts for each benefit, but the consumer would pay the rest of the bill.
"These plans provide insurance that doesn't insure," said Ron Pollack, executive director of Families USA, a health care consumer group. "They don't cover you when you are sick and they leave you with massive bills to pay."

A year ago, the nation's largest health insurer thought it would make a small dent in American's uninsured problem by offering a cut-rate plan with minimal benefits.

Aetna Inc. officials thought people would be better off with at least a basic health insurance plan than no coverage at all.

Apparently, many of the 43 million uninsured think otherwise.
But industry observers fault the plan's poor benefits and lack of coverage for catastrophic illness, and say the absence of a major promotional campaign from Aetna has hampered its success.
Aetna Low-Cost Health Plan Falters The Associated Press May 10, 2000

"It's horribly ironic," said Paul Menzel, a professor of philosophy at Pacific Lutheran University in Tacoma, Wash. The care of the poor once was supported by the wealthy and the insured, but now the opposite is happening, he said. "It is the people who are most provided for, not the people who are least provided for, who get the benefit of cost-shifting," Professor Menzel said.
(some doctors) found an answer with patients outside the managed care system, like those with fee-for-service plans in which the patients pay their own bills and are reimbursed by an insurance company. But the uninsured also are outside the system, and have no one to negotiate for them. So they end up charged the higher prices, too. Medical Fees Are Often Higher for Patients Without Insurance New York Times April 2, 2001

Although it has "always" been difficult for individuals who are ill to purchase health insurance in the individual market, even applicants who do not have "serious health problems" may not be able to obtain coverage or afford available plans, USA Today reports. HEALTH CARE MARKETPLACE Individual Insurance is Costly, Difficult to Obtain, USA Today Reports Kaiser Daily Report August 2001

With job prospects looking bleak for her husband, Melissa Carel said she believes they are one step away from being uninsured, a plight faced by 13 percent of Georgians under age 65, or about 1 million people, according to the Coverage Project, which is being conducted under a state planning grant from the U.S. Department of Health and Human Services.
Although almost all firms with more than 100 employees and 71 percent of firms with 10 to 24 employees in Georgia offer health insurance coverage, just 35 percent of firms with fewer than 10 employees provide it.

Cost was a reason for not providing coverage, according to 71 percent of respondents who don't offer insurance, and 61 percent of companies that offered coverage in the past reported dropping it since 2000.

Eighty-three percent of employers who provide coverage reported that their premiums had increased during the past year.
Another finding was that 4 percent of Georgians interviewed reported that either they or someone in their household had declared bankruptcy in the past four years due to high medical costs.

"Having insurance is not just a public policy debate out there in never-never land," Ketsche said. New data gives in-depth look at state's uninsured Atlanta Business Chronicle - April 28, 2003

The first and most overwhelming problem is that no less than forty-four million of our people have no form of health benefits coverage whatsoever.
Professors David Himmelstein and Steffie Woolhandler (New England Journal of Medicine 336, no. 11 [1997]). They concluded that almost 100,000 people died in the United States each year because of lack of needed care‚ three times the number of people who died of AIDs.
But the problem does not end here, with the uninsured. An even larger problem is the underinsured, that is, people whose health benefits coverage is inadequate
But where the cruelty of the system reaches its utmost is among those who are dying. Among the terminally ill, 39 percent indicate that they have ‚"moderate to severe problems‚" in paying their medical bills. No other major capitalist country comes even close to this level of inhumanity"
The Inhuman State of U.S. Health Care by Vicente Navarro (opening address at a seminar sponsored by the medical and public health students of the Johns Hopkins University, held there in 2003.)

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HMOs and Medicare

Until about 1996 Medicare did not differentiate between the roles of funder and purchaser. It acted as both. During the last few years Medicare recipients have been encouraged to select an option to join an HMO for which Medicare paid or contributed. HMO's initially competed for these patients but after a while there was reluctance. Medicare patients proved to be generally less healthy. They were unprofitable. HMO's started dropping contracts with Medicare patients.

Cherry picking, the selection by an HMO of Medicare patients on the basis of wellness or sickness is illegal in the USA. For an insurer healthy patients are profitable, the sick costly. There are reports that indicate that cherry picking of healthy patients by most HMO's occurs in a variety of ways which cannot be prevented. Inquirers are for instance asked about their health and illness before they are given information and advice. This can then be tailored to encourage or discourage. HMO marketing is concentrated in fitness centres and gyms where the elderly are healthy and do not drink or smoke. Pubs and nursing homes are a no no! While cherry picking is illegal, regulation, as is so often the case simply cannot cope with the intricacies of the real world.

The consequence is that Medicare has paid the HMO's to care for the healthy where they can make a profit. Medicare is left paying for the care of the less healthy and the sick - the big costs.

An investigation also showed that HMO's failed to properly inform and educate Medicare patients so that they did not know what they were entitled to and did not make claims.

I have argued that when the pressures generated in a social system and the ideas which motivate users are not congruent with the outcomes desired then those in the system will inevitable push the limits and find loopholes which enable them to respond to the pressures. This has a lot to do with what Graeme Samuel calls starting points and I have variously called paradigms, frames of understanding and metaphors. Basing your planning on the wrong starting points is a serious design fault. This is exactly the problem with managed care and with Samuel's model. This is why they work for the market but don't work for patients or society.

There were problems when President Clinton pushed Medicare covered seniors to join HMOs paying the extra out of their pockets. In spite of this failure, president Bush is once again in 2003 addressing the problems in funding Medicare by pushing patients to join HMOs and relying on market competition.

One of the big problems for seniors has been that Medicare does not cover drugs and the costs of these is climbing steeply. The attraction of HMOs was that they covered drugs. HMOs have had a bad habit of increasing charges and reducing coverage for drugs only after their recruiting drives among Medicare patients. This is called "bait and switch".

HMO advertising and promotions meant to attract Medicare beneficiaries mainly target healthy senior citizens, leaving out younger disabled people who are eligible to join, a new study finds.
HMOs that enroll Medicare beneficiaries get a fixed payment from the government for each patient, regardless of how much health care they need.

Past studies have shown that the private health plans reap a windfall from the government, partly because they tend to attract beneficiaries who are healthier than those who stay with traditional Medicare, in which the government directly pays each medical bill. HMO Advertising Leaves Out Disabled New York Times July 14, 1998

Health Net, the third-largest managed-care plan for seniors in the state, is pulling out of the market in 10 rural counties by New Year's Day.

The reason: Rates paid by the government are too low to cover projected increases in the cost of healthcare for the elderly.

Health Net's withdrawal after an aggressive push into the market begs the question of whether others will follow. Some industry observers see a run on the bank that could leave seniors without an HMO option -- or having to pay for it for the first time. HMO BAILS ON SENIORS; COSTS RISE BUSINESS JOURNAL SERVING GREATER SACRAMENTO; JULY 17, 1998

When a number of managed care companies announced recently that they were pulling out of some markets for Medicare HMOs, several employers were forced to scramble at the last minute to replace plans offered to their retirees. What seemed like such a good idea-managed care for retirees-is evolving into an administrative nightmare.
But the health insurance industry, after quickly entering the Medicare market, is retreating A change in the reimbursement method offered to HMOs by the federal government spurred several managed care organizations, including Oxford Health Plans, United HealthCare Corp and Aetna IS Healthcare, to announce they were closing plans in some markets.
The Fading Medicare Market. CFO, The Magazine for Senior Financial Executives February, 1999

Nearly 7,000 Polk County residents lost their HMO coverage Dec. 31 when all the HMOs serving Medicare recipients left Polk County. Those insurers included Aetna Health Plan of Florida, Cigna HealthCare of Florida, Humana Medical Plan Inc., PCA Health Plans of Florida and United HealthCare Plans of Florida. MEDIGAP DEADLINE IS THURSDAY The Ledger (Lakeland, FL) March 2, 1999

In an effort to cut its losses, Aetna Inc. said it plans to stop offering HMO coverage to seniors in several cities next year.

Aetna, the nation's largest health insurer whose stock has slumped in recent months, said that a "substantial'' number of its 670,000 Medicare health maintenance organization members will be affected. Aetna Cutting Medicare HMO Coverage Associated Press April 28, 2000

Medicare managed-care plans--often the only way low- and middle-income seniors can afford comprehensive health care--will more than double in cost next year for millions of older Americans.

Seniors nationwide who were lured into the program over the last decade with promises of free coverage with unlimited access to prescription drugs will face premiums in 2001 as high as $179 a month and, in some cases, a limit of just $500 per year for medications.
More than 6 million of the 40 million Medicare recipients in the U.S. receive coverage through HMOs.

Health plans said as early as July that they would raise premiums and lower benefits, citing what they said were inadequate payments from the federal government to cover the cost of providing care.
Everywhere else, the premium hikes and benefit reductions present a double blow to seniors, who learned earlier this year that a number of HMOs are dropping out or cutting back participation in the program. Nearly 1 million Medicare recipients will either lose their managed care coverage or will have to switch to a new plan.

"This is really a bait and switch," said Jamie Court, who heads the advocacy group Consumers for Quality Care. "People joined HMOs to get the prescription drug benefits, and those benefits dried up. Now we're seeing premium increases that add insult to injury." Average HMO Medicare Rate Set to Double Los Angeles Times Sep 16, 2000

The pullout of Cigna Corp. and United HealthCare Complete marks the end of Medicare Plus Choice in Charles County, a nationwide program started in 1997 and promoted by the federal government as a way for Medicare enrollees to lower their costs and increase health care options.
The 1,000 people affected by the pullouts can return to the traditional Medicare plan, Barclay said, or they can supplement that coverage with a private Medigap policy.
Charles HMOs to End Low-Cost Medicare Plans Washington Post September 28, 2000

another attempt to push Medcare patients into HMOs
 Private health insurance plans began lobbying Congress today for major changes in the Medicare drug legislation passed just three days ago.

Without increased subsidies and more stability, they said, few private plans will enter the Medicare market, and the legislation will not work as intended.
Under the legislation that the Senate and House passed on Friday, Medicare would sign contracts with up to three preferred provider plans in each region of the country. Those plans would provide drug benefits along with a full range of medical services. The Bush administration has indicated it might designate 10 regions.
"Rather than picking winners and losers," Ms. Lehnhard said, "the government should let the market decide."

Ms. Ignagni said, "Congress should let Medicare beneficiaries vote with their feet."

The House and Senate bills would create an option for Medicare beneficiaries, encouraging them to enroll in preferred provider organizations like those that serve millions of working-age Americans. Contracts between Medicare and the plans would normally run for two years, too short a term to guarantee stable markets, the insurers said.
Health maintenance organizations have participated in Medicare for more than 15 years, but in the last five years, many have pulled out, saying payments lagged far behind costs.

Ms. Ignagni said she was lobbying Congress to increase payments to H.M.O.'s under the existing Medicare+Choice program. Those payments would be a benchmark for paying the new private plans, starting in 2006. Private Health Insurers Begin Lobbying for Changes in Medicare Drug Legislation New York Times July 1, 2003

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Doctors and managed care

I left my job as a medical reviewer for Humana's national market, to become the medical director of a 35,000 member HMO. Later, my work as a medical director in a hospital and as a physician executive at Blue Cross/Blue Shield of Kentucky convinced me that the place made no difference. Whether it was non-profit or for-profit, whether it was a health plan or hospital, I had a common task: using my medical expertise for the financial benefit of the organization, often at great harm and potentially death, to some patients.
I am the evidence that managed care is inherently unethical, in the areas of both medicine and business. - - - - I discovered that my experiences are standard practice and quite ordinary for the managed care business.
We have created a monster system, one in which among other transgressions, a physician can receive a high income for doing the reverse of the profession. Instead of delivering care, a physician can be significantly rewarded for denying it. What matters if individual patients are harmed or killed, if the professional is true to a higher mission for society?

The other group with relatively little power in the USA are the individual doctors who enter contracts with HMOs, or who have arrangements with the corporate providers who provide the facilities where they work. They have limited control over the contracts and arrangements. They are buffeted by pressures from both sides, pressures to place their own and corporate financial interests ahead of their duty to the patients. Only when they unite under their association or in class actions do they gain power - but the association does not negotiate contracts with HMOs for them.

Even though most doctors don't like health maintenance organizations, the prospect of fewer of these managed-care plans surviving through 1999 isn't likely to make them happy.

Following a year of poor financial performance, HMOs began consolidating last year, a trend analysts are certain will continue.

