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Chapter One

The HMO Revolution

They Profit, You Suffer

In California, a father became troubled when he learned that his nine-year-old daughter had a rare kidney cancer called a "Wilm's Tumor."

Seeking the best care possible for the child, he was pleased that his HMO covered the Lucile Packard Children's Hospital in Palo Alto. The hospital had a pediatric surgeon experienced in removing just such a tumor.

The operation was a success and the happy parent was in the intensive care unit with his daughter when he received a call from the "utilization nurse" of the HMO. "The bill is fifty thousand dollars," she told the father, "but you didn't get preapproval, so we're not going to pay you."

Though the surgeon and hospital were ostensibly included in his HMO plan, a technicality had left him out in the fiscal cold. His daughter's pediatric surgeon was in the HMO, but he wasn't in their medical subgroup and therefore not covered, according to the HMO. The father was told that he should have used a urologist in his subgroup--an adult surgeon with no experience in this type of rare tumor.

The shocked and angered parent paid the bill but then took the HMO into arbitration. After a year, he got his money back, but the HMO refused to pay his heavy legal bills. He complained to the California Department of Corporations, which fined the HMO a half-million dollars.

This parent was finally vindicated, having only a temporary loss of money. But in this case, as in many, the once-vaunted HMOs, which were to cure all of medicine's problems, leave a lot to be desired. Not only are they not a true remedy, but they have actually worsened the medical situation with their overconcern with bottom-line profit at the expense of the best possible care.

Denial of Needed Care

In Kansas City a distraught soccer mom raced her boy to the emergency room of St. Luke's, the nearest hospital. He had broken his leg, and she waited nervously as the doctor started an IV (intravenous) to give him pain medication before he set the bone. The mother left for a moment to call the HMO that handles her insurance.

"Stop!" the mother shouted to the emergency room doctor when she returned. She explained that her son could not be treated there. She would have to go to a hospital that was four miles away that was covered by her plan.

The child was given an oral pain killer, a splint, and ice bag, and the parent had to seek "insured" care elsewhere.

The stories of medical treatment denied to patients by HMOs because they cost too much, or because the providers were out of their geographic area, or because a doctor or hospital wasn't part of their plan, are endless. Just as fee-for-service medicine can be dogged by expensive overtreatment and physician greed, so the managed care business has too often become a slave to irrational undertreatment.

For many HMOs, a penny saved on medical care is a penny more for the HMO executives and stockholders, a curious distortion of the Hippocratic Oath.

HMOs seem to enjoy denying medical care to subscribers. Why shouldn't they? Premiums from HMOs and other insurers run to $325 billion a year, and every operation and lab test refused means they get to keep more money in their pocket.

The truth of this attitude is sworn to by witnesses on the inside. One of these is Dr. Lina Peeno, head of the ethics committee at the University of Louisville Hospital, who spent six years working for health insurers--denying claims. "I naively thought that what they wanted was a physician who would bring medical knowledge to those claims that were open to interpretation," she explains. "What I found out was that the goal was to avoid paying for as much as possible."

The two major excuses insurers employ are that a treatment is "not medically necessary," or in the case of HMOs, they use obscure details to bounce claims. "If somebody doesn't follow the dots exactly right," adds Dr. Peeno, "then you can say, `Well, sorry, you did not follow the rules'; I knew as a medical director that very few people appealed claims."

The HMOs often require preapproval for any serious expenditure, then use the power of 20-20 hindsight to turn down claims later on. If a patient fears he's suffering a heart attack, but it turns out to be only gastritis, those claims, Dr. Peeno says, are denied "right and left."

This HMO trick can be widespread. In Jefferson City, Missouri, a patient was told by her doctor that she needed a laparoscopy. Hewing to the requirement for preapproval, she notified her HMO and the procedure was done. But when she submitted her claim to the HMO, she was told she had not submitted her claim in time. She appealed, sending in the hospital's verification of precertification.

Once again, her legitimate claim was denied by the HMO, this time with a new excuse. Now they said that the procedure was not medically necessary. Finally, in desperation, she contacted the Missouri Department of Insurance (good advice for all frustrated patients), who decided she was correct. They instructed the HMO to pay her $4,500.

