Commercial Managed Care Organizations "Will Not Sacrifice Profitability for Membership"

In the American Medical News is a revealing article about large commercial managed care organizations (MCOs):



The nation's largest publicly traded health plans say they don't plan to temper premium increases for the sake of keeping members on their rolls -- particularly not while they are under pressure from Wall Street over what it sees as their disappointing earnings.

Wall Street analysts were shaken over the long-term prospects of the health plan business after bellwethers WellPoint and UnitedHealth Group, the nation's two largest private-pay plans, reported less-than-expected profits from the first three months of this year.

But health insurers say cutting premiums or reducing the rate of increase to keep customers would affect their bottom lines more than losing some members over premium hikes.

'We will not sacrifice profitability for membership,' WellPoint President and CEO Angela Braly told analysts during a conference call.

Consolidation over recent years is allowing insurers to raise premiums as well as continue to attack physician reimbursement as a means of attempting to keep profits up, said Susanne Madden, president and CEO of the Verden Group, a health care consulting group in Nyack, N.Y. 'With consolidation and there being fewer players comes a certain amount of arrogance,' she said. 'The response from the insurers is quite miserly.'

In addition, consolidation gives health plans negotiating power over physician reimbursement, thereby driving down medical costs. In trying to persuade investors that WellPoint's problems are 'fixable,' CEO Braly emphasized WellPoint's market power, which she said gives it the ability to lean hard on its network doctors to accept lower reimbursement.


Contrast WellPoint's "miserly" approach with its stated "commitments,"



At WellPoint, we are dedicated to improving the lives of the people we serve and the health of our communities. From the boardroom to the mailroom, every associate is expected to honor the company's commitments to our diverse customers, fellow associates, shareholders and the communities we serve - helping us become the most trusted choice among consumers.

Our business strategies mirror our commitment to providing affordable quality care to our members and the public. In line with our vision to become the most valued company in our industry, we must:

* Bring affordable quality health care and coverage to medically underserved communities
* Educate people to take an active role in their own health
* Work with our health care partners to improve quality of care
* Help shape public policy that makes health care more affordable and more accessible


Commercial managed care organizations love to tell the public how they seek to make care more affordable and increase access. But obviously these objectives pale when compared with keeping the profit margins healthy.

Contrast also WellPoint's "miserly" approach to making health care "affordable," and it emphasis on boosting its profit by cutting payments to physicians, with the compensation given to CEO Braly. According to the company's 2008 proxy statement, her total compensation in 2007 was greater than $9 million.

Finally, note that Wellpoint's efforts to control health care costs seem only to encompass cutting payments to physicians. It's curious that big, for-profit managed care organizations and health insurers seem much more inclined to target physicians, rather than other sources of rising health care costs.

But then again, those other sources are all big organizations, such as hospitals and health care systems, and pharmaceutical, biotechnology, and device companies. It's a lot easier to target physicians, who are unable to negotiate collectively with the MCOs, than to target other big corporations with lots of negotiating muscle.

In addition, a number of the members of WellPoint's board of directors also direct such organizations. In particular,

  • Dr Lenox D Baker is a trustee of Johns Hopkins University and of Johns Hopkins Medicine (which includes Johns Hopkins Hospital and Health System);
  • Susan B Bayh is on the boards of directors of Dendreon (biotechnology), Curis Inc (biomedical), Nastech Pharmaceutical Company Inc (biopharmaceutical), and Dyax (biopharmaceutical);
  • Larry C Glasscock is on the board of Zimmer Holding, a device manufacturer (principally orthopedic);
  • Victor S Liss is a trustee of Norwalk Hospital;

Such financial relationships may influence the MCO not to be too tough when negotiating prices of the goods and services provided by the sorts of organizations the MCOs board also directs.

The American Medical News also noted that the CEO of the UnitedHealth Group told investors:


We continue to protect our margins. ... We are committed to sustaining a quality business without taking shortsighted pricing positions.


Contrast this with UnitedHealth Group's new and improved mission.


Our mission is to help people live healthier lives.

* We seek to enhance the performance of the health system and improve the overall health and well-being of the people we serve and their communities.
* We work with health care professionals and other key partners to expand access to high quality health care so people get the care they need at an affordable price.
* We support the physician/patient relationship and empower people with the information, guidance and tools they need to make personal health choices and decisions.

(For the old mission, see this post.) Again, telling the public about "affordable" health care is one thing, but protecting the bottom line without taking "shortsighted pricing positions" comes first. And that will, of course, help Mr Helmsley's bottom line, which was over $13 million in total compensation for 2007, according to the company's 2008 proxy statement.

We have often criticized pharmaceutical, biotechnology, and device makers for deceptive marketing approaches. But the continuing insistence by commercial managed care companies that they are out to provide the public with "affordable" health care seems to be equally thickly sliced baloney. Physicians and patients need to be continually skeptical of the claims made by the marketers of all large health care organizations. Furthermore, they need to be alert for conflicts affecting the leadership of such organizations that may influence them to turn from their warm and fuzzy stated missions and ideals.

ADDENDUM (23 May, 2008) - see comments by DrRich on the Covert Rationing Blog.