That's a threatening scenario, industry analysts say, to physicians and hospitals used to dealing with a fragmented health-insurance industry made up of many HMOs and other managed-care plans. Their only protection, some say, may be to start combining themselves to gain negotiating leverage. HEADACHES FEARED FROM DECLINE IN NUMBER OF HMOS Chicago Tribune December 23, 1998

In an attempt to gain market power and so protect their own and their patient's interests doctors banded together to form their own HMOs or joined Physician Management companies. These it was claimed gave doctors the power of numbers and market share so enabling them to negotiate with purchasers and secure enough money to provide good care for their patients. The only problem was that good care is not competitive. Either they bargained away the interests of their patients or they went under. Doctors are at the coal face and know exactly what is happening to their patients. There was a limit to what they could do and the endeavour failed. Most of the companies went under.

Doctor-owned HMOs, touted by medical societies and physician groups as the answer to for-profit managed care, are falling far short of their ambitious early goals, mainly because of a lack of capital. 1997: THE YEAR IN REVIEW Modern Healthcare Dec. 22, 1997

Typically individual doctors signing contracts with HMOs were paid a fixed sum for each patient and they were required to pay for specialist referrals and all tests from this. Unscrupulous doctors who did not investigate their patients properly starved and those who did were constantly out of pocket. In addition doctors were barred from giving patients information and they had to get permission from corporate "gatekeepers" before commencing treatment for which the HMO would have to pay. The system was geared to foster and reward ruthlessness and greed in the practitioners. In addition the continual pressure on payments forced doctors into fast food quick turnover care - called increased efficiency. The morale of the profession and their enthusiasm was undermined. When this happens care suffers. The prime interest of doctors becomes the generation of enough capital to get out.

Constant disputes between doctors and HMOs over the contracts led to doctors resigning or changing HMO's. HMOs were notoriously slow in paying their bills causing some doctors to walk away. Doctors who did not please their corporate masters were delisted. Both doctors and patients were caught up in corporate trading and market practices. The result was that patients would suddenly find themselves without a doctor, and their care would be disrupted.

 Thousands of Massachusetts doctors and nurses are urging colleagues around the nation to join forces and fight the pressure to treat ''patients as profit centers,'' a practice they say is undermining US medicine.

An article titled ''For Our Patients, Not for Profits,'' appears in today's Journal of the American Medical Association over the names of 2,300 nurses and doctors. It calls for health care professionals to unite in defense of patients' rights to choose a physician and to have access to care, no matter how sick or how poor they are.

''The soul of our profession is being taken from us and from our patients,'' said Dr. David U. Himmelstein, one of the founders of the Ad Hoc Committee to Defend Health Care who helped to draft the article, and an associate professor of medicine at Harvard. Doctors, nurses condemn for-profit care Boston Globe December 3, 1997

Less than a year before his death from pancreatic cancer, Cardinal Joseph Bernardin, the Archbishop of Chicago, addressed the American Medical Association (AMA) House of Delegates at the AMA's Annual Meeting in December 1995. - - - - - - -, a man who undoubtedly had access to the best medical care available was concerned for the care that the rest of the country was to receive in the future. - - - Cardinal Bernardin touched on what he termed the "moral crisis" facing medicine today, particularly with respect to doctors.
Cardinal Bernardin articulated what all of us know, but few will talk about: the doctor-patient relationship is, at its heart, a moral covenant between physician and patient. More importantly, however, he identified what most have only begun to recognize: the onset of managed care in America has steadily and increasingly attacked the moral center of the doctor-patient relationship, in effect precipitating a "divorce" between doctor and patient. By interfering with and constraining this relationship between patients and doctors, health maintenance organizations (HMOs) have made the two no longer accountable to each other, all the while standing back and claiming that they have nothing to do with medical decisions. If managed care chooses to impose the many restrictions and constraints on the relationship between doctor and patient that it currently does, then any and all overseers and administrators causing the interference should be held to the same standard as doctors. Cardinal Bernardin was completely correct in his call for a return to the application of a high moral and ethical standard for doctors, but that standard needs to be required of all participants in the health care delivery system.
Irreconcilable Differences: Why the Doctor-Patient Relationship is Disintegrating at the Hands of Health Maintenance Organizations and Wall Street Pepperdine Law Review 1998

First question: Is your doctor still with your health insurer? Oxford, which built its reputation on attracting highly regarded physicians, has already been cutting doctors' fees--and is seeing defections as a result, according to benefits consultants and doctors, who cite heavy patient loads, late payments and less money. "It was a tactical nightmare running a practice," says Dr. Laura Popper, a New York City physician who quit Oxford earlier this year.

Second: Is your doctor committed to staying put for the next year? In most cases, you can change health plans only once a year. Your doctor can leave Oxford anytime by giving 30 to 90 days' notice. Don't assume you have nothing to worry about if your doctor is listed in plan materials or even on the insurer's Website. "Changes might not show up in directories before open enrollment," says Barry Barnett of benefits consultant Kwasha/Global HR Solutions. CAN YOU KEEP YOUR DOCTOR? MONEY September 01, 1998

Dispute with NYLCare could bankrupt pioneering physicians group The decision by a major insurance company to exit the Maryland Medicare HMO market threatens to put the Baltimore area's largest doctor group out of business. Doctors Health Inc. is in a court battle to keep NYI,Care Health Plan from walking away from a multimillion-dollar deal in which Doctors Health agreed to provide care to thousands of Medicare patients under NYLCare's health maintenance organization. Doctors Health in trouble Baltimore Business Journal October 9, 1998

In the biggest rebellion yet against a health insurance company, more than 400 doctors in Dallas have terminated their contracts with Aetna Inc.'s health maintenance organization, and Aetna has retaliated by cutting off their access to all its Dallas patients.

As a result, nearly 30,000 patients covered by Aetna must accept doctors who remain under contract to the company. If the patients choose to remain with the insurgent doctors, they face paying them cash for their care, at least for the three or four months it will take the patients to sign up with other companies.

The patients are caught in the crossfire over disputes between America's fourth-largest health insurance company and one of the numerous doctors associations that have sprung up around the United States to help doctors build contracting influence against the insurance companies. 400 Doctors in Dallas Quit Health Plan International Herald Tribune (Neuilly-sur-Seine, France) October 22, 1998

After years of escalating hostility and mistrust, two large physician practice organizations located in Dallas have terminated their HMO contracts with Aetna U.S. Healthcare, -- - - -. In return, Aetna has invoked its "all products policy," which requires physicians to participate in all of Aetna's products in order to participate in any. And in the case of the larger physician organization, Genesis Physicians Practice Association, Aetna has sent letters threatening to bring in the Federal Trade Commission for an antitrust investigation of the 560 physicians. Managed Care Showdown in Texas PR Newswire January 27, 1999

Joan Carroll, a retired schoolteacher in Arlington, Texas, says she had to wait more than three months last year before she could be treated for acute stomach pain and dangerously high blood sugar levels.

The reason? The medical specialists she needed would not take her as a patient because, she said, they were embroiled in a business dispute with her insurer, Aetna U.S. Healthcare.

Ms. Carroll, 57, was eventually told by doctors that she had pancreatic cancer; she started chemotherapy last April. When a surgeon finally examined her, he said the tumor was so large that it could not be operated on. Insurers Moving to Limit Doctors' Contract Choices; Some Patients Affected in Resulting Disputes The New York Times February 8, 1999

Two of the state's largest HMOs, HealthNet and Blue Shield of California, have terminated their contracts with a large Bay Area physicians' group, forcing 2,650 families to choose between switching doctors or switching health plans.

Over the past two weeks, the two HMOs said they will soon stop paying for their members to visit doctors who receive their insurance payments solely through the BayCare independent practice association.

BayCare processes claims and payments for 280 primary care doctors and 600 specialists serving 65,000 patients in San Francisco and San Mateo counties. Feud Erupts Between HMOs, Doctors' Group; HealthNet, Blue Shield drop deal with BayCare The San Francisco Chronicle FEBRUARY 11, 1999

Aetna U.S. Healthcare escalated its public-relations battle with a Louisville physicians organization yesterday by writing directly to patients in a full-page advertisement in The Courier-Journal. And a company spokeswoman said the health insurer will not change its stand on the key point in dispute, which threatens to force thousands of people to change doctors or health plans.

The Physicians Inc., a management organization that recommended last month that the 1,800 Louisville-area doctors it represents drop Aetna's health plans as of July 3, fired back with a letter intended for publication in The Courier-Journal.

The dispute is over Aetna's policy of requiring doctors who sign up under any of the company's plans to accept all of its plans. Other insurers allow physicians to sign up only for the plans in which they want to participate.
Dr. Frances Weinstock, a partner in Associates in Family Medicine, said her eastern Jefferson County office is leaving Aetna because of the all-products requirement. She said doctors don't want to accept Aetna's HMO plan, which pays a fixed monthly amount per patient regardless of the care they actually require.
Aetna turns up heat in squabble with area doctors In a full-page newspaper ad, health insurer says it won't change its stand to require doctors who sign up under any of the company's plans to accept all of its plans The Courier-Journal (Louisville, KY.) April 29, 1999

When does lying make you more trustworthy? When you are a physician tricking a health insurance company into approving treatment for a patient.
In July, for example, the Kaiser Family Foundation reported that physicians routinely give misleading statements to insurance companies in order to secure patient reimbursement for treatments the physicians believe to be necessary. And, the study found, most physicians believe that, if such lying did not occur, substandard care would be routine, because insurance companies are so loath to approve expensive treatments.
Doctoring the Truth The New Republic NOVEMBER 15, 1999

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Nurses and managed care

The intense bargaining between HMOs and providers forces the providers to cut costs to the bone and beyond. The major cost is staffing - nursing staff. It is not surprising therefore that a ruthless commercial system should ruthlessly prune staff and that the system would not confront the consequences for patients. The nurses are the people who have exposed most of the problems in care at corporate facilities.

Some HMOs like Kaiser run hospitals for their members. The validity of the nurses complaints about Kaiser hospitals is borne out by the serious problems identified by state inspectors.

In a survey of 750 nurses in the United States that was released Thursday by RN magazine, 76 percent of respondents said staffing cutbacks put their patients in danger. One in three said their patients are endangered every day because of short staffing. In a similar survey conducted last year, 84 percent said the cutbacks put patients in danger.

Nurses blame hospitals' increasing desire to turn profits for causing the problems. They say hospitals are cutting staff, adding non- nursing duties to nurses and using more unlicensed assistive personnel (UAP)--who cost less.
In California, anger over nursing staff cuts and wages boiled over into a series of one-day strikes in 1997 and 1998 in the KAISER PERMANENTE (Oakland, CA) chain. In recent years, Kaiser has eliminated many registered-nurse positions in Northern California in an attempt to cut costs, California Nursing Association spokesman Carl Bloice said. At the same time, the number of patients it serves has increased significantly, he added.
RN Survey Says Many Believe Patients are Hurt by Cutbacks Medical Industry Today February 19, 1999

Ms. Townsend and nurse Annie Hamilton are a chronic pain to University Hospital administrators because they dare to say publicly what many nurses and some doctors say privately: overworked, understaffed nurses can't give patients the care they need. As HMOs bleed health care for savings, hospitals have cut where it hurts. Experienced nurses are quitting, or being replaced by poorly trained care extenders who can make fatal mistakes.
They feel demoralized, tired of fighting the managed care system that is making nurses an endangered profession. Nurses are afraid of being labeled troublemakers or the "B'-word, Ms. Hamilton said. They're just trying to get through the day.
Ms. Hamilton said the steady loss of experienced nurses is devastating to patient care.
Nurses hurt but HMOs feel no pain The Cincinnati Enquirer February 21, 1999

The California Nurses Association will strike five Kaiser Permanente facilities in the San Jose area on Sept. 8 and 9.

Some 1,200 registered nurses will walk out of Kaiser hospitals in Santa Clara and Santa Teresa, and clinics in San Jose, Milpitas, Mountain View and Gilroy. They are protesting "new cuts in RN staffing that could further erode patient safety and threaten RN licensure,'' the CNA said. CNA to strike Kaiser facilities over nurse staffing cuts Modern Healthcare Friday, Aug. 29

The CMA (California Medical Association) continues to have major concerns as to the amount of health care funds that are being used for administration or placed in the profit column rather than providing for the care of patients," CMA president Dr. Frank Staggers said in a prepared statement. HMO profit margins rise 70 percent Sacramento Business Journal - April 10, 2001

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The patients

The person who has least power in this system of powerful antagonists is the individual patient. Any market power possessed is trivial. Not surprising the patient is squeezed and the care given suffers as a consequence. They are traded in corporate deals. Their ties to their doctors are arbitrarily broken by commercial deals.

