WSJÿÿÿ :Managed Care Meets Its Maker
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ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ February 23, 2000
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Business World
ÿÿÿÿÿÿÿÿÿÿ ÿÿÿ Managed Care Meets Its Maker
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ interactive.wsj.com
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ By HOLMAN W. JENKINS JR.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ If every political career ends in failure, so do most CEO
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ careers. Bosses rise and fall with the passing relevance
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of a given business model or set of personal skills. If
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Aetna's Richard Huber faces trouble at Friday's board
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ meeting, this--and not his "big mouth"--will be the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ reason.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ His skills are financial engineering and deal-making.ÿ He
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ came from banking and quickly turned "sleepy old
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Aetna" (as he called it) into the nation's biggest health
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ insurer, heavily tilted toward the new world order of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ managed care.ÿ The "big mouth" was merely a bonus, a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ thrill for journalists and no doubt a thrill to some of his
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ industry colleagues.
interactive.wsj.com
ÿÿÿÿÿÿÿÿÿÿÿÿÿ
ÿ He made sport of the trial lawyersÿ and
ÿÿÿÿÿÿÿÿÿÿÿÿÿ noted the causal relationship between
ÿÿÿÿÿÿÿÿÿÿÿÿÿ political mandates, rising premiums
ÿÿÿÿÿÿÿÿÿÿÿÿÿ and the growing number of uninsured.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ He criticized Medicare
ÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ as a "crazy quilt" and doctors who want to "get
ÿÿÿÿÿÿÿÿÿÿÿÿÿ paid more for doing less."
ÿÿÿÿÿÿÿÿÿÿÿÿÿ He raisedÿ questions that puzzle metaphysicians,
ÿÿÿÿÿÿÿÿÿÿÿÿÿ such as why people in Kentucky are
ÿÿÿÿÿÿÿÿÿÿÿÿÿ 50% more likely to get radical
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ prostate surgery than residents of New
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Orleans.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ His tactlessness in these matters was accentuated by his
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ eccentricities, a habit of not playing golf and a penchant
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ for growing zucchinis on his terrace.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ But it is not the big mouth or his golflessness that are the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ trouble now. Aetna's total market value has fallen to less
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ than it paid in 1996 for U.S. Healthcare, its biggest
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ HMO acquisition .
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ Aetna soared to $100 a share because
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the market approved Mr. Huber's bet on managed care.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Now the stock is below $40 because the market no
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ longer believes in managed care.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ Aetna soared to $100 a share because
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the market approved Mr. Huber's bet on managed care.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Now the stock is below $40 because the market no
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ longer believes in managed care.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Let us stop and give ourselves a big wet kiss here. After
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ one of his deals, we pronounced Mr. Huber "America's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ health care leader" while also regretting that he hadn't
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ given us advance warning so we could short his stock.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ Managed care is a doomed model because it can't do
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ what it's supposed to do--control costs--without
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ antagonizing its customers. .
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Mr. Huber, no dummy, says that in five or 10 years most
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ of his business will have moved toward the "defined
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ contributions" model. As pioneered by Xerox,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ employees will get vouchers to buy health insurance and
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ pay the difference out of their own pockets if they want
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ gold-plated coverage. The onus will finally be on the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ customer to decide the proper trade-off between price
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and coverage.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ To the policy wonk, this sounds great. But a shareholder
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ might ask: What happens for the next five or 10 years
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ while Aetna runs a managed-care business without the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ tools to manage costs?
