By Mary R. Anderlik
Health Law & Policy Institute
In 1999, "patient protection" referred to improving access to emergency and specialty care and permitting people to sue their HMOs for deficient care. In the year 2000, the big patient protection issue may be solvency. HMOs, hospitals, and nursing homes are all struggling to stay afloat. Consider the following:
Problems with computer systems and aggressive pursuit of market share. These two factors are linked because computer problems can frequently be traced to difficulties in integrating information systems following a merger or acquisition. Also, plans eager to grow tend to price products on the low side, meaning that there is little cushion if expenses prove higher than anticipated. Harvard Pilgrim lost track of expenses following a 1994 merger, and it lost large sums of money when it expanded beyond its traditional base of operations. (It is important to note that this pattern is not unique to not-for-profits.)
Expansion of public programs (leading to a form of adverse selection) and inadequate risk adjustment of capitation rates. In the TennCare case, in anticipation of savings from managed care, the Medicaid program was expanded to cover those uninsurable due to disease or disability. There was clearly an incentive for commercial insurers to enroll the healthy and channel the rest to the public program. HMOs participating in TennCare complained that capitation rates were miserly and insufficient to cover the costs of caring for a population that included many people with complex health needs.
Mutant forms of managed care not subject to oversight and inadequate oversight. Physician management companies, independent practice associations, and other entities may assume insurance risk, yet fail to meet a state’s definition of an HMO or insurance company, meaning that requirements for capitalization, cash reserves and the like do not apply. Regulators also lament that reports disclosing financial problems frequently come to their notice too late to permit action to prevent failure.
Medicare and Medicaid cuts and an increase in the number of uninsured. The Harris County Hospital District is experiencing a decline in Medicare revenues of about $5.1 million a year due to reductions in payments under the Balanced Budget Act of 1997. Disproportionate share payments under the Medicaid program have dropped by $4.68 million a year. At the same time, 31.1 percent of the population in Harris County is now uninsured. Methodist Hospital is projecting a $127.3 reduction in Medicare payments over five years. Of that, $30 million is attributable to cuts in federal reimbursements for graduate medical education.
Mismanagement and hype. Some of the financial difficulties of health care organizations can no doubt be attributed to garden-variety mismanagement, waste and inefficiency. Also, while few organizations want to spread the news that they are in dire financial straits, HMOs and providers have an interest in presenting a generally bleak picture in order to buttress lobbying efforts aimed at increasing public funding for health care.
Given all this, policy makers have much to do in this area. In the short-term, steps need to be taken to ensure that patients are not left with the bill and to minimize disruptions in patient care. Many states have laws intended to protect patients in the event of a failure of a plan or intermediary. A provision of California law is typical: "Every contract between a plan and a provider of health care services...shall set forth that in the event the plan fails to pay for health care services as set forth in the subscriber contract, the subscriber or enrollee shall not be liable to the provider for any sums owed by the plan." Prompt action by regulators can help to minimize chaos, either by restoring a plan to health, or by quickly moving patients into other arrangements where a plan is clearly moribund.
In the medium-term, legislators and regulators can collaborate to implement more stringent financial requirements for health plans and other risk-bearing entities. (In 1999, the Texas Legislature tightened requirements on net worth and established more detailed requirements for risk-based capital for HMOs.) Recent experience justifies an increase in the staff dedicated to monitoring and enforcement.
In the long-term, the costs associated with secure health care will have to be faced. California is reportedly developing a private guarantee fund to perform a reinsurance function. Reinsurers insure front-line insurers against large losses, and so have strong incentives to engage in extensive due diligence and monitoring. Such a measure is, however, likely to lead to higher premiums for employers and consumers. Americans need to consider whether they are willing to restore or increase public support for institutions that may make a distinctive social contribution, such as "model" HMOs and public and teaching hospitals. One option is to facilitate the sale of troubled HMOs and hospitals to the behemoths that increasingly dominate health care, accelerating the trend toward consolidation. Another is to offer public funding selectively based on an evaluation of a particular institution or sector, but to make such funding contingent on greater openness about the uses of public funds, and greater accountability for results.