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.

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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.

It seems that even the biggest companies, with an army of MBAs, cannot figure out how to break managed care's inordinate contracting power rooted in consolidated, megasize health plans. Nor can they figure out how to overcome the tightening of Medicare reimbursement rates.

The medical profession knows this problem well and has found the voice with which to fight it through organized medicine.

In the public sector, the AMA scored a major victory this year in fighting off a wholly inappropriate Medicare pay cut, one based on a flawed government formula. The result was a 1.6% increase from what would have been a 4.4% decrease. With signs of a pay cut for next year, the AMA this month has again called on Congress to fix the faulty formula.

In the private sector, the AMA, working with state medical societies, has documented the consolidation of health plans to make clear how out of whack the marketplace is. Health plans in 61 out of 70 metropolitan areas studied by the AMA have a "highly concentrated" market share as defined by the Justice Dept. The AMA is renewing its call for the Federal Trade Commission to investigate health plans for antitrust violations.

The AMA also has been the leading advocate for promoting ways that independent physicians can be involved in meaningful and lawful negotiations with health plans. Work by the AMA and state societies to reveal health plans' chronic late payments has led to prompt-payment laws in all but three states.

The AMA has been an advocate for finding ways to get coverage for uninsured. It has offered a plan that uses real-world solutions such as tax credits and access to individual coverage as a way to get affordable health coverage to all Americans.

All of these AMA activities have been carried out in the spirit of preserving our market system of health care. Whatever its faults, a market system promotes choice, availability, personal responsibility, innovation and responsiveness.

Should the courts deliver some bad news to execs at Tenet and HealthSouth, so be it. These are serious charges that, if found to be true, call for serious penalties. But to the extent that those found guilty were tempted to stray from what's right by a lopsided market gone wrong, that signals a problem in health care that's bad news for everyone.