Too Much Money Goes to Bureaucrats
Patients’ rights legislation passed last week by the U.S. House of Representatives and other bills signed into California law recently by Gov. Gray Davis fail to deal with one of the most crippling crisis in health care today: Too much of our health care dollar is spent on bureaucrats, not patients. The California Medical Assn. reported recently that nearly every physicians group in California faces a financial meltdown. The plague that threatens these groups is the same one that has left patients angry and sick from managed care’s inattention to them: Too much of our health care premium dollar is spent sustaining unnecessary layers of insurance bureaucracy, not caring for patients in need.
The vampirization of the health care premium begins with insurance brokers whose fees generally suck up 4% to 8% of a premium, according to brokers themselves. Commissions can be as high as 20% in the case of individuals and small businesses, according a recent Sacramento Business Journal investigation, even though extremely large employers keep broker fees to as low as 2.2%.
The most commercially successful for-profit HMOs and health plans are by far the biggest vampires in the system, taking 20% to 30% of a premium dollar for their marketing, other overhead costs and profit. Nationally, Aetna/U.S. Healthcare took 26 cents of every dollar for overhead expenses and profit, according a 1998 report by the Center for National Health Program Studies associated with Harvard Medical School. The center found that Foundation Health took 23 cents, and WellPoint Health Networks Inc. kept 24 cents.
These HMOs are little more than brokers themselves, since they typically own no hospitals, clinics or physicians groups. Instead, they contract with doctor-run medical groups to provide treatment, typically paying a flat fee for all of a patient’s treatment expenses regardless of whether the patient becomes sick or stays well.
For their substantial cut of the premium dollar, the for-profit HMOs are not even assuming risk for the costs of patients’ illnesses. That increasingly has become the job of the medical group or physician management firm--dubbed “HMO-itos” by industry insiders for their HMO-like role in managing care. These middle managers are failing because they have to pay for patients’ treatment costs out of what remains of the diminished premium dollar, and still pay their own overhead costs. The average amount HMOs pay physicians’ groups to cover the cost of each patient’s care has shrunk from a high of $45 per patient per month in 1993 to as low as $29 per patient per month today. From that amount, the group would have to arrange to pay outside specialists or other physicians it contracts with. San Diego pediatric specialist Thomas Self reports that he had to turn down a contract that offered him pennies per child per month to care for all their gastrointestinal needs. California Medical Assn. President Jack Lewin said that pediatricians in Los Angeles can receive as little as $10 per month for every child, which does not even cover the annual cost of all the immunizations a child requires. With all the bureaucracies to “manage” care, there are few dollars left for the provision of it.
Patients feel the pinch of such flat fee arrangements between HMOs and physicians because they see their doctors less frequently and for shorter visits. Doctors have to see 25 patients before lunch to make their practices work, which means spending insufficient time with patients who require more extensive testing and diagnosis. Healers have become money managers, forced to calculate the dollars received per head against the number of patients they can treat with those dollars. There is hope yet for some law and order in this industry, and for physicians’ best medical judgments not be undermined, because HMOs will be liable for interfering with the quality of patient care by 2001 under legislation signed by Gov. Davis. But the lion’s share of the premium dollar must be spent on patients who need care and physicians who deliver it, not more insurance bureaucracies and middle managers. They add far more costs than they save.
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Consumer advocate Jamie Court is co-author of “Making A Killing: HMOs and the Threat to Your Health” (Common Courage Press, 1999). E-mail: cqc@consumerwatchdog.org.
