Reforming health care: managed care needs a cop.

The debate in Congress over health-care policy has begun to resemble a Fellini movie--there is something important going on, but you can't quite tell what. You know that some of the scenes are quite funny. Most of them, though, leave one confused, even apprehensive.

Republicans, who tried to deny the existence of any health-care crisis when the Democrats ran Congress, have discovered several crises, especially the looming bankruptcy of the Medicare system. Democrats appear to have lost sight of any substantive health-care emergency, and have fallen instead upon a good and worthy whipping boy, the rich, who are supposed to benefit the most from the reduced federal spending proposed by Republicans. Medicare is either being "preserved and protected" or "gutted," depending on one's vantage point, while Medicaid will be either abandoned or liberated. Villains of the last political campaign (remember the pharmaceutical manufacturers?) are nowhere to be found, and new ones (usually federal bureaucrats) have emerged.

An unfettered managed-care industry is the centerpiece of the Republican Medicare proposal and many Medicaid reform plans (largely state run). To be sure, managed care's successes have been significant. Still, its limitations cannot be ignored. As the Republican-controlled Congress storms ahead with its proposals to reform the financing of public health-care insurance programs, it is important to address those limitations.

Managed care includes two basic components. An employer or other entity (such as the government) prepays an insurance organization (like a Health Maintenance Organization) for a predefined set of medical benefits delivered to its enrollees (members). In return, the enrollee agrees to receive care from a limited set of health-care providers and follow certain rules (which vary by HMO) for receiving that care. This Faustian bargain--of a limited provider network and access rules in return for full coverage--linking the provider, the HMO, and the patient in the financing and delivery of care, is the only proven way until now to control health-care costs in the United States. It is responsible for the relatively flat rate of increase in private health-insurance costs in the last few years, and actual decrease in 1995. Managed-care membership has grown by two-thirds in the last four years, to almost one quarter of the U.S. population. In most surveys, clients using managed-care systems report equivalent or higher levels of satisfaction compared with those enrolled in traditional indemnity health-insurance programs.

As managed care has grown, so has the ability to analyze and address the wide variations in clinical practice in the United States today. For example, regional per capita surgery rates for certain common procedures such as cataract operations, Caesarean sections, and prostatectomies have been shown to be determined by the number of specialists available to perform them, and not the underlying condition of the patient. Also, managed-care organizations, particularly those which incorporate physician group practices, have the ability to integrate and coordinate preventive medicine and medical care in ways that the fragmented traditional system or looser network form of HMOs cannot.

More important, managed care can be seen as the first, tentative step toward acknowledging the finite nature of resources available. Everybody cannot have everything, and so some limits--in access, in doctors--must be observed. This is of small consolation to those with no insurance who have poor access to care, but the managed-care revolution has begun to make all Americans more aware of the dirty little secret that we already ration care in the United States.

Managed care has its shortcomings. Complaints generally concern either the reduction of choice in selecting a provider, or Byzantine rules for obtaining approvals from HMOs to receive needed care. Such charges are often driven by anecdotal experience--one person's specialist is not on the HMO's physician list, or another repeatedly must ask "Mother May I?" over the telephone for permission for a particular service. Quality-of-care is supposedly compromised by organizations with a potential incentive to contract with less than top-notch providers; medically necessary services are denied or forestalled, patients are sent home sick from the hospital.

By setting up hurdles rather than improving effectiveness and appropriateness of care, HMOs often do succumb to reducing costs by managing access rather than managing care. Too often the quality of care managed by an HMO depends on the good judgment of the institution, rather than the standards of regulators, participating providers, or informed customers. However, complaints that managed-care organizations make money by saying "no" greatly oversimplies matters. Internal and external advocacy for the patient is strong. HMOs survive by keeping people healthy, not by postponing care. As with any organization that exercises authority, the potential exists for errors in judgment, and with health care the stakes are obviously high. Given the failure of more comprehensive health-care reform and the lack of support for government- based single-payer systems, the policy debate will continue to focus on Medicare and Medicaid, and on how to use public financing of private-sector operations to improve efficiencies. The future is unabashed incrementalism for those who favor a right to health care and a major government role in meeting that right.

