Blame Congress (and Nixon) for HMO

A while ago I blogged about how both parties accept the ideas of “managed care” or “managed competition.” This is where government bureaucrats or insurance company functionaries make decisions regarding what health care one sees, and even what providers you can see. The managed care model is justified by the over reliance on third party payers which removes all incentives for parents to be conscious.

The most common form of managed care is the Health Maintenance Organization(HMO). During the 1990’s and wary 2000’s, HMOs were notorious for denying necessary care. In response, Congress passed the so-called Patient Bill of Rights Act imposing new federal regulations on HMOs.

This legislation was another case of Congress solving a problem it created. HMOs where not a creation of the market, but the regular of Nixon-era legislation. In 2001, Campaign for Liberty Chairman Ron Paul entered an article by Twilia Brase of the Citizens Council for Health Care into the Congressional Record explaining how Congress created HMOs.

The article is reprinted below. This should be shared with anyone who still thinks that the government is the solution to, as opposed to the cause of, the problems in our health care system:

 

                       BLAME CONGRESS FOR HMOS

                                ______

                            HON. RON PAUL

                               of Texas

                   in the House of Representatives

 

                      Tuesday, February 27, 2001

 

 Mr. PAUL. Mr. Speaker, I highly recommend the attached article,

“Blame Congress for HMOs” by Twila Brase, a registered nurse and

President of the Citizens’ Council on Health Care, to my colleagues.

Ms. Brase demolishes the myth that Health Maintenance Organizations

(HMOs), whose power to deny Americans the health care of their choice

has been the subject of much concern, are the result of an unregulated

free-market. Instead, Ms. Brase reveals how HMOs were fostered on the

American people by the federal government for the express purpose of

rationing care.

 The story behind the creation of the HMOs is a classic illustration

of how the unintended consequences of government policies provide a

justification for further expansions of government power. During the

early seventies, Congress embraced HMOs in order to address concerns

about rapidly escalating health care costs. However, it was Congress

which had caused health care costs to spiral by removing control over

the health care dollar from consumers and thus eliminating any

incentive for consumers to pay attention to costs when selecting health

care. Because the consumer had the incentive to control health care

cost stripped away, and because politicians where unwilling to either

give up power by giving individuals control over their health care or

take responsibility for rationing care, a third way to control costs

had to be created. Thus, the Nixon Administration, working with

advocates of nationalized medicine, crafted legislation providing

federal subsidies to HMOs, preempting state laws forbidding physicians

to sign contracts to deny care to their patients, and mandating that

health plans offer an HMO option in addition to traditional fee-for-

service coverage. Federal subsidies, preemption of state law, and

mandates on private business hardly sounds like the workings of the

free market. Instead, HMOs are the result of the same Nixon-era

corporatist, Big Government mindset that produced wage-and-price

controls.

 Mr. Speaker, in reading this article, I am sure many of my colleagues

will think it ironic that many of the supporters of Nixon’s plan to

foist HMOs on the American public are today promoting the so-called

“patients’ rights” legislation which attempts to deal with the

problem of the HMOs by imposing new federal mandates on the private

sector. However, this is not really surprising because both the

legislation creating HMOs and the Patients’ Bill of Rights reflect the

belief that individuals are incapable of providing for their own health

care needs in the free market, and therefore government must control

health care. The only real difference between our system of medicine

and the Canadian “single payer” system is that in America, Congress

contracted out the job of rationing health care resources to the HMOs.

 As Ms. Brase, points out, so-called “patients’ rights” legislation

will only further empower federal bureaucrats to make health care

decisions for individuals and entrench the current government-HMO

complex. Furthermore, because the Patient’s Bill of Rights will

increase health care costs, thus increasing the number of Americans

without health insurance, it will result in pleas for yet another

government intervention in the health care market!

 The only true solution to the health care problems is to truly allow

the private sector to work by restoring control of the health care

dollar to the individual through Medical Savings Accounts (MSAs) and

large tax credits. In the Medicare program, seniors should not be

herded into HMOs but instead should receive increased ability to use

Medicare MSAs, which give them control over their health care dollars.