Each of the many competing corporate layers is intent on funding marketing, administration and the other competitive practices needed to keep them in business. They must generate profits to service the massive loans used for mergers, to reward executives handsomely, and to pay the shareholders on whose support their survival depends. If they do not behave in this way they go under. The amount passed to the next layer in the system steadily diminishes so that often less than half of the money intended for the care of patients actually gets spent in this way.

HMOs vet clinical decisions to decide whether they will allow treatment. The patient who usually has not paid herself is caught in a process where every other participant is under extreme pressure to limit the care given to her so that they can make a profit. It is little wonder that she is distrustful. Her role as a customer is very limited and in this world of corporate power and corporate righteousness the individual is almost powerless.

To justify understaffing and deskilling the corporations claim to operate more efficiently claiming that this improves care as well as increasing profits. There are limits on what can be gained through efficiency. The multiple layers of competing corporations create not only the most complicated health system in the world, but the most expensive, and the most inefficient in providing care. The sick patient is a helpless victim of this.

Vast numbers of citizens cannot afford health insurance and consequently have no bargaining power. As a consequence the poor are charged far more than those wealthy enough to purchase insurance from an HMO. Many simply get no care at all as they can't afford to pay for it. While some sectors of the population receive excellent care, others receive almost none. The overall levels of health and care in the USA rate poorly when compared with other developed countries. Instead of the rich subsidising the poor, the poor have no choice but to subsidise the rich - not uncommonly selling their homes or entering bankruptcy as a consequence. Large medical bills are one of the commoner precipitants of individual bankruptcy in the USA.

But the soft-spoken Redlands widow has become the accidental activist, the human face on the frustration millions of Americans feel about managed health care.

She took on a corporate Goliath - Aetna Health Care of California - and stung the giant in winning a $120 million jury verdict that some experts say could force overhauls of American medical care. Quiet widow sends very loud message; Teresa Goodrich is pleased her $ 120.5 million verdict against Aetna proves "something great can come out of something so horrible." THE PRESS-ENTERPRISE (RIVERSIDE, CA.) January 24, 1999

A judge on Monday let stand a jury's $120.5 million judgment against Aetna U.S. Healthcare for its refusal to pay for a stomach cancer patient's medical care recommended by the HMO's own doctors.
"We are gratified that the court has allowed the jury's message to be sent to Aetna,'' said Mrs. Goodrich's attorney, Michael J. Bidart. "Our hope is that this message will lead to desperately needed HMO reform so that all Americans may have equal rights under the law.''
$120.5M Aetna Verdict Upheld The New York Times March 29, 1999

The number of complaints lodged against health maintenance organizations and upheld by state investigators has risen sharply in recent years, according to a report released yesterday by the New York City Public Advocate, Mark Green.

The study, as reported in The New York Post yesterday, detailed complaints including delayed payments to doctors and hospitals and denial of coverage for patients deemed to have pre-existing health conditions. The number of complaints jumped to 1,391 in 1997 from 219 in 1992, the report said, and it charged that the State Insurance Department failed to fine all but a few of the violators. Report Cites Sharp Increase in Complaints Against H.M.O.'s The New York Times January 25, 1999

Kaiser Permanente will put its 38,000-member Charlotte, NC health plan up for sale and pull out of the market to focus on its Raleigh-Durham-Chapel Hill market, where Kaiser currently has some 80,000 members. It will be the second HMO in five months to leave the highly competitive Charlotte market, following Maxicare Health Plans Inc., which was unable to find a buyer and will shut down operations in March 1999. Revolving Doors for North Carolina HMOs Medical Industry Today January 29, 1999

Thanks to HMO managed care, capitation, and the financial and occupational need to change medical plans, it is difficult for patients to establish an ongoing, caring relationship with a physician.

In the processs, patients with legitimate complaints, even at times those suffering from abdominal pains, stroke symptoms, and vertigo, are being turned away from adequate emergency room treatment.

In those cases where patients demand treatment, they are given two options: a referral to a pain clinic or to a psychiatrist. Many doctors do anything to avoid the administering of costly diagnostic tests, even if on occasion those tests could detect life-threatening conditions. Defending patient rights The Boston Globe March 9, 1999

It has come to this: Bring your own nurse. Even in the best hospitals, patients and their families are turning to private nursing help to supplement care from staffs that are often short-handed and over-worked. As hospital nurses focus their efforts on patients in crisis, private "sitters" are there to tend to the more personal needs of patients, and provide some of the TLC services of yesteryear.

Hiring a private-duty nurse or nurse's aide brings peace of mind to patients and their families, say its proponents. It can also be a hedge against substandard care, adding an extra pair of eyes and ears to prevent errors and injuries.
"When patients go to the medical floor, I advise a private duty nurse," said New York neurosurgeon Jamshid Ghajar, who treats people with serious head injuries. "The biggest effect on the patient is the nurse. If you have good nursing care, you have significantly better outcomes."

Even Consumer Reports on Health, in an article headlined "Avoiding Hospital Blunders," has this advice: "If you can afford it, consider hiring a private-duty nurse."
Lower reimbursement rates from managed-care plans and government programs have pressured hospitals to cut expenses and trim staffs. Patients tend to be sicker and older. That leaves fewer nurses to deal with more needy patients and more complex therapies. One consequence is that families are turning to sitters.
"What do people do who don't have resources?" asked Berta Ledecky, his wife. "Where are we going with health care [if] you can't go into the hospital and count on the care?"
When the Hospital Staff Isn't Enough Washington Post January 7, 2001

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The ERISA legislation

Due to problems in the motor car insurance the Employee Retirement Income Security Act (ERISA) legislation was passed in 1974 to protect insurers from legal liability resulting from their insurance practices. The HMOs and the health care insurers fell under the umbrella of this protective legislation. They could not be held liable for the consequences of their denial of care. The only resource for those injured was to act against the doctors who consequently carried all the risk when HMOs denied care.

Growing community anger created a political divide with the community demanding that HMOs be excluded from ERISA, and the whole corporate community lobbying frantically to prevent this. The judiciary were highly critical about the injustice of the ERISA laws when they were forced to throw out court actions against HMOs.

When loopholes in the law were encountered juries responded savagely with massive punitive penalties which the judges upheld on appeal. The largest was a record US $120 million awarded against Aetna to the wife of a patient whose husband died after he was denied treatment for his cancer. The protection given by ERISA seems to have waned as public anger rose. Loopholes in the law have appeared, judges have been more willing to try cases and some states have passed legislation opening up the legal options.

Michelina Bauman was born May 16, 1995, was discharged from the hospital the next day and died of an undiagnosed infection the next.

Steve and Michelle Bauman's account of their heartbreak, including testimony before the U.S. Senate and network TV appearances, helped sway government officials nationwide to end "drive-through deliveries'' and require insurers to cover a minimum 48-hour hospital stay after birth.
Now the Baumans hope one more retelling -- this time in court, in a groundbreaking malpractice suit against their HMO -- will change managed health care even more.

A recent shift in federal court interpretations has given the Baumans and about a dozen other plaintiffs the chance to sue their health insurers under state malpractice laws, breaking through the immunity from lawsuits which a legal loophole has given employer-sponsored health plans.
The 1974 Employee Retirement Income Security Act (ERISA), meant to guarantee that employees get the benefits promised them, was interpreted as exempting such plans from lawsuits claiming harm from denial of benefits.

For the 60 percent of Americans insured through an employer, this meant they could not sue for compensation if an insurer's denial or delay of treatment led to death or complications.

But now plaintiffs' attorneys are fashioning lawsuits accusing managed care companies of providing poor-quality care, rather than just denying a particular treatment.

A few federal judges have decided those cases can proceed in state court; the Baumans got that ruling just two weeks ago.
Howard Shapiro, a New Orleans lawyer who represents employers' interests in Employee Retirement Income Security Act litigation, said managed-care companies are doing what employers asked: holding down costs by controlling how care is delivered.

Critics counter that that amounts to practicing medicine, and sometimes to putting profits before patients. Couple Sues HMO for Malpractice New York Times April 12, 1998

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Some problems in managed care

The rising costs of health care, the pressure from employers to cut costs, the financial burdens of consolidation together with the technology boom caused a fall in profits and a flow of cash away from health shares. The discontent of the doctors and a rising tide of public anger demanding legislative protection and an end to ERISA sent shivers through the share market. All this seemed to peak in about 1998.

The buying and selling of health-industry assets, as fungible commodities, intensified. In the meantime, traditional for-profit entities such as medical-device and drug companies continued to thrive. In the early part of the decade, the performance of health care stocks exceeded that of the market as a whole.

In the case of HMOs, the proportion of members who were enrolled in investor-owned health plans increased from 42 percent in 1987 to 62 percent in 1997. - - - - - However, all segments of the health care industry and profession, even those with a sense of mission very different from that of for-profit enterprises, found themselves in a new world where the pursuit of market share, the development of referral networks, the search for profitable admissions and subscribers, relentless cost cutting, and other practices pioneered by shareholder-owned firms came to predominate.
The decline in the value of health care stocks was the result of several factors. First, competition itself, the promised source of greater efficiency and cost containment, intensified to the point where profit margins were seriously narrowed. In addition, managed-care companies and the government succeeded in holding down payments to hospitals. The biggest payers -- Medicare and Medicaid -- made serious budget cuts.
In the case of HMOs, pressure from payers to hold the line left most managed-care companies in a position where costs were rising faster than premiums. The medical loss ratio -- the percentage of the premium dollar actually paid out in health care benefits -- increased for most managed-care companies and eroded profits. Contracts with Medicare, a big favorite of the industry in the mid-1990s, in some respects proved too profitable and resulted in a backlash. Widespread "cherry picking" and profiteering by the more aggressive HMOs caused Congress to cut the Medicare-payment formula, leading in turn to an industry pullback.
As a result of all these trends, health care stocks have been transformed from Wall Street's darlings to Wall Street's stepchildren.
The American Health Care System -- Wall Street and Health Care by Robert Kuttner The New England Journal of Medicine -- February 25, 1999

Premium increases in 1998 couldn't staunch the flow of red ink inConnecticut's HMO industry, as health plans together lost more than $36.4 million on $2.8 billion of revenue. STATE HMOS BLEED RED INK THE HARTFORD COURANT April 16, 1999

On the contrary, I discovered that my experiences are standard practice and quite ordinary for the managed care business. This fuels my work in ethics. The greatest irony to me is how the words "quality" and "outcome" have come to be industry buzz words, yet neither are ever applied to the managed care practice itself. We have enough stories of maleficence by managed care to fill tomes, and yet we continue to allow the industry to claim that these occurrences are simple anecdotes. As long as we accept that rationale, we sanction a system that is functioning with virtually no checks and balances -- ethical or legal.

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Not for Profit :: example Kaiser Permanente

- - - - , even with such high-profile debacles as those of Columbia/HCA and Oxford, the broad shift of health care from the nonprofit sector to the for-profit sector shows no sign of a reversal. The market transformation of what was once a sacred calling continues apace. If anything, as competition intensifies and profit margins narrow, there is a more intensive search to find profitable niches. This, in turn, puts more pressure on clinicians. Indeed, though Wall Street firms and investors may have had their fingers burned, virtually all the trends that frustrate physicians and consumers alike are continuing, as a result of the stepped-up pressure to contain costs and restore profitability.

Wall Street's Effect on Nonprofit Enterprises

In this climate of intensified cost-containment efforts and escalating competition, there have also been serious setbacks for many nonprofit enterprises. Kaiser Permanente, which booked its first annual loss in 1997, continued to lose money in 1998. Health Insurance Plan (HIP) of New Jersey, one of the remaining full-service, prepaid group health plans, found itself overburdened with wholly owned clinics. In November 1997, HIP struck a deal to have a for-profit partner, Pinnacle Health Enterprises, deliver most of the actual care for a fee of 91.5 cents of each premium dollar received by HIP. But Pinnacle disastrously miscalculated the costs involved, and both entities went bankrupt, leaving 194,000 New Jersey enrollees in limbo and physicians and hospitals holding uncollectible debt. The American Health Care System -- Wall Street and Health Care by Robert Kuttner The New England Journal of Medicine -- February 25, 1999

The problem for not for profit organisations is that in the competitive marketplace they have no choice but to compete aggressively and adopt the same practices as for profits if they are to survive. They can no longer continue to behave like a not for profit and serve the community. They must serve themselves and compete. Many responded to this problem by converting to for-profits and assuming marketplace structure and practices. They could then argue about balancing their responsibility to shareholders rather than members.

This is not the Blues' year. This month, a state court judge rules that St. Louis-based Blue Cross and Blue Shield of Missouri violated its legal status when it moved most of its business into a new for-profit subsidiary in 1995. It is believed to be the first court ruling to address the legality of converting a not-for-profit Blues plan into a for-profit enterprise, a trend sweeping the nation's Blues plans.

