The Challenge of Regulating Managed Care

2. A National Overview

  A National Overview George Anders For nearly two decades, the government’s general role in the U.S. economy has been to pull back rather than to intercede. We have embraced deregulation as the best way to promote economic growth and innovation. Regulation of the private sector generally is seen as sti›ing and counterproductive, as much better at hobbling business than at safeguarding consumers. In health care, however, things are different. Regulation has long been accepted as a cornerstone of medical and health insurance policy. The sweeping free-market advocacy of the Reagan-Bush years left much less of a mark on health care, where state and federal governments still ‹nance at least one-third of all care. Hospitals, doctors, nurses, and ancillary services are subject to extensive government oversight. So, too, is the health insurance industry. In fact, since 1995, as managed care has become more prevalent, we have seen a rapidly intensifying interest in managed-care regulation among state legislators and insurance commissioners. Why is regulation on the rise in health care, even as it wanes in other parts of the economy? I have asked that question frequently in my travels around the United States as an author and newspaper reporter. One of the most insightful answers came when I started researching the book that became Health Against Wealth. I went to Harrisburg, Pennsylvania, in the spring of 1995 to meet Steve Male, the longtime head of health maintenance organization (HMO) regulation in that state. Male had a lot of time to spend with me. He had just been kicked out of his job by a governor who wanted someone friendlier to the insurance industry. So we sat in his backyard, as the spring afternoon turned 18 Editors’ Note: Since the time that George Anders wrote this chapter, there has been continued activity in health-care regulation at both the state and national legislative levels. While the Omnibus Reconciliation Act referred to in this chapter was not enacted, similar legislation is being proposed at the time of this writing. In addition, several states have implemented new legislation, including some of the features mentioned by Anders. Although as of yet sweeping nationwide regulation of managed care, including fundamental changes in the ERISA preemption, has not occurred, it remains a hot legislative topic at both the national and state levels. To learn about the current status of legislation on a state-bystate and national level, see the web sites listed in appendix B. into dusk, and we talked about what the role of regulation should be. Partway through our chat, he began to tell me how his views had changed over the years. In paraphrase, his fundamental message was this: When I started this job in the late 1970s, I felt my mission was to help HMOs grow. The whole medical establishment was so big, and arrogant, and expensive that we needed some sort of counterweight to them. Along came these little health plans that promised to watch over our premium dollars and make sure money was spent wisely. I did a lot back then to help them expand—and I was convinced I was doing the right thing. If the HMOs decided to negotiate lower hospital fees and not approve every surgery, well, we all knew that hospitals were charging frightening amounts and that some doctors were operating more often than they should. But now, I’m wondering if we went too far. I look at all the power that’s been built up in the HMO industry. These aren’t tiny health plans anymore . They are multibillion-dollar giants that can act with impunity. In his view, HMOs had become marketing machines that did a great job of signing up members but that didn’t always deliver the quality care that consumers had a right to expect. There seemed to be no limit to how much these health plans would lean on doctors and hospitals for cheaper rates and more restrictive contracts, in a business strategy that amounted to pursuing economic advantage without focusing on patients’ needs. That changing balance of power, he believed, created an important role for someone, most likely the government, to police these health plans’ behavior. As I watch what is happening around the United States today, there is rapidly growing interest in supervising HMOs. In Washington, D.C., one sees only a handful of bills about certain ›ash point issues. But watch state legislatures—and important regulatory agencies such as the federal...