Dr. Michael E. DeBakey, the medical giant who pioneered the heart bypass operation and recently advised Russian doctors on the treatment of President Yeltsin, is disgusted with how HMOs limit freedom of choice, in effect trading health and lives for dollars--the opposite of the true medical goal.

He describes a case in which a woman came to see him at the DeBakey Heart Center in Houston. She had, he reports, "a dissecting aneurysm of the aorta, a type of heart disease that is rapidly fatal when not treated by the corrective operation" that he devised.

The woman, who belonged to an HMO, had been told that they would not approve the operation. A doctor relative put her in touch with Dr. DeBakey, who volunteered to do the surgery without charge. But the HMO would not approve the hospital costs, which would be substantial.

"Only after another family member--a lawyer this time--kicked up a fuss did the HMO grant the woman the chance to live by approving her hospitalization costs," DeBakey explains. "This is a lucid example of how patients become the victims of cost containment through restrictions on their freedom of choice."

Former U.S. Surgeon General C. Everett Koop concurs. "Whatever its flaws, traditional fee-for-service medicine always allowed physicians to act as advocates for their patients. HMOs cannot assure us that physicians will, in every instance, put their patients' interests first."

The failure of HMOs is especially apparent in situations like the one described by Dr. DeBakey, where expert help is needed in complex cases and is not available from the HMO.

A 54-year-old woman in New York lost her regular insurance when her employer switched to an HMO. When she was later diagnosed with intestinal cancer, an HMO surgeon removed the tumor. But when the cancer spread to her liver, the doctor and a cancer specialist from the HMO recommended she see a New Jersey surgeon who specialized in liver tumors. But the HMO refused to pay for the treatment. The renowned subspecialist was not in their "network." After months of hassle, they finally agreed to the treatment, but it was too late.

The HMO "Gatekeeper"

That lack of freedom is especially important when it comes to specialists, the star of American medicine. Men like DeBakey collectively offer the world's best clinical care. These doctors, in some forty specialties--from pediatric surgery to oncology--are fully available to fee-for-service patients, to most on Medicare, but not to many HMO subscribers.

Despite the near impossibility of properly caring for a serious ailment without a specialist, it is not always possible to see one in the world of HMO medicine. The HMO family, or "primary," doctor makes the decisions about patient care and can shut out the specialist when he wants.

The goal of this "gatekeeper," as he is called, is as often financial as medical. One of his jobs is to save money for the group, and specialists cost money. In fact, in some HMOs, part of the money saved by limiting specialist referrals may, as we shall see, end up right in the primary doctor's pocket.

There are numerous stories of seriously ill people who are denied the services of a specialist. It is, prima facie, a violation of medical ethics, yet is commonplace in HMOs, a form of medical philosophy almost exclusively based on cutting costs.

• A female family doctor severely injured her back in a plane crash and became paralyzed in the lower half of her body. Later on, when she returned to school to retrain as a psychiatrist, she was enrolled in the college's HMO.

She visited her primary doctor and asked to see a specialist in rehabilitation medicine. As a physician, she knew she should have a kidney test, for instance, because the catheter she was using for urination was susceptible to infection. But she says her "gatekeeper" turned down her request.

A month later she developed a pressure sore on her buttocks that opened and drained pus. But her primary doctor again refused to refer her to a specialist. Finally, she needed surgery to remove a portion of her buttocks and required three months in a nursing home. The result was that she had to drop out of school and hasn't worked since.

• In San Diego, a health consultant who had been under a three-year treatment with a specialist for allergy shots switched to PacifiCare because it was provided by his wife's employer. His new primary physician at the HMO decided to stop the treatment, which was in its final year. Soon after, his painful sinus infections returned, forcing the patient into bed. But this consumer didn't take it lying down. He complained to the state; to the National Committee of Quality Assurance, which accredits the HMOs; to the American Medical Association; and even to the White House.