Later in the year, Indianapolis-based Anthem Insurance Cos. is sued by the state of Kentucky, which seeks to reclaim $230 million the state says Anthem illegally pocketed from its acquisition of the Kentucky Blues plan in 1993. Connecticut, where Anthem also operates a plan, quickly follows suit, seeking $550 million. And Blue Cross and Blue Shield of Ohio loses its national Blues name and trademarks rights after its failed attempt to transfer assets to Columbia/HCA Healthcare Corp.1997: THE YEAR IN REVIEW Modern Healthcare Dec. 22, 1997

The largest not for profit HMO is Kaiser Permanente. During the early 1990's Kaiser's Permanente's financial position was deteriorating and so were its practices as it sought to contain costs and generate a big enough profit stream to buy more market share to keep it competitive.

Healthcare companies "all have to behave similarly because they're all competing against each other. An economist would say Kaiser is no better and no worse. It's just a better target," Given says. WHICH IS THE REAL KAISER?: IS THE NATION'S LARGEST HMO A MODEL OF COST-EFFECTIVE, QUALITY CARE OR A GREEDY MEDICAL FACTORY THAT ENDANGERS ITS PATIENTS? Modern Healthcare Aug. 25, 1997

Kaiser consequently has operated exactly like the for profit corporations and has a poor reputation with groups of bitter critics. A damning review in Texas found that it had repeatedly refused patients treatment when they were entitled to it. The report recommended a fine of US $3 million but Kaiser was fined only US $1 million without admitting guilt. It attempted to suppress publication of this report on a legal pretext.

Kaiser also ran some hospitals of their own. In California a state review found that two Kaiser Hospitals gave inadequate care and endangered patients lives. A major factor was deficiencies in staffing. The pharmacy lost two thirds of its staff and were unable to provide a service. Nursing staff and the unions had complained repeatedly and in vain about these problems. Kaiser were forced to close these hospitals. There were further complaints about emergency room delays and improper care in other Kaiser hospitals in California but I do not know the outcome.

Kaiser also ran its own "neutral" arbitration system to mediate disputes about care, but it did not disclose in its advertisement that this was administered by Kaiser employees. A judge in California found that there was ample evidence that Kaiser had not lived up to its agreement for a fair arbitration system. In one case Kaiser delayed the arbitration process well beyond the times specified in the agreement until the patient with cancer had died because they would then have to pay only 50% of the damages.

Kaiser's conformity with competitive business practices has made it one of the most hated on the HMOs perhaps because the community expects more. On the one hand it is a villain but on the other it does seem to make some effort to meet its obligations. A study comparing the hated Kaiser Permanente with the tolerated and supported National Health System in Britain (Brit Med J. 2002:324:135-143) showed that Kaiser patients received better access to primary care, to specialist services and to inpatient treatment. Whether this is a plus for Kaiser or an insight into the problems of a government system squeezed by politicians and government bureaucracy. My complaint is not about not for profit rationing which is what Kaiser does but about the marketplace context, the lack of transparency and community involvement in rationing and the distrust and suspicion which the system market fosters.

Many extracts from press reports on this web page refer to Kaiser and describe the allegations made about it. Those below are only some of them. Note the way in which the public emphasis has shifted away from community responsibilities to a focus on commercial issues and competitive market activity. The company's morality seems to be suspect. The consequences for some of its members are apparent.

Financial performance

Kaiser Permanente said Friday that its hospitals and health plan operations will post a $270 million loss for 1997, the first loss in its history, and significantly higher than the $50 million loss predicted earlier. Kaiser said it will raise premiums and is considering divesting money-losing plans in the Kansas City market, New England, North Carolina, Ohio and Texas. NEWS AT DEADLINE Modern Healthcare Feb. 16, 1998

Despite its efforts to stem losses this year, the giant managed-care company Kaiser Permanente is on track to match or top last year's $266 million loss, MODERN HEALTHCARE has learned.

Senior officials at Oakland, Calif.-based Kaiser said the not-for-profit has been unable to stop the hemorrhaging. KAISER LOSSES MOUNT: MANAGED-CARE GIANT'S RED INK COULD MATCH OR TOP '97 TOTAL Modern Healthcare Oct. 12, 1998

Increased market focus

Last October, the 12 medical groups serving Kaiser Permanente Health Plans announced the formation of a subsidiary called PermCorp to explore for-profit business ventures. It was a big move for Kaiser, which pioneered not-for-profit HMOs.

Now, in another move called "revolutionary" by a Kaiser spokeswoman, the physician groups, which serve Kaiser exclusively but are independent of the health plans, are organizing into a national federation. A physician source told Outliers that Kaiser docs want to regain some leverage with the health plans, which didn't involve the doctors in deciding recent deals.

After years of sitting on the sidelines while other HMOs merged, Kaiser recently bought a plan in New York state and one serving the District of Columbia area. Kaiser also plans to affiliate with Group Health Cooperative of Puget Sound in Seattle.

The doctors aren't about to be upstaged. In a recent ad in the Wall Street Journal, PermCorp announced it's looking for a project manager for its New Venture Development Group unit. The ad seeks someone to "work directly with physicians and managers - - - - to identify, evaluate and implement new business ventures." The ad said "experience in launching new business or products (and) venture capital" would be a plus. Sleeping giant awakens. Modern Healthcare March 31, 1997

Kaiser is considering acquisitions in all the markets where it operates to maintain "strong, sustainable positions" in integrated healthcare, says Jim Williams, senior vice president of strategic development.

It also wants a presence in other major markets such as New York, Chicago and Florida. Kaiser may make one other acquisition this year, he says.
New frontiers. Kaiser also has begun overseas activity. Kaiser Permanente International was formed in October 1996

Bloomberg News/Hayward Daily Review reports that "Kaiser made more progress than expected in cost cutting last year, especially in hospitalization and referrals to outside hospitals, one of the main areas that caused losses to balloon in 1997." Inability to control costs was particularly pronounced in California, where enrollment far exceeded Kaiser's ability to treat its members. The company was forced to farm out many patients out to other facilities, "where it wasn't able to monitor costs as closely as in Kaiser facilities."


In 1998, Kaiser sold its unprofitable Texas health plan and plans to do the same with a money-losing plan in Charlotte, NC. The company, however, "reaped profits" from plans in Hawaii, Ohio, the mid-Atlantic states and Raleigh-Durham, NC.

This year, Lawrence said, Kaiser expects to take losses in the Northeast, but hopes to cash in on its California and Kansas City plans KAISER: HOPES TO BE BACK IN BLACK THIS YEAR Health Line January 29, 1999

Quality of care - doctor's contracts - discrimination

Kaiser Foundation Health Plan of Texas' worst public relations nightmare came to life last week.

State senators demanded and received a critical insurance department report that the HMO had kept under wraps for weeks.

The lawmakers got the report April 22 after learning that Texas Attorney General Dan Morales determined it didn't violate state confidentiality laws. The report was immediately distributed to local news outlets, which featured the report's accounts of botched care at Kaiser facilities as well as what appeared to be the HMO's extraordinary efforts to suppress critical information.

According to detailed accounts in the report, "Kaiser denied and delayed payment of emergency care services - - - - failed to comply with quality assurance, quality improvement, peer review and credentialing programs and procedures resulting in an unacceptable disregard for quality of care issues."
Although Kaiser maintained the report should be kept from the public because it contains confidential patient information, no patients are identified in it. And to nonlawyers, the settlement might appear to involve a form of hush money.

In the settlement, Kaiser agreed to pay a $1 million fine and drop a lawsuit against the insurance department challenging the report. As part of the suit, Kaiser had won a restraining order in February preventing the report's release FULL PUBLIC AIRING: DESPITE KAISER PLAN'S EFFORTS, CARE MISTAKES MAKE NEWS Modern Healthcare April 28, 1997

HCFA has delayed releasing the full report on problems at two Kaiser Foundation hospitals in Northern California while Kaiser rewrites its response to deficiencies found in a validation survey. HCFA: KAISER'S REMEDIAL PLAN INADEQUATE Modern Healthcare May 19, 1997

To its supporters, Kaiser Permanente is what an HMO should be: an integrated and cost-effective healthcare delivery system that supports its patients, doctors, nurses and the practice of high-quality medicine.

To its detractors, Kaiser is an evil HMO empire, a medical factory that hoards money, mistreats doctors, skimps on nursing staff, suppresses negative information and endangers the lives of its patients.

Widely criticized. Despite these accomplishments, Kaiser has recently become one of the most maligned HMOs.

Reports in the media suggest Kaiser's vaunted system-based on an exclusive partnership with physicians-is unraveling under pressures to compete with for-profit plans. This view is based on widely publicized problems in two of its 12 divisions California and Texas.

Recent reports describe a powerful player fighting to suppress negative information and scrambling to correct problems in two California hospitals where patients died after long stays in emergency rooms and transport delays.
The California Nurses Association, which is fighting for wages and jobs, and Consumers for Quality Care, a Los Angeles-based group opposed to many HMO practices, generate a blizzard of commentary condemning Kaiser.

The California Nurses refused to join the landmark Kaiser labor pact. Quality of care is deteriorating at Kaiser, the CNA charges, and joining the pact-which would be dominated by Kaiser-would create a conflict of interest with nurses' role as patient advocates.
Kaiser's Texas plan made national news in spring when Texas Attorney General Dan Morales told lawmakers he had grounds to shut down the plan but that the issues couldn't be made public. Kaiser had won a restraining order keeping secret a negative state insurance department report on its operations.
California complaints. Following numerous complaints to the California Department of Health Services, a state inspection of Kaiser's Oakland and Richmond, Calif., hospitals in May found alarming deficiencies in staffing, patient transport, training programs and documentation.

Patients died after prolonged stays in emergency rooms and delays in being placed in critical-care beds. While making no definite finding that the delays caused the deaths, HCFA warned Kaiser to correct the deficiencies or lose its Medicare funding. Kaiser has since corrected the problems and received a clean bill of health from HCFA, although the CNA says problems remain.
The CNA says the problems at Oakland and Richmond "are endemic to the Kaiser system" and show that Kaiser is cutting staff without regard for human life. Kaiser is engaged in "medical redlining through hospital closures in communities with aging populations and high concentrations of working people and minority populations," the CNA says.
But doctors also are agonizing over increasing workloads, burnout, salary cuts and an uncertain future.

MODERN HEALTHCARE learned that some doctors in Kaiser's Northwest division feel the health plan is not paying their medical group enough to care for the growing number of enrollees and that physician turnover is too high. They think their medical group should try to get contracts with other payers. WHICH IS THE REAL KAISER?: IS THE NATION'S LARGEST HMO A MODEL OF COST-EFFECTIVE, QUALITY CARE OR A GREEDY MEDICAL FACTORY THAT ENDANGERS ITS PATIENTS? Modern Healthcare Aug. 25, 1997

The walkout is the nurses' fourth since their contract expired a year ago. The two-day strike that started Wednesday comes mostly over staffing levels.
The California Nurses Association, with roughly 7,500 nurses, says the health maintenance organization's cost-cutting tactics have hurt the quality of patient care.
Nurses on Strike in N. California The New York Times January 29, 1998

Kaiser Permanente, the state's biggest health maintenance organization, routinely requires its psychiatrists to prescribe psychiatric drugs to some mental health patients whom they have not personally examined, a practice that leading experts say endangers patients and violates professional codes of ethics.

State regulators are investigating complaints that Kaiser may be running afoul of long-established medical procedures by requiring psychiatrists to prescribe medications for depression and anxiety at the recommendation of nonmedical psychotherapists, such as social workers and social-work interns.
Based on complaints by Jensen and another Kaiser psychiatrist in Sacramento, the state Department of Corporations has begun investigating the practice, a department spokeswoman said.

State authorities are investigating whether Kaiser Permanente forces physicians in Northern California to issue prescriptions for antidepressants before they've seen the patients, an allegation that has already prompted a lawsuit by a former Kaiser psychiatrist in San Diego. State Probing Kaiser's Protocol for Depression; Prescriptions allegedly given without exams The San Francisco Chronicle APRIL 13, 2000

Governor Davis' Department of Corporations issued a $1 million penalty and a cease and desist order against Kaiser Foundation Health Plan on Friday night at 5 PM.

The fine, perhaps the most significant in state history against an HMO in a patient's case, arose from the death of Margaret Utterback, a 74-year old patient in 1996. She had a ruptured abdominal aortic aneurysm and was consistently refused access to care by Kaiser on repeated occasions. California Fines Kaiser $1 Million In "Midnight Action" NEWS RELEASE The Foundation for Taxpayer & Consumer Rights May 15, 2000
The nation's largest nonprofit H.M.O. agreed yesterday to revamp all its California health centers and policies to ensure that people with disabilities have access to the full range of health care.