Of course, the limits on private contracting in the Medicare program

should be lifted immediately.

 In conclusion, Mr. Speaker, I hope all my colleagues will read this

article and take its lesson to heart. Government-managed care, whether

of the socialist or corporatist variety, is doomed to failure. Congress

must instead restore a true free-market in health care if we are

serious about creating conditions under which individuals can receive

quality care free of unnecessary interference from third-parties and

central planners.

 

                

 

                       Blame Congress for HMOs

 

                           (By Twila Brase)

 

      Only 27 years ago, congressional Republicans and Democrats

    agreed that American patients should gently but firmly be

    forced into managed care. That patients do not know this fact

    is evidenced by public outrage directed at health maintenance

    organizations (HMOs) instead of Congress.

      Although members of Congress have managed to keep the

    public in the dark by joining in the clamor against HMOs,

    legislative history puts the responsibility and blame

    squarely in their collective lap.

      The proliferation of managed-care organizations (MCOs) in

    general, and HMOs in particular, resulted from the 1965

    enactment of Medicare for the elderly and Medicaid for the

    poor. Literally overnight, on July 1, 1966, millions of

    Americans lost all financial responsibility for their health-

    care decisions.

      Offering “free care” led to predictable results. Because

    Congress placed no restrictions on benefits and removed all

    sense of cost-consciousness, health-care use and medical

    costs skyrocketed. Congressional testimony reveals that

    between 1969 and 1971, physician fees increased 7 percent and

    hospital charges jumped 13 percent, while the Consumer Price

    Index rose only 5.3 percent. The nation’s health-care bill,

    which was only $39 billion in 1965, increased to $75 billion

    in 1971. Patients had found the fount of unlimited care, and

    doctors and hospitals had discovered a pot of gold.

      This stampede to the doctor’s office, through the U.S.

    Treasury, sent Congress into a panic. It had unlocked the

    health-care appetite of millions, and the results were

    disastrous. While fiscal prudence demanded a hasty retreat,

    Congress opted instead for deception.

      Limited by a noninterference promise attached to Medicare

    law–enacted in response to concerns that government health

    care would permit rationing–Congress and federal officials

    had to be creative. Although Medicare officials could not

    deny services outright, they could shift financial risk to

    doctors and hospitals, thereby influencing decision-making at

    the bedside.

      Beginning in 1971, Congress began to restrict

    reimbursements. They authorized the economic stabilization

    program to limit price increases; the Relative Value Resource

    Based System (RVRBS) to cut physician payments; Diagnostic-

    Related Groups (DRGs) to limit hospitals payments; and most

    recently, the Prospective Payment System (PPS) to offer fixed

    prepayments to hospitals, nursing homes, and home health

    agencies for anticipated services regardless of costs

    incurred. In effect, Congress initiated managed care.

                 National Health-Care Agenda Advances

 

      Advocates of universal coverage saw this financial crisis

    as an opportunity to advance

      Senator Edward M. Kennedy, a longtime advocate of national

    health care, proceeded to hold three months of extensive

    hearings in 1971 on what was termed the “Health Care Crisis

    in America.” Following these hearings, he held a series of

    hearing “on the whole question of HMO’s.”

      Introducing the HMO hearings, Kennedy said, “We need

    legislation which reorganizes the system to guarantee a

    sufficient volume of high quality medical care, distributed

    equitably across the country and available at reasonable cost

    to every American. It is going to take a drastic overhaul of

    our entire way of doing business in the health-care field in

    order to solve the financing and organizational aspects of

    our health crisis. One aspect of that solution is the

    creation of comprehensive systems of health-care deliver.”

