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Managed care organizations are learning there is a downside to the dominant role they've assumed in health care.

Their lessons, though, could cost employers.

Perceived public ire over managed care practices has prompted legislative mandates. Because many of the mandates only recently have been enacted, their financial impact on managed care plans have not been felt-yet. Still, experts think mandates will mean higher premiums.

"If you legislate certain procedures, it will increase costs," said Lee Exton, a consultant with Watson Wyatt Worldwide in Los Angeles.

Said Jonna Kurucz, director-health care policy for Prudential HealthCare in Roseland, N.J., "It will ultimately be felt by the consumers and buyers." She added that expected rate hikes by some HMOs for 1998 are related to these new laws.

Premiums now rising in the single digits could go up by double digits next year (BI, July 7).

Managed care companies' shift away from a single-minded focus on cost-cutting is taking place despite widespread criticism of the new laws from experts and health maintenance organizations themselves and evidence that people like their HMOs.

Many factors have spawned the backlash against managed care. And managed care entities, while making improvements, are working to change how they operate and how the public perceives them.

HMOs have come under more scrutiny as their enrollments have surged in recent years.

"They were unprepared to manage and unprepared for the responsibility of being mainstream medicine," said Michael Millenson, a consultant with William M. Mercer Inc. in Chicago.

Tom Billet, vp-national practice for The MEDSTAT Group in Stamford, Conn., said, "As more and more people get into managed care, it will continue to attract the attention of federal and state regulators, and we will see more regulation than we have today."

Also, managed care reforms are easy for lawmakers to support in light of stories about HMOs denying people care.

"Politicians are looking for ways to capture the interest of the public and represent causes that are public," Mr. Exton said.

"It's win-win for politicians to represent their causes and bring those issues to the Congress for a vote. They come out looking like the good guy," he said.

"The threat of impending legislation has provided some impetus to HMOs to look at quality," he said.

The backlash has approached a whipping. So far, 33 states have adopted some sort of comprehensive approach to regulating managed care, according to figures compiled by the Health Policy Tracking Service of the National Conference of State Legislatures.

Also, 48 states have either adopted or are considering legislation to outlaw so-called gag clauses, which prevent HMO providers from discussing more expensive treatment options with patients. In addition, 11 states outlawed "drive-through mastectomies," and 26 have adopted laws allowing obstetrician/gynecologists to be classified as primary care physicians, the Tracking Service reports.

Both HMOs and employers say the legislation is not a reasoned response to any concerns.

"It's a matter of thinking rather than reacting emotionally to a perceived threat," said Susan Laudicina, director of research for the Blue Cross & Blue Shield Assn. in Washington.

"Sometimes lawmakers seek simple solutions because they are easy to understand and are popular. But the easy solutions, such as mandates, do not make health care better," she said.

A large part of the HMOs' efforts have gone toward defeating "any willing provider" legislation. These laws open HMOs to all providers who meet the HMOs' requirements. Such laws cause HMOs to "lose control over the coordination of care," said Fran Tracy, vp of government affairs at Blue Cross & Blue Shield of Maryland in Owings Mills, Md., and "would significantly damage the cost-effectiveness of managed care."

Any-willing-provider laws "will eventually throw us back to the 1970s," Mercer's Mr. Millenson said, referring to a time when fee-for-service was the dominant health care model.

Critics of HMOs, including the public, tend to forget the numerous problems that existed under the fee-for-service system that led to the growth of managed care, experts say.

"The myth of a lost 'Golden Age' of medicine before the advent of managed care should be rejected," wrote Mr. Millenson in a report entitled "Beyond the Managed Care Backlash: Medicine in the Information Age." "Marcus Welby isn't just dead; he never lived in the first place," the report says.

Twenty-three states have passed some form of any-willing-provider legislation, according to figures compiled by the Health Policy Tracking Service. The vast majority of these apply to pharmacies or allied health professionals, such as optometrists, chiropractors and podiatrists, but four-Idaho, Indiana, Kentucky and Wyoming-have laws covering a broad array of providers, including physicians.

But to date, the most common legislation is mandates, which employers generally oppose.

Legislation protecting consumers already exists but is not strictly enforced, said Helen Darling, manager, international compensation and benefits for Xerox Corp. in Stamford, Conn. "All the legislation needed is there. You don't have to pass any more laws; all you need is to enforce the ones that are already there," she said.

The laws "send the message to everybody, including the bad apples in the industry, they will be punished," Ms. Darling of Xerox said. The good HMOs won't suffer but "the ones that make money by doing less will be driven out of business," she said.

