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HMOs reforming — under pressure

But now consumers are bearing brunt of spiraling costs

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The backlash against managed-health care that pushed a patients' bill of rights to the top of the political agenda in Washington has already forced important changes in medical care for millions of Americans.

Whatever the fate of the patients' measure passed by the Senate late Friday — and it still faces passage by the House and a possible veto by President Bush — managed care is evolving under pressure from doctors, patients, consumer advocates and employers.

Two-thirds of health maintenance organizations, for example, no longer require approval from a health-plan nurse before a patient can be admitted to a hospital or see a specialist, industry research shows. Members of many plans can appeal denials of care to independent outside reviewers, a legal requirement in 41 states.

But the changes have come at a price. Health-care costs, kept in check during the late 1990s at least in part by managed care's strictures, are again spiraling, economists and industry executives say, rising in double digits this year and last. Through mergers and growing public demand for greater choice, hospitals and medical groups have gained bargaining clout with health insurers; meanwhile, drug companies' advertising has unleashed consumer demand for costly medications.

As the economy slows and business profits weaken, more of these costs are shifted to consumers. The affluent are paying for their freedom of choice, analysts say, while the less affluent are offered only restrictive health plans or cannot afford the rising premiums and co-payments that come with greater freedom.

"If you want to go to the expensive place in town, you pay more," said Margaret O'Kane, president of the National Committee for Quality Assurance, a nonprofit accrediting group for health plans.

In the meantime, managed-care companies — their stocks and profits pummeled and their reputations pilloried — are striving to give themselves a new face and name. "Nobody particularly likes the term 'managed care,' " said Karen Ignagni, president of the American Association of Health Plans, an industry group.

These days, United Healthcare, one of the biggest for-profit insurers, prefers to call its services "coordinated care." And after years when there was more talk than action about preventive medicine, more health plans are sponsoring elaborate programs to help manage the health of the one in 20 people with chronic illnesses like diabetes.

Many employers are insisting that health plans provide these disease-management programs, noted George Metzger, vice president for human resources and benefits at Textron Inc., a manufacturer with 30,000 employees in the United States, most in some form of managed care. Other companies taking this approach include General Motors, Coca-Cola and Georgia Power.

Industry analysts say at least 1 million patients are now monitored by health insurers, usually via telephone calls from nurses. Employers hope that these programs will save money in the long run by keeping patients relatively healthy and reducing hospital admissions.

"Sixty percent of my costs over the next decade will be basically in a dozen to 18 chronic diseases," said Allen Feezor, head of health benefits for the California Public Employees' Retirement System, or Calpers, with 1.2 million insured people.

In Whittier, Calif., William Wilkinson, 73, said that since he retired as a telephone plant manager eight years ago, he has had "two heart attacks, a stroke that affected my eyesight and I ended up with diabetes."

Every morning, he takes off his pajamas and gets on a scale that transmits his weight to a monitoring station in Las Vegas. An electronic voice reminds him of his goals and asks questions that he answers by pressing yes and no buttons.

"If my weight goes up or I say I am coughing more than normal," he said, a nurse named JoAnne "will call me." The monitoring, paid for by his HMO, Pacificare Health Systems, has prompted Wilkinson to lose 22 pounds.

"That automated voice comes on, and I know that JoAnne is going to call me," he explained. "I don't like to disappoint myself, and I don't like to disappoint JoAnne."

Still, conventional managed-care techniques — including the hurdles to obtaining treatment that spawned the patients' rights campaign — remain far more common than disease management programs.

Most of the 80 million Americans in HMOs still need prior approval from their primary physician to visit a specialist, even if that choice is less likely to be second-guessed by a health-plan nurse. And at least half of those primary doctors get a fixed, monthly fee for each HMO member — the so-called capitation that critics say gives doctors a financial incentive to rush patients through visits.

At least 100 million Americans are covered by less-restrictive preferred provider organizations, or PPOs, according to Interstudy, an industry research firm.

Members of these plans are encouraged to pick doctors who have agreed to reduce their fees. But in many cities, these networks now include nearly every doctor. For instance, participants in the PPO network plan offered by HealthPartners in Minneapolis can choose among 10,000 of the area's 11,000 doctors.

But changes in the health care marketplace have diminished the insurers' clout and their ability to contain costs. Hospitals have merged in many cities and wield a stronger hand in payment negotiations with insurers. In Cleveland, for example, the Cleveland Clinic and the University Hospitals, with their affiliates, control more than 80 percent of the market. Hospitals in Cleveland are now winning rate increases as high as 15 percent for some services, a health plan official said.

"Health plans can no longer bully and threaten the providers of care," said Uwe E. Reinhardt, a health economist at Princeton University.

Increasingly, costs are being passed along to consumers, in the form of higher insurance premiums and co-payments.

In California, for example, Calpers raised out-of-pocket costs for a doctor visit to $10 for HMO members. Prescriptions can cost as much as $30, instead of the old $5 co-payment.

On average, employers are absorbing three-quarters of the increases in health costs this year; even so, workers are paying 7 percent more this year than last, according to Hewitt Associates, a benefits consulting firm.

Industry experts say the slowing economy may already be driving more employers and workers toward more restrictive managed care.

Empire Blue Cross and Blue Shield, a major New York area insurer, was promoting looser, more costly plans. But Dr. Michael Stocker, the chief executive, said employees of small and midsize concerns have recently been joining HMOs at twice the rate of a year ago.

"It seems to be related to the economy," he said.

Other insurance executives said they had not seen a similar shift. But Dr. John Rowe, chief executive of Aetna Inc., the largest managed care company, predicted that companies in industries hit hard by the economic slowdown will move to benefit plans giving employees a fixed amount to pay for health care. Some lower-paid workers will probably use the money to join a low-cost traditional HMO, he said.

Kaiser Permanente, the biggest nonprofit health maintenance company, has never liked the managed care label, preferring to be known as an "integrated financing and delivery system." Dr. David Lawrence, chief executive of the Kaiser Foundation Health Plan and Hospitals, said managed care has now demonstrated the limits of its effectiveness.

"The managed care movement of the last decade was really a financing system that was attempting to influence the way a group of fragmented, unintegrated physicians and hospitals practiced medicine," he said. "What was discovered was that when one uses financial tools to try to change the delivery of care, A, they are not very powerful and, B, they make people mad."