Cherry Picking in HMOs
Critics of HMOs have charge that one of the ways that plans saved money, especially in the early years of the managed care revolution, was by selectively attracting healthier patients. But Marketplace Medical Commentator, Dr. Timothy McCall, says that HMOs aren’t the only ones gaming the system.
Managed care plans have made an art of selectively attracting customers who won’t run up the bills.
HMO actuaries figured out a long time ago that they could save a lot more money by avoiding sick patients than by actually managing care. Enrolling even a slightly smaller percentage of people needing liver transplants, AIDS treatment or stroke rehabilitation can save a plan big bucks. According to an AARP analyst, there is clear evidence of what they call “favorable selection” by Medicare HMOs.Doctors paid by capitation have the same incentives to shun the sick. A doctor receiving a flat monthly fee, often as little as 10 bucks, loses money—and possibly a lot of it--on any patient who needs much more than routine check-ups. Seminars advertised in medical journals offer to teach doctors how to attract the right kind of patients to make “boatloads of money.”
Although no one’s got numbers on how common this phenomenon is, there’s reason to think it goes on a lot. Data from the Medicare program, where switching plans is still relatively easy, show that on average HMO patient cost 23 percent less per year to care for according to 1998 data. An older study found that the year after patients switched back to regular Medicare from an HMO, however, their bills were 66 percent higher than average.
So here’s the situation: we’ve got doctors and HMOs gaming the system to avoid sick patients and patients in turn gaming the system avoid the stingiest HMOs once they know they’re likely to need expensive care. The irony of this incredibly dysfunctional system is that the worse the HMO’s reputation for shortchanging people in need of care, the more patients will help them by switching plans right before they run up the bill.Medicare intends to make it harder to switch plans in coming years. But the bigger lesson is about health and market forces. Competition is supposed to reward quality. But in health care, it can be good for the bottom line to give not-so-good care to people who are really sick.
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