SEATTLE-Managed care plans must replace their desire for short-term market advantage with long-range strategies for pleasing consumers or face an age of intense, sustained regulation by Congress and state legislatures, a federal health official and a leading consumer advocate warned HMO executives last week.

Bruce Merlin Fried, director of the Office of Managed Care at the Health Care Financing Administration, and Ron Pollack, executive director of Washington-based Families USA, told those attending the American Assn. of Health Plans' annual meeting in Seattle that even more massive regulation of managed care than is now taking place may be imminent.

"I suspect we're going to see a whole new array of consumer protection provisions that will come out of this Congress," said Mr. Fried, the administrator for Medicare and Medicaid beneficiaries enrolled in managed care plans. "All of this is a government response to a market that has failed to provide those things that society feels are important."

Although Mr. Fried praised the quality rules that AAHP has imposed on member plans (see story, page 24), he called the initiative "a baby step, only the first step."

"The challenge is to move beyond short-term objectives to major investments in quality aimed at patient satisfaction," he said. "This is an industry in an adolescence. So much of your efforts go to capturing market share."

HMOs as an industry have the opportunity to avoid severe regulation, but he hinted that their existence may be changed dramatically and involuntarily if they don't mature soon.

"If you can see the vision, if you can see the opportunity of that kind of strategy, you can become an institution as powerful and important and worthy of consideration as consumers, as government, and as the other institutions in society," he said. "If you don't, society will find other ways to get what it wants, and if you can't be there at that table, there's not going to be a table for you to be at."

Mr. Pollack predicted new regulation of managed care plans is inevitable. Although Americans are mostly satisfied with HMO care, he said, they firmly support legislation reining in HMO decisions on patient care.

"I believe the American public actually believes they are at risk even at the same time that they believe they are receiving good care from the HMOs they are in," he said. He especially detects "a new receptivity among state legislators to go further and faster" in regulating the industry.

Heightened regulation will come in may forms, including continued tinkering with HMO operational rules, such as policies on emergency room care and bans on so-called gag clauses in physician contracts.

But the "new frontier of liability" may be the realm of the courtroom, as state legislators give the public power to sue managed care plans for malpractice or other torts, he said. Texas has enacted a law allowing malpractice suits against HMOs, while Missouri and New York lawmakers are considering such proposals.

However, laws that regulate treatment of specific illnesses should be avoided, he said. "Consumers should no more welcome rigid rules about care from legislators than from insurance or HMO executives."