      In 1972, President Richard M. Nixon heralded his desire for

    the HMO in a speech to Congress: “the Health Maintenance

    Organization concept is such a central feature of my National

    Health Strategy.” The administration had already authorized,

    without specific legislative authority, $26 million for 110

    HMO projects. That same year, the U.S. Senate passed a $5.2

    billion bill permitting the establishment of HMOs “to

    improve the nation’s health-care delivery system by

    encouraging prepaid comprehensive health-care programs.”

      But what the House of Representatives refused to concur, it

    was left to the 93rd Congress to pass the HMO Act in 1973.

    Just before a voice vote passed the bill in the House, U.S.

    Representative Harley O. Staggers, Sr., of West Virginia

    said, “I rise in support of the conference report which will

    stimulate development of health maintenance organizations. .

    . . I think that this new system will be successful and give

    us exciting and constructive alternatives to our existing

    programs of delivering better health services to Americans.”

      In the Senate, Kennedy, author of the HMO Act, also

    encouraged its passage: “I have strongly advocated passage

    of legislation to assist the development of health

    maintenance organizations as a viable and competitive

    alternative to fee-for-service practice. . . . This bill

    represents the first initiative by the Federal Government

    which attempts to come to grips directly with the problems of

    fragmentation and disorganization in the health care

    industry. . . . I believe that the HMO is the best idea put

    forth so far for containing costs and improving the

    organization and the delivery of health-care services.” In a

    roll call vote, only Senator Herman Talmadge voted against

    the bill.

      On December 29, 1973, President Nixon signed the HMO Act of

    1973 into law.

      As patients have since discovered, the HMO–staffed by

    physicians employed by and beholden to corporations–was not

    much of a Christmas present or an insurance product. It

    promises coverage but often denies access. The HMO, like

    other prepaid MCOs, requires enrollees to pay in advance for

    a long list of routine and major medical benefits, whether

    the health-care services are needed, wanted, or ever used.

    The HMOs are then allowed to manage care–without access to

    dollars and service–through definitions of medical

    necessity, restrictive drug formularies, and HMO-approved

    clinical guidelines. As a result, HMOs can keep millions of

    dollars from premium-paying patients.

                       HMO Barriers Eliminated

 

      Congress’s plan to save its members’ political skins and

    national agendas relied on employer-sponsored coverage and

    taxpayer subsidies to HMOs. The planners’ long-range goal was

    to place Medicare and Medicaid recipients into managed care

    where HMO managers, instead of Congress, could ration care

    and the government’s financial liability

      To accomplish this goal, public officials had to ensure

    that HMOs developed the size and stability necessary to take

    on the financial risks of capitated government health-care

    programs. This required that HMOs capture a significant

    portion of the private insurance market. Once Medicare and

    Medicaid recipients began to enroll in HMOs, the

    organizations would have the flexibility to pool their

    resources, redistribute private premium dollars, and ration

    care across their patient populations.

      Using the HMO Act of 1973, Congress eliminated three major

    barriers to HMO growth, as clarified by U.S. Representative

    Claude Pepper of Florida: “First, HMO’s are expensive to

    start; second, restrictive State laws often make the

    operation of HMO’s illegal; and, third, HMO’s cannot compete

    effectively in employer health benefit plans with existing

    private insurance programs. The third factor occurs because

    HMO premiums are often greater than those for an insurance

    plan.”

      To bring the privately insured into HMOs, Congress forced

    employers with 25 or more employees to offer HMOs as an

    option–a law that remained in effect until 1995. Congress

    then provided a total of $373 million in federal subsidies to

    fund planning and startup expenses, and to lower the cost of

    HMO premiums. This allowed HMOs to undercut the premium

    prices of their insurance competitors and gain significant

    market share.

      In addition, the federal law pre-empted state laws, that

    prohibited physicians from receiving payments for not

    providing care. In other words, payments to physicians by

    HMOs for certain behavior (fewer admissions to hospitals,

    rationing care, prescribing cheaper medicines) were now

    legal.

