Mismanaged care: what happens when a high-profit HMO and a friendly state government decide to do business together

Common Cause Magazine, Spring, 1994 by Vicki Kemper

What happens when a high-profit HMO and a friendly state government decide to do business together.

It's worth remembering two years later, how the bungling of health insurance benefits for Arizona state employees began. it was not some philosophically driven, all-encompassing plan to reform the state's health care system, but a topdown, no-nonsense political decree from a new, take-charge governor determined to demonstrate his toughness by holding the line on state spending.

Plus this dangerous combination: government officials in need of an insurance plan that wouldn't break the bank; a decision-making process subject to political influence; profit-driven businesspeople with something to sell; lobbyists with connections; and time constraints that tempted administrators to cut procedural comers. On top of that, state legislators and employees, who relied on the system to meet their health care needs, were left out of the planning altogether.

Put it all together, and what you've got, many Arizonans say, is a prescription for mismanaged care. Just weeks after state officials, advised by insurance salespeople and lobbyists, overhauled the health insurance program for the state's 45,500 employees, stories of misdiagnoses, delayed treatment, unpaid bills and lost paperwork began spreading like a virus.

In Tempe, Jim Hemauer's HMO wouldn't provide the specialized care he needed as a quadriplegic. In Tucson, Jacqueline Sharkey's "point-of-service" plan wouldn't pay for diagnostic tests for ovarian cancer. In the Phoenix area, Jim Hathaway's HMO doctor was so overbooked that even after hours of pleading Hathaway couldn't get an appointment for his seriously ill baby.

But a long two years later, it's also worth remembering what has forced the state to return some health-care options to its employees: a small group of state employees and their families -- professors, a concert pianist, an operator of programs for the disabled and others -- who were transformed by their anger and anxiety into an unpaid and untrained, yet persistent citizens' health insurance lobby.

They don't oppose health care reform -- or even managed care -- they say; they just want it done right. They firmly believe that the nation's health insurance system -- which leaves tens of millions of Americans without coverage and eats up ever-bigger portions of the national economy -- should be made more accessible and efficient. But they caution against creating a system where the quality of care is jeopardized by cost-cutting and profit-seeking and accountability is compromised by politics.

Clearly, change is coming. Efforts to control costs and increase efficiency already are driving many health care decisions and reshaping the health care business. And with 47 million Americans belonging to health maintenance organizations (HMOs) and with delivery systems that feature more and more "gatekeepers" who control access to doctors and "utilization review boards" that reassess doctors' treatment recommendations, it's clear that the market will continue to move toward managed care with or without legislative impetus from Washington.

Yet central to the health care reform debate is the question of what role the government should play in efforts to provide all Americans with affordable, quality health care, and whether government and the for-profit health care industry can work together. It is in that context that patients and physicians familiar with Arizona's state-contracted, managed-care benefits plan, which is similar to key elements of the Clinton administration's reform proposal, offer their experience as a cautionary tale.

The trouble began in early 1992, when the nationwide phenomenon of rising health care costs ran headlong into an extraordinary political decree by one state's governor, Fife Symington (R) of Arizona. In office for less than a year, Symington put his foot down, insisting that the state would not increase its funding of health insurance benefits for its employees. Yet when the state began negotiating the annual renewal of its five-year insurance contract, it was hit with $44 million in premium increases. Officials at Arizona's Department of Administration (DOA), the agency responsible for personnel matters, had to come up with something better.

Instead of trying to renegotiate a better deal, or declaring that higher costs were inevitable, DOA officials chose to rebid the contract to "introduce a managed competition philosophy in an effort to control costs for the state and employees."

This was just the first of "several controversial decisions" made by DOA officials, according to a report by the state auditor general's office. The state sought new bids even though "there was very little time to complete the bidding process"; divided its employee "pool" by geographic region and took retirees out of the pool; allowed insurance companies "to define the coverage they would provide" rather than telling them what the state wanted; and changed the way it contributed to employees' premiums.