The agreement will settle a class- action lawsuit, the first of its kind in the nation, that was filed last year against the health maintenance organization, Kaiser Permanente, on behalf of all its California members with disabilities. The lawsuit argued that Kaiser discriminated against disabled patients by giving them inferior medical care. Disabled Patients Win Sweeping Changes From H.M.O. The New York Times April 13, 2001

Problems with integrity - fraud

The California Supreme Court criticized Kaiser Permanente, the nation's largest health maintenance organization, for manipulating a supposedly neutral arbitration system under which clients file malpractice claims.
For the past decade, the court has broadened the scope of arbitration as an alternative to court suits and made arbitrators' decisions virtually unreviewable. But Monday's majority took a dim view of an arbitration system that was controlled by the company.

Justice Stanley Mosk, writing for the majority, said there was "ample evidence'' that Kaiser did not live up to its agreement for a fair arbitration system.
Engalla and his family filed for arbitration in May 1991. Unlike most HMOs, which refer disputes to an independent arbitration company, Kaiser runs its own system, in which each side picks one arbitrator and agree on a third panel member.

Despite repeated requests by the family's lawyer, who said the case was urgent because of Engalla's health, Kaiser did not choose its arbitrator for several months and did not agree on a third arbitrator until the day before Engalla died. Under state law, his death reduced the maximum damages the family could receive for emotional distress from $500,000 to $250,000.

Kaiser's promotional materials did not mention that the arbitration system was administered by Kaiser employees and also said a neutral arbitrator was to be appointed in 60 days and a hearing held in a reasonable time. In fact, the court said, one study found that it took an average of 22 months to appoint a neutral arbitrator and six months more to resolve a case. Court Broadens Suits Against HMO The New York Times July 1, 1997

Kaiser Permanente is unlike other HMOs in the state because it's a health insurance company that also has a doctors group, said Steven Fisher, deputy director of the state Department of Managed Health Care. Typically, HMOs contract with doctors.
The Foundation for Taxpayer and Consumer Rights, Consumers for Quality Care and the Steven Andrew Olsen Coalition for Patients' Rights sued Kaiser Permanente in San Francisco court on allegations that a company ad campaign inaccurately portrayed its doctors as unhampered by financial constraints on patient care.
The company also said its customer service employees are not receiving financial incentives to keep patients away from doctors. Kaiser Permanente had come under fire for a bonus it offered call center employees if their calls with patients averaged less than 3 minutes, 45 seconds and if they scheduled appointments for 15 to 35 percent of patients who called.

Kaiser Permanente said the bonuses were not intended to make it difficult for patients to access care, but were instead intended to reward good service. The company said it was a pilot program that has been discontinued. A court settlement will require Kaiser Permanente to disclose guidelines and financial incentives that influence the medical decisions of its doctors. Technology News 2003

In the largest Medicaid fraud settlement, Bayer agreed yesterday to pay the government $257 million and pleaded guilty to a criminal charge after engaging in what federal prosecutors said was a scheme to overcharge for the antibiotic Cipro.

According to documents turned over to the government by a whistle-blower, Bayer was coached in the scheme by a purchasing manager from Kaiser Permanente, one of the nation's largest health care organizations.

The fraud involved selling Cipro to Kaiser at prices lower than the company was charging Medicaid, in violation of a federal law that requires drug makers to give the Medicaid program the lowest price charged to any customer. To cover up the fraud, the Cipro bottles sold to Kaiser were relabled with Kaiser's name and given a different drug identification number.

In announcing the settlement yesterday, prosecutors in the United States attorney's office in Boston did not charge Kaiser with any wrongdoing. Prosecutors declined to comment on Kaiser yesterday and said the investigation was continuing. Bayer Agrees to Pay U.S. $257 Million in Drug Fraud The New York Times April 17, 2003

In the Bayer case, prosecutors said Kaiser and the two drugmakers played a scam pegged ``lick and stick'' in which drugs were relabeled to HMOs to avoid giving the government a best price on drugs. States Heat Up Medicaid Probes of Drug Makers The New York Times April 30, 2003

By 2003 the strategies have generated a profit but the concerns about its conduct remain.

Not only is Kaiser under public scrutiny for reporting high profits while raising costs to its members, but the HMO is also the focus of a number of ethical issues regarding treatment of their patients by placing profit over necessary health care.
Claims that Kaiser has neglected patients that come to their emergency room until they either leave or wait for extraordinary amounts of time while Kaiser members are seen first despite their medical condition are on the rise.
Kaiser's treatment of elderly and terminally ill patients has also been under heavy scrutiny for some time now. Dr. Charles Phillips, a former Kaiser physician turned patient rights advocate, states that Kaiser and others are training their physicians as "gatekeepers" who deny effective treatment to patients in order to increase the corporation's and the physicians' income.

Physicians in Kaiser are vested in the corporation's profit in ways that are unimaginable to the general public. Not only do they profit when the corporation profits, they are instructed how to limit care provided, even when patients are not the elderly or disabled, or even the chronically ill.
Ron Panzer of the Hospice patients Alliance, which was formed in 1998 as a nonprofit charitable organization remarks "Hospitals are now making sure the elderly, disabled or otherwise unworthy die by instituting futile care protocols that have nothing to do with the futility of treating a patient, as the name implies."
The book entitled "DEATH BY HMO" written by Dorothy Cancilla and published by Dedicated Press Publishers, appears to have more credence with each report of ever growing profits by the large Health Maintenance Organizations.- - - - -"-- This book uses the case to present a powerful object lesson about how Kaiser made medical decisions and how some of those decisions ultimately cause or accelerate the death of their patients."
Careless or Less Care? Kaiser's high profits give strong warning yet regulators appear to stand fast By Mike Fleming - Axcess Business News July 2003

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For Profit Managed Care: Aetna, its merged partners and its competitors

Aetna has been the most successful and the largest of the large for profit insurers and HMOs. Its acquired many of its competitors in a particularly aggressive burst of Pacman activity. It has been as ruthless in its dealing with patients and doctors as it has been in acquiring competitors. Among the concerns about the for profit HMOs including Aetna are the following.

Bending doctors decisions and freedom:- In the USA doctors either contract with an HMO or accept a large cut in income. If they are contracted they are included on the list of doctors whom the HMO's members can use. Should a doctor criticise the company publicly or displease it in any way (e.g. by pressing a patient's case too strongly) they can be simply delisted. This happened to Dr. Himmelstein when he wrote a critical article about managed care companies.

Doctors were forbidden in their contracts to tell patients about treatment options which the HMO responsible for the patient did not offer themselves. It was necessary to pass laws to stop this.

A variety of positive and negative payment systems designed to induce doctors not to refer patients to specialists or do tests were included in the contracts. For example doctors could be paid a fixed fee from which they would pay for any referrals and investigations. If they did none they pocketed the money. If they did several then they paid out of their own pockets. The payment had little if anything to do with what the individual patient needed.

Compromising care:- Dr. Peeno was employed as a gatekeeper approving and disapproving treatments. She was praised and promoted for refusing expensive treatment to a patient even though that patient died as a result. She resigned and described what happened to a senate committee.

The HMOs insisted on a number of short stay practices such as one day maternity hospitalisation and drive through mastectomies. Once again legislators were forced to step in and make this illegal, plugging the hole.

Governments have been forced to introduce laws which stop the HMO from forcing the patient to move from their own doctor, the one selected from a limited list supplied by the HMO, to another of the HMO's choosing right in the middle of an episode of care simply because it is cheaper for the HMO, the doctor has been delisted, or the business has been sold. This practice disrupted the whole clinical process.

HMO's wrote manuals specifying limits on treatment and the number of days a patient could be kept in hospital. These were not based on sound medical evidence and were enforced by nonmedical staff. One eminent doctor who had refused to take part in writing the manual and who had objected to the recommendations found himself listed as a co-author in order to give the manual greater credibility.

HMOs are accused of bait-and-switch, promising wide drug coverage during recruiting drives then removing drugs from their formulary soon after. Government had to legislate to stop this - another of the endless regulatory plugs for an inherently dysfunctional system.

Not surprisingly the world wide web and the press has been filled with stories of patients who have suffered because they were denied care or who were discharged when the doctors request for longer hospitalisation because of complications was refused.

The public fights back:- During the last 3-4 years HMOs have been the subject of large numbers of legal actions by individuals, by state authorities, by the medical profession and by the broader public. They have been notorious for the long delays in paying their bills forcing some court actions. Their relationships with doctors have led to repeated conflicts. Almost the entire health profession went to court against the HMOs because of their contracts. Aetna finally gave way agreeing to behave in a more responsible and ethical manner. I have not heard whether the other HMOs have followed this lead yet. A number of class action lawsuits have been commenced against the HMOs because of their denial of care. As far as I am aware these are on going.

There has been a massive community backlash. Television documentaries have criticised the system and even TV soapies have been built around the evils of the HMOs. Michael Moore organised a nationally televised mock funeral outside an HMOs offices on behalf of a patient who had been refused life saving treatment. The HMO backed down. The public's demand opened debate about a patients bill of rights. Most threatening for the HMOs was intense public pressure for repeal of the ERISA legislation.

The sort of legislation proposed by president Clinton and the democrats was watered down by the republican congress. Legislation is some of the states was more successful

The public backlash, the lawsuits and the threat to the ERISA legislation sent shivers through the share market. Aetna's stock value plunged. Aetna dumped its aggressive and unresponsive CEO and went into damage control mode.

These issues are illustrated by press extracts throughout this web page and the next. The main accusations against Aetna and other HMOs are set out in the extracts about court actions against the companies. The following few are representative.

Aetna itself ran into serious trouble when shareholders were paniced by the public outcry and anger at its aggressiveness. Its share prices plummeted and ts CEO was fired. It has since presented a more kindly facade and made positive noises about change. It is once again profitable.

Hospitals and physicians in New York complained loudly when Oxford Health Plans, the Norwalk, Conn.-based managed-care company, fell deeply behind in paying provider claims earlier this year.

The payment lags, which Oxford blamed on computer glitches, bought the company some bad press and stiff new payment terms imposed under a settlement with state Attorney General Dennis Vacco. But Oxford isn't the only HMO guilty of fiscal foot-dragging, industry sources say. At some HMOs, payment terms are being stretched well beyond 60 days.

The New Jersey Hospital Association, for one, says more than a third of claims submitted to HMOs have either not been acted on within 45 days or have not been paid within 60 days. PAYMENT PAST DUE: HMOS, HOSPITALS OFTEN SLOW TO SETTLE THEIR ACCOUNTS Modern healthcare Nov. 10, 1997

Taking preemptive action to stop "possible violations" of state law, the California Department of Corporations this week ordered six HMOs representing 8.7 million patients in the state to "stop deleting drugs from their formularies" and "restore scores" that had been removed since last October. In letters mailed this week, Corporations Counsel Brian Bartow also ordered the HMOs -- Aetna U.S. Healthcare of California, Health Net, Kaiser Permanente, Key Health Plan, Molina Medical Centers and United HealthCare of California --"to notify providers, pharmacists and enrollees that the drugs had been restored."
Some state officials are concerned that HMOs may "be engaging in a form of bait-and-switch: slashing their formularies after the end of so-called open-enrollment periods." Some suspect HMOs of reducing their formularies before a law takes effect July 1 that will "require HMOs to provide drugs for patients even after the drug is removed from the formulary" if it has been prescribed by a patient's doctor.

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The rising tide of public anger

If action by the customer ensures quality of care and reduces costs in health care then the customers have been inordinately slow in responding and doing something about it. Part of the problem of course is that health care consumers have no power in the marketplace. The consumers eventually did respond and en masse but only after enormous financial and social costs to themselves and to the system. The process created a community crisis and a challenge to what it means to be American.

When the response came it was angry and insistent, demanding legislative protection and above all else repeal of the ERISA legislation. Of all the issues the latter was by far the most disturbing for the HMOs. Juries had already shown the community's mood and awarded massive damages. The ability to sue would have opened the flood gates and the public were in no mood to be conciliatory. As in other health care sectors, the leaders of the managed care sector were oblivious to the problems and to their own failings. They displayed many of the personality traits so common in the industry, particularly a lack of insight. Investors were much more aware of the problems in the community and responded first.

Sharemarket response

The stocks of publicly traded healthcare companies fell with the volatile market last week, some just dipping below the surface and others hitting rock bottom.
While Oxford Health Plans became the poster child for hard-hit healthcare companies, other companies didn't fare too well, either:

Just months ago, national business headlines trumpeted Oxford Health Plans' innovations in the managed-care field.

