Washington Post Staff Writer
Tuesday, September 20, 1994; Page A01 A market-driven revolution in American health care is giving private insurance bureaucracies more influence over day-to-day medical decisions than President Clinton ever proposed giving the federal government.
For a glimpse, enter the Rockville offices of Mid Atlantic Medical Services Inc., the Washington area's largest managed-care company, where dozens of employees wearing telephone headsets occupy rows of cubicles.
Their job is to second-guess physicians; doctors and medical executives call them the "health police."
Utilization Management Nurse Coordinator Diane Erickson quizzes surgery candidates on their symptoms and feeds the answers into a computer, which is programmed to judge whether Mid Atlantic should pay for their operations.
"Are you able to do light housekeeping?" Erickson asks an arthritic 54-year-old woman seeking a hip replacement. "Are you able to climb stairs?"
"Does the pain ... wake you from sleep?"
At a rate of 142 calls a day, Senior Provider Relations Representative Paul Gebhardt fields questions from doctors trying to comply with Mid Atlantic's billing and referral procedures. A Rockville physician's office wants to know why the company rejected the bill for a chest X-ray taken at Shady Grove Hospital.
"Did the doctor get a pre-certification from the Utilization Department before sending the member to the hospital for that service?" Gebhardt asks. "We'd need a pre-certification for that service to be done at the hospital and be covered."
Some workers prepare statistical profiles of the doctors in Mid Atlantic's networks, enabling them to tell a particular dermatologist that charges for his patients are running 42 percent above the average set by the rest of Mid Atlantic's dermatologists.
Other employees administer a computer program to detect billing subterfuges by physicians.
The bureaucracy extends beyond the five office buildings that make up Mid Atlantic's headquarters, into the wards of area hospitals, where company nurses review patients' charts and prod doctors to discharge members of Mid Atlantic's MD-IPA and Optimum Choice health maintenance organizations as soon as possible.
Opponents of broad national health care legislation have argued that proposals by Clinton, Senate Majority Leader George Mitchell (D-Maine), House Majority Leader Richard A. Gephardt (D-Mo.) and others would create an intrusive government health care bureaucracy.
"When my momma gets sick, I want her to talk to a doctor and not some government bureaucrat," Sen. Phil Gramm (R-Tex.) said during recent legislative debate. Americans "want control of the health care decisions that affect them, and they do not want to give that control away to a faceless, passionless bureaucracy in Washington," said Sen. Mitch McConnell (R-Ky.).
The Health Insurance Association of America, an insurance lobby, struck similar themes in its $14 million "Harry and Louise" television ad campaign, warning that certain proposals would lead to "limits on services" and "another billion-dollar bureaucracy."
But some experts say those arguments omit the obvious: U.S. health care is already becoming more bureaucratic as power shifts from individual doctors to large managed-care organizations such as health maintenance organizations and preferred-provider organizations. In the era of so-called "corporate medicine," many health insurance plans spend money on bureaucracies to contain spending on doctors and hospitals -- and to insert a measure of independent quality control into the doctor-patient relationship.
Jeff D. Emerson's position as chief executive of HealthPlus, a major Washington area HMO, makes him a chief in the health police, but he does not relish the role. Something has gone "fundamentally wrong" in the quest for cost-effective medicine, he said.
"Historically, managed-care companies have been in the policing business," Emerson said. "We don't want to be in the policing business, because just like the regular police, what you find is you constantly have to put more police on the force and out on the streets and you have to equip them with better technology in order to stay up with the criminals."
"Plus, it has the extremely bad downside of creating an adversarial relationship between physicians and managed-care companies," he said.
The managed-care bureaucracies include a layer of physicians, who help set policy and resolve disagreements with outside doctors.
While managed-care bureaucracies do save money for the people they insure, they also take a bite out of every dollar those people pay for coverage. The typical HMO spent 13 percent of its revenue on administrative expenses last year, which translates into $190 per member, according to HCIA Inc., a Baltimore-based health care information company. The typical HMO spent 82.5 percent of its revenue on medical expenses such as payments to doctors and hospitals, and that figure has been declining, HCIA said.
