Managed-care plans whose hospital owners are represented on the American Hospital Association's board of trustees lost more than $50 million last year, according to a review of their operations by MODERN HEALTHCARE.
The plans' poor results could help explain why the AHA is one of the few provider groups to oppose federal managed-care legislation that critics say will increase the operating costs of managed-care plans and possibly push money-losing HMOs deeper into the red.
In opposing "patient protection" legislation, which would place new regulatory requirements on health insurers and newly formed Medicare provider-sponsored organizations, the AHA says it favors a private-sector, voluntary approach to guard against misdeeds by managed-care plans (April 13, p. 2).
A familiar ring. The AHA's position is similar to the nonposition the association took several years ago in the debate over 24-hour hospital stays for new mothers-a position the AHA's senior management later said was a mistake because it abdicated the AHA's role as a patient advocate.
AHA executives say they are against federal managed-care legislation because they are philosophically opposed to increased government regulation of the healthcare industry, not because they're worried about hospitals' wallets or because of any diminished concern over patient welfare.
Yet, the AHA's position puts the Chicago-based organization in league with the managed-care industry and with the business community, which both fear escalating costs because of the new federal regulations.
It's no surprise that the hospital industry opposes managed-care legislation, said David Snapp, healthcare organizing director for the Service Employees International Union, which has endorsed the movement on Capitol Hill. Hospitals, he said, are either part of a managed-care organization or the providers of care in a plan.
"I think it's natural, not defensible necessarily, that they see this as unwanted regulation from their standpoint," Snapp said.
A review of the AHA's 25-member board found that eight members, including the board's chairman-elect, run hospitals or hospital systems that also are in the health insurance business. Also, the past two chairmen of the AHA's board represent hospital-owned HMO interests in their respective markets.
From the field of eight, the two HMOs that lost the most money last year belong to Missouri systems run by AHA board Chairman-elect Fred Brown and board member Sister Mary Roch Rocklage.
Rocklage's Sisters of Mercy Health System holds the majority interest in Mercy Health Plans of Missouri, a 100,332-enrollee plan that lost $20.7 million in 1997, according to the Missouri Department of Insurance.
Brown's BJC Health System has 50% ownership in Medical Center Health Plan, also known as Health Partners of the Midwest. The 88,806-enrollee plan lost $16.6 million in 1997, according to an annual statement filed with the state.
Combined, the two systems lost 70% of the more than $53 million in losses reported by seven of the HMOs whose hospital executives sit on the AHA's board.
Those figures don't include Norfolk, Va.-based Sentara Health System, whose chief executive officer, David Bernd, also sits on the AHA board. That's because 1997 financial figures for Sentara's HMOs won't be available from the state until May 15. However, according to the Virginia Corporation Commission, Sentara has two HMOs, which collectively lost $4.8 million in 1996. Bernd said the plans posted net income of $2 million in 1997.
While those plans lost money, the HMOs connected to the AHA's past two board chairmen made money in 1997.
Henry Ford Health System in Detroit operates 508,197-enrollee Health Alliance Plan, which earned nearly $22 million last year, according to the Michigan Insurance Bureau. Henry Ford's president and CEO, Gail Warden, is an AHA power broker who served as the association's board chairman in 1995.
Warden headed a subcommittee on President Clinton's Advisory Commission on Consumer Protection and Quality in the Health Care Industry.
The quality commission completed its work earlier this year, shunning legislation in favor of market-based solutions, a position the AHA supports. The quality commission agreed with Warden's subcommittee, which was against legislation.
Warden canceled a scheduled interview last week and was unavailable for comment.
Gordon Sprenger served as AHA board chairman in 1996. He's executive officer of Minnetonka, Minn.-based Allina Health System, which includes 1.1 million-enrollee Medica Health Plans. Thanks to investment earnings, Medica finished 1997 with an $8.5 million profit but lost $24 million on operations.
A spokeswoman for Sprenger referred calls for comment on this story to the AHA.
Members downplay influence. Other board members said their hospitals' experience in the commercial insurance business doesn't sway AHA policy. AHA President Richard Davidson was unavailable for comment for this story.
"Generally, I have not seen the board members who own HMOs to advocate or look at this issue any differently than the other board members," said John King, the AHA's current board chairman.
King is president and CEO of Portland, Ore.-based Legacy Health System, which doesn't own an HMO.
AHA board member Chris Barnette, whose Baton Rouge, La.-based General Health System owns an HMO, agreed.
"I think there is a general propensity on the part of the board not to want to see the federal government dictate patient care," said Barnette, executive vice president and chief operating officer of General Health, which owns Gulf South Health Plans, a 62,480-enrollee HMO that lost $2.8 million in 1997.
The AHA has said it opposes federal managed-care legislation because it doesn't approve of several provisions in some of the bills before Congress.
