Diligence in Vital Role Questioned : Employers Misdiagnose Health Care Industry Ills

Last June, Maxicare Health Plans, one of the largest health maintenance organizations in the country, was known to be consulting with bankruptcy law specialists. That fact did not surprise Wall Street analysts and other observers of the company’s deteriorating financial condition.

Yet even as the bad news kept coming, many companies continued to offer Maxicare’s health insurance plan to their workers.

“To anyone reading the papers and the trade journals, it was clear that Maxicare was in trouble,” said Peter Boland, president of Boland Healthcare Consultants in Berkeley, which advises companies in their selection of health insurance plans. “It didn’t take a genius to figure that out.”

On March 16, Maxicare, with about 900,000 members, filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

Those employers that stuck with Maxicare now face embarrassing questions from employees.

Some workers are being dunned by doctors and hospitals for bills unpaid by Maxicare. (The practice is illegal in California if the doctor or hospital has a contract with Maxicare.) Some employees themselves are owed money for out-of-pocket expenses that Maxicare failed to reimburse. And others are fearful that their medical care will be cut off as Maxicare reorganizes itself.

What is particularly perplexing to Boland is why so many companies renewed contracts with Maxicare, or failed to at least warn their employees about Maxicare’s problems during recent open-enrollment periods, in which workers choose among health plan options.

Such a warning could have been a simple statement that in view of Maxicare’s problems, employees “might want to reconsider their options,” Boland said.

Though Maxicare says it has not lost significant accounts, some companies apparently did drop Maxicare before the bankruptcy filing, and some employees decided on their own not to re-enroll in Maxicare.

Hilton Refused to Sign

Hilton Hotels Corp. refused to sign because of doubts about Maxicare’s financial stability, according to Business Insurance, a trade publication.

But Maxicare is not an issue many employers are eager to discuss, at least for the record.

A benefits manager for a large Los Angeles company, speaking on condition that he not be identified, said, “We knew (Maxicare) was in trouble, but we didn’t want to do anything that would hurt them.”

The U. S. Office of Personnel Management, which handles group benefits for federal workers, Maxicare’s largest single group of members, said it did not act earlier because it thought Maxicare’s financial problems were cyclical and did not pose a long-term problem.

Phil Snyder, a consultant for William M. Mercer-Meidinger-Hansen, a firm that advises companies in the selection of health insurance plans, said many employers really did not understand Maxicare’s financial plight until recently.

Feared Disruption

Employers who did have some concerns about the plan’s financial stability were also worried that dropping Maxicare would be too much of a disruption for employees undergoing medical treatment, he said.

Bank of America, which has included Maxicare in its benefit package for three years, decided not to drop Maxicare during its most recent annual enrollment period in January because “our employees who signed up found the plan attractive,” said Daniel C. Rowland, director of employee benefits at the company.

Since the bankruptcy filing, employees have reported a few instances in which their health care providers demanded cash in advance for treatment, he said. (It is illegal in California for providers who have contracts with an HMO to demand payments owed by the HMO from its members.)

“At some point if the service deteriorates, we will have to reconsider,” Rowland added.

EMPLOYER’S CRUCIAL ROLE

Overall, the employers’ response to Maxicare’s troubles calls into question just how good a job they do in choosing group health insurance plans for their workers. This is important because most Americans obtain health care coverage through their employers and because employers typically present them with a limited number of insurance options.

Thus, an employer’s choice of medical insurance plans is vital for the protection of the consumer.

But according to Boland, most employers do a “very poor job” of choosing health care plans. “They assume that all are financially stable. They don’t bargain with them. It is a take-or-leave proposition.”

“Employers are the largest purchasers of health insurance,” said Dr. Ronald Bronow, executive vice president of Physicians Who Care, a group concerned with several health care issues, including cost containment, federal health policies and quality of care. Bronow, a Los Angeles dermatologist, faults employers for not asking the right questions and not using their clout to bargain for better health care.

