Megasize health plan power: A market gone wrong

Trouble at two industry giants suggests a dangerously lopsided health care industry.

Editorial. June 2/9, 2003.

Is the marketplace approach to health care doomed? Sometimes it seems that way. A timely warning comes from the emerging scandals at two for-profit giants in health care.

The government accuses HealthSouth, the nation's largest operator of outpatient centers, of overstating earnings by $2.4 billion. Meanwhile, Tenet Healthcare Corp., the second-largest for-profit hospital company, is being investigated by the Justice Dept. for allegedly overbilling Medicare. And a civil lawsuit brought by 82 patients claims that Tenet performed unnecessary surgeries to increase its reimbursement rates and used underqualified personnel to save money. Both companies say they will fight the charges, although 11 former HealthSouth executives already have pleaded guilty, as individuals, to bank fraud.

Without making excuses for any corporate malfeasance, there is an element to this troubling situation to which every doctor running a practice -- without cooking the books or upcoding -- can relate.

Knowledgeable financial observers trace some portion of the problems at HealthSouth and Tenet, in their role as health care systems, to their inability to squeeze money from a small group of dominant health plan purchasers. This is despite consultant theorizing about how a large network can enhance negotiating power, at least with managed care.