By David S. Hilzenrath
Washington Post Staff Writer
Monday, June 30 1997; Page A01

A political backlash is building against managed care across the country as doctors and patients protest what they see as potentially dangerous penny-pinching by the health-care industry. Consider:

In Missouri, the governor last week signed a bill requiring managed-care companies to pay for emergency room visits whenever a "prudent layperson" would have reason to believe that immediate care is needed, even if a managed-care administrator might disagree.

In Hartford, Conn., center of the nation's insurance industry, the state legislature last month approved a bill that would allow patients to appeal to the state insurance commissioner when health plans decide not to pay for their medical treatment.

And Texas last month made it possible for consumers to sue health maintenance organizations for medical malpractice, removing a barrier that had shielded them from liability.

The legislation reflects consumer frustration with managed care, the cost-conscious form of health insurance that has grown over the past decade from obscurity to cover an estimated three-quarters of the nation's private-sector workers. Doctors and patients have been calling for curbs on the managed-care industry's powers, arguing that some companies are profiteering at the expense of patient care, making it difficult for people to get quality medical attention.

Officials in dozens of states have responded by stitching together a patchwork quilt of new regulations. Some of the measures have passed by overwhelming, even unanimous, margins.

On Capitol Hill, the budget bill passed by the House last week would strike at managed care's jugular by requiring Medicare HMOs to defer to doctors on key decisions about coverage. For example, the bill would give the doctor final say over the length of a covered hospital stay.

Opponents are worried that the movement threatens to undermine managed care's success in containing health-care costs. Many of the "patient protections" are more like "doctor protections," inspired by physicians who are feeling the financial squeeze, the opponents said. But even some representatives of the managed-care industry acknowledge that the campaign has gained considerable momentum.

When the Missouri legislature took up its broad managed-care bill, which included the provision on emergency room visits, "people couldn't vote against this bill," said Randy Scherr, a lobbyist for HMOs. "It had to be the number one back-home response issue for most of the legislators."

Missouri Senate Minority Leader Steve Ehlmann, a Republican, said he asked constituents about managed care in his annual legislative survey, and "I was amazed that like 85 percent basically said, `It's broken, you need to fix it.'

"The people who are complaining the loudest are the people you see every day on the street," said Ehlmann, who voted for Missouri's managed-care bill. "They are the doctors and the consumers, and they all have a horror story to tell you about the insurance company that wouldn't pay on the claim."

Enter Health Care Reform, The Sequel.

Four years ago, President Clinton tried and failed to overhaul a health-care system in which costs were virtually unchecked and rising faster than the nation's ability to pay. Managed care filled the void with a variety of cost-saving measures, such as restricting patients' access to medical specialists; limiting patients' choice of physicians; and reducing the length and frequency of hospital stays.

Other cost-saving techniques include: giving doctors pay incentives to practice efficient -- critics say parsimonious -- medicine; measuring individual physicians' use of medical resources; and requiring doctors and patients to obtain approval for coverage of expensive tests and treatments.

From 1992 and 1996, the percentage of workers covered by managed care grew to 77 percent from 49 percent at businesses with 10 or more employees, according to surveys by the consulting firm Foster Higgins. The cost of health-care benefits, which was climbing by 10.1 percent in 1992, rose by 2.5 percent last year, slower than the economy's overall 2.9 percent inflation rate, Foster Higgins reported.

Now, with some voters chafing at the trade-offs, worrying less about costs and crying foul over the alleged excesses and abuses of some health plans, many contend that the solution has become the problem.

Texas Gov. George W. Bush (R) said in a statement that he had misgivings about opening the door to more lawsuits, but accepted the managed-care liability measure "to address a significant problem that impacts the health of thousands of Texans."

In a February poll by Louis Harris and Associates, 38 percent of respondents said they believe managed-care companies such as HMOs "generally do a bad job of serving their customers." In a November survey by the Kaiser Family Foundation and the Harvard School of Public Health, 54 percent said "government needs to protect consumers from being treated unfairly and not getting the care they should from managed-care plans."

Managed-care executives and lobbyists say their own research finds a high level of customer satisfaction. Nonetheless, they say, the system takes getting used to.

"This is a transition that is clearly very difficult for many people," said Susan Pisano, spokeswoman for the American Association of Health Plans, which represents HMOs and preferred-provider organizations. Part of the difficulty, Pisano said, is that consumers came to associate quality with an excess of care under the old health insurance system, which imposed few if any checks on physicians.

