HMOs and "Patients' Rights:" 

Rationing Medicine

Richard Parker
Issue XX - March 2, 2004
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The debate over "Patients' Rights" legislation reflects a fundamental failure in the HMO system—but not one that is attributable to the insurers or the medical providers. Rather, this debate underscores the continuing failure of government intervention in medicine.
      With Medicare and Medicaid in the 1960s, government began to shape the practice of medicine by telling large numbers of people they could demand medical services without having to pay. As demand predictably rose, the government sought to contain the skyrocketing costs. It needed to make physicians and hospitals work for less, and it needed to control the unlimited demand it had unleashed.
      One means by which this was accomplished was the HMO act of 1973, which began the concept of government-induced "capitation" in medicine.
      HMOs are government-created and taxpayer-subsidized entities that pay physicians and hospitals predetermined, per-capita fees, regardless of what medical services are actually provided. Under HMO capitation, physicians and hospitals no longer have a financial incentive to do all that is necessary to treat a patient's illness. Rather, their incentive is to minimize the care provided. In HMOs, a physician's pay is tied not to the services he renders, but to the services he does not render.
      The essence of the HMO system is rationing. Normally, the more services a business can provide to its market, the more successful it is. That used to be true of medicine too, when doctors were paid fees for the services they provided. It is not true today. Now, the government's "solution" to the problem its interventions have caused is to create a perverse system under which the providers of medical care look for ways to withhold their services.
      There are numerous ways in which government encourages the proliferation of HMOs. Grants and loans are given to them; Medicare and Medicaid increasingly make contracts with them; certain employers must offer HMOs plans to their employees; and unlike HMOs, independent physicians are prevented, by antitrust law, from joining together to bargain with employers for health-care contracts.
      In a free market, HMOs could never become a significant factor in the economy. Who would pay for an insurance policy that, in a medical catastrophe, arbitrarily capitates payments to physicians for life-saving services? The purpose of health insurance is to protect against unforeseen medical disasters requiring expensive treatment. HMO's achieve the opposite—they make the patient uncertain of what vital procedures may be denied him as a result of Washington's desire to ration medicine. It is government intervention that fuels HMOs.
      But instead of blaming government, the politicians are blaming the doctors—and are calling for more regulatory controls via a "Patients' Bill of Rights." While the media have focused on the lesser issue of suing HMOs, they have ignored this legislation's crucial provision: mandating greater "access" to health care—i.e., more "free medicine." This would force physicians and hospitals to provide more services, even when the costs of those services are not being covered. The result will be fewer doctors willing to be a part of this unjust system, less of their time spent on each patient, and more attempts at "cutting corners" in the practice of medicine.
      While a medical student, during my internship and residency in the mid-1980s, I trained in an environment where physicians were still relatively free to determine with their patients what diagnostic tests to pursue, what treatments to render, and which specialists to involve in the patient's care.
      I performed a second residency in an HMO in the mid-1990s, and by then the consequences of these government-created entities had become obvious. Although the physicians were excellent, their incomes were slashed and the administrative bureaucracy was a nightmare. Innovations in medicine were often shrugged off as too expensive. Because of "utilization review," "compliance committees," and "economic credentialing," it was very difficult to do what I thought was best for my patients. For example, although MRI had become the new diagnostic standard, I was still using CAT scanning for diagnosing stroke. HMO bureaucrats decided that the more-expensive MRI was "not cost-effective" in the emergency department.
      There is only one "cost-effective" solution to the problem of HMOs: their elimination. The government should stop supporting their existence and should start withdrawing from the field of medicine. This would eventually make possible a free market in health care (something America has not had in more than 100 years). And it would allow physicians to do what they do best—practice medicine—and allow patients to exercise the rights they actually do have: to make medical choices for themselves by paying for whatever services a doctor is willing to provide.

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