HMOs As Villains of Health Reform

The other day a friend sent me a January 6 article from the Star Tribune, Minnesota’s largest newspaper by David Feinwachs, former counsel of the Minnesota Hospital Association for 30 years who teaches health law at the University of Minnesota.

These 2 paragraphs capture the gist of the article “There Are Hospitals and There Are HMOs.”

“Many so-called “hospital leaders” appear to be greedy and uncompassionate. I do not defend these people, nor do they represent the values of people who work in hospitals. Hospitals are not simply corporations; they are also the people who provide care. They are the nurses, doctors, pharmacists, technicians, maintenance workers, food preparers and myriad other people who dedicate themselves to healing. And, yes, they “can heal you now.” These people I defend. I always have. I always will. But I am unable to defend our nonprofit HMOs. I fear that they will continue madly accumulating wealth, while people still struggle for access to health care. (Low premiums coupled with high deductibles mean lack of access.)

Hospital excesses may be measured in the millions of dollars, but nonprofit HMO excesses are measured in the billions. The most visible indicator of this excess is the money HMOs hoard in reserves. Since 2003, our nonprofit HMOs have increased their reserves by more than 100 percent. Most of this money comes from HMO participation in public health care programs like Medicaid. In these programs, the HMOs don’t provide insurance; they just act as disbursement agents. Remember that these HMO reserves are pure cash and don’t count other HMO assets such as investments in the stock market, real estate or subsidiary companies. That’s a much bigger cost to the system than hospitals.”

Feinwach’s comments reminded me of an interview I conducted with Richard Burke, CEO of UnitedHealth back in 1988. The interview appeared in my book And Who Shall Care for the Sick: The Corporate Transformation of Minnesota.

Of United Health and Burke, I said,

“Among physicians and hospital administrators, Richard Burke is admired, feared, and loathed. He believes that dominant health care plans will:1) win market share by offering innovative health plans with low premiums, comprehensive benefits, and flexibility of product; 2) narrow the list of hospitals with which they deal by guaranteeing large number of patients in exchange for fee discounts; 3) narrow the list of physicians by dealing only with those doctors who offer the most “cost-effective services for patients; 4) cut the cost of physician expenses by redistributing income from high-cost specialists to less well-paid primary care physicians.

Burke was a prescient prophet. UnitedHealth has risen to #14 on the list of Fortune 500 companies, employs more than 172,000 people, serves some 100 million customers, and has $122 billion in revenues with profit margins of over 10%.

Other water has gone over the HMO bridge as well. CEO William McQuire was forced to resign in 2006, but as a settlement took $1.1 billion with him; United as spent more than $2 billion lobbying the federal government for favorable contracts; has captured the AARP supplemental Medicare market; and has now entered multiple health exchange markets.

Give UnitedHealth care executives credit.

They know how to turn a dollar and how to turn the heads of Washington-based policy wonks and bureaucrats.