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Published Oct. 3, 2005

Every six months, when it's time to see her doctor for a check-up, lupus patient Bobbie Dietz drives nine hours from Atlanta to Nashville and back.

An official in the Georgia Department of Insurance, Dietz knows there are lupus specialists in Atlanta. She even tried one after she moved there from Nashville last March. But it wasn't the same as seeing her long-time rheumatologist, John S. Sergent.

"I trust his judgment. He listens to me," Dietz said. "If he was in Nebraska, I'd fly to see him out there."

While not everyone would go to such extremes, millions of Americans see the patient-doctor bond as almost sacred. Now there is increasing concern that the bond is being ruptured by forces that are transforming health care in America.

If you're not on a managed-care plan now, you probably soon will be. About 110-million Americans are, and the growth rate is so rapid that observers in the industry call it an explosion.

There's an up side and a down side to managed-care plans such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). The good news is that a patient pays a set fee each month that covers virtually all needed health services. Managed care organizations say they can achieve better health at lower cost by stressing prevention and early treatment.

The down side is that managed care plans tell you which doctors you can see and when you can see them. If you break those rules, you pay part or all of the bill yourself.

There's also a darker side to managed care that's worrying some of the most respected voices in medicine. Managed care deliberately places doctors in a conflict of interest with their patients, say Drs. Arnold S. Relman and Marcia Angell, former and current editor, respectively, of the New England Journal of Medicine.

By offering extra money to doctors who order the fewest services for their patients, they say, health plans are converting medical professionals into "double agents." Doctors can't fulfill their role as patient advocates if they're trying to win a bonus or avoid a financial penalty, they say.

"Economics is now driving ethics," Angell wrote recently. ". . . We embrace this new ethic at our peril."

Doctors can earn a great deal of money by aligning with the entrepreneurs who are re-engineering medicine, says Dr. Robert Blendon, who chairs the Department of Health Policy and Management at Harvard University's school of public health. But if they do, they will find their freedom increasingly constrained.

"Over the long term," Blendon says, "we're on the verge of losing a great profession."

Managed-care officials dismiss such talk as self-serving professional fear-mongering. In the old fee-for-service system, they say, doctors became fabulously wealthy by doing too many tests and operations, and society got socked with double-digit inflation in health care.

"We had this screwy incentive system that rewarded overutilization and overcapacity," says Guy D'Andrea, director of state health policy for the American Managed Care and Review Organization. "Doctors weren't accountable to anybody. Patients weren't either because somebody else was paying the bill."

People who work in managed care say they are the true advocates for patients. Dr. Sam Ho, senior vice president for health services at PacifiCare, the largest Medicare HMO in the country, says his company offers the guidelines and quality control to make sure patients get the best outcomes. In the old system, he says, nobody kept track of whether medical treatment was actually helping or not.

So far, studies indicate patients in managed-care organizations have no greater sickness or death rates than others. In some areas, such as the rate at which women get their annual mammograms, managed-care organizations score higher than fee-for-service.

The only area in which managed care gets poorer scores than the free-choice system is in patient satisfaction. Mary Bufwak thinks she knows why.

Bufwak, director of a clinic in a low-income area of Nashville, was a member of an HMO that treated her high blood pressure with cheap generic medicines. Her HMO doctor tried three of them, one after another. None of them worked, and each gave her unpleasant side effects like drowsiness and constipation.

Finally fed up, Bufwak paid to go outside the system where an internist prescribed a name-brand pill that costs $1 a day. It controls her hypertension without side effects, she said. As soon as she could, she left her HMO.

Dr. Linda Peeno of Louisville, Ky., says she was fired from a high-level job in an HMO because she repeatedly authorized expensive care she felt was medically necessary. She was offered other jobs in managed care at attractive salaries, she says, but she refused to have anything more to do with the industry.

"They don't want people who have medical ethics," she says. "They want hard-nosed business people."

Insurance enters the picture

Health care delivery in America is changing so fast that even professors and consultants who are paid to study it are having a hard time keeping up. Hospitals are merging and buying physicians' practices. Doctors are banding together to bid for corporate contracts. Non-profit insurers are converting to for-profits.