Finally, PacifiCare reversed their position and sent him to an allergist. "They wear the patient out with all the administrative work," the patient said. The HMO answer inadvertently revealed the disturbing, destructive aspect of this relatively new type of medicine: "He is used to operating in the old fee-for-service medicine, where he went to a doctor whenever he wanted to see the doctor. With an HMO it's different."

That's for sure. The unfortunate result can come in every possible combination of damage, from denied or not extended medical care.

• In Manhattan, Congressman Jerrold Nadler described the sad HMO experience of his mother-in-law. Despite her history of breast cancer, the HMO doctor refused to order a CAT scan. By the time she finally had the test, the recurring cancer was too widespread to treat.

• In Brooklyn, an HMO wanted to send a patient's newborn triplets home from the hospital's neonatal unit even though his doctor said they might need special care for another month or more.

• Also in New York City, a union-based HMO refused to pay for the chemotherapy treatment of a woman member with breast cancer. Her internist, Dr. Bernard Kruger, tried to reach the union president, but his calls were never returned. The doctor was forced to appeal to the manufacturer, who contributed the needed chemotherapy drugs free of charge.

The HMOs' Dangerous Delays

When Americans think of bad medicine, Britain's National Health Service comes to mind, mainly because of endless bureaucracy and delays. Some people there wait for over a year for elective surgery.

It hasn't yet reached that stage in the American HMO "revolution," but the new system is already suffering from bureaucratic arthritis.

Take the example of a California housewife who reported disquieting symptoms to her HMO doctor, which could possibly have represented ovarian cancer. The HMO first gave approval for diagnostic surgery, which can be an expensive procedure. They went so far as to prep her for the operation while she waited at the hospital. Then, suddenly, the HMO withdrew permission for the surgery.

She waited and waited, while the HMO continued to delay the operation. Finally, ten months after her first visit she had the diagnostic surgery. It turned out that she did indeed have a cancerous growth on her ovary, which was finally removed.

"They had no regard for my life, safety, or health," she says of the bureaucracy at Health Net, California's second largest HMO.

Judging by stories from this and other disgruntled HMO subscribers, delays in treatment are quite common in some HMOs. One California HMO patient learned that he had prostate cancer and needed surgery. He waited and waited, and not until three months later was he operated on. Why? Because the medical group chosen by his HMO didn't have enough urologists to handle the traffic.

In another case, a primary care doctor in California tells of a patient who had rectal bleeding and needed a routine colonoscopy. But ten days passed, with still more bleeding, until the doctor received "authorization" for the procedure.

Some of these bureaucratic delays can be quite frustrating for patients and physicians. When a doctor prescribed a drug not on the HMO's "formularly"--a list of acceptable pharmaceuticals--the patient had to wait three months and badger the HMO with fifteen phone calls before she received permission to receive it. There are some critics who speculate that the delay is a method of keeping the patient at bay in the hope that she will finally give up--saving money for the "managed care" operation.

One of the most grievous items in the HMO bag of tricks is to force doctors to prescribe cheaper drugs, even if they're not as effective as the ones he'd like to give his patients.

The HMOs have hired firms called "pharmaceutical benefit managers," or PBMs, whose job is to lean on doctors and druggists to prescribe favored pharmaceuticals, sometimes offering pharmacists cash ($12 per prescription) if he successfully switches to a favored substitute from what the doctor ordered. Often the substitute is made by a drug company of which the PBM is a subsidiary.

New York City Public Advocate Mark Green reports that his investigation into this legal scam shows that substitute drugs (not generic, which are the same formula) are often chemically different and less effective medically, and sometimes even dangerous.

Each HMO strives to get their doctors to stick to the formulary. "If the physician displays a tendency to prescribe nonpreferred drugs," the report quotes the pharmacy director at Aetna, "he either gets a letter or a phone call and sometimes a nurse's visit to educate and inform him about the plan's preferred drugs and to ensure compliance with them."

Doctors who go along with this nonsense, and there are many who do, should be aware that they are violating the Hippocratic Oath.

And yet, surprisingly, the overwhelming majority of subscribers are happy with their HMOs. Or perhaps it is not so surprising. Most people are healthy and do not require complex treatment. When it comes to routine cases, the "primary" physician is usually quite sufficient to the challenge, especially since the majority of ailments are self-corrective over time.

