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Posted On: Oct. 29, 1997 12:00 AM CST

The customer is always right. That philosophy is tailor-made for a retail store, but can it also serve as the credo of a health maintenance organization?

Stephen Wiggins, chairman and founder of Norwalk, Conn.-based Oxford Health Plans, has built the nation's fastest- growing managed health care plan by listening to members' needs and responding with innovative, sometimes risky, products.

Mr. Wiggins, 41, started his company in 1986 with a modest amount of venture capital. The HMO's revenues exceeded $4 billion with 1.9 million members as of 1996. It is one of the fastest-growing companies in the nation, in spite of suffering a major downturn in the stock market last week after reporting it would post a quarterly loss.

Before founding Oxford, he created Accessible Space Inc., a non-profit health care company that develops long-term care facilities for severely handicapped people. He spearheaded that venture after his best friend was paralyzed in a diving accident.

Among Mr. Wiggins' many innovations at Oxford has been the recent approval of coverage for treatment by alternative medicine specialists, such as acupuncturists and massage therapists.

Oxford also recently announced it would allow physician specialists to take cases directly from patients instead of demanding that members go through gatekeepers.

Mr. Wiggins recently talked to Associate Editor Robert Kazel about how Oxford fits into the managed care world.

It appears consistently in polls and surveys that people like their personal HMOs, but that they dislike HMOs as a group. What are the implications of that for the industry?

That's consistent with the most vocal critics being always outside the industry. They've always been non-members. The press has clearly demonized our industry. It's easier to write a sensational news story and anecdotes rather than systemic fact, which seldom gets reported.

For HMOs, systemic facts are very positive and do a good job on almost all fronts. But perception is reality, and we must respond and give consumers greater assurance.

In this battle of anecdotes, how can managed care companies fight back and how has Oxford fought back?

I think it's most important to fight back against this perception through the behavior and integrity of the company by delivering quality service, by delivering health services responsibly. At the same time, I think the industry will have to accept regulation and perhaps a new framework for governance to assure that transgressions that might occur are less likely.

Can you explain what you mean by that?

President Clinton's health care commission has been formed to address quality and will soon release a proposed patient bill of rights. Many of the rights being considered pose new obligations on HMOs.

In some cases, they require complete changes of the HMO or internal review by a third party of medical necessity determination after an internal review has taken place. Health plans will have to accept more micromanagement by government in the future.

How much management by federal and state governments are you willing to accept and do you deem it good or bad for the industry as a whole?

Management is bad. Markets based on promoting innovation by containing the cost of health benefits have been very successful at reducing health care costs and encouraging a high range of innovations that might not be possible in a more regulated environment.

What do you think about the future structure of managed care programs, specifically preferred provider organizations vs. point of service plans vs. HMOs? Which will predominate?

The structure of health plans of the future will depend on consumer demand and how responsive the industry is to those demands. Choice will continue and is the most important consideration of buyers of benefits. Less restrictive plan types are popular because they deliver the fewest restrictions.

I believe we're headed for even greater choice as all plans find more creative ways to manage choice, perhaps using less control and more of a management model, consequently developing products that may take us back to the old scheduled plan of the indemnity world. These would be the first health plans to deliver HMO-level costs with indemnity-level freedoms.

Are we in for an upward trend in the long term for prices?

The upward trend we are experiencing right now is primarily driven by underpricing historically. Health care costs go up. HMOs have succeeded in moderating the cost increase.

Any insurers that have to win market share price their products below their cost and are now having to catch up. But overall, I'm certain we've had health inflation levels at half historic indemnity levels.

What would you say to benefit managers about the long-term rates during the next five years?

For purposes of setting budgets, I would tell them to expect a 3%to 5%cost increase.

Would that be true in areas where purchasing coalitions are active? In general, what effect do you think coalitions have on the industry?

They gang up on health plans and not providers. If the purchasing coalitions expect to put their buying powers on providers, we would see inflation down. Purchasing coalitions will not change the underlying cost. They may change it temporarily if the purchasing coalitions pay for their own insurance, but that would be a short-term phenomenon.

I believe it's a myth that large employers get a bargain.

In many respects the large employers are more exposed to true health insurance inflation trends because they predominantly self-fund their benefits. The purchase of insurance and the competitive market for health insurance make it so that smaller companies can move from carrier to carrier and shield themselves from inflation effects longer than a self-funded employer can achieve.

Do you believe that managed care groups need to have a mission beyond making money, and how does this relate to managed care's need to do research for the industry?

Any health plan that has as its mission solely making money soon will be out of business and out of money. Any organization of any type must have a mission that focuses on its customers first. In the health plan industry, I would focus on the health of our members and improving optimal healing for those members who are in the middle of a disease.

Most health plans are full of very high-integrity people that believe health plans offer a platform for good while doing well. What I mean is, it is rewarding personally while responding to a greater social mission.

Health plans are uniquely positioned to affect people's lives, and every health plan has many employees who every day do their jobs with a higher mission in mind or a higher calling in mind.