But nothing has more potential to transform the landscape of medicine than the explosive growth of prepaid health plans that reverse doctors' financial incentives.

Enthusiasts say managed care finally removes doctors' incentives to do too much to patients _ an incentive that grew out of missteps by both government and business over the past 40 years.

Before World War II, the medical system functioned like the rest of the U.S. economy. Patients paid doctors themselves, which kept fees moderate. Even when private insurance was introduced in the 1930s, patients still paid their own premiums.

During the war, big business took a step it would come to regret. Hemmed in by wage and price controls, wanting to attract good workers, business began to offer workers health insurance to supplement their salary. Government abetted this move by making the insurance payments tax-free. Middle-class families no longer had to be concerned about the costs of care. And in the mid-1960s, with the advent of Medicare and Medicaid, the elderly and the poor were placed in the same comfortable position.

Some doctors went about the business of treating patients as they always had, doing what they thought was needed and not a jot more. Others, given what amounted to a blank check, succumbed to temptation.

Technological advances helped fuel medical inflation. There were no restraints on either the patient or the physician, until the ones paying the bills _ companies and especially government _ finally said, "Enough!" The words "cost containment" crept into the national vocabulary, and by the end of the 1980s, Dr. Angell says The New England Journal "probably received more manuscripts about cost containment than about cancer."

Medical inflation hit other industrialized countries, too. But they dealt with it by putting the whole system on a budget, squeezing down on the quantity of services nationwide. America, which regards rationing as a dirty word, took a different course.

The first efforts at cost control involved "utilization review," in which insurers questioned doctors' decisions either before or after the fact. In the eyes of the medical community, reviewers were an army of nitpicking bureaucrats unqualified to pass judgment on those directly involved in patient care. Many believed the health care police cost the country more than they saved. And they were largely ineffective in reining in medical inflation.

It was clear that stronger tonic was needed. Corporate America came up with it in managed care, a concept that promised to provide top-quality, coordinated health services at a bargain price. Managed care would save money by catching illnesses early, when they were relatively cheap to treat, and prevent the need for more drastic and costly repair work later.

Even its most enthusiastic supporters concede that managed care has not yet fulfilled its promise of managing care. What it does do well is manage money.

Physician incentives

For some doctors accustomed to the old profligate ways, switching to managed care has been wrenching. It is as if medicine were speeding down a highway and suddenly threw the transmission into reverse.

HMOs and some other managed care organizations operate on the principle of "capitation." This means the company gets a flat fee per month for each patient enrolled, no matter how little or how much treatment the patient receives. If the patient is sickly and needs a lot of services, the company loses; if the patient is healthy, the company wins.

Some of the early HMOs accepted the financial risk of capitation themselves, leaving doctors free to make medical decisions and act as patient advocates. But current thinking in the managed care industry is that doctors won't change their free-spending style unless companies shift the risk over to them.

Today, it is common for HMOs to capitate primary-care doctors for not only their own services but also any they authorize, especially referral to specialists and costly tests. Doctors who keep an eye on the bottom line can win bonuses or even stock in the company.

This is one example of how physician incentive plans can work:

The HMO contracts with a doctor to provide primary care services for 1,000 patients for $100,000 a year. But it withholds $20,000 of that money. If the doctor doesn't make many referrals, he gets most of that money at the end of the year. If he makes a lot of them, he loses the $20,000.

Some HMOs go further and say that if the doctor exceeds the $20,000 in referrals, he must pay the excess. This means the doctor could end up deep in a financial hole.

While many doctors are very careful not to let finances affect their judgment, others let greed get in the way. Since bonuses and penalties generally affect an entire group of doctors, peer pressure also influences their decisions.

HMO medical directors say they must place financial risk on physicians if they want to guarantee cost-conscious decisions. But they say they will monitor doctors' use of resources to make sure they don't cut too many services. And they will keep an eye on patient satisfaction surveys and drop-out rates.

It's in the HMO's interest to give people the services they need to stay healthy, says PacifiCare's Ho. Otherwise, he says, patients cost the company more money in the long run.

