Debate/60/dp1st/mark2nd

It promised to be a spirited debate and was it ever.

Walter Zelman, president and chief executive of the California Association of Health Plans, and Jamie Court, executive director of the health care watchdog group Consumers for Quality Care, sit on opposite ends of the health care debate. Each has staked out passionate positions on the myriad issues involving managed care, and recently they came to the Business Journal and met for the first time, face to face, to debate the issues.

Question: Let's start by having each of you summarize the state of the industry and where you see it evolving in the next several months.

Zelman: The analogy I use to describe the situation of managed care and health maintenance organizations in particular is that HMOs are caught between a rock and a hard place. I see the rock as the patient, who understandably enough wants as much as they can get out of their health care system. They want access to the new drugs, they want a wide choice of doctors. They want easy access to specialists, they want to be able to have a second opinion whenever they want.

But the crux of the matter is they don't buy their own health care. Their employer or the government is paying for their health care. So you have a patient base that wants a great deal and isn't directly paying for it.

And then you have the hard place, which is the employer and the government that don't want to pay for everything the consumer seems to want. The HMO has to try and serve both masters. I've begun to think it's almost impossible to serve the wants and needs of the public, especially given its concerns today, and at the same keep the costs within a range that the employer and government are going to pay.

People are afraid that because of these pressures to get the cost of health care down, they are not going to get something they need. So we have advocated external review. We've said we'll do it voluntarily if the state won't do it. But we think the state should do it, should impose it on us. That's the only way members of public will be really certain that if their HMO says "No, you don't need something," they'll have a hearing with an independent panel of experts that says what you get.

Court: Well, we have a fundamentally different view. Our view is that (HMOs) are a completely irresponsible industry. They've made a lot of promises one was that they would maintain and improve the quality of health care and that they'd also keep costs down and they haven't delivered on either in the long run.

We've seen health care costs increase at Kaiser (Permanente) in the double digits 12 percent. This is an industry that doesn't want to take care of sick people. The incentive is to cherry-pick the healthiest lives, take in the premiums from those lives, and not pay out for health services. Now if this was a market that was a truly free market, we would see HMOs that have the highest quality care being in the best market position, but it's not like that.

There was a study done by the state, under Gov. Pete Wilson by the Managed Care Task Force, which found that 40 percent of the patients surveyed had problems getting care through their HMO. They run into walls because the system was set up to give them walls.

I saw another study in which 48 percent of patients reported some kind of problem getting to a specialist. These systems are not meant to serve patients, they are meant to put patients off, to delay and deny. This is a business that is managing money, not managing care. And to make them manage care, what we are asking is that patients have leverage. The leverage that matters is not another bureaucratic review system. We're looking to make HMOs deal in good faith, to say "Hey, if you promise and contract that you're going to cover a treatment, you cover it. And if not, I'm going to sue you for damages."

Q: Should the HMOs be held to a higher standard than other types of businesses?

Zelman: Let me address some of the things he said. Jamie's great with the anecdote and the occasional study that seems to suggest his point of view is accurate. There's an awful lot left out in that and an awful lot of research that he tends to ignore. If you review all the literature with HMOs and traditional fee-for-service medicine, it demonstrates that HMOs have saved people a huge pot of money, and that the quality of medicine is essentially the same. The fact of the matter is, HMOs are much less expensive and yet provide the same quality of care.

Court: The Journal of the American Medical Association and the New England Journal of Medicine publish material that shows seniors don't do as well (in HMOs), the poor don't do as well. You're making characterizations that are so outrageous that I can't sit here...

Zelman: Yes, there were some studies that found HMOs don't do as well in some areas, some that find they do better. But overall, it's a wash. And you will find very few academics out there who don't agree with that.

Court: I've got to disagree with that, Wally.

Zelman: Can I finish? You give isolated examples of people making money in managed care and premiums going up. But the fact of the matter is, California premiums are 10 to 40 percent lower that any other state that's comparable. The average profit in California health plans is 1 percent. So this has been a very, very tough industry and the consumer advocates tend to just ignore the economics of it.