But after last week's stock market shake-up, the cutting edge has turned into a cliff for the Norwalk, Conn.-based managed-care company.
The news came at the worst possible moment on Oct. 27, as Wall Street began its record 554-point dive. Caught in the downdraft, Oxford's stock price fell 62% to $25.88. By middaylast Friday, it had fallen further to $25.19.
OXFORD EXPECTS $68 MILLION LOSS Modern Healthcare Nov. 3, 1997

Taking a $103 million after-tax charge to increase medical claims reserves, Aetna U.S. Healthcare said its third-quarter operating earnings plunged 96% to $3.7 million from $93.5 million in the year-ago quarter TRACKING COSTS ALSO HURT AETNA Modern Healthcare Nov. 10, 1997

Public disenchantment

Managed care's nagging headache with public perception isn't getting better.
At the same time, a majority of respondents believe managed care has eroded healthcare quality. And a majority of people in managed care-some 55%-are anxious they won't get the best medical treatment when they're sick because managed-care plans focus on saving money.The irony is that even people satisfied with their own healthcare believe that managed care is doing bad things to others.

Some of the hottest, fastest-growing managed health care plans are turning out to be the ones that are hardly managed at all.

Unlike health maintenance organizations, which typically try to keep tight control over their members by requiring them to funnel all requests for specialized care through a single doctor, the minimal health plans try to keep costs in check mostly by persuading doctors and hospitals to agree to reduced fees.

The loosely managed plans, called preferred provider organizations, or PPOs, are not new, but their popularity is surging -- taking customers not only from the traditional unlimited fee-for-service plans but also luring people from more restrictive HMOs.
As more people reject the restrictive HMOs for the relative freedom of preferred provider plans, questions arise as to whether quality health care can be delivered at reasonable cost. Meanwhile, some HMOs that have tried to compete by being more flexible have run into serious financial trouble.
(Loosely) Managed Health Care Is in Demand The New York Times September 29, 1998

In a one-page letter sent this week to all members of Congress, the Santa Monica-based Foundation for Taxpayer and Consumer Rights said Aetna must be made to "behave more responsibly. "

"Aetna's lack of remorse and the unwillingness to accept responsibility in this case is a symptom of the company's larger defiance of civil society's mandates," the group's director, Jamie Court, wrote in the letter. "Such a company should not be entitled to federal contracts. "

The nation's largest HMO covering one out of every 10 insured Americans, Aetna was ordered by a San Bernardino County Superior Court jury on Jan. 20 to pay Teresa Goodrich $ 116 million in punitive damages. Cancel Aetna contracts with U.S., group urges; The request to Congress is in the wake of a $ 116 million judgment against the insurance giant. THE PRESS-ENTERPRISE (RIVERSIDE, CA.) February 11, 1999

A California jury in January awarded $120.5 million to Teresa Goodrich, who lost her husband because Aetna Health Care delayed approving an experimental treatment that might have saved his life. The award provoked Aetna's chief executive to declare that the jury had been swayed by a " skillful ambulance-chasing lawyer, a politically motivated judge and a weeping widow.'' (He later apologized to the widow.)

In truth, however, what the jury was giving Aetna and other managed-care insurance companies was a very expensive wake-up call, a message that it's time for some serious reappraisals.
In between these two powerful forces are doctors, hospitals, drug companies and other providers to whom policyholders want easy access but insurers want to limit access. And spurring on the health insurers to leaner operations are their shareholders, rightfully demanding a fair return on their investment.
But with the health insurers finally wringing out the last drops of excess costs from providers (some have rebeled and left the field), profit has dropped. To increase earnings, health-care insurers have raised premiums and co-payments and imposed more limitations on what procedures are covered.

The losers are, of course, those patients, like Mr. Goodrich, who suffer because they didn't receive proper medical treatment, due, the jury decided, to restrictions imposed by the man's health insurer. $120-million wake-up call Journal of Commerce April 22, 1999

In the latest legal attack on managed health care, a consumer advocacy group asked a California court this week to halt advertising by Kaiser Permanente, the nation's largest health maintenance organization, contending that the company's advertising recruited members by fraudulently portraying Kaiser's 10,000 doctors as not subject to financial constraints on patient care.

The civil suit, filed on Monday in San Francisco, seeks an injunction on the ads and unspecified monetary damages for hundreds of thousands of new Kaiser members under California's consumer protection laws. Group Sues to Halt Kaiser Permanente Ads The New York Times March 17, 1999

In an episode of the television series ''ER,'' a tough emergency-room doctor gives a $500 medication to a patient whose blood does not clot properly. A few days later, the man returns to the emergency room to complain that his health maintenance organization will not pay for the drug, insisting that he take a less expensive but also less effective generic medication instead.
This recent plot line on one of the most popular U.S. television programs, which is distributed worldwide, plays to and reinforces widespread frustration with the state of health care in the United States. It also helps explain why the House of Representatives voted resoundingly Thursday to grant patients a new set of rights to increase their clout against health maintenance organizations, including broad freedom to sue HMOs that deny them the care they want.

Justified or not, anger with managed care has penetrated American culture so deeply that it drowned out long and well-funded protests by insurance and business lobbyists.

Even for a country with ebbing faith in many of its basic institutions, managed care holds an exceptionally low berth in public esteem. Although medical evidence is mixed on whether people in such arrangements are better or worse off than others, only 45 percent of Americans believe that managed- care companies treat consumers well, according to one recent survey. In contrast, more than 70 percent give good ratings to car manufacturers, telephone companies and banks. Spectacular Rise in HMOs' Unpopularity Fuels the U.S. Cry of Patients' Rights International Herald Tribune (Neuilly-sur-Seine, France) October 12, 1999

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Court proceedings and fraud

In the USA the legislature is to a large extent in bondage to the corporate lobbies which fund their election campaign then employ lobbyists to channel their thinking and their legislation. It requires a very strong push from an angry electorate to counter this undemocratic weighting of power. Individuals and groups as a consequence drive their reform agendas through the courts which is why the HMOs were so threatened by the pressure to repeal the ERISA legislation. The HMOs like the providers, the doctors and the nursing home chains have been using all of their influence to block or limit the public's use of the courts. HMOs were also threatened by a spate of class actions taken by the same lawyers who had crushed the tobacco giants. These threatened to cripple the industry and scared investors.

Corporate chains have traditionally used the courts to silence their critics and destroy whistleblowers. The community and the doctors turned the tables and drowned the HMOs in lawsuits. Individual citizens employed lawyers to find ways around the ERISA laws. State attorney generals around the nation commenced court actions designed to stop HMOs rorting the others in the system and requiring them to pay their bills. Doctors across the nation banded together and launched suit after suit in states across the nation claiming the contracts with HMOs were interfering with their right to treat patients and damaging care for the community. Even shareholders got into the act. The extent of the litigation is an indication both of the extent of the problems and the general anger about them. The claims made illustrate the problems in managed care.


Meanwhile, U.S. Healthcare, a Blue Bell, Pa., unit of Aetna, agreed to pay $22 million to settle a class-action suit alleging that the company- - - -kept its stock price artificially high between October 1994 and April 1995 by withholding information about enrollment growth, premiums and medical costs.
FOR THE RECORD Modern Healthcare December 23, 1996


NYLCare is facing what appears to be the HMO industry's first malpractice lawsuit in Texas, filed by the family of a Fort Worth man claiming he was wrongly released from a psychiatric ward hours just before killing himself.
Fort Worth attorney George Parker Young said Plocica's psychiatrist wanted him to stay at the hospital up to two more weeks, but that a doctor for NYLCare's contractor, Merit Behavioral Care Corp., indicated the HMO would not pay for additional hospitalization.
Malpractice Suit Filed Against HMO The New York Times October 20, 1998

After her son was paralyzed from the waist down when a pickup truck ran over his bicycle, she won nearly $ 1 million from the negligent driver--only to have her HMO demand nearly 25% of her take.

When she refused to pay, the HMO sued. DeGarmo countersued. After five bitter years, she prevailed.

"What they were doing infuriated me," DeGarmo said. "Stephen won this minimal amount of money that he's going to need to take care of himself for the rest of his life . . . and they were trying to take it away."
The DeGarmos found it bad enough that their own health care provider would sue when their son faced the rest of his days in a wheelchair. What turned their distress into a major court case was that the HMO demanded payment of the full amount that Stephen's doctors and hospital had billed, not just the discounted amount that the health plan actually had paid them.

A 40%-50% Discount in Service Fees
"There is something offensive to a proposition that permits an entity to profit by its members' misfortune," Madden
(the judge) wrote. He called the HMO's practice of recovering from injured patients more than had actually been paid for their care "neither fair nor equitable nor right."

He turned over to a jury the decision of whether to award compensatory damages for pain and suffering, or punitive damages. The jury came back with a verdict of $ 4 million as compensation for the plaintiffs' "aggravation, annoyance and inconvenience" and $ 6 million in punitive damages. CONSUMERS HIT BACK AS HMOS COVET DAMAGES Los Angeles Times December 29, 1999

The couple who helped end ``drive-through'' deliveries after their 2-day-old daughter died are on a new crusade -- this time to hold HMOs accountable for their medical decisions.

Steve and Michelle Bauman hope to crack the shield of a federal law that has protected health maintenance organizations from lawsuits by patients who were harmed by the denial, delay or poor quality of care.
They're suing Aetna U.S. Healthcare, claiming its former policy of discharging newborns from hospitals after 24 hours led to the death of their first baby, Michelina, a day after she was sent home in May 1995.

Their testimony to Congress and the New Jersey Legislature, detailing Michelina's death from an infection that would have been detected in the hospital, led to a federal law and many state laws requiring a minimum 48-hour stay for newborns and their mothers.

Now the Baumans are trying to win financial damages from Aetna. In a precedent-setting ruling last June, the U.S. Supreme Court upheld a federal appeals court ruling that the couple could sue the HMO for malpractice in state court. They're preparing for a trial next summer.

Until now, HMOs routinely got state malpractice lawsuits moved to federal courts, where the most plaintiffs can recover is the cost of care denied them.
Other efforts seeking the same goal include pending federal class-action lawsuits attacking the way HMOs manage care, and attempts to pass federal and state laws giving at least 125 million patients the right to sue HMOs.

The House passed a Patients Bill of Rights this year, but it failed in the Senate by one vote. John Stone, spokesman for the House sponsor, Rep. Charlie Norwood, R-Ga., predicts it will pass early in the next Congress because more Republican senators now back it.

Seven states -- including California, Texas and Maine -- have passed such laws since 1997 and 27 others debated them this year, according to Molly Stauffer of the National Conference of State Legislatures. Many bills died or were withdrawn, but will be reintroduced in January, she said. A New Jersey bill passed the state Senate 38-0 but is tied up in the Assembly.
The current restrictions on lawsuits against HMOs are based on the 1974 Employee Retirement Income Security Act, or ERISA, which was interpreted in early court rulings as exempting all HMO plans sponsored by private employers from lawsuits claiming harm from denial of care. ERISA was meant to guarantee that employees get the benefits employers promise them.
Groundbreaking NJ HMO Case Proceeds THE ASSOCIATED PRESS December 3, 2000

In a decision that makes it easier for Medicare patients to sue their health maintenance organizations, the California Supreme Court ruled yesterday that the widow of an Orange County businessman was entitled to seek compensation under state tort law...
California Court Upholds Patient's Right to Sue an H.M.O. New York Times - May 4, 2001

State investigations and law suits start.

Riding the wave of anti-managed-care sentiment, investigators in two states are taking serious action against alleged managed-care fraud. That backlash is quickly spreading to other states.

In California, state regulators have punished a major health plan participating in the state's Medicaid program for mailing "false and materially misleading" marketing materials, according to California officials. The plan may be investigated by HHS' inspector general's office, they said.

In New York, state Attorney General Dennis Vacco has threatened to sue the HMO that prompted him to file an antitrust lawsuit in February against the only two acute-care hospitals in Poughkeepsie, N.Y.

The California plan, Long Beach-based Molina Medical Centers, - - - - . The plan was sanctioned by the state Department of Health Services this summer for allegedly sending falsified marketing letters to 22,000 of its enrollees in Southern California and engaging in marketing activities that violated state and federal laws as well as DHS guidelines and the state's Medi-Cal contract with Molina.
On July 15, state officials suspended marketing of and new enrollment in Molina for 60 days, effective in mid-August. Molina was also hit with a $6,000 fine, but those sanctions have been stayed until an administrative law judge hears Molina's appeal. A hearing is scheduled for Oct. 26.
Meanwhile, in the New York situation, state Attorney General Vacco alleges that Mohawk Valley Physicians Health Plan of Schenectady, N.Y., misled its members and denied them full access to mental health professionals included in the plan's official list of providers.
Officials at the Texas Department of Insurance told MODERN HEALTHCARE that they're investigating several HMOs over possible infractions. They declined to name the companies.