"The beauty of capitation and prepayment is it's much more than a financing strategy," he says. ""It's a health promotion strategy."

For further consumer protection, the industry has created an accreditation agency. (Florida now requires that HMOs be accredited, but only three other states have taken that step.) In addition, many of the nation's largest HMOs are collaborating on developing ways to measure health outcomes. Their goal is to come up with meaningful "report cards" so consumers can easily compare quality of health plans.

But there is no requirement that managed-care organizations reveal their bonus or penalty incentives for physicians. In fact, some contracts with physicians include a gag clause that prevents doctors from discussing such arrangements.

Steffie Woolhandler, co-director of Physicians for National Health Insurance, said gag clauses ought to be illegal. "The public has a right to know these things," she says.

Four years ago, Congress passed a law ordering the Department of Health and Human Services to draw up rules setting limits on how much financial pressure could be placed on physicians by prepaid health plans that do business with Medicare and Medicaid.

A draft copy of the proposed regulations would set a ceiling on how much financial risk can be placed on the shoulders of doctors. But the industry would be allowed to continue its carrot-and-stick incentive system, the draft rule says, "since there is no evidence that conventional physician incentive plans . . . have reduced access or caused quality of care problems."

It has been two years since the rule was drafted, and federal health officials still have not acted on it. Even if it is eventually adopted, it will apply only to the minority of HMO patients who are in federally qualified plans for Medicaid and Medicare patients.

In other words, the vast majority of HMO subscribers will be left unprotected.

Too much vs. too little

Critics of financial incentives say that if this society is going to fling itself totally into managed care, it must keep careful watch on physicians to make sure they don't become double agents.

Former New England Journal editor Relman says, "The patient needs to have a knowledgeable advocate who'll say, "Never mind the cost. This is the right thing to do.' If the patient loses that advocate because the doctor is now on the same side of the table as the company, it raises the possibility of patients being underserved."

True, say managed care enthusiasts. But they believe that keeping the old system would give the public even less protection. At least the managed care company is looking over the doctors' shoulders, they say, while some unmonitored fee-for-service doctors risk patients' health by putting them through unnecessary tests and surgery after performing a "wallet biopsy."

They note the striking geographic differences in rates of operations such as hysterectomies, tonsillectomies and heart procedures. Studies have shown doctors who owned an interest in labs and radiology units sent patients for tests three or four times as often as those who didn't.

"In this country, we just keep throwing money away," says Dr. Joseph Gerstein, medical director of Tufts University Health Plan in Massachusetts, an HMO. "We all know now there's a limitation on medical expenditures, so it becomes a question of where to spend it."

What complicates everything, he says, is that many patients equate too much care with good care. If they don't get a brain scan for their headache, he says, they think they've been shortchanged.

By focusing on the financial incentives for doctors within managed care plans, Gerstein says, critics overlook the fact that time is just as precious a commodity for doctors as money. The traditional system doesn't pay doctors to spend two stressful hours talking to the relatives of a dying patient, helping them work through their guilt to avoid the use of a respirator. So some doctors shrug and order the high-tech, useless treatment.

"Whatever (system) it is, there are physicians who will manipulate the situation and those who won't," he says.

Health Affairs editor John K. Iglehart, writing in the New England Journal last summer, said the arguments over managed care will likely continue for a generation, and it's not clear whether Americans can adust to the system. Whatever the outcome, he wrote, "American medicine will never be the same again."

Craig Marble of the American Managed Care and Review Association says patients can no longer put their doctors on a pedestal and meekly follow their directions without question. Given the new rules of the game, he says, patients need to demand information.

But as health policy expert David Blumenthal of Harvard wrote in Health Affairs earlier this year, the huge imbalance in information between patients and doctors leaves patients unable to protect themselves from unscrupulous caregivers.

"Professionals are expected to resolve conflicts between their interests and their patients' interests in favor of the patients," he wrote. ". . . People want to trust their doctors."

Carol Gentry, medical writer for the Times, is conducting research on managed care on a year-long fellowship at Harvard University.