Quality Is Now a Factor in HMO Care

This week’s extraordinary announcement by the UnitedHealth Group that it will let practicing physicians make medical necessity decisions is a tribute to the growing HMO accountability movement and the shift on Wall Street that it has provoked.

Only Wall Street could force the nation’s second-largest health insurer to heed patients’ concerns about unnecessary intrusion by HMO bureaucrats and to admit that corporate bureaucrats cost more than they save. Yet only the growing HMO liability movement could cause HMOs and their investors to be as serious about managing care as they have been about making profits.

UnitedHealth’s move comes as Wall Street is increasingly questioning how HMOs will weather a growing wave of class-action suits and new state laws--such as one signed Sept. 27 by Gov. Gray Davis--that hold managed health care insurers legally accountable for the quality of services that people receive. Suddenly, HMOs with healthy short-term profits have been downgraded because of concerns over the viability of their medical care delivery systems.

For the first time since investor-owned HMOs took hold in the early 1990s, quality of care is poised to become a basis for national competition in the market. The entire health system could save huge sums of money as untold human misery is avoided by timely delivery of needed care. Such a revolution, however, must be nourished by Wall Street, which should use its clout to force other HMOs to accept a market where quality matters.

The early signs are encouraging. UnitedHealth’s stock shot up after its announcement. Robert Hoehn, an analyst with ING Barings, said the higher stock price indicates investors’ belief that UnitedHealth’s change will “further insulate them from the risk of litigation.”

If investors are far-sighted, California patients will derive particular benefit from its new state HMO liability law. Quality will have to be a real factor in the state’s health market and not just a slogan. HMOs that fail to deliver good care will be likely to face expensive lawsuits, media exposure and long-term vulnerability in terms of market share. Investors, in turn, will scrutinize managed care companies more on the basis of long-term viability, not just short-term profits.

The California change comes after years of turmoil. Huge companies have taken the local, nonprofit HMO model and created national, investor-owned firms with a propensity to emphasize short-term profit over quality health care. In the mid-1990s, these public companies crowded out California’s nonprofit, doctor-run HMOs--then a gold standard for prepaid health care--in a frenzy of slashed premiums, big advertising budgets and skimpy care.

Years of investor indifference to quality have taken a toll on the California health care system. A July 1999 survey by the Kaiser Family Foundation found that 87% of doctors had experienced some denial of coverage for a health service needed by a patient during the past two years, 95% said managed care had increased paperwork, and 72% said it had decreased the quality of care.

For many Californians, premiums are rising in the double digits because of HMO mismanagement, greed and waste. By contrast, in Texas, where HMOs have been liable for punitive damages since September 1997, premium increases have been consistently less than the national average because HMOs have deferred to doctors’ treatment requests and delivered appropriate treatment in a timely way, when it is less costly.

Until this year’s introduction of HMO accountability for the quality of services in California, the investor-controlled market was not really free. Good companies were not rewarded for delivering high-quality services, and bad companies were not punished for withholding it. Because employers, who are often more concerned about cost than quality, typically pick health plans and pay premiums, patients have been unable to vote with their feet. Mismanagement has not been penalized.

For instance, an arrangement between HMOs and California doctors called “physician capitation,” in which doctors accept flat monthly fees for all of a patient’s treatment expenses and purchase their own insurance against extreme loss, has traditionally been encouraged on Wall Street. This model will never deliver high-quality health care and has driven up health care costs because patients are treated only after illness progresses to a serious level, rather than through preventive medicine. Moreover, the physician establishment has been bankrupted by the practice. Now, physician capitation has become frowned upon by Wall Street.

HMO liability has forced a collusion between the interests of Wall Street and Main Street. If UnitedHealth can start the race to quality health care, there is no reason other HMOs, prodded by quality-conscious investors, should not follow.