HMOs Are Far From DOA : Despite Their Numerous Problems, Health Maintenance Organizations Are Here to Stay


The financial troubles of Maxicare, at one time the largest for-profit health maintenance organization in the United States, do not mark the beginning of the end of the troubled HMO industry. Rather, Maxicare’s troubles merely clear the decks for the emergence of a strengthened movement in government and industry to force medical consumers into HMOs.

Given the intense political pressure from corporate America to reduce health-care spending at any cost, President Bush named as his top domestic health policy adviser Dr. William Roper, a strong proponent of HMOs for Medicare recipients. And Kevin Moley, who ran the Medicare HMO program in the Reagan Administration, has been nominated for Health and Human Services budget director.

These appointments should send a chilling message to millions of Americans: If you’re old or poor or have unpopular or expensive diseases such as AIDS or mental illness, don’t expect the government to open its checkbook on your account. It’s no wonder the Gray Panthers are concerned about what’s in store for our nation’s rapidly growing elderly population.


It was entirely predictable last summer for top Wall Street HMO analyst Kenneth Abramowitz to advise an HMO lobby group: “Corporate America must take freedom away from employees and cause some pain and agony. In my opinion, business should move employees lock, stock and barrel into HMOs.”

And just recently, Assistant Atty. Gen. Charles F. Rule warned an American Medical Assn. meeting that physicians who boycott HMOs in violation of antitrust laws “can go to jail.”

Never mind that the HMO concept, nurtured with government subsidy and promoted by advertising hype, has failed to deliver on 20-year-old promises of better quality care at more affordable prices. A powerful political constituency of big business, entrenched federal bureaucrats, foundation-supported think-tank gurus and ivory tower public health academicians wants HMOs to work no matter what. Forget about the realities of the uncertain, anxious world of sick patients and expensive modern technology.

But before being dragged into this bottom-line-oriented medical promised land, the hapless medical consumer deserves to know the truth about HMOs. Maxicare’s financial collapse should trigger a national examination of the HMO movement itself.

Corporate America began discovering long ago that HMOs failed to deliver promised savings. Companies such as Honeywell and J. C. Penney found out before most others that HMOs were just expensive health-care delivery systems with little or no specialized knowledge about who were the best or the most cost-effective medical providers.

The business community slowly learned what a RAND Corp. study concluded in 1985: HMOs have failed to significantly slow the rise in health-care costs. HMOs have had to provide sophisticated medical consumers with all the expensive high-tech medical miracles Americans expect and demand: bypass surgery, angioplasty, in-vitro fertilization, neonatal intensive care and kidney dialysis. Medical treatment was becoming increasingly expensive, and it was hard to cut corners without getting sued.

The early architects of the HMO movement never dreamed that medical science would become so successful in saving or prolonging life--and so costly. But that’s what happened in the 1970s as life expectancy rose at an unprecedented rate, and medical bills rose along with it.

Before long, the cost of one coronary bypass operation consumed eight years of HMO premiums in eight days. One dose of the blood-clot-dissolving drug TPA chewed up one year’s HMO premium in one hour.

And no matter what the theory, human illness remained impossible to prevent and difficult to predict. Caring for elderly patients with multiple chronic diseases was as uncertain and expensive for HMO doctors as for their fee-for-service colleagues. While HMO enrollment grew, terms such as “efficient,” “cost-effective” and “quality” remained impossible to define.

Promised efficiencies of scale didn’t materialize for the largest HMOs. Millions of patients and thousands of doctors couldn’t make Maxicare work. Neither could armies of accountants, investment bankers and corporate attorneys administering high-priced resuscitative efforts.

It was ironic and, at first, poorly understood that HMO behavior itself was destined to drive up employers’ premiums for traditional insurance programs. As younger, healthier workers joined HMOs, older, sicker workers stayed in the traditional plans, with their guarantee of access to trusted personal physicians and convenient hospitals. But this “rearrangement of the risk pool” caused necessary and predictable premium increases for those who were sicker with traditional insurance.

There was no need to invoke explanations of doctor greed and incompetence to explain the premium increases. But it was convenient to do so because it helped undermine public confidence in physicians, hospitals and traditional medical care systems and pave the way for the growth of HMOs complete with lavishly paid advertising executives, marketing experts and business consultants.

While fixing the blame for high health-care costs on the doctor and hospital supply side of the equation, HMOs themselves contributed to fueling consumer demand. A Pacificare Medicare HMO ad promised the equivalent of a medical free lunch: “They gave me an annual checkup without me having to ask for it. X-rays, lab tests and everything--all for $6.” Yet nothing was mentioned about the 3,000 taxpayer dollars paid each year to subsidize this illusion of free care.

In fact, hundreds of millions of premium dollars were diverted from patient care to advertising and marketing wars while 38 million Americans had no insurance at all. And many of those who acquired large market shares, such as Maxicare, soon faced the gloomy downside of paying the claims.

HMO managers quickly learned that not only did medical consumers want free care, they also wanted free choice. In an effort to remain competitive, HMOs began to loosen controls, allowing patients to request specialists and expensive diagnostic tests. This, in turn, made it impossible to control costs.

But the days of catering to medical consumers are about to end. What is dawning is the Age of the New Golden Rule: He who has the gold rules. In fact, some believe that the future for medical consumers will be controlled by only a handful of large insurance company-controlled HMOs. As government and industry seek to limit medical costs, what lies ahead may be a managed-care world where saving dollars is more important than saving lives.

DR, Sparky Le Bold / For The Times