"What is supposed to be a movement toward greater efficiency and a streamlining of costs ... may actually turn out to be a boondoggle for administration," said economist J.D. Kleinke of HCIA, whose clients include HMOs, hospitals and other health care businesses.
Administrative expenses at Mid Atlantic's two HMOs are low by industry standards. They rose to 8.6 percent of overall revenue in the first half of this year from 6.9 percent last year, while medical expenses declined to 87.8 percent of revenue from 88.8 percent.
Some industry observers challenge the assumption that profit-motivated private bureaucracies are inherently preferable to politically accountable government bureaucracies.
"Why should you care so much whether you have a civil servant's Hush Puppy or a private regulator's wingtip boot on your shoulder?" said Princeton University health economist Uwe Reinhardt.
As Congress debated health policy, conservative lawmakers reserved some of their sternest criticism for a proposal to cover the poor, the unemployed and the self-employed, among others, under Medicare.
However, Medicare, a federal insurance program for the elderly and disabled, does not attempt to manage individual medical cases the way HMOs do, and it operates at a fraction of the administrative overhead margin of private insurers.
Similarly, Canada's government-run health system, cited by many lawmakers as an example of bureaucracy run amok, refrains from micro-managing decisions about individual patients. Its most influential functions are setting payment levels and budgets for doctors and hospitals; when it provides too little money, patients have to wait for non-emergency care.
More than half of all privately insured Americans are covered by managed-care plans, and enrollment has been climbing. About a fifth of the U.S. population receives its care through health maintenance organizations, and nearly a quarter of the population is covered by preferred-provider organizations, according to various studies.
Clinton's original health plan would have staked its success on the continued growth and effectiveness of managed care. Instead of calling for the government to ration medical services, Clinton proposed capping spending by private health plans, forcing them to make the tough decisions about how to limit expenses.
The growth of managed-care bureaucracies is producing more than just cost savings. Managed-care executives say their quality control efforts have spared patients the risk and trauma of unnecessary procedures such as some Caesarean sections while improving rates of immunization and increasing screenings for diseases such as breast cancer.
In the course of interviewing the 54-year-old candidate for a hip replacement, Mid Atlantic's nurse Erickson discovered that the patient was taking a potentially harmful combination of medications, which she urged the patient to discuss with her doctor. During similar interviews, Mid Atlantic nurses have found some women unaware that the hysterectomies their doctors recommended would prevent them from bearing children, said Cindy Henegar, the company's director of Utilization Management.
Some health care executives, including HealthPlus CEO Emerson, predict that managed care will become less bureaucratic as it evolves. By taking away doctors' financial incentives to perform too many tests and procedures, managed-care companies may reduce the need to look over doctors' shoulders, they said.
However, changes in the way doctors are paid could just as easily give rise to substitute bureaucracies in which members of physician groups look over each other's shoulders, observers said.
Managed-care plans have higher administrative expenses than traditional insurance plans, according to health plan executives such as Larry C. Glasscock of Blue Cross and Blue Shield of the National Capital Area, which offers both traditional insurance and managed care.
A lack of comparable data makes it difficult to measure the difference, analysts said.
To do business with the managed-care bureaucracies, hospitals and doctors are expanding their own bureaucracies -- to represent their interests and deal with the paperwork.
A study in the New England Journal of Medicine last year found that many hospitals have been adding administrative personnel to compete with each other for places in health plans' provider networks, even as they have been losing patients.
A more recent analysis by Gerard F. Anderson, director of the Johns Hopkins Center for Hospital Finance and Management, found that U.S. hospitals increased their administrative staffs by 39.7 percent in relation to patient levels from 1981 to 1992 while they increased their nursing staffs by only 5.1 percent. Anderson linked the trend to the rise of managed care.