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ And make no mistake about it: HMOs are moving out of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the cost-control business because of fatigue and lawsuits
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and public policy threats and actions. The reason to own
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ an HMO stock, to capture a share of the cost savings, is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ now a reason not to own one. These realities have
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ recently taken down another redoubtable managed care
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ leader, Alan Hoops of PacifiCare.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Mr. Huber may be outspoken, but in business as in
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ politics, one thing that can't be openly acknowledged is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ powerlessness. If you have a problem without a solution,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ change the subject.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ The industry has not been frank about surrendering its
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ tools for controlling costs, especially the gatekeeper
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ function, which worked by raising bureaucratic hurdles
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ to doctors and patients who made demands on the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ system. Managed-care executives prefer to talk about the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ wonders of information technology, which they claim
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ will drive the adoption of "best practices" and save
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ money by treating incipient conditions before they reach
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the expensive acute stage.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ We don't doubt in the abstract the value of information,
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ but getting patients to come in for preventive care is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ easier said than done. And try telling a terminal patient
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ that statistically he's already dead and shouldn't waste
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ resources on any Hail Mary therapies. While the scope
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ for improving care is large, the delivery side needs to be
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ rationalized by modern business techniques. That can't
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ happen while the current regime of Medicare terrorism
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ keeps the necessary capital from coming into the hospital
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ industry.
ÿÿÿÿÿÿÿÿÿÿÿÿ ÿ Not only are costs not coming down; they're going to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ accelerate as rising insurance premiums drive more and
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ more people out of the ranks of the payers and into the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ranks of the uninsured. These people might stop paying
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ for health care, but they don't stop consuming it. Their
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ costs are simply padded invisibly onto the bills of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ paying programs like private health insurance or
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Medicare.
ÿÿÿÿÿÿÿÿÿÿÿÿÿ REPEAT:
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ÿ Not only are costs not coming down; they're going to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ accelerate as rising insurance premiums drive more and
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ more people out of the ranks of the payers and into the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ranks of the uninsured. These people might stop paying
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ for health care, but they don't stop consuming it. Their
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ costs are simply padded invisibly onto the bills of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ paying programs like private health insurance or
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Medicare.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Much of this bad news is unspeakable, but Mr. Huber
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ still has one cost-control club in his closet, even if it
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ must be gilded in the rhetoric of consumer choice. That's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Aetna's "all-products" policy.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ A doctor or hospital that wants to treat any Aetna
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ customer has to treat them all, meaning they can't treat
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ the gold-plated indemnity patients without treating the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ HMO patients. One reason Aetna wanted to become big
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ was so doctors and hospitals in a given local market
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ would find it hard to say no to this arrangement.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ For public consumption, the argument is that patients
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ should not have to change doctors just because they
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ move from one Aetna plan or another (although why the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ patient shouldn't have to make sacrifices for a cheaper
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ plan isn't obvious). What really is going on here is
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ enforced capitation. Under this system of HMO
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ reimbursement, doctors and hospitals are paid a flat
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ annual fee per HMO customer. Instead of the insurer
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ bearing the financial risk, medical providers bear the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ risk of a given patient pool coming in over-budget.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ In the auto industry, Detroit had great luck shifting the
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ job of cutting costs to its suppliers, but Detroit's
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ suppliers don't lay their hands directly on the end
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ customer. Doctors and hospitals do and most of them
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ hate capitation. Their surliness is communicated to
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ patients, who become nervous when they learn that their
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ caregivers have a financial incentive to skimp on care.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Now the logic of the entire managed-care experiment has
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ come under assault in the courts. Even Mr. Huber has
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ admitted that capitation is a dying duck because doctors
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ and hospitals haven't been up to the job of managing risk.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Sounding the death knell, a survey of managed-care
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ executives last month found that 60% expect to see a
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ decline in risk-sharing arrangements in the coming year.
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ There goes the industry's last strong method of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ controlling costs.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Great fortunes were made in managed
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ care in the 1990s, doing the dirty work for employers of
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿ braking the acceleration of health-care costs.ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Now theÿ ball is back in the court of the employers.
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ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ [ÿÿÿ .........AND ....I will add ,ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ......." in the court of employees.ÿ "ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ Or, as they say :ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ ..... " IT TAKES TWO TO TANGOÿÿ ".ÿÿÿÿÿ ]ÿ
ÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿÿ
ÿÿ TAÿÿÿ
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