Scherr, the Missouri HMO lobbyist, said managed-care consumers have unrealistic expectations. "The people are expecting more than they actually are making a choice for," he said. "Although they are paying less, they think that they're buying a Cadillac and that's what they should get."

The regulatory movement has been fueled by a steady drumbeat of publicity about alleged failings or shortcomings of managed-care plans. The legislative effort in Texas was energized by a March report in which the state Department of Insurance accused Kaiser Foundation Health Plan of Texas Inc. of "an unacceptable disregard for quality of care issues."

In April, Kaiser agreed to pay a $1 million fine. Missouri lawmakers were galvanized by an August 1996 letter from MetraHealth, a managed-care company, advising customers to contact their doctor instead of going straight to the hospital "for non-emergency conditions such as high fevers in infants" and "broken bones." MetraHealth later apologized for the letter.

Some of the legislation has the political halo of motherhood itself. By the end of 1996, 28 states and the federal government had set minimum coverage standards for the length of a hospital stay when a woman delivers a baby, according to Families USA Foundation, an advocacy group. The bills were a reaction to "drive-through deliveries," in which mothers were being sent home within a day of giving birth.

This year nine states have ordered coverage of hospital stays for mastectomies, and another 23 states considered bills to that effect, said Susan Laudicina, director of state services research for the Blue Cross and Blue Shield Association.

Even some advocates of managed-care regulation, such as the American Medical Association, express reservations about government mandates on such narrow medical questions as the appropriate length of a hospital stay. But much of the legislation addresses broader systemic issues.

According to Families USA, at least 23 states including Maryland and Virginia have mandated that HMOs allow women some measure of guaranteed access to obstetrician/gynecologists instead of leaving that to the discretion of "gatekeeper" physicians. Last year, New York ordered HMOs to allow specialists to serve as primary doctors for patients with life-threatening, degenerative or disabling conditions.

As of mid-June, 16 states, including Maryland and Virginia, had enacted requirements involving coverage of emergency room services, many of them similar to Missouri's "prudent layperson" rule, Laudicina said. Consumers complained that health plans were refusing to pay if, for example, what they feared was a heart attack was only indigestion.

Thirty-four states and the District have outlawed "gag clauses" in HMO contracts, which prohibit doctors from telling patients about treatment options not covered by the HMO, according to the American Medical Association.

Some of the legislation controls "utilization review" -- the process by which health plans decide whether to approve payment for a particular test or procedure. The governor of Nevada this month signed a bill dictating that, when a health plan refuses to pay for something proposed by the treating physician, only a doctor with appropriate expertise can make the utilization review decision.

Is the wave of state legislation destroying managed care?

"We have not reached Armageddon," said Laudicina of the Blue Cross and Blue Shield Association, whose member health plans have 39.3 million managed-care enrollees. However, "the effectiveness of managed care has been somewhat limited in those states where multiple anti-managed-care bills have been enacted," she said.

Even champions of HMO regulation agree that the new requirements could boost health insurance costs, at least modestly. But they say the price is worth paying. "I think it's inevitable that some costs will go up," said Texas Sen. David Sibley (R), a surgeon who sponsored the recent malpractice liability bill.

Advocates argue that the regulations are not far-reaching enough. An estimated 40 percent of the nation's privately insured workers, generally employees of large corporations, get their care through employers' self-funded health plans. Those plans are covered by the federal Employee Retirement Income Security Act (ERISA), which places them virtually beyond the reach of state legislation.

A provision inserted in the budget bill the House passed last week would allow associations of small businesses to create health plans similarly exempt.

When sued for malpractice, health plans frequently invoke ERISA to argue that they cannot be held liable for pain and suffering, punitive damages or economic damages beyond the value of disputed medical services and legal fees.

At the federal level, the movement to increase regulation of managed care is just gathering steam. A host of bills have been introduced in Congress, and a battle is expected. The budget bills passed by the House and Senate last week would impose some new requirements in federal health insurance programs, including a version of the "prudent layperson" rule for emergency services.

Few measures go as far as those in the House bill governing coverage decisions in HMOs serving the elderly Medicare population.

"I think it would essentially discontinue managed care as we know it," said Susan Nestor, executive director for policy at the Blue Cross and Blue Shield Association.