Said Laurel Pickering, executive director of the New York Business Group on Health: "Most employers are thinking (legislation is) not a good idea. It has the potential to increase health care costs."

Rather than having government control health care, she said employers prefer using the market to cull out the weak HMOs from the strong by "holding their health care plans more accountable," she said.

One such company is The Dow Chemical Co. in Midland, Mich. The company now requires all HMOs it contracts with to provide HEDIS data and receive accreditation by the National Committee on Quality Assurance in order to get the best quality care at the best price, said the company's director of employee benefits, Dr. Geof Kusch. HEDIS is a collection of standardized performance measures that allows comparisons among managed health care plans and is marketed by the Washington-based NCQA.

Dr. Kusch said Dow will drop an HMO from its roster for failing to provide the data or if its quality of care drops too low. Factors including employee complaints are weighed in deciding whether to retain an HMO. This type of market-driven approach will create competition among the HMOs, he said, and make them find the best way to provide quality at a low cost.

"Employers need to make managed care organizations accountable for quality and present the quality information to the employees so they can make an informed choice," he said.

Despite the criticism, the laws have helped correct some problems with the managed care industry. "There's a lot that can be improved" with HMOs, said Joseph Martingale, a principal with Towers Perrin in New York. "You cannot defend managed care in its entirety. There are good ones and lousy ones with the majority somewhere in between."

In the past two to three years the performance of HMOs has improved, said Mr. Millenson. "In that respect, the managed care backlash has been good," he said.

And the laws have made HMOs look beyond costs. "Maybe some groups thought of other than the well-being of the patients," said Richard Sinni, a principal with Buck Consultants Inc. in New York. "And that is now being addressed."

HMOs are making changes and trying harder to get their message out. But one thing that perplexes many is that while managed care seems to suffer in the area of public opinion, one new survey shows the opposite.

A recent Towers Perrin study found that 68% of enrollees in Medicare HMOs are extremely or very satisfied with their health plan. Of the 5,932 people surveyed, only 6% indicated they would not re-enroll in the HMO.

"People don't make noise when they're happy. They make noise when they're unhappy," Mr. Martingale said.

Ms. Laudicina said HMOs are adopting a three-pronged strategy to build trust with enrollees.

The first area is working with legislators, providers and consumer groups to draft legislation that the managed care industry considers reasonable.

As an example, Minnesota this year enacted a comprehensive law that among other items banned gag clauses and provided for disclosure of how HMOs reimburse providers.

Also, health plans have signed agreements with providers that open to enrollees details of the relationships between providers and HMOs. For example, enrollees can learn if doctors are paid on a capitated basis, in which they receive a fixed fee to provide care for a set number of patients. Such agreements address public concerns while preventing legislation from becoming enacted. "That keeps overly intrusive laws and regulations from being written," she said.

The third aspect of the HMO response is a more aggressive effort to publicize the benefits of managed care and counter the stream of stories depicting the HMOs as care-deniers.

To further their goal of promoting the positive aspects of HMOs, the American Assn. of Health Plans is promoting its "Putting Patients First" program. Put out in early 1996, all members of the AAHP have agreed to uphold these guidelines designed to both improve communication between managed care organizations, providers and enrollees and promote higher standards of accountability for health plans.

"The challenge for our community is to look at what there is yet to be done to improve quality and service to all audiences: employers, patients and physicians," an AAHP spokeswoman in Washington said.

Managed care brought the backlash on itself, one benefit manager said.

"They are getting a backlash because they went too far," said Ash Kilada, director of risk management and benefits for Sbarro Inc. in Comack, N.Y. He said that in his experience, managed care companies have cut their services in order to keep their costs low and compete with each other on price. Mr. Kilada says that decreases the quality of care.

And although benefit managers generally agree that the government can't legislate better care, they can act as a watchdog, many said. Fred Hamacher, vp of compensation and benefits for Dayton Hudson Corp. in Minneapolis, said he could envision an organization patterned after the Securities and Exchange Commission that oversees how HMOs grade and promote themselves to the public.

Mr. Exton of Watson Wyatt agrees. He sees government as a third party helping to balance HMOs between quality of care and lowering costs. This can be accomplished by facilitating the gathering and dissemination of information on HMO's performance and other measures of quality.

"The managed care backlash presumes there are obvious good guys and bad guys," Mercer's Mr. Millenson said. "In fact, everyone, the medical community, the managed care companies and consumers, all bear some responsibility for the problems we have in the system and all bear some responsibility for solving them.'