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HMOs - the end of the line?

No, not really.  But I personally wouldn't buy any stock in FTP.

I believe that HMOs will be around for a long time.  But I also believe that the heyday of the for-profit, Gekkonian-style HMO is coming to an end.

Just considering the demographic facts of life outlined in Chapter 2, it is inevitable that, sooner or later, society will find it unconscionable for these organizations to continue siphoning off large proportions of the healthcare dollar for profit - especially when it is debatable whether they are contributing anything substantial to the actual delivery of healthcare.  Sooner or later, we will become very indignant about the for-profits.

But my guess is that the for-profit HMOs will fade from the scene on their own accord, well before the rest of us get exercised enough to do the job ourselves. Gekko has shown us why.

It is looking more and more as if there is a natural life cycle to for-profit HMOs. In their early years, their meteoric rise was not attributable to their efficient management of healthcare, but instead to their rapid growth and subsequent consolidation, and to the acquisition and privatization of public assets.  As the opportunities for rapid growth dry up, as the opportunities to select the most desirable enrollees fades, and as public officials, government agencies, and the general public become wise to their ways, Gekkonian HMOs are finding their traditional methods for making money no longer feasible.  

As is the case for FTP, very few for-profit HMOs have ever done well financially by managing the healthcare of their subscribers. My prediction is that they will ultimately find it so difficult to make a profit in this way - at least enough profit to keep their shareholders happy - that that they'll eventually get out of managed care on their own.  

This is especially likely, in my view, when you consider that the Wonkonians have never gone away - they're still there, still as active as they can be while waiting for their chance to assume their rightful, regulatory control of the healthcare system.  Imagine, if you will, the for-profits - seeing that their days are numbered - whispering in just the right places that, for the right price, they would be willing to consider selling their business to the government.  It wouldn't be the first time the government assumed control of a formerly powerful industry, nor would it be the first time the owners of that fading industry would get one, final, huge windfall for their troubles. Remember the railroads?

So, if I'm right, we the taxpayers will get one last chance to contribute to the welfare of Gekko and his brethren.  If so, perhaps we should consider it a reasonable price to pay for bringing the era of the for-profit Gekkonian HMOs to a close.

The meaning of the Gekkonian era

While acknowledging that the demise I've just predicted for the Gekkonians may be a bit premature, let's still conduct a postmortem.

The positives - incremental efficiencies

On the positive side, the Gekkonians have focused the attention of everyone within the healthcare system squarely on the issue of costs.  Today, in any healthcare organization, no purchase of any sizeable item is made without first carefully considering how badly the item is needed, calculating the full cost of ownership, and defining clearly who will pay for the expanded services made possible by the new item.  This is a fairly radical departure from just a few years ago, when hospitals often purchased high-cost equipment of marginal value just to keep up with their rivals across town.  

Similarly, the fiscal pressures brought to bear on doctors and hospitals by the Gekkonians have resulted in many true improvements in efficiency. This is because when the providers are squeezed by the payers, not all the cutbacks they make are in useful or worthwhile services.  A lot of wasteful endeavors are cut too. In fact (despite perceptions to the contrary), when providers are forced to cut back, they usually try preferentially to eliminate the inefficiencies.

So the Gekkonians have driven our healthcare system to become leaner, meaner, and more in fighting trim than it was before.  We may have made the same changes eventually even without the Gekkonians, but it probably would have taken longer.

The negatives - facilitating covert rationing

On the negative side, the Gekkonians have greatly expanded our capacity for covertly rationing healthcare.

HMOs are supposed to ration.

That HMOs ration healthcare, of course, is beyond question. Indeed, in 2000, the U.S. Supreme Court ruled that HMOs are supposed to ration healthcare.  

The case in point was Pegram et al v. Herdrich, in which the Court heard the complaint of a Ms. Herdrich, whose appendix ruptured after her HMO doctor - who was under financial incentives to spend less money - delayed the diagnostic tests she clearly needed.  Justice Souter wrote the Court's unanimous opinion in favor of the HMO, declaring that rationing healthcare was the very point of HMOs, and that Congress had a 27 year history of passing legislation encouraging HMOs to do just that.  If Herdrich (or anybody else) doesn't like that fact, Souter said, they need to petition Congress, not the federal courts.

Souter invoked the GUT-HC in all but name in writing this opinion. He especially stressed what we've called Corollary One: When HMOs can take in only a fixed amount of money from premiums (thus creating a centralized pool of funds), but are at risk for having to spend unlimited amounts of money on their subscribers' healthcare, there must be a system of rationing in place.  It's just math.

Justice Souter further implied that patients themselves have not been entirely innocent casualties of "secret" rationing by HMOs.  Patients who abandoned their more expensive fee-for-service insurance for cheaper HMOs should have known what they were getting into, and should not think of themselves as blameless victims. (Ms. Herdrich learned this the hard way.) As healthcare expert David Mechanic has said,

"Enrollment in an HMO is really an agreement between the enrollee and the plan to accept a situation of "constructive rationing". . . .For a lower premium, more comprehensive benefits, or both, the consumer implicitly agrees to accept the plan's judgment as to what services are necessary."  

Patients may not consciously realize that they've made this agreement, but it's pretty certain that the healthcare economists, academics, HMO directors - and the Supreme Court - realize it. And accordingly, patients and their health have become fair game.

So, faced with the mathematically necessary, Congressionally legislated, Supreme Court sanctioned, patient-acquiesced-to, but socially unacceptable mandate to ration healthcare, what is Gekko to do?  He's got to ration covertly.

Whether or not Gekko really understood (or cared) that he was advancing the cause of covert rationing is actually quite irrelevant. Whatever he did or didn't think about it, that's clearly what he was doing. His most blatant covert rationing endeavors, perhaps, were the extensive efforts he made to exclude "expensive" patients from the healthcare system.  More subtle were the pains he took to pry all those not-for-profit healthcare institutions out of their fundamentally charitable charters, and launch them into the wild, wooly world of for-profit healthcare.  But the most far reaching was his utterly overwhelming campaign to destroy the doctor-patient relationship.