As regards research, many health plans are out front on the issue of research. Oxford started the largest initiative to fund outcomes-based research. We spend $2 million a year on outcomes-based research.

Health plans have no responsibility for funding medical research. Car companies and sewing machine manufacturers and insurance underwriters did not create a social obligation to fund research. The organizations funding research, and there are many, are doing so out of their own sense of mission.

I invite you to find a car company or a clothing manufacturer doing the same.

So where does the perception come from, and you hear it all the time, that HMOs are not doing research?

It's just a perception. It's just Part Two of the continuing saga of the demonization of HMOs, seldom based on fact and always based on conjecture.

Looking at the recent past, what were the most significant changes for managed care in general and for Oxford in particular?

Well, there are a number of significant changes. The past five years have seen an almost total collapse of the private indemnity market for health insurance. Most of the biggest names in insurance are exiting the business or experiencing dire financial results.

I think a second profound change has been the heightened consumerism in health care -- the fact that more people have more information about health services they seek than ever before. That is creating new demands on health plans to be responsive to what customers want.

We also see health plans offering unique benefits such as alternative medicine, changing their policies to accommodate alternative lifestyles, eliminating friction such as gatekeeper requirements.

What were the biggest changes at Oxford during the past five years?

Well, we've gone from a small company to a Fortune 300 company. I'd say that's a big change.

How was that possible?

In 1996 we were the fifth-fastest growing company in America of any type. We were the fastest growing health plan by far. That created a complete transformation of our organization, principally due to scale.

To what do you attribute your success?

Excellence in running health plans comes from doing lots of little things well. It's not possible to point to a single strategy or action that uniquely drives long-term success. Success is complicated in this business.

We're in a period now in which HMOs face increasing scrutiny. Do you think HMO report cards and other evaluations of this type are good for the industry?

All external appraisals will serve to improve the quality of our industry. I welcome them. I wish there weren't so many. The cost to health plans for NCQA accreditation requires far too significant a resource, an expenditure, to maintain accreditation than is appropriate. NCQA needs to develop better ways to measure the quality of health plans. We're forced to collect information just for them that serves no other purpose.

What would you rather see happening?

I would rather all these review organizations come up with a single, consistent method for assessing health plans and the overall governance of our industry so that we are no longer dependent on independent agencies. We should instead create a framework much like the securities industry has achieved where the disclosure of information allows consumers to see information that is important to them on each health plan and compare for themselves.

Are you in favor of information being presented in the form of a report card?

As long as the report card is specific to the consumer's choice. If it's a report card on a doctor, it should be related to how that physician performed for the specific service they are seeking. If it a report card on a health plan, it should relate to the specific product they buy; it shouldn't relate to the entire health plan.

Are you in favor of physician groups as well as individual doctors being evaluated in report cards?

Absolutely. But you measure medical groups for different things. Individual physicians in medical groups need to be measured because a medical group doesn't perform bypass surgery. We need more information on the quality of that individual.

In evaluations, how much emphasis should be placed on outcomes instead of the processes of health care?

Let me turn the question to you: Would you or any patient care about the process or the outcome? What's most important to you will always be the outcome. I believe outcomes are more equally measured and lend themselves more easily to measurement more than processes.

Also watching HMOs more closely in the next few years will be the federal and state governments. How likely is it that HMOs will come under increasing regulation in the next few years and how will the industry respond to it?

You will continue to see body part by body part initiatives that create more mandates that further standardize benefits for those employers seeking fully insured coverage. Larger employers that are self-funded will largely be immune from the regulations, which are predominantly being enacted at the state level, because of their ERISA protection. The alternate result will be to discourage innovation and raise premium costs.

Do you see increased lobbying by managed care plans or more lobbying by an association that will combine the efforts of many managed care companies?

We are at a very unfortunate point in our political evolution right now. Anecdote is winning the political debate. The industry really tries to be a reasonable voice in the debate. Unfortunately, interest group politics are too irresistible for most politicians. The road for them is to buy into the conjecture and anecdote.

The much harder job is to defend market-based reform and free market principles. Over the three years, the free market is getting shut out. We're losing the game on regulation.

What opportunities do Medicare and Medicaid risk HMOs pose for the industry and for Oxford?

Medicaid has proven to be a very dangerous program to commit to, principally because state governments cannot be trusted to maintain adequate funding levels. Politicians seem to think that cutting Medicaid reimbursement rates is something they do to HMOs but not individual subscribers.

In one state, Medicaid reimbursement to HMOs was cut from $190 to $117 a month in just two years -- after they added a prescription drug program, which would actually make the reduction even greater.

These cuts have had a profound negative impact on the choice and ultimately the quality of service available. No health plan in their right mind wants to be a party to administering the government's aimless budgetary maneuvers.

Medicare is a completely different animal. There's still hope that a public-private partnership can be achieved in serving seniors.

It will be interesting to watch what Medicare does to reimbursements, because many federal government officials are starting to sound like state officials in their belief that premium cuts are made to health plans and not beneficiaries. I hope they don't follow the same foolish path that has led to a mass exodus from state Medicaid programs from high quality HMOs and has led to massive benefit reductions for consumers.