Q & A : Will Giant HMOs Help Health Care? : An executive at Fountain Valley-based FHP says that there is still plenty of room for competition, and that consumers could benefit.
Mergers among the nation’s giant health maintenance organizations may enrich industry executives beyond their dreams. But will the creation of ever-larger industry conglomerates ever benefit the nation’s health-care system? How about the average American?
WellPoint Health Networks’ pending acquisition of Health Systems International, announced last week, would create the nation’s largest publicly held HMO.
If the deal between the two Woodland Hills’ industry behemoths proceeds, the combined company would have 4.4 million members and revenue of $5.4 billion. Certain Health Systems’ executives could become multimillionaires, reaping gains of more than 10,000% on their company shares.
The prospect of such astounding returns for executives raises questions about an industry that sells itself as a cost-saving missionary for the nation’s health-care system. But with more industry consolidations likely in store, observers wonder if bigger really will mean better for the nation as a whole.
William W. Price III, vice chairman and chief executive of FHP International Corp. in Fountain Valley, one of the industry’s largest HMOs, talked last week with The Times Orange County about the industry’s rapid changes and their likely effect.
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Q: Are there ethical issues surrounding the big dollars executives could pocket in a merger of WellPoint and Health Systems?
A: It looks like a lot of money, and it is, but I don’t think it’s an ethical issue. These are people who started up very small companies, most of them from scratch, and built their companies into a business that’s growing very rapidly and fulfilling an enormous need. And the value of their stock, along with that of all the other shareholders, did well.
Remember, that money didn’t come out of the (HMO) members’ pockets. It’s like any stock: It grows because the general marketplace puts a value on it.
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Q: Does industry consolidation among giant HMOs hold any benefits for the nation’s health-care system?
A: Look at California, where commercial rates are actually going down. There is great value to size in a market like this because if you have a large number of members, then you are able to negotiate favorable rates with physician groups and hospitals. You do that, of course, and then you can charge less to the community for health care.
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Q: But couldn’t the country wind up with a handful of extraordinarily large HMOs that quit competing on price?
A: I don’t think that’s likely. Look at some of the HMO combinations that have taken place in California. There are over 30 million people living in California, and the size of the membership base for these HMOs in California is still relatively very small. But many communities in the United States can support only one or two HMOs, just because of their size.
So, like any business, you could have some large players, but you’ll also have many smaller players who might be faster on their feet and more attuned into the local market. I believe that we are going to see more HMOs in the future, not fewer.
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Q: Won’t inflation in health-care costs take off again?
A: Right now, in California, you’re actually seeing a decrease in health-care costs. In most of the rest of the country, you are seeing increases, but at a very low rate. Those trends will probably continue for a while, as more and more people continue to select HMOs for their health care. But if you look down the road, at some point, you’ll get to a plateau, and health-care costs will probably go along with whatever the inflation rate is.
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Q: You’ve heard all the complaints consumers raise against HMOs: They can’t see the doctors they want, can’t get appointments, have trouble being approved for seeing specialists, even are denied coverage for emergencies. As the HMO industry grows, how will the average person’s experience change?
A: HMOs are big targets. If you want to compare the quality, outcomes and malpractice histories of HMOs, you can’t do that in a vacuum. You have to do that in a comparison to what the other alternative is. Recent studies say that HMOs’ quality and access are equal to or better than (conventional) fee-for-service care.
The HMO industry has also taken upon itself to begin to measure its outcomes and quality. The day will come that when you select an HMO, you’ll be able to compare different HMOs on a like basis. HMOs will have independent outside auditors come in, much like auditors in the accounting world, and give an opinion based on standard measurements from the health-care world.
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Q: What remains of the national effort to reform the health-care system? And how do HMOS fit in?
A: When the Clinton Administration came in, they were trying to attack what they felt were problems in the health-care industry all at one time. It’s like we were faced by this big killer whale. Now that the Republicans have come in and taken control of the House and Senate, we are, instead, facing a big school of piranhas.
The doors have been flung open to a wide range of various initiatives and bills that deal with little bits and pieces. A lot of that is happening at the state level now because the direction coming from the federal government was so poor that states felt that they couldn’t wait any longer. So, now the health-care industry is faced with hundreds of disjointed bills, many of which come to fill particular individual agendas.
I do believe, however, that Congress will come up with a bill that might eliminate coverage exclusions for people on the basis of prior health conditions. If that passes, it will be almost impossible for the indemnity insurance industry to compete in today’s marketplace. They would have to raise their rates significantly, and that would drive more people into HMOs.