Assume Stability

Robert F. Atlas, a Washington health care consultant, said employers probably did evaluate Maxicare’s financial status years ago when they first signed up and the company was profitable. “A lot of employers don’t undergo an annual financial evaluation. The attitude is that ‘if you are in business today, then we assume that you are going to stay in business and what are your rates going to be next year?’ ” Atlas said.

Boland, who is chairman of the editorial board of Managed Care Outlook, a trade journal for the industry and employers, said employers should ask more questions about quality of care as well as finances.

“You want to know the nature of their physician network. How was it formed? Did they go through the phone book and take everyone listed, or do they have standards?” he said. Questions should include how many physicians in the HMO network are board certified, do they have medical malpractice insurance and has the HMO investigated the physicians’ practice patterns?

In attempting to assess an HMO’s financial health, Boland recommends that employers determine its access to capital, the business philosophy of the people running the HMO and what cost control and quality assurance mechanisms are in place.

And the employer should know what kind of information it can expect to receive periodically from the HMO. “Is it focused and in plain English? Will they provide you with information you can use to make better decisions about benefits?” he asked.

If an usually large number of employees had Cesarean deliveries, the HMO should be able to explain the reasons to the employer, Boland said. “You want to know treatment outcomes. How many people had to be readmitted to the hospital and for what reason? Did the person return to health in a reasonable amount of time, and why not? This data should be adjusted for age, sex and severity of illness,” he said.

TOUGHER QUESTIONS

Boland acknowledged that some of the nation’s big employers are beginning to ask such probing questions.

“They’re saying that if you want our business, you have to conform to our purchasing specifications,” he said. These are companies like Aluminum Co. of America and Xerox Corp. that have the clout to set a new standard for the health care industry and, by extension, a new standard for employers to evaluate the industry, he said.

“When HMOs first came out we were very permissive,” said Richard Wardrop, director of health care cost management for Alcoa. “Now we need to be a little more critical.”

Some companies are trying to solve the cost problem by shifting more of it to employees, he said. “While we think employees should share the costs, we’re trying to find ways to solve the systemic problems. The quality problems are there. We are trying to get the (health care system) to adopt a different culture--a continuous improvement in quality,” he said.

The company uses few health maintenance organizations, Wardrop said, but “you don’t have to have a huge number of people in an HMO to get what you want,” he said.

Unions Getting Smarter

And labor unions, not content to leave an important benefit decision solely in the hands of employers, are also getting smarter about health care. “The fact that health care costs have risen has elevated benefits to a major collective bargaining issue,” said Karen Ignagni, health policy director for the AFL-CIO. To make labor leaders more effective negotiators, the organization has put together its own list of questions to ask about different types of health care plans.

A 1988 survey by the Group Health Assn. of America found that only 29% of the nation’s health maintenance organizations could comply fully with requests from employers for information. Boland estimates that fewer than 10% of the HMOs operating in California are able to provide “meaningful” information to employers.

In California, the search for meaningful information begins at the Department of Corporations, the only independent source of information on most HMOs in the state. But the department has a cumbersome system of public access to information.

“California is always the most difficult to get information from,” says Carol E. Philpot, manager of financial services for American International Healthcare, a Potomac, Md., health care consulting company. Using public reports filed with the states, the firm each year compiles a state-by-state financial analysis of the industry.

Los Angeles Office Closed

Some states will mail copies of documents for a fee, Philpot said. California will not. Anyone requesting information must make an appointment to review records in the department’s offices in Los Angeles and Sacramento. The Los Angeles office was closed indefinitely on April 3 because of an asbestos problem and there were no duplicates available. People who had appointments to view the public records were informed after the fact.

When access is granted, the public must make its own copies of documents. In Los Angeles, that means carrying files from the 13th to the 16th floor.

“You ask them for one report and they give a file cabinet to look through,” said one health care consultant.

American International Healthcare once sent an analyst to Sacramento to review state records. “He took his own portable Xerox machine. But he was only allowed to look at four files a day. It took him 15 straight days to finish,” Philpot said.

Wayne Simon, the department’s acting head of the health care service plan division, said his division does not analyze the data it collects to produce summary information on the industry, nor does he see any reason why it should.

