Preserving an Essential Balance of Conflict

The federal government, struggling to respect business realities while protecting medical quality, will limit but not ban the bonuses paid to some doctors for controlling costs. The new rules, announced Wednesday, apply only to the federal programs that cover elderly Medicare and low-income Medicaid patients, but their effect is bound to be wider.

Federal officials are already spinning the regulations as protection for the little guy. Said Paul Cotton, a spokesman for the Health Care Financing Administration: “We want to make sure that physicians cannot succumb to financial pressures. We want to ensure that managed care does not limit necessary care.”

In fact, the rules represent not a crackdown but a compromise reached after health maintenance organizations objected to federal regulations proposed in March. For instance, rather than banning bonuses and other incentives to doctors who save HMOs money by limiting services, the rules put at risk no more than 25% of an HMO doctor’s bonus income.

The rules continue to give doctors the economic incentive that has been the key to HMOs’ success at controlling medical costs, which since the 1970s had leaped far ahead of inflation. But they also reassure doctors who until now have faced the loss of most of their HMO income as a penalty for making expensive medical decisions.

This is a hard compromise but one that seems to be in line with public sentiment. For instance, in November voters in California and Oregon rejected measures that would have greatly toughened regulation of managed care.

Most voters, in short, seem aware that managed care works because it rations care. But while HMOs insist that their rationing decisions are based on “medical necessity,” the system for deciding which treatments will and won’t be covered is in fact far less scientific than the term might suggest. There is, for instance, no “scientific” way of determining which cancer patients should receive extremely costly bone marrow treatments.

Managed care pioneers like former Clinton advisor Paul Ellwood (who coined the term “health maintenance organizations”) are now working hard to find ways to make treatment decisions more scientific. The aim is to encourage HMOs to base their decisions on how well a particular treatment extends life span while preserving or improving quality of life.

Rationing care according to scientific criteria may seem cold, but it is the only pragmatic way of addressing HMOs’ inherent conflict of interest. A recent editorial in the New England Journal of Medicine captured this conflict well: “On the one hand, managed care plans pledge to take care of their enrollees, but on the other their financial success depends on doing as little for them as possible.”

It is clear that the new federal regulations, and no doubt others, are necessary to protect patients in this new medical world. But they must also retain for health maintenance organizations the freedom that has been key to their success at keeping health costs from once again spiraling astronomically.