If managed care is part of the reform, how can we work to make the result as fair as possible? It is important to recognize that only the federal government can create the circumstances in which managed care can succeed for Medicare and Medicaid. First, government can create markets for public-health insurance. As an HMO manager, I am the first to admit that increased competition in our local market has improved the value of our services, forcing us to innovate and to reduce our costs by identifying and eliminating unnecessary and wasteful services. The powerful incentives created by the market should be brought to bear on reducing the government's health-care expenses. Second, just as you cannot rely on virtue to hold down costs, neither can you rely on it to ensure quality. Economists inform us that markets need perfect information to function. Information is far from perfect in health insurance or health care, so the government must define the rules of the game. It must define minimum benefit packages, and ensure minimum standards for the organizations that provide them. The government is the largest purchaser of health care in America, and just as it has redefined standards for hospital and physician payments, it should not shirk from its oversight obligations elsewhere.

There are disturbing elements in the Republican proposals, especially as the Republicans sweetened the pot for certain constituencies. Physician support for a program which will reduce physician compensation was bought by relaxing standards for referring patients to self-owned diagnostic facilities. If a physician makes more money by ordering a marginally useful lab test for you, what will he do? Even more dangerous are proposals to allow loosely regulated quasi-HMOs, sponsored by hospitals, physicians, or employer groups to enroll Medicare recipients. These plans, unless closely monitored, would be hard pressed to develop the clinical and management expertise necessary to insure high quality care for enrollees.

More significant than concerns over the quality of care provided by HMOs for the commercially insured population are questions about care for those for whom the government has assumed responsibility--the aged, infirm, and impoverished. Republican plans for health-care reform extol the virtues of free choice driving innovation and value. Given the difficulty even the most self-actualized of us have in deducing what we are paying for with health care, presumably society's most vulnerable populations will fare even worse. The three labyrinthine paths mapped out by congressional Republicans: traditional Medicare, managed Medicare, and Medisave accounts hardly meet criteria of simplicity. Medisave accounts, which give the option for recipients to bank their personal Medicare payments and purchase minimal catastrophic insurance, are particularly worrisome. This would create enormous disincentives to seeking the preventive and primary-care services which reduce the incidence of serious disease and the suffering and larger expenses such illness brings. The fact that this care package may have been freely chosen by the recipient would be inconsequential. A government-sponsored managed-care proposal must meet the test of simplicity. The Republican reforms fail that test, as did Clinton's health package. Offering an array of managed-care plans to the presently uninsured where population density supports it, would provide adequate choice and greater simplicity than the current proposal.

Government must also help to equalize access to care. Under the congressional welfare reform bill, impoverished Americans will no longer be entitled to basic medical care. By shifting more authority over Medicaid programs to states, the federal government abdicates its responsibility to ensure equal protection for all its citizens. In policy making, where you end up depends on where you start. If vocal seniors had not entrenched the federal financing role for Medicare in the sixties, Republicans certainly would be trying to unload the program to the states, as they have done with less vocal Medicaid recipients.

Access to health care should be a fundamental right for U.S. citizens. The moral justification for equality and distributive justice in health care is much stronger than for virtually any other good or service. If the federal government is going to define the rules of the market, it has to make sure everybody has the resources to go through the check-out line. If that requires tax breaks or subsidies, so be it.

Finally, all health insurance depends on subsidization. The healthy subsidize the sick, the wealthy subsidize the poor, and the community subsidizes the training of new care providers. While the demands of justice dictate a strong federal role in the financing of health care, the delivery of care is an intensely personal and local experience, starting with the individual's own attitudes toward self and wellness. These need to be arbitrated and negotiated in our communities--the doctor's office, the home, and the school. Bureaucratic by nature, government cannot deliver medical care, but it can hold managed-care organizations responsible for promoting health standards for all. Health behaviors can be changed and improved: you can get parents to stop smoking and kids not to start; you can reduce teen-age pregnancies and improve pediatric immunization rates. These are social goods which the market does not recognize, and that government must pursue either directly or indirectly. Community minded managed-care organizations can play critical roles in this process.

Strong federal oversight must be incorporated into the Republicans' managed-care programs if Medicare enrollees are to benefit from these proposed changes,

Christopher F. Koller, who works for a health-maintenance organization, writes frequently on health-care issues for Commonweal.