"We're looking at some issues with other HMOs," said Ron Dusek, a spokesman for the department, referring to an ongoing lawsuit against Kaiser Permanente.
Barbara Bisno, an assistant U.S. attorney in Miami, said her office is looking at disenrollment and re-enrollment practices at several HMOs. The plans allegedly dump sick patients and sign them up again when they're healthy.
"As we get more comfortable with managed care, we will engage in more cases," she said. "There's a good deal of fraudulent activity out there."

The Texas action

Texas was among the most active states in addressing the fraud in corporate medicine. Senators Mike Moncrief and Zaffarini ran the investigation which exposed Tenet/NME's practices in 1991. The company was prosecuted by attorney general Morales. This government team and Morales subsequently investigated and prosecuted and reached settlements with several of the large corporate health care providers.

It is revealing that a week before he retired Morales locked his republican successor into a law suit against the HMOs. There were concerns because some of the HMOs, including Aetna) were large donors to the republican election and that the new attorney general may have been involved. President Bush and his republican administration were far more lenient in dealing with health care corporations and his administration in Texas was notable for its reluctance to deal with health and aged care corporate problems. This issue is dealt with again later in examining how this action was settled.

Texas Attorney General Dan Morales sued six health maintenance organizations Wednesday, alleging that the HMOs illegally compensate physicians who limit the medical care provided to patients and penalize those doctors who do not. It may be the largest managed-care case in Texas history; three separate suits were filed just one week before Morales leaves office. The HMOs are: Humana Health Plan of Texas Inc., PacifiCare of Texas Inc., Aetna U.S. Healthcare Inc., Aetna Health Plans of North Texas Inc.,

NYLCare Health Plans of the Southwest Inc. and NYLCare Health Plans of the Gulf Coast Inc.
McCallister said the company did fine physicians for referring patients to other health plans that may provide better coverage but said that "that's largely focused on Medicare, and HCFA is aligned with us on this point." The physician isn't supposed to be in the business of selling and marketing a program, said McCallister. "Nothing in that prevents a physician from using all options in the clinical care of a specific patient," he said.

The Aetna suit also alleged that the company provided members with deceptive or untruthful information regarding coverage for emergency care and prescription drugs. In addition, the Aetna suit alleged that the contracts contained gag clauses that penalized physicians for communicating to members certain information regarding the Aetna health care plans. In October, however, Aetna revised its contracts, removing gag clauses from the documents. TEXAS ATTORNEY GENERAL SUES SIX HMOS BestWire December 18, 1998

Other state and federal suits and investigations

Superintendent of Insurance Neil D. Levin today announced that for the first time, the Department has levied fines against 12 health insurers and HMOs totaling $ 72,200 for violations of the state's Prompt Pay Law. The 12 companies have failed to pay undisputed claims and bills within 45 days.
News from NYS Insurance Department (NEW YORK) Business Wire January 11, 1999

The Securities and Exchange Commission review is the latest in a series of problems with the Prudential Healthcare acquisition, which took half a year to pass regulatory muster and is losing money at a rate equal to $ 175 million a year.

Aetna's shares have fallen by more than one-third in two months amid worries about the Prudential purchase, possible new restrictions on managed health care plans and the threat of class-action lawsuits against health insurers. SEC reviewing Aetna's accounting The Atlanta Journal and Constitution October 29, 1999

Maryland Insurance Commissioner Steven B. Larsen on Thursday fined more than a dozen health plans a total of $1.6 million for failing to comply with a variety of state consumer and provider protections.

Larsen also announced that UnitedHealthcare of the Mid-Atlantic would have to make good on millions of dollars in unpaid physician bills left behind by three of the plan's contractors, which have gone out of business. A state hearing officer upheld an order Larsen issued last December, in which he maintained that the plan is responsible for those debts, even though it delegated claims paying duties to the contracting provider organizations.
The state said that its targeted crackdown of non-compliant health plans resulted in consent agreements with four major health plans, including Aetna US Healthcare and United Healthcare of the MidAtlantic, and a private review agent for various violations.
The state also fined 11 HMOs a total of $375,000 for failing to provide annual updates of their provider directors to enrollees. Several plans did not give members lists of mental health providers, forcing them to seek referrals over the phone.
Maryland Fines HMOs $1.6 Million Reuters Health April 28, 2000

Attorney General Richard Blumenthal filed a federal class-action lawsuit Thursday against four major health insurers, charging the companies continually put profits over patients. The suit, apparently the first one of its kind, demands no money but seeks sweeping reforms of the industry.

"It's a cause whose time has come,'' said Blumenthal. "Abuses by HMOs have been a fact of life for years now.''
The suit accused the companies of failing to tell patients what drugs are covered in their plans; stalling payments to doctors and other providers; mishandling patient complaints; making arbitrary coverage decisions; and withholding information on appealing those decisions.
Blumenthal said the suit is the result of a two-year investigation into scores of patient complaints. Nearly one half of all complaints his office has received over the past several years are related to health care coverage, he said.
Conn. Files Suit Against HMOs Associated Press September 7, 2000

Florida's attorney general is investigating two of the nation's largest HMOs to determine whether the plans illegally denied or limited medical care.
Assistant Attorney General Keith P. Vanden Dooren told Reuters Health that the state is looking into the HMOs' claims processing practices "to determine how they might deny or reduce claims or ... not authorize medical treatment.'' The probe was prompted by a combination of complaints filed with the state Department of Insurance, interviews with witnesses, documents and media reports, he said.
Florida Probes Possible Illegal Actions by HMOs Reuters Health Thursday October 26, 2000

The class actions

As HMOs resort to increasingly aggressive business practices in the face of ever-shrinking profit margins, consumers at both the local and the national levels are banding together to challenge them. DeGarmo's saga and others like it offer a glimpse of what lies ahead in the bigger class-action lawsuits filed recently against such health care giants as Aetna U.S. Healthcare, Humana Inc. and California-based Pacificare Health Systems and Foundation Health.
In the larger class-action suits recently filed against the industry giants, plaintiffs and their lawyers are questioning other widespread HMO practices, such as paying bonuses to doctors who cut down on costly patient treatments, mandating that patients use prescription drugs on a limited list even when their doctor recommends an alternative medication and unilaterally altering physicians' contracts and payment schedules. As with the practice challenged by the DeGarmos, there are no federal laws directly governing such activities, and the courts have yet to rule on them.
CONSUMERS HIT BACK AS HMOS COVET DAMAGES Los Angeles Times December 29, 1999

For the third time this month, a team of lawyers has filed suit against Aetna Inc., accusing the nation's biggest health insurer of lying to customers about the ways it encourages doctors to limit the cost of health care.

The suit, filed Thursday in Superior Court in San Diego, is part of a wave of lawsuits planned against managed care companies by some of the country's most powerful lawyers. The new complaint was brought by some of the same firms that sued Aetna earlier this month in a Mississippi federal court.
"They have set up a system whereby the doctors benefit if they don't treat you," said Frederick Furth, a San Francisco attorney who is the lead lawyer in the case. Furth said Aetna entices customers with advertising promising high-quality care, "but they don't say, 'Oh, incidentally, pay us your premiums,but we're paying the doctors not to treat you.' "

The suit was filed by San Francisco attorney Fred Furth, who is part of a national legal syndicate that won millions of dollars in tobacco-suit settlements and who now has targeted health insurers.

These attorneys already have filed similar suits against Aetna and other HMOs in the federal courts.

In essence, these suits claim that health insurers are misleading customers by not disclosing the common practice of capitation. HMOs commonly pay doctors a fixed monthly fee of about $40 per patient. That fee must cover most of a patient's care, including visits to primary-care doctors, specialists and tests.

It usually does not cover hospitalization. The doctor gets the same fee from the HMO if the patients uses a lot of services or none.

The suit argues that patients aren't aware that these capitation agreements could give doctors an incentive to withhold care because the doctors get to keep any money left over after all of their patients have been treated and must pay for services that exceed capitation fees. Class-Action Suit Filed Against Aetna; HMO is accused of misleading patients on incentives for doctors The San Francisco Chronicle OCTOBER 29, 1999

Scruggs says that that HMOs are guilty of fraud and racketeering, because they put profits before patients. He has filed massive class action suits on behalf of the 32 million people represented by these companies.

"If it were any other industry that was promising what they promise and delivering what they deliver, they would not only be sued out of existence but prosecuted by every attorney general in the country," he says.

Scruggs terrifies the industries he confronts. His track record suggests that the fear is well founded.

Lawyer Scruggs took on Big Tobacco by putting together an armada of law firms and suing cigarette makers for the cost of smokers' health care. He was joined in the suit by his long-time friend, Mississippi Attorney General Mike Moore. Eventually other states followed. By the time the smoke cleared, Big Tobacco had lost.
Scruggs travels the country in private jets, making his case against HMOs. He has put together an army of law firms and filed suit against some of the biggest HMOs in America: United, Cigna, Pacific Care, Humana and Aetna.

"Many of them just practice garden variety consumer fraud," he says. "They promise to deliver quality health care, and they just don't deliver. They never have any intention of delivering.
Scruggs claims that HMOs also tell doctors how to treat patients and corrupt medicine by giving doctors bonuses to undertreat patients.

The federal class action was filed by Milberg Weiss and Drubner Hartley against CIGNA, Oxford, Physicians Health Services and Foundation Health Systems and others on behalf of a proposed nationwide class of all participants or beneficiaries of any of these defendants' employee benefit plans governed by ERISA. It seeks remedies under ERISA, including restitution, disgorgement and injunctive relief. The parallel action by the Connecticut Attorney General seeks injunctive relief.

As in the action filed by the Attorney General, the class action alleges, among other things, that these companies utilize undisclosed and arbitrary coverage guidelines to deny coverage, obstruct enrollees' access to medically necessary prescriptions, fail to respond to enrollees' inquiries and provide enrollees with confusing and contradictory information, fail to disclose essential information concerning coverage determinations and deliberately avoid prompt payment to healthcare providers for medically necessary services rendered to enrollees. National Class Action Filed in Conjunction with Action Filed by Connecticut Attorney General PRNewswire (SOURCE: Milberg Weiss Bershad Hynes & Lerach LLP) September 8, 2000

That panel ruled on Monday that several major class-action lawsuits filed against the nation's largest HMOs should be consolidated in federal court in Miami.

Judge Federico A. Moreno of the US District Court for the Southern District of Florida now presides over the cases, which target Aetna and Humana as well as Cigna Corp., Foundation Health Systems, PacifiCare Health Systems, Prudential HealthCare and United Healthcare. As many as 20 managed care lawsuits filed across the country may be consolidated. Florida Probes Possible Illegal Actions by HMOs Reuters Health Thursday October 26, 2000

A small group of HMO subscribers asked a US judge on Tuesday to certify their fraud claims against the nation's largest managed care companies as a class action that could represent in excess of 50 million people.
The plaintiffs allege the companies committed fraud by failing to tell customers they offered secret bonuses to doctors to deny certain types of healthcare to patients in favor of less costly diagnostic tests or treatments.

"They said things that are not true," Boies told Moreno. "We have not said it's wrong to give incentives to doctors. We've said it's wrong to give bonuses to doctors to deny care, and then conceal it."
Moreno's court is the stage for a host of lawsuits filed about 2 years ago by patients and doctors against the embattled managed care industry.
HMO Lawsuit Could Represent 50 Million People Reuters Health Jul 25, 2001

The doctor's (and Dentists) actions

The American Medical Association has filed a class-action lawsuit against HMO giant United Healthcare Corp. for reducing payments to thousands of New York doctors by using invalid data to determine reimbursement rates.

As a result, patients have been forced to pay higher doctors bills to make up the difference, the AMA says. HMO Accused of Underpaying Doctors AP Business Writer March 16, 2000

Two groups representing 7,000 Connecticut doctors filed a battery of lawsuits today against six large health maintenance organizations, claiming that the companies "systematically harmed" patients by arbitrarily denying crucial medical treatment and illegally withholding millions of dollars in payments they owe doctors.
Doctors Sue Health Plans Over Coverage NY Times February 15, 2001

The medical associations are seeking injunctive relief to end fraudulent and extortionate practices by the health plans, including:

  • Denying and delaying payment on legitimate claims for procedures patients need,
  • Forcing doctors into contracts that fail to cover the cost of patient care,
  • Utilizing financial criteria unrelated to patient care to deny claims,
  • Providing incentives to claims reviewers who meet arbitrary claim-denial quotas.