      The combined strategy of subsidies, federal power, and new

    legal requirements worked like a charm. Employees searching

    for the lowest priced comprehensive insurance policy flowed

    into HMOs, bringing their dollars with them. According to the

    Health Resources Services Administration (HRSA), the

    percentage of working Americans with private insurance

    enrolled in managed care rose from 29 percent in 1988 to over

    50 percent in 1997. In 1999, 181.4 million people were

    enrolled in managed-care plans.

      Once HMOs were filled with the privately insured, Congress

    moved to add the publicly subsidized. Medicaid Section 1115

    waivers allowed states to herd Medicaid recipients into HMOs,

    and Medicare+Choice was offered to the elderly. By June 1998,

    over 53 percent of Medicaid recipients were enrolled in

    managed-care plans, according to HRSA. In addition, about 15

    percent of the 39 million Medicare recipients were in HMOs in

    2000.

                   HMOs Serve Public-Health Agenda

 

      Despite the public outcry against HMOs, federal support for

    managed care has not waned. In August 1998, HRSA announced

    the creation of a Center for Managed Care to provide

    “leadership, coordination, and advancement of managed care

    systems . . . develop working relationships with the

    private managed care industry to assure mutual areas of

    cooperation.”

      The move to managed care has been strongly supported by

    public-health officials who anticipate that public-private

    partnerships will provide funding for public-health

    infrastructure and initiatives, along with access to the

    medical records of private patients. The fact that health

    care is now organized in large groups by companies that hold

    millions of patient records and control literally hundreds of

    millions of health-care dollars has allowed unprecedented

    relationships to form between governments and health plans.

      For example, Minnesota’s HMOs, MCOs, and nonprofit insurers

    are required by law to fund public-health initiatives

    approved by the Minnesota Department of Health, the state

    regulator for managed care plans. The Blue Cross-Blue Shield

    tobacco lawsuit, which brought billions of dollars into state

    and health-plan coffers, is just one example of the you-

    scratch-my-back-I’ll-scratch-yours initiatives. Yet this

    hidden tax, which further limits funds available for medical care, remains

    virtually unknown to enrollees.

      Federal officials, eager to keep HMOs in business, have

    even been willing to violate federal law. In August 1998, a

    federal court chided the U.S. Department of Health and Human

    Services for renewing HMO contracts that violate their own

    Medicare regulations.

                    The Ruse of Patient protection

 

      Truth be told, HMOs allowed politicians to promise access

    to comprehensive health-care services without actually

    delivering them. Because treatment decisions could not be

    linked directly to Congress, HMOs provided the perfect cover

    for its plans to contain costs nationwide through health-care

    rationing. Now that citizens are angry with managed

    (rationed) care, the responsible parties in Congress, Senator

    Kennedy in particular, return with legislation ostensibly to

    protect patients from the HMOs they instituted.

      At worst, such offers are an obfuscation designed to

    entrench federal control over health care through the HMOs.

    At best they are deceptive placation. Congress has no desire

    to eliminate managed care, and federal regulation of HMOs and

    other managed-care corporations will not protect patients

    from rationing. Even the U.S. Supreme Court acknowledged in

    its June 12, 2000, Pegram v. Herdrich decision that to

    survive financially as Congress intended, HMOs must give

    physicians incentives to ration treatment.

      Real patient protection flows from patient control. Only

    when patients hold health-care dollars in their own hands

    will they experience the protection and power inherent in

    purchasing their own insurance policies, making cost-

    conscious health-care decisions, and inciting cost-reducing

    competition for the cash.

      What could be so bad about that? A lot, it seems. Public

    officials worry privately that patients with power may not

    choose managed-care plans, eventually destabilizing the HMOs

    Congress is so dependent on for cost containment and national

    health-care initiatives. Witness congressional constraints on

    individually owned, tax-free medical savings accounts and the

    reluctance to break up employer-sponsored coverage by

    providing federal tax breaks to individuals. Unless citizens

    wise up to Congress’s unabashed but unadvertised support for

    managed care, it appears unlikely that real patient power

    will rise readily to the top of its agenda.

 

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