I was in the Clinton administration. I remember when he first came into office. Medicare was going up 14 percent every year. Medi-Cal was going up 14 to 16 percent every year. Private premiums were going up 12 to 16 percent every year. Clinton, slamming his fist on that table at that Little Rock conference, was saying, "If we don't get these damn health care costs under control, we're wrecked". HMOs have done that, but nobody gives them any credit for the enormous economic lift. In California there have been virtually no premium increases in five years.

Q: Jamie, how do you respond?

Court: I would take issue with so much of what was said. Let me just say that this is a profitable industry. Anyone who has any historical memory will recognize that in the early '90s, HMOs had rates of return that were extraordinary on Wall Street. A couple of the HMOs didn't live up to their promise. They didn't manage care, they didn't manage costs, and their stocks collapsed. But that was due to the nature of this business. An industry that is dedicated to managing costs alone will never take care of managing care.

The biggest issue in this state is that we have a state law that's very simple, the Knox-Keene Act. It says medical decisions have to be independent of fiscal and administrative considerations. That's what the people of California have as law, that's what the people of California deserve, and that's not what happens today because there aren't safeguards for the patients. Medical decisions are compromised by financial considerations and that is wrong. If HMOs promise a package, they should deliver on it. If they advertise that this is what you're going to get, they should produce it.

Q: You're not proposing that we go back to fee for service?

Court: No. In fact, when we were in the fee-for-service system, we were roiling against medical negligence committed largely by doctors. Ralph Nader asked us to take a look at medical negligence. We found there was an element of corporate interference in that medical decision-making process. But our laws are not set up to deal with that corporate interference. For instance, try to sue an HMO for straight-up medical negligence and you can't take them to court. There's no accountability.

Zelman: In the old system, the doctor did whatever he or she wanted, and we now know it was often much, much too much. And the incentives were to do more. The doctor passed the bill on to the insurer, and the insurer passed the bill on to the employer. And what nobody understood was, the employer passed it on to the employee in terms of lower wages.

Finally, in the late 1980s and the early 1990s, when we were going through year after year after year of double-digit increases in health care, the employers and the government got together and said, "We can't do this anymore." They basically charged the HMOs with doing the dirty work of cleaning the fat out of the system and telling people, "You can't have everything". The HMOs have been in this difficult bind of trying to deliver the care that this population wants while at the same time trying to keep the costs in check.

If Jamie's right, and there's so much consumer dissatisfaction out there, and so many people want so much more out of their health care system, why doesn't some for-profit, Amazon.com, Intel genius come along and give it to them?

Court: Because competition is not based on quality.

Zelman: Forget the quality. Easier access to specialists is how Americans define quality at this point. So why doesn't some entrepreneur come along and say to the American public, "OK, I'm not going to interfere. You can go to any doctor you want, you go to any specialist you want, any time you want." The answer is, it's a thousand dollars a year more, and nobody's willing to pay for it.

Q: Let's go back to the liability issue. Why should HMOs be different from anybody else by not having to go to court?

Zelman: I think the industry realizes we have to deal with the problem whether we created it or not. I think that's why the industry endorses an external review process now. Individuals, if they are denied something by their HMO or by any insurer, should have the right to have an independent panel of physicians review it and say whether the HMO has to give it to them. We think that is the quickest, simplest answer.

Q: But what's independent?

Zelman: The state is going to pass a law and they'll define what independence means. Jamie would like you to believe that the right to sue is the equivalent of the First Amendment. It isn't.

Court: It's actually the Seventh Amendment.

Zelman: You've got to keep the costs down, and so we think we have a better, faster, simpler, surer solution than the right to sue your HMO and collect years later.

Q: Is costly, lengthy litigation the most appropriate way of dealing with these issues?

Court: I don't think anybody wants to get involved in costly, lengthy litigation. The liability system is the system of last resort, and it's going to improve the internal appeal system. If someone brings a lawsuit and it's not reasonable, it's not going to be won. You have to have liability, but we would welcome an independent review process if it's truly independent. We have some criteria that are a little different about what makes a review process independent. We think a system run directly by a public entity that farms out reviews to private clinicians, and that allows those clinicians in serious cases to do a physical exam of the patient, would be a first step before we hit the liability system.

Q: That's what really scares consumers the notion that the deck is truly stacked.

