Health Care News & Discussion
Managed Care & Medical Practice
03/04/1997 1:06 PM
What goes on between office visits is the second best deal in health care delivery–it’s free. But isn’t it delusional to believe that someone with any significant disease can receive yearly care in two five-minute office visits plus about 45 minutes of uncompensated time from the physicians between office visits? No wonder for-profit HMO Executive’s want to eliminate psychiatry–they don’t want their disease diagnosed.
Mismanaged Care: Wall Street takes the scalpel to For-Profit HMO companies. Investors recently have been trashing the stocks of publicly traded FP-HMO companies. Why? Because Wall Street thinks managed care firms haven’t done enough to control costs.
Bad Medicine: Mergers are to blame for some of the shabby earnings performances. FP-HMOs have been buying each other with a vengeance, and traditional health insurers have been buying FP-HMOs too. Bigger may be better eventually, but the short-term problems have been severe. PacificCare admits that in the commotion accompanying its February acquisition of FHP International, it didn’t do a good job of controlling medical costs. Aetna’s effort to integrate USHealthcare after it purchased the FP-HMO pioneer last year meant letting go thousands of employees and closing dozens of data centers. The result was a big claims backlog. “When the dust settled, we were running at a higher level of costs than we thought we were,” says Aetna CEO Richard Huber. The tumult of the $110 billion-a-year managed-care business has been compounded by computer snafus. Indeed, most of Oxford’s problems stem not from an acquisition or merger but from glitches in a new computer system that led it to overestimate revenue and enrollment and under-estimate costs.
FP-HMOs are still essentially insurance companies and are prone to cyclical ups and downs in their profits. The temporary windfall profits stem from medical costs falling faster than anyone had anticipated… Thank you doctors.
Drug costs are up sharply for seniors on FP-HMOs. More drugs without a generic version are being charged a $25 co-payment. Most seniors don’t see this as a bargain since they are unaware that many of these drugs would cost nearly $100 a month without “senior care.”
Health-care inflation was kept in check in 1997. Although costs have gone up, the shift of Americans to managed care plans increased from 52% to 85% in just four years keeping the overall inflation rate to only 0.2%. It is estimated that fewer of the remaining patients in expensive plans want to shift into cheaper HMO plans. Hence health care costs are expected to rise sharply in the near future.
A CPA told me about giving his daughter a horse. As he was from the city, he went to a stable to see about someone caring for the horse and providing a place to ride. He was quoted a price of $180 a month–plus the stable kept the manure. He shopped further and found a stable that would do it for $120 a month–plus keep the manure. The third stable quoted him a price of $60 a month. After a pause, the father asked, “Who gets the manure?” The stable owner said, “For $60 a month, sir, there ain’t no manure.”
The Medicare formula for long-term hospitals is to pay them in future years based on their costs in one early year. The higher the hospital costs in that one year, the more the hospital can collect in later years. Michael Barr, a respiratory therapist, capitalized on the market by entering an exempt industry, long-term care, and then utilizing congress’ lack of understanding of medical costs. In the base year, Vencor’s costs were high. This allowed them to continue to receive high collections as they cut costs faster and thus make an inordinate amount of profit. Since start-up cost would be prohibitive without this advantage, these rules essentially prevent competition from entering the long-term care market. . . Isn’t anyone upset with enterprising techs making a killing at taxpayers’ expense on government regulations?
The federal government pays HMOs $512 per month per enrollee to care for any Medicare member. The HMOs are required to offer the same benefits that Medicare provides and can add to them. As near as we can tell, they are able to do this for about half that or $250 a month. They then use an additional one-fourth or about $125 a month for pharmacy, dental, and/or vision plans. That still allows the final fourth for profits. Doctors, the brains of a patient’s health care delivery, traditionally received about 20% of the health care dollar. HMOs have reduced this to about $40 per member per month, or less than 10%. Managing life enhancing and death defying decisions has fallen to about the same rate as managing a horse pasture–except you keep the manure as your bonus.