The amended complaint furthers arguments made previously by CMA that the managed care companies had defrauded doctors in violation of federal civil RICO (Racketeer Influenced and Corrupt Organizations Act) laws, violating the doctor-patient relationship. California Joined by Texas and Georgia Medical Associations in Federal Lawsuit Against Health Plans: Amended RICO Complaint Filed Today in Miami California Medical Association FOR IMMEDIATE RELEASE: March 26, 2001

Texas Medical Association has joined class action lawsuits that allege serious violations of federal anti-racketeering laws by two of the state's largest for-profit health plans, Humana and CIGNA. The association believes Humana and CIGNA have purposefully enriched themselves as part of a scheme to defraud physicians and their patients.
"Physicians from coast to coast are standing up to these investor-driven managed care giants and saying, 'Stop. You're spoiling our profession. You're hurting our patients. You're destroying the physician-patient relationship. Our duty lies in what's best for our patients, not in what's best for the insurance companies' bottom line,'" said TMA President Jim Rohack, MD.
He emphasized that the goal of the lawsuits is not to destroy HMOs, but rather to force the plans to manage care as well as costs, and to help rather than hinder physicians' efforts to provide high-quality curative and preventive medical care to their patients.
TMA joins lawsuits against managed care abuses Texas Medical Association Release May 3, 2001

The Florida Medical Association joins a class-action lawsuit claiming the health plans are violating federal civil racketeering laws and endangering patient care. The RICO suits name some of the country's largest insurers including Aetna, United Healthcare, CIGNA, Wellpoint, Humana and Pacificare. The previous lawsuits were filed by the California Medical Association (CMA), Medical Association of Georgia (MAG) and the Texas Medical Association (TMA).
AMA supports Florida in fight against health plan abuses AMA Media Relations For immediate release August 29, 2001

Moreno's court is the stage for a host of lawsuits filed about 2 years ago by patients and doctors against the embattled managed care industry.

He also has been asked to consolidate into a single class action the claims of an estimated 600,000 doctors who accuse the nation's largest health insurers of cheating on fees. The companies have argued in that case that the claims are too complex and varied to be lumped together. HMO Lawsuit Could Represent 50 Million People Reuters Health Jul 25, 2001

A federal judge blocked a deal to settle a class action lawsuit pitting Cigna Corp. against Illinois doctors. Judge Moreno granted an injunction sought by doctors suing big HMOs United Health Group, Cigna and others, claiming the health plans slashed fees arbitrarily and breached contracts. The court "can not turn a blind eye to the underhanded maneuvers Cigna took to obtain this settlement" Moreno wrote. Fed Judge Recognizes Underhandedness at Cigna :::: Everybody In Nobody Out, . . . the essence of Universal Health Care Received December 26, 2002

The American Dental Association on Monday filed a lawsuit in a federal district court in Miami alleging that six insurers violated federal racketeering laws by conspiring to delay and reduce payments to dentists, the Miami Herald reports.
The lawsuit claims that the insurers use automated claim-processing systems that "artificially reduce the amount paid" by substituting a code for services with lower reimbursements and by combining multiple treatments to reduce payments (Dorschner, Miami Herald, 5/21).


Wellpoint has agreed to pay $9.25 million to settle charges that its Blue Cross subsidiary in California defrauded Medicare. The company falsified audit information so that the government would believe that it audited more Medicare claims and cost reports in than it actually did. Criminality in Managed Care May 23, 2003 AP Newswires

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HMO Culture

As in other sectors of the health care marketplace the proponents of managed care and competitive market forces had no doubt that what they were offering was the right medicine. This was in spite of the nation wide anger at their conduct in the USA. Not only would it reduce costs but it would improve care. It would discipline and control the unruly medical profession. It would use Joseph Califano's insights to do so. Commercial success was proof of all their beliefs. The wild enthusiasm of some managed care advocates is illustrated in their rush to enter international markets addressed on the third managed care page.

Their lack of insight is reflected in their blindness to the consequences of their activities and their unwillingness to confront the reality of what was happening. This is reflected in some of the extracts on this web page. Dr Linda Peeno in her 1996 submission to a US congressional committee beautifully describes the patterns of thought developed and used by herself and her coworkers when working as gatekeepers, reviewing and refusing requests by doctors to treat patients. They did the most dreadful things, were rewarded for it and felt proud of themselves. She subsequently confronted her actions and went on to read ethics and philosophy. The submission is well worth reading in full and can be found on the www at <>. I have also quoted from her submission in explaining the theoretical approach I have used on these pages.

The morality of the culture is well illustrated by the enthusiastic claim that there were "silos of opportunity" in playing on the pain of foreign politicians and then providing them with corporate solutions. Being a corporate con man was good business. Also illustrative are attempts to hide the fact that what they were advising in other countries was managed care. Managed care's reputation had preceded them and it was difficult to sell. They believed that this reputation was unfounded. They were quite open about this deceit and saw nothing wrong with it. These matters are addressed on the globalisation of managed care page

Aetna's CEO, Richard Huber seems to be another example of the sociopathic corporate leader blinded by his own vision, success and infallibility. He aggressively administered a company which from all accounts cut costs, restricted care, constrained doctors and expanded without regard to its duty of care. It behaved in totally unacceptable ways. Huber played a major part in fueling the citizen and doctor backlash. When the company was in trouble and share prices were falling he rejected a generous takeover offer out of hand without consulting shareholders. Shareholders were forced to fire him. His successors were left to do a Columbia/HCA style mea culpa and desperately try to head off legislation and settle the law suits.

"Managed care" became an unquestioned ideology, whose values and assumptions pervade even medical education. Within this ideology, everything, even patient harm and death, becomes not only defensible but accepted as the cost of doing business. Presentation to the Romanow Commission on the Future of Health Care in Canada by Linda Peeno, MD Louisville, Kentucky USA May 31, 2002 (This is an outstanding review of corporate for profit medicine concentrating on managed care but the insights are as applicable to all market controlled for profit care. Dr Peeno writes from the heart of the corporate system of which she has vast experience. The full presentation is well worth reading )

Managed care advocates couch their claims of the "good" in grand ideology: those who perform this task empower themselves with their claim of creating a "new order." They have a vision for a social good, and are as fanatic in their pursuit of this as any group driven by the fervor of a righteousness cause. Although a leading textbook in managed care has fifty- two pages listed under the index heading of "capitation," it has only four for "ethics"! Every one of the references for "ethics" in this text discusses the concept as part of managed care's mission of rationing! - - - - - - - The author goes further to say that: "Managed care systems will be the best suited to ration healthcare...." Throughout this discussion, there is clearly the presumption that "managed care," as an endeavor itself, is above ethical scrutiny. This "system," which must not account to anyone for its own ethical philosophies and operations, claims the right to be the mechanism for the most serious of ethical decisions: determining who gets care.

I learned how easy it is to do many things diametrically opposed to everything medicine stands for, not only willingly, but often with great belief (supported by my peers and prevailing sociologic/economic/scientific assumptions of the organizational culture) that I was right and my actions were good. It was even easier when I was "rewarded" for such professional action.

A movie based on Dr. Peeno's experiences, called "Damaged Care" and including a scene showing her denying a patient's heart transplant, is coming out on Showtime in May. Laura Dern ("Jurassic Park") plays Dr. Peeno. Dern also co-produced the film. Dr. Peeno testified before Congress in May of 1996 about her heart transplant case and has been outspoken about the right to health care ever since. "As a physician working for Humana, I denied a young man a heart transplant that would have saved his life, and thus caused his death," testified Dr. Peeno. "No person or group has held me accountable for this, because, in fact, what I did was I saved a company a half a million dollars." "Humana's only concern was costs," says Dr. Peeno. Humana Medical Reviewer Admits to Denying Heart Transplant; Second 'John Q' Movie Starring Laura Dern Coming in May U.S. Newswire February 21, 2002

The ousted chief executive of Aetna Inc. -- who oversaw a 66 percent drop in the No. 1 U.S. health insurer's share price -- will get $3.4 million to leave the accident scene.

Richard Huber, forced out by the board last month as the stock hit an 8-year low, will receive 88 weeks' worth of his latest $2.25 million annual pay package, plus an office and secretary for up to a year, according to a proxy statement filed on Wednesday with the U.S. Securities and Exchange Commission.

During his stint at Aetna, Huber presided over progressively more disappointing results, largely caused by rising medical costs, problems with integrating acquisitions and worsening relations with doctors, who said the company did not pay bills on time. Aetna to pay ousted CEO Huber $3.4 million New York Times March 22, 2000

Aetna Inc.'s outspoken chairman resigned Friday, succumbing to intense pressure from shareholders who want the nation's largest health insurer to boost its ailing stock price and improve its relations with patients and doctors.

Analysts welcomed the decision by Richard L. Huber to step down, but warned the company has left unclear how it plans to overcome rising medical costs and lawsuits alleging that the company unduly restricts care to build profits. Aetna Replaces CEO After Stock Loss From NY Times February 25, 2000

Investors dumped shares of beleaguered Aetna Inc. on Monday, a day after the nation's largest health insurer rejected a $10 billion takeover bid and unveiled plans to split its health care and financial services businesses into two publicly traded companies.

"A lot of people had a lot of hopes for this takeover,'' said David Shove, an analyst for Prudential Securities. "A lot people are disappointed.'' Aetna's Plan Makes Its Stock Sink New York Times March 13, 2000

But in separate interviews Donaldson and Rowe also served notice that the new Aetna is still first and foremost a business, unwilling to yield to what it views as unreasonable -- and costly -- demands of doctors and customers.

Donaldson, 69, did not disguise his annoyance with doctors who have painted Aetna as the villain of the managed-care industry.
In the midst of this buying spree, Huber set a harsh, combative tone for the once-genteel company. He told an interviewer in 1999, for example, that a $120.5 million verdict against Aetna was the work of a "skillful ambulance-chasing lawyer, a politically motivated judge and a weeping widow." Huber later sent the California woman, whose late husband had been denied coverage of an experimental cancer treatment, a letter of apology.
Aetna's Unmet Claims : Insurer's Makeover Has Come Up Short On Promise of Change, Long on Lawsuits Washington Post February 25, 2001

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Executive Remuneration

Not only did Huber get a massive termination handshake but HMOs have been among those paying executives massive salaries, and bonuses. This is a social system which pays its servants big bonuses if they deny care and underservice citizens. These executives are citizens who make themselves immensely wealthy by preying on the vulnerability of other citizens.

The highest paid executives at 10 of the nation's largest for-profit health plans each made an average of $11.7 million last year, according to a report released Thursday morning.

Each of those executives also holds unexercised stock options worth an average of $68 million in 2000, it said.
"We think that people should clearly keep in mind when the industry claims the small cost of patients' rights will result in the sky falling...[that] they are lavishing huge compensation packages on their top executives and they are increasing our insurance premiums by 10%, 12%, 15%," he said.
Top HMO Executives Earned Millions Last Year New York Times (Reuters) June 22, 2001


Shareholder Response

Shareholders and independent directors typically look the other way as the companies they own respond to the pressures they generate by defrauding the system and misusing other citizens to give them the profits they demand. They only respond when this activity generates sufficient regulatory activity or the sort of backlash which threatens their profits. They shift blame to senior executives and replace them. They then pursue restructuring strategies sometimes creating new entities.

Aetna also said it would sell some of its overseas health care units and use the money to reduce debt and buy back stock later this year. Aetna wants to placate worried investors who have driven its stock price down, leading to the replacement of its chief executive late last month. Less than a week after that leadership change, Aetna confirmed reports that it had received an offer to discuss a takeover from Wellpoint Health Networks, a health insurance company based in California, and the ING Group, a Dutch financial services company.

Securities analysts said the announcements by the Aetna board were unlikely to satisfy investors who have been clamoring for a breakup of the company and sale of the pieces, possibly in an auction. Aetna Fends Off a Takeover Offer and Plans a Split New York Times: March 13, 2000

 Aetna, hurt by rising medical costs, several class-action lawsuits and cold relations with doctors and hospitals, said it plans to divide the company by the end of the year. It was unclear which business would keep the name of the company founded in 1853. Aetna's Plan Makes Its Stock Sink New York Times March 13, 2000
Aetna Inc.'s new chairman told disgruntled shareholders Friday that the nation's largest health insurer is not for sale. But mindful of dissatisfaction with the performance of Aetna stock, William H. Donaldson said he would consider any meaningful offers.
Last month, Aetna rejected a $70-per-share, or $10 billion, takeover offer from Wellpoint Health Networks and ING Group, saying it was inadequate. That move perturbed some big shareholders.
Aetna CEO Willing To Listen to Bids Associated Press Friday April 28, 2000

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