Zelman: Well, we're trying to unstack it.

Court: You've been unable to until now. You've had 10 years.

Zelman: In my view, the added piece of liability is very expensive and unnecessary. We've got to see if we can solve the problem by external review before adding on the liability. Just yesterday, I spoke to a health plan in Texas, where they have the new liability law (that allows patients to sue for damages for medical negligence and quality-of-care violations). They say they are raising their premiums 15 percent this year. They can't count exactly what everything is, but they think about 7 percent of the 15 percent is liability.

Court: But there's only been one lawsuit under the (Texas) HMO liability law.

Zelman: No, there are two now.

Court: Texas, as a model for this (liability) law, is an incredible model. What doctors report is that they are getting deference from HMOs. HMOs are no longer not returning their phone calls.

Q: So you're saying the Texas model is really something California should look to?

Court: Yeah, in fact the Texas Department of Insurance did a study that in the first year of the law, costs went up 1 percent. What's the average HMO increase in California, 9 percent?

Zelman: It's not 9 percent.

Court: You're disingenuous.

Zelman: Kaiser went up 12 percent and the average is probably 7 or 8. The point is, California health care costs have been rising much slower than the national (average), and that's an enormous value to Californians, which you give no credit for.

Court: No, no, no. You could cut the HMO rate by 20 percent but if you don't get the benefit, what's the point?

Zelman: (In Texas) they are beginning to approve things they don't really think they should approve, but they are afraid of getting sued. That's where the costs come.

Court: The thing that's not being talked about here is what HMOs take out of the system. These are quick-buck artists. What HMOs are taking off in profits and administration is 25 cents on the dollar. Are they providing care? The HMOs today are not in the business of providing care.

Zelman: We have the most aggressive competition between HMOs in California than in anywhere else in the country. We have the lowest premiums anywhere. That is the truth.

Court: Four HMOs serve 80 percent of the population.

Zelman: That's correct, but wait a minute.

Court: And that's the most aggressive health insurance market in the country?

Zelman: Yes, it has been consolidated a lot, but it's up to antitrust enforcers to look at that and say when it's been too much One of the reasons the quality of health care is not what it should be is because (employers) are not demanding the quality. They have been demanding lower costs, and the employees are demanding more choice. (People) think choice is quality in health care, but it's not. We would all like to be able to go to any doctor, at any time. But I'm not prepared to pay the cost of it.

Q: If you look at our list of highly paid CEOs you can't help but notice that there's a lot of HMO guys on there.

Zelman: Public relations-wise, yeah, I wish it weren't true. But the fact of the matter is, when you go to buy anything in the marketplace, be it something important like food, like an airline ticket where your life is at risk, do you think "What are they paying their CEO?" "Are they making a profit?" "Are they not-for-profit or for profit?" No. You say to yourself, "Are they doing a better job than somebody else?" Since when is making profit an evil in America? I think we have to assume, in most cases when a company is making a profit it's doing well but to Jamie, it's making a profit because they're screwing the consumer

Court: Whoa whoa whoa

Zelman: But that's what you're saying.

Court: That's not what I'm saying. I'm saying if you look at the HMOs that have survived

Zelman: No.

Court: Well, you attacked me so I get to respond

Zelman: I think a lot of opponents of HMOs think there is something magical about HMOs. That profit there is evil and that if a plan is doing well, it is by definition screwing its people, rather than serving them well and attracting more employers into the plan and making a profit as a result. There are a few examples, sure, of people making big money, but I don't know for sure if the head of Blue Cross is making more than the guy who runs American Airlines. These are giant corporations. I'm not saying if you could get somebody who would do it for less, you shouldn't, but if I were on the board of directors of a multibillion-dollar corporation, I would say "I don't care how much we're paying our CEO if he's better or she's better than somebody else."

Court: But that's not how it works in the HMO industry. The CEOs who have profited in this industry have run down their companies to hell the point of this industry is not to help the patients, the point of this industry is not even to help the stockbrokers, the point of this industry is for the people at the top to find ways to expand and get rich.

Zelman: I think the point of this industry is the same as every other industry.

Court: No, it isn't. It's not to get a high-quality product.

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