That's the theoretical failure of the HMO scheme. The economics of the system is based on taking in premiums from the healthy and withholding as much care from the sick as possible, short of triggering a patient, or political, revolution against the situation.

What of the truly sick? What do they think of their HMOs? A poll of patient satisfaction shows that HMO popularity decreases among the old, the chronically ill, and those who need special attention. Of those who described their health as "poor," twice as many HMO patients were dissatisfied with their care as were patients in fee-for-service.

A study by Dr. John Ware of the New England Medical Center, published in JAMA , showed that a majority of elderly patients in HMOs reported a decline in health over a four-year period as against only 28 percent in fee-for-service plans.

Another study, conducted by researchers at the Virginia Commonwealth University, and also published in JAMA , showed that aged stroke victim subscribers to an HMO are more likely to be shipped off to a nursing home than to a more expensive but medically superior rehabilitation center--in the ratio of 42 to 28 percent.

Desperation in the Emergency Room

One strong bone of contention is that HMOs interfere with what was once considered standard medical care. This is especially true when a subscriber comes into an emergency room in desperate need.

The Los Angeles Times reported on the case of a pregnant woman who arrived in the Anaheim Memorial Hospital in the throes of a miscarriage. She was in extreme pain and bleeding profusely. A staff member gave her a quick exam and called her HMO, Tower Health, for insurance approval of the treatment. It took Tower two and a half hours to call back, and they still didn't grant approval. For six hours afterward, the physicians insist, they and Tower argued over who was responsible for the cost of the woman's treatment.

The conflict between HMOs and emergency rooms is in-built and loaded against the patient. This is a nationwide problem, which is only now being examined in some states. Unlike most other patients--those insured by Medicare, Medicaid, or private insurance, who can go to any emergency room and get unquestioned treatment at any time--HMO subscribers are often restricted to plan-approved emergency rooms.

This, of course, negates the whole concept of the "open door" emergency medicine that is supposed to be available to anyone anywhere in America at any time. The HMO/emergency room setup seems, at the very least, like a violation of medical ethics, and perhaps worse.

Denying Needed Care

One of the gravest drawbacks of HMOs is that the newest advances in medicine are often denied to subscribers because of their cost. The case of a sixteen-year-old boy, an honor student in suburban New Jersey who suffered from inadequate growth, was reported in the New York Post . He was only five-one, even though both his parents were taller than average. He also suffered from delayed puberty, and still had the squeaky voice of a child. The HMO approved a visit to an endocrinologist, who discovered that the young man had a growth hormone deficiency. Not enough of the substance was being produced by his pituitary gland.

The endocrinologist believed that with daily injections of a drug called Protropin, three times a day for three years, he was expected to grow to a height of five-eleven. The problem was the cost of the shots: $50,000 a year, which his parents couldn't afford.

The request to the HMO that they cover the treatment was rejected. The treatment, the HMO said, was not covered by their policy. Months went by, along with letters and pleas from the parents and the endocrinologist. But the HMO refused to budge. Finally, the Post got involved and approached the HMO. Six days later the treatment was approved. The family's only cost was their maximum deductible of $4,200 a year, a lot better than the impossible $50,000 annual price.

If the newest high-tech medical procedures, which are often expensive, are denied to HMO patients, the whole managed care movement may become a shaky, unacceptable alternative to fee-for-service medicine. This despite the supposed savings in cost, which may prove to be temporary in any case, as we shall see. As expensive as the older system may have been, it seldom denied medical care to ailing patients, especially when it was a matter of life or death.

In most states, all an HMO patient can do when denied treatment is to appeal back to the HMO--a highly unsatisfactory situation. However, California and New Jersey have taken the lead and set up arbitration panels to which HMO subscribers can take their complaints about denied treatment. Other states are contemplating the same.

The problem is that, in New Jersey for example, the panel's decisions are non-binding. However, says the state's health commissioner, he expects the HMOs to voluntarily follow the recommendations "99 percent" of the time.

