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Ralph Nader > Special Features > Letter to Senate and Congressional Leadership on HMOs

July 15, 1999

The Honorable Trent Lott
Majority Leader
United States Senate
Washington, DC 20510

The Honorable Dennis Hastert
House of Representatives
Washington, DC 20515

The Honorable Tom Daschle
Minority Leader
United States Senate
Washington, DC 20510

The Honorable Richard Gephardt
Minority Leader
House of Representatives Washington, DC 20515

Dear Gentlemen:

The business of the United States Senate this week has been reforming HMOs, but unless reform addresses the imbalances of power and the business-as- usual, profits-before-patients approach of HMO corporations, the public will neither be safe nor satisfied.

Patients who have suffered and died, doctors who have fought back and been delisted, and nurses who have protested and lost their jobs demand that reform genuinely challenge a monetized HMO establishment intent on undermining the health of patients and the professionalism of physicians and nurses.

Public outrage is at an all-time high. The medical professions are in open revolt. If civil society does not reassert itself over the arrogance of giant HMOs, the quality of our health care and our democracy will continue to be compromised.

A worthwhile HMO reform plan necessitates the following changes in civic control over HMO corporations.

HMOs must be legally accountable for damages when they delay and deny medically necessary treatment. Presently, working Americans with private industry health coverage can only recover the cost of a denied benefit due to the federal Employee Retirement Income Security Act of 1974 or ERISA. There is little doubt that the tragic record of wrongdoing and serious neglect at HMOs today springs in part from the fact that for 125 million Americans with private industry coverage there is no real remedy when wronged. If convicted thieves simply had to give back the money they stole, the number of bank robberies would increase decisively. The possibility of damages – compensatory, non-economic and punitive — is precisely the legal leverage patients need to force HMOs to provide medically-necessary care.

ERISA does not apply to public employees. According to one study, they do not pay much more for their fuller remedies, which extend to state and local employees as well as some federal workers in jurisdictions like Oklahoma, where Senator Nickles can sue an HMO in a bad faith lawsuit for punitive damages. A 1998 Kaiser Family Foundation study found that litigation costs added only between three to thirteen cents per member per month to the premiums of California state employees. Similarly, a 1997 Texas HMO liability law, the first in the nation to avoid ERISA, has produced only one lawsuit and few costs, though doctors report they are receiving more deference from HMOs when requesting treatment for their patient.

Only doctors should determine medical necessity, not corporate bureaucrats. The Democratic plan rightfully places power to determine medical necessity with physicians, not insurance company technicians who craft the fine print in HMO contracts. Services should only be medically necessary if they are in accordance with general medical principles and the physician’s judgement, not because an HMO offers its own definition of “medically necessary.” According to the American Medical Association, Aetna, the nation’s largest managed care company, uses in its contracts with physicians a definition of medical necessity that includes the “least costly alternative,” presumably giving the company final say over a remotely similar treatment that a patient’s doctor may not recommend. As between the attending physicians and the HMO, medical necessity must be the province of physicians if medical ethics are to prevail over the HMO profit motive.

Independent review procedures only work well in conjunction with civil liability and when reviews are truly independent of the HMOs. Privatized third party review systems, such as those established by the GOP plan, permit bureaucratic maneuvers by HMOs that an ill patient has neither the time nor capability to defend against. The possibility of damages against an HMO, should that patient not get appropriate care, will compel the time-sensitive hospital admission or urgent treatment approval that can save a life. Moreover, when HMOs pay for reviews and choose when such reviews are warranted, patients will have no legitimate appeal. A private review system (one in which the third-party reviewer is not a public entity) keeps the control with HMOs that contract out for reviews and the physicians who decide them. Physicians must recommend appeals, even though the HMOs put doctors financially at risk for treatment costs. Other doctors must decide appeals based, often, on less than perfect notes from treating physicians. The privatized review system is fraught with traps for the patient unless HMOs know that they will face significant damages if they do not do all they can to make the system work for those seeking an appeal.

Executive salary caps should apply to any HMO that services Medicare or otherwise receives tax money. Obscene HMO extravagance is a stark contrast to the penuriousness HMOs show toward patients. One HMO C.E.O., Steven Wiggins of Oxford, collected $30.7 million in 1997 even though his company recorded consistent losses after computer problems caused it to lose track of billing records and medical costs. If patients are to suffer under HMO rationing of medically necessary services, HMOs that receive public monies must not be allowed to squander precious dollars on lavish executive compensation packages. Prudent limits should be set for executive pay at HMOs receiving substantial taxpayer dollars.

In addition, a facility to encourage consumers to band together on a statewide basis, at their own volition and without any taxpayer money being used, to form consumer health action groups should be authorized. This would take the form of laws requiring government and health industry envelopes, sent to people for customary purposes, such as bills or government checks, to contain, at no expense to sender, a postage-paid envelope—letter that invites paid memberships from consumers to these state chartered private consumer associations. The Illinois Consumer Utility Board, in the residential ratepayer area, offers an instructive analogy.

These principles are the bare-bones beginning of reforms. They are the minimum patients deserve to even the balance of power between themselves and HMO corporations that are turning doctors’ offices and hospitals into commercially dominated domains. If serious reform is not enacted soon, patients and taxpayers will be paying the price for more years to come.


Ralph Nader

P. O. Box 19312
Washington, DC 20036
Tel: 202-387-8034