HMOs limit care to elderly and poor

October 1, 1998

Pharmaceutical Representative

Despite initial enthusiasm, many of the nation's largest health maintenance organizations have begun abandoning public managed care programs for elderly and poor populations.

Despite initial enthusiasm, many of the nation's largest health maintenance organizations have begun abandoning public managed care programs for elderly and poor populations.

The development is happening at a time when state and federal policy-makers are reshaping health care programs under the assumption that managed care firms will enhance their involvement in the Medicare and Medicaid programs.

Organizations such as Aetna US Healthcare, Pacificare, Oxford Health Plans, Kaiser Permanente and Blue Cross and Blue Shield Associations recently shut down Medicaid services in at least 12 states.

Firms have also pulled out of Medicare-managed programs for the elderly, particularly in rural areas. For example, Anthem Blue Cross and Blue Shield announced that it was pulling out of Medicare plans in 19 Ohio counties. Most recently Health Net, a large HMO in California, said it would end its Medicare service in 10 counties.

That these firms are universally citing inadequate funding sends a disturbing message about the private sector's ability to link with the government and provide health care to such populations.

"Private-sector enthusiasts went by the theory that the government cannot walk and chew gum at the same time," explained Uwe E. Reinhardt, professor of economics and public affairs at Princeton University, Princeton, NJ.

"They believed that if the private sector were given a chance, it would be more efficient and be able to purchase health care at a lower cost than the government. But that's turning out to be wishful thinking."

Disenchanting results

A study recently conducted by Robert Hurley, an associate professor at Virginia Commonwealth University, Richmond, and funded by the Center for Health Care Strategies, examined the trends of HMOs over the past five years. Already a few years ago, Hurley noted, firms' enthusiasm for serving elderly and poor populations was beginning to wane.

The study stated that "although their plans' motivations for entering the Medicaid markets varied, none expected to operate at a loss. Since the early 1990s they saw profound changes in the Medicaid market, particularly as state programs became mandatory, states refined their rates, a broader set of beneficiaries enrolled and states demanded more in areas of contract specifications and execution."

"In the past, health maintenance organizations thought rates in Medicaid would be a lot more stable," Hurley explained. "But the rate issue was disenchanting."

According to Reinhardt, the recent pullout results from private-sector managed care companies forgetting two important considerations. First, he said, private-sector firms spend a lot more money on administration. Second, Medicare has historically provided a significant discount to its customers. Managed care firms, Reinhardt concluded, would have to work extremely hard to match such a discount.

No more cherry-picking

"We are learning that the private sector cannot buy health care more cheaply," Reinhardt said. "In the past, managed care did well because firms managed to get a healthier segment of the elderly, but now they are finding that they are enrolling more of the sick and the elderly. They are learning that they cannot cherry-pick anymore. They now have to compete more honestly. It's a powerful lesson."

Joe Lubarsky, national director of long-term care services with BDO Seidman LLP, Milwaukee, said a lack of experience dealing with long-term care for the elderly helps explain why managed care firms are backing away.

"The health maintenance organizations have no experience at case management for chronic conditions," Lubarsky explained. "To be successful they have to have significant programs on prevention and early intervention, and they need to be successful at case management."

"States getting into managed care have typically adopted more acute-based populations and more men, women and children to serve," said Marie Infante, an attorney with Powers, Pyles, Sutter & Verville PC, Washington. "Nursing homes are still kind of the wallflowers of the managed care game."

As a result, the long-term care population will not soon directly feel the effect of the HMOs dropping certain managed care programs.

Looking forward, Reinhardt predicts that a majority of HMO will simply drop out of the business, while "some will specialize in managed care, become much better at saving money, and will eventually expand."

While it's impossible to predict where managed care firms will target elderly populations in the future, it's not hard to see what they want now.

A recent study conducted by the Kaiser Family Foundation, Washington, revealed that advertisements sponsored by these firms are directly targeting the elderly who are healthy, rather than people with medical problems or chronic disabilities.

According to the study, "nearly half of all television ads include images of physically active seniors in the midst of strenuous activities such as mountain biking, swimming and jogging up stairs." The study also found that none of the advertisements targeted Medicare beneficiaries in poor health, or the disabled.

Bucking the trend

Despite the recent pullout, HMOs in some states are not yet fleeing. For example, no HMOs in Michigan had dropped their Medicaid or Medicaid plans at press time - despite losing more than $48 million last year.

Company officials noted that if they dropped coverage for disadvantaged people, these customers would run out of health care options. But as recent developments suggest, their concerns are proving to be the exception rather than the rule. PR

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