They Call It "Experimental"

The refusal to pay for modern treatments usually available at university teaching, hospitals is cleverly handled by the HMO by labeling it "experimental," the word managed care bureaucrats use when they mean "expensive."

In advanced stages of cancer, for instance, often the last hope of survival is a technique known as "bone marrow transplant." In this procedure, the physicians take out a portion of the bone marrow before the patient undergoes chemotherapy. Once collected outside the body, the cancer cells in the removed marrow are destroyed. After the patient is treated with chemotherapy, the bone marrow is reinfused into the patient in the hope that it will grow new marrow that is not cancerous. (A similar treatment has also been developed using blood stem cells.)

This treatment is almost commonplace at facilities like Memorial Sloan-Kettering Hospital in New York, perhaps the nation's leading cancer center. But it is virtually impossible for subscribers of the HMOs, where money plays the dominant role in whether or not to grant such treatment.

In California, Nelene Fox, a woman in her forties, had metastatic breast cancer that did not yield to conventional chemotherapy. Her doctors recommended very high dose chemotherapy and a bone marrow transplant. Her HMO, Health Net, turned down the expensive treatment. Instead, she raised the money privately and underwent the transplant. Despite it, she died eight months later.

Following her death, her brother sued the HMO. The jury agreed that the HMO had acted in bad faith and awarded the Fox family $89 million, which was later negotiated downward. The California Physician , official organ of the California Medical Association, summed up the problem succinctly:

"The case highlighted a growing distrust by patients, not only of the health plans, but of physicians."

Betsy McCaughey Ross, then the lieutenant governor of New York, used the op-ed page of the New York Times to describe another such case.

John Crescenzo, a 44-year-old truck driver, paid $6,000 a year in premiums to Wellcare, an HMO. When he developed a large lump on his thigh, Wellcare doctors eventually diagnosed it as a sarcoma, a rare cancer. They tried surgery and chemotherapy, but it spread to his lungs.

Doctors agreed that his best chance for survival was a form of experimental chemotherapy at Memorial Sloan-Kettering Cancer Center, where a surgeon agreed to operate without charge.

But Wellcare turned down the hospitalization, then again denied treatment on appeal. To whom? Wellcare. As Ms. Ross says: "Your opponent is also your judge and jury."

An HMO on Trial

The whole question of how money shapes medical care at HMOs was tested in court in Dallas, Texas, in December 1997. The plaintiff's family charged that the local Kaiser Permanente Health Plan had contributed to the death of fifty-six-year-old Ronald Henderson because they were employing cost-cutting procedures at their clinic, where Henderson dropped dead of a heart attack.

The case was based more on general policy than on specific medical facts. In a way, it became a symbolic trial of HMOs and their cost-cutting techniques. Americans are increasingly skeptical of HMOs in that regard, as a recent poll showed. Fifty-five percent suspected that economics took priority over quality care among HMOs.

A "minitrial" was held before a summary jury--a short hearing that is not binding, but is a preview of what a full jury might decide. Kaiser Permanente claimed that the patient was an overweight smoker who didn't obey doctor's orders, which was why, they asserted, he died--and not because of their economic considerations.

The plaintiffs countered by offering evidence that the Kaiser operation in Texas was dominated by cost-cutting. One piece of evidence was a speech made by an associate medical director of the Permanente Medical Association of Texas at a managed care convention.

"The first thing that ever comes out of a Kaiser CEO now is what's the bottom line," he was quoted as saying. "I'm trained to do that now almost automatically."

According to a report in the Dallas Morning News , the medical director allegedly also said that doctors at Kaiser's Urgent Care Centers in North Texas were told not to talk to patients about hospitalization. Instead, they were told to call in another doctor. "We basically said [to] the UCC doctors, `If you value your job, you won't say anything about hospitalization. All you'll say is, "I think you need further evaluation...."'"

Another piece of evidence that spoke to the issue of poorer medical care was a Texas Permanente plan that discussed ways to "agressively reduce costs," including cutting hospital expenses by almost half (forty-five percent) and reducing outpatient costs twenty percent.

