Originally created 12/21/96

HMO wars heating up

Georgia's honeymoon with the insurance-run health maintenance organization industry is over. For several years HMOs enjoyed enormous popularity in this state and others as a means of containing out-of-control medical costs (and as a preferred "free market" alternative to ill-fated HillaryCare.)

But as more businesses enrolled in managed care programs - up a whopping 30 percent in Georgia last year, covering 827,000 employees - cracks in the system began to appear.

Bureaucrats with an eye on the bottom line were reportedly making medical decisions. Patients were being denied care when it was deemed too expensive. Doctors complained that HMO "gag rules" prevented them from speaking honestly to their patients about treatments. Mothers and newborns were being shoved out of hospitals only hours after birth.

Some of these "horror stories" were exaggerated, but they happened with enough anecdotal frequency to prompt the Georgia General Assembly to pass the Patient Protection Act in its last session, over fierce objections of HMO insurers.

But the battle over the Patient Protection Act looks like a skirmish compared to the war that's shaping up next year. Health care consumer and doctor lobbies are combining forces to push legislation to markedly expand the rights of HMO subscribers to sue their managed-care carriers in cases where they're denied medical treatment.

If that goes through, Georgia will be the first state to expose HMOs to such potentially ruinous litigation. Florida passed a similar bill, but it was vetoed by the governor on grounds it would destroy the cost-controls that are at the heart of managed care.

You can be sure that Georgia HMOs will mount that argument, too - and they're right. Making the industry easy prey for opportunistic lawyers will surely boost insurance costs and, therefore, managed care costs. It will also have the desired effect of curbing denial of care, but that, too, will hike expenses - all of which will be passed on to consumers.

This is the great dilemma of managed care programs. They accept a fixed amount of money, and the less they spend, the larger their profits. Inevitably, this leads to some denial of care, especially if it's expensive. The financial incentive, whether it's a bureaucrat or a physician "gatekeeper" making the decision, is always to save.

Just because HMOs are better than HillaryCare doesn't mean the nation can't do better. Congress and the states can continue to tinker with managed care, but little will be accomplished until they own up to the fact that HMOs are not a free market system.

What kind of "free market" is it that pays service providers more to give consumers less of what they want? Or that pits the financial interests of doctors against the medical interests of patients?


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