Those include provisions that would give beneficiaries the right to sue health plans or prohibit hospitals from retaliating against workers who report quality problems.
The AHA has said that no matter how well-meaning any quality legislation might be, it still would be onerous.
"We happen to think a nonlegislative approach is the best way to go," King said. "It's not that we don't believe in the principles; it's how we get there."
King said the AHA's stand against legislation wasn't arrived at single-handedly by the board.
The matter, he said, was first hashed out by the AHA's nine regional policy boards, representing a cross section of the association's membership.
"We got a very strong message back from the field that they were interested in the voluntary approach to patient protection," King said.
The view from Congress. A spokesman for Rep. Charles Norwood (R-Ga.), who sponsored the Patient Access to Responsible Care Act, paints a different picture of resounding local support for managed-care legislation. He said it's the national organizations, such as the AHA, that are seemingly out of touch with what constituents really want.
"The inside-the-Beltway national headquarters folk of most organizations are tending to oppose it because they hear and talk to the representatives of the big national and international insurance companies," said John Stone, Norwood's spokesman.
Last week, for example, a poll sponsored by the American Psychological Association found that 77% of those surveyed support giving managed-care enrollees the right to sue their insurance plan if they feel they have been injured by negligent decisions or cost-containment actions by their plans. The APA is a strong proponent of federal managed-care legislation.
As lobbyists, lawmakers and other groups maneuver for position in the patient-protection debate, the AHA is standing firm.
King said he doesn't see the AHA getting behind any legislation "in the foreseeable future."
AHA board member Bernd said diversity on the association's board ensures balance on the positions it espouses, regardless of the individual interests of the systems represented on the association's board.
"I think that if none of us were in the insurance business we'd still have the same belief on that," Bernd said of the opposition to federal legislation.
Patients first? AHA board members also maintain that the association's position on managed-care legislation shouldn't be read as a lack of commitment to doing what's in the best interest of the patient.
"Your responsibility first and foremost is to that patient," King said.
Yet the AHA has taken a number of actions that seem to be at odds with King's assertions that the patient is king among the association's constituencies.
For example, the AHA has changed its slogan, placing an emphasis on improving community health and eliminating the word "patient" (See box, p. 2). However, that should not be seen as a slight, King said. "It's really adding the health of the community and putting the emphasis on the health and the community. It's an attempt to try to focus on the ultimate outcome here."
In 1995 and 1996, the AHA let medical specialty groups represent patient interests in the debate with the health insurance industry over 24-hour hospital stays for new mothers.
At the time, the association said hospital stays for new moms should be left to individual patients and their physicians. It neither sided with physician organizations, which wanted federally required 48-hour minimum hospital stays, nor the insurance industry, which said 24-hour stays were clinically sufficient.
Henry Ford's Warden was the AHA's board chairman at that time, and his system's flagship hospital was a pioneer of the 24-hour hospital stay for new moms. The hospital instituted 24-hour stays as the standard of care for patients in 1993, and Henry Ford later extended that to the rest of its healthcare delivery system as well as making it the payment standard for its managed-care plan.
After Clinton signed federal legislation in the fall of 1996 making 48-hour hospital stays the norm for new moms, the AHA's senior management said it regretted not standing up for patients in the debate over the appropriate length of stay for maternity patients.
"Hospitals should have fought harder against managed care's pressure to limit inpatient maternity care," said Richard Wade, the AHA's senior vice president for communications, in an association publication in December 1996. "We need to be much more aggressive as advocates for the patient."
Making a distinction. Although many AHA board members head hospital systems that run commercial health insurance businesses, the association still likes to draw a distinction between HMOs run by hospitals and HMOs run by traditional insurance carriers.
For example, late last year, the AHA board put the finishing touches on a bylaw change that allows integrated delivery systems to be full-fledged AHA members. Historically, only hospitals or hospital systems could be members.
Integrated delivery systems allowed in as new members must be provider-based. They can operate insurance companies, physician practices or both. However, the systems can't be run by insurance companies. Providers, such as doctors, hospitals or hospital systems, must sit at the top of their organizational charts.
"An insurance-dominated network could not come in as a full-fledged member," Wade said.
In previous interviews explaining the distinction, AHA's Davidson has said insurance-based systems don't share the same commitment to community health as do provider-run systems. He said insurance-based systems are more concerned with increasing enrollment.
However, when it comes to managed-care legislation, the AHA*and the health insurance industry are on the same team.
And that's not surprising, said Kristin Bass, director of legislative affairs for the American Association of Health Plans, which opposes managed-care legislation.
"There is a confluence of interest that has nothing to do with what your line of business is and more to do with your outlook on the federal role and the possible impact of highly increased federal regulation," Bass said.