Before the summary jury (which said they would have granted a $62 million judgment against Kaiser) could report back, the parties settled. The Henderson family was awarded $5.3 million, even though Kaiser didn't admit any blame.

Who was right? In a way, both. The economy moves may not have been specifically related to Mr. Henderson's death, but cost-cutting surely plays a large part in how patients are medically cared for by HMOs. The pressure to cut costs in the Kaiser operation in Fort Worth-Dallas, for instance, is quite strong. That HMO had a $42-million loss in 1997, following two prior years of losses.

Kaiser is one of the largest managed care plans in the nation, with almost nine million subscribers. What makes this case particularly interesting is that Kaiser often scores as number one in surveys of the nation's best HMOs. One reason is that they directly employ eight thousand physicians nationwide who work on salary, rather than being totally dependent on meager fees for each person covered. Kaiser also runs over three hundred clinics in the United States, and has a hospital chain of its own in California, Oregon, and Hawaii. However, in its recent moves to become competitive and to expend where they don't have their own facilities, quality may well be suffering.

HMO Secrets Kept from Patients

The HMO industry's drive to cut costs nationwide can be so intense that they don't even want patients to know that there are other good but possibly more expensive treatments out there that are not covered by their plan. It seems that a truly educated medical consumer can be an HMO's worst customer.

This was the case of a neurologist who had worked with a large HMO. She advised the mother of a braindamaged man that a muscle biopsy could help diagnose the extent of his condition. To her dismay she discovered that her attempts to educate her patients were not appreciated by her HMO boss.

"I was told that it was a mistake to tell the patient about a procedure before checking to see whether it was covered," she relates.

Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School, has been in the forefront of exposing these "gag rules," subtle and otherwise. In essence, these rules warn doctors not to say anything to patients that might end up costing the HMO money.

The HMOs are not stupid. They generally do not spell it out explicitly. Instead, the participating doctor has to sign a clause in his HMO contract that states it implicitly . Dr. Himmelstein himself joined up with an HMO, U.S. Healthcare, which presented him with a contract. One clause read:

"Physicians shall agree not to take any action or make any communication which undermines or could undermine that confidence of enrollees, potential enrollees, their employers, their unions, or the public, in U.S. Healthcare or the quality of U.S. Healthcare coverage."

Dr. Himmelstein crossed out the offensive clause and then signed the contract, which was accepted anyway. (He has since left U.S. Healthcare, which has been merged with Aetna insurance.) But he is a singular exception. Other doctors sign on to this obligation, which runs counter to their Hippocratic Oath: that the patient be paramount in all of a doctor's activities.

Gag Rule Legislation

Several states have already passed legislation outlawing the offensive gag rule, and Washington has resolved to stop it in Medicare HMO plans, but the American Association of Health Plans, the HMO industry group, denies they even exist. They quote a study of the U.S. government General Accounting Office, which was asked by Congress to look into the matter.

The GAO reported back that they have not found any explicit "gag orders" to doctors in the contracts they examined. But they did leave room open, saying some physicians are wary about being inhibited by clauses that keep them from disparaging any aspect of the HMO's covered treatments. In addition, the GAO points out that some 150 HMOs did not reply. These could well have explicit gag rules.

The stress that HMOs put on secrecy is evident. They try, sometimes desperately, not to disclose their methods--which are the basis of their profit system. Susan Rosenfeld, former general counsel to Memorial Sloan-Kettering Cancer Center in New York, says that "HMOs don't like to give information to prospective patients."

This became quite clear when the New York Times profiled a large consulting firm that advises, through guidelines, which services HMOs should and should not pay for. One extreme example of callousness was a guideline suggesting that HMOs pay for cataract surgery in only one eye, even if the patient had dual cataracts. The rationale? He only needed to see out of one eye!

This horrendous money saver has since been rescinded.

The consultant wanted the HMO to pinch every medical penny by moving patients out of the hospital, as if on an assembly line. They recommended only a twelve-hour stay for mothers who had just given birth: two days for someone whose leg had been amputated above the knee; and only four days after a heart bypass operation.

(Continues...)

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The Medical Racket

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