The department’s emphasis is monitoring individual plans to enforce state regulations and protect consumers, he said. Last fall, the state ordered Maxicare’s California unit to stop paying bills owed by the parent company because it feared that the cash drain would weaken the California HMO.

There are other gaps in the availability of information in California. The Department of Insurance also regulates some HMOs in the state, but it does not always have specific records.

REGULATORY GAP

For example, California Care of Van Nuys is an HMO owned by Blue Cross of California, an insurance company. While the department has Blue Cross financial records, it says it has no particulars on California Care. Nor does it have specific records on Travelers Health Network or Met Life Healthcare Network, both of which are considered by the industry to be HMOs. Travelers is part of the Travelers Cos., a giant insurance concern, and Met Life is part of the Metropolitan Life Insurance Co.

The Insurance Department does not require specific information on the plans because it does not consider the Travelers and Met Life organizations to be HMOs, explained department attorney Peter Groom. Rather, he said, they are preferred provider networks that merely contract with health care companies to provide services at a discount rate.

California’s patchwork regulatory system may prove a problem for consumers now that Maxicare is under the protection of the bankruptcy court.

All states but California regulate HMOs through their insurance departments. The other states have argued that HMOs are essentially insurance companies and are subject to the continuing supervision of the state insurance departments under federal bankruptcy law.

But as the only state that regulates Maxicare through its corporations department, California has not been able to make such an argument.

So California consumers must rely solely on the bankruptcy court to protect their interests. But as U.S. District Judge John J. Wilson noted in a recent hearing on Maxicare, the bankruptcy court must be concerned equally with the interests of all parties, including stockholders and bondholders.

Pointing specifically to the interest of creditors and the states arguing for control, Wilson said, those interests “are diametrically opposed.”

LEADING CALIFORNIA HMOs and MARKET SHARE Total subscribers in California, 7.6 million Kaiser Foundation Health Plan: 4,182,452 (54.8%)

Health Net: 685,133 (8.9%)

Cigna Health Plans of California: 500,000 (6.5%)

Maxicare: 320,000 (4.1%)

Foundation Health Plan: 260,983 (3.4%)

PacifiCare: 242,703 (3.1%)

FHP: 196,300 (2.5%)

TakeCare: 189,688 (2.4%)

CaliforniaCare: 154,838 (2.0%)

Greater San Diego Health Plan: 149,908 (1.9%)

Source: Company reports

FINANCIAL STATISTICS FOR LARGEST CALIF. HMOs

Kaiser Foundation Health Plan, Oakland, nonprofit end 12-31-88: Revenue $4.3 billion, net income $52.9 million Health Net, Woodland Hills, nonprofit end 12-31-88: Revenue $494.5 million, net loss $38 million Cigna Health Plans of California (includes Ross Loos Medical Group and Cigna Private Practice Plan), Glendale, for profit end 12-31-88: Revenue $505.5 million, net loss, $20.1 million Maxicare, Los Angeles, for profit months ended 9-30-88: Revenue $297 million, net loss $4.2 million Foundation Health Plan, Sacramento, for profit months ended 2-28-89: Revenue $154 million, income (before taxes) $4.2 million PacifiCare, Cypress, for profit ended 9-30-88: Revenue $368.2 million, net income $12.9 million FHP, Fountain Valley, for profit ended 6-30-88: Revenue $506.8 million, net income $16.6 million; six months ended 12-31-88: $317.3 million, net income $9 million TakeCare, Oakland, for profit months ended 11-30-88: Revenue $146.9 million, net income $3 million Greater San Diego Health Plan, San Diego, for profit ended 6-30-88: Revenue $132.9 million, net income $10.3 million; six months ended 12-30-88: Revenue $64 million, net loss $849,072 Bay Pacific Health Plan (including San Mateo IPA), San Bruno, for profit ended 12-31-88: Revenue $33.2 million, net loss $1.8 million Source: Company reports filed with California Department of Corporations and Department of Insurance