The backlash against managed care

Nation's Business, July, 1998 by Stephen Blakely

The nationwide backlash against managed health care hit a public-relations high-water mark in November when President Clinton carefully orchestrated a White House media event featuring his bipartisan advisory commission on health care. The panel had just voted to endorse a patients' "bill of rights" aimed at protecting consumers in managed-care health plans, an idea Clinton immediately embraced.

But not everyone was celebrating. Diane Graham, one of the very few small-business owners on the 34-member panel, had cast the sole dissenting vote. The chairman and CEO of Stratco, Inc., a chemical-engineering firm based in Leawood, Kan., with 60 employees, Graham suspected the commission's proposals would become costly new federal health-care mandates that ultimately would hurt workers and employers.

"If they were called `recommendations,' maybe I could have supported some of these things," Graham says. "But if they were `rights,' I knew they'd turn into mandates. And those mandates make healthcare costs go up."

Noting that more than 1,000 state health-care mandates already are on the books, Graham believed that because "no one was speaking up for small business, I could not vote for any of this."

Just as she feared, the panel's work became the basis for mandate-laden legislation, crafted by Democratic congressional leaders and introduced in the House and Senate in March. The bills mirror legislation introduced last fall in the House by Rep. Charles Norwood, R-Ga.

Norwood's bill, known as PARCA--short for the Patient Access to Responsible Care Act--would create an estimated 300 federal health-insurance mandates and, for the first time, would expose employers to medical-malpractice lawsuits for coverage decisions they or their health plans make.

Both the Norwood bill and the Democratic proposal reflect the growing public and bipartisan political backlash against restrictions imposed by managed-care health plans. Managed care, which has grown rapidly in recent years, provides medical coverage to the vast majority of insured Americans.

By early June, Norwood's bill had the support of 232 of his colleagues, more than half the House membership. A companion bill has been introduced in the Senate by Republican Alfonse M. D'Amato of New York.

Because of its broad support in the House, PARCA remains the principal lightning rod for criticism of legislation that would hamstring managed-care plans. Business groups describe CHA PARCA as "a trial lawyer's dream but an employer's nightmare," largely because of its employer-liability provisions.

U.S. Chamber of Commerce President and CEO Thomas J. Donohue, speaking at a health-care conference at the business federation's Washington, D.C., headquarters in February, said companies would have a clear fiduciary responsibility to stop providing health-care benefits if Congress subjected them to the potentially huge new medical-malpractice liability that would be created by PARCA.

If PARCA's liability provisions become law, Donohue said, "we'll recommend to every business in the country to give their employees a check and get out of the health-care business." That would leave it to workers to buy health-care coverage on their own.

"However well-intended, however politically appealing," Donohue added, "the practice of piling on new mandates is threatening the ability of companies--especially small businesses--to provide health benefits to employees."

Republican leaders in Congress are trying to craft a politically viable alternative to mandates by creating new tax incentives designed to expand health-insurance coverage.

But the managed-care backlash has become a high-stakes political issue that has blurred traditional partisan differences in the 1998 congressional campaigns. GOP leaders are under heavy pressure from many fellow Republicans to enact health-care legislation this year.

The Appeal Of Managed Care

Broadly defined, managed care attempts to improve the quality and coordination of health care and reduce care costs by managing the ways that services are provided and controlling the fees charged for them.

Typically, managed care creates financial incentives that encourage patients to pick doctors and hospitals from a restricted list. The medical providers on the list are paid discounted--or "negotiated"--rates for their services in return for having the health plan's patients referred to them.

This system differs from conventional "fee-for-service" health plans, which reimburse patients for some of the charges of almost any doctor they choose. Fee-for-service care is not coordinated, and providers' bills are unrestricted.

While the term "managed care" is often used interchangeably with "health-maintenance organization," an HMO is just one of several types of managed-care plans.

The HMO was the original managed-care plan and is typically the most restrictive type: Patients must use physicians and hospitals within the plan and must be screened by a medical "gatekeeper"--typically a physician--to be referred to a specialist.