Amy Goldstein's Oct. 10 front-page story on the changes in attitudes toward HMOs simplified the development of national HMO policy and overlooked invaluable lessons for a rational health care policy.

When the Nixon administration introduced its HMO policy, the notion was that a competitive medical system would, through market forces, develop standards of cost-effective care. Overtreatment, unnecessary surgery, overbilling and a lack of standards and review in the fee-for-service sector had set health costs on an inflationary course.

Equally important were restrictive state and federal laws that made it almost impossible for HMOs to operate. Only a dozen or so states allowed HMOs, and the American Medical Association forbade physicians to practice in them.

The initial White House legislation did not define minimum benefits, provide for quality assurance, offer access to markets dominated by the fee-for-service sector or even provide a reasonable rate-setting requirement, but after a six-year hassle, a law was passed with support from labor, employers, enlightened insurers and consumer groups.

So what went wrong? First, few people thought the system would eventually encompass such a huge segment of the population, thereby undermining competition. Second, a Congress responsive to powerful lobbies gradually removed the more meaningful requirements from the statute. Third, employers and government pressured providers to cut costs at all costs.

As the shocking numbers of the uninsured increase, as costs go up, as purchasers seek ways to cut costs and as consumers become more unwilling to buy insurance, a national health program may not be far off.

HMOs must be part of that program because organized health care systems, with their inherent efficiencies, offer the best hope of a rational system. But don't expect too much from a Congress that can't even come to grips with tort reform as a prerequisite to a liability scheme.

JAMES F. DOHERTY

Chevy Chase

The writer was chief administrative officer of Group Health Association of America, the trade association of HMOs.