^{Posted on September 17, 2009}

Testimony Of Wendell Potter and Dr. Linda Peeno

Between You and Your Doctor: the Private Health Insurance Bureaucracy

Domestic Policy Subcommittee
Oversight and Government Reform Committee
2154Rayburn HOB
Wednesday, September 16, 2009

Testimony Of Wendell Potter
Senior Fellow on Health Policy
The Center for Media and Democracy

Thank you Chairman Kucinich for the opportunity to address the House Oversight and Government Reform Subcommittee on Domestic Policy. Mr. Chairman, Ranking Member Jordan, and Members of this Subcommittee, my name is Wendell Potter, and I am humbled to be here today and testify beside fellow Americans who have been so harmed by the deplorable practices of an industry I worked in for many years.

The title of today’s hearing serves as an important antidote to some of the rhetoric about who or what stands between a patient and his or her doctor. I know there are many who fear the idea of a government bureaucrat in that space but the alternative has proved much more fearsome. The status quo for most Americans is that health insurance bureaucrats stand between them and their doctors right now, and maximizing profit is the mandate that has simply overtaken this industry. As my fellow panelists know firsthand, the bureaucracy of private health insurance is a labyrinth of deliberately misleading terms of art designed to help companies minimize the coverage provided and maximize profits to appease Wall Street and investors. Or, rather, it is a minefield that leaves every American at great risk of not just going bankrupt over uncovered medical expenses but of losing their lives and the lives of their loved ones.

For 20 years, I worked as a senior executive at health insurance companies, and I saw how they confuse their customers and dump the sick — all so they can satisfy their Wall Street investors.

1. First, an Apology

So, I would like to take this opportunity to apologize to you and my fellow panelists for the role I played over a decade ago in, essentially, cheating you out of a reformed health care system. Had it not been for greedy insurance companies and other special interests, and their army of lobbyists and spin-doctors like I used to be, we wouldn’t be here today.

I’m ashamed that I let myself get caught up in deceitful and dishonest PR campaigns that worked so well, hundreds of thousands of our citizens have died, and millions of others have lost their homes and been forced into bankruptcy, so that a very few corporate executives and their Wall Street masters could become obscenely rich.

But it was only during the last few years of my career that I came to realize the full scope of the harm my colleagues and I had caused, and the lengths that insurance companies will go to increase their profits at the expense of working families.

I know from personal experience that members of Congress and the public have good reason to question the honesty and trustworthiness of the insurance industry. Insurers make promises they have no intention of keeping, they flout regulations designed to protect consumers, and they make it nearly impossible to understand — or even to obtain — information consumers need. There is simply no solid basis for trusting that the insurance companies will make good on the promises they are making right now in order to avoid crucial reforms that would literally save countless American lives.

And, I know there is a perception out there that we cannot achieve major reform because the insurance industry employs so many people. But, in general, the companies today have fewer employees than they did when I first started working in this field. Many jobs that used to be in-house have been outsourced. And, the most numerous jobs are low-paying positions that are tasked with helping to deny peoples’ claims for coverage. If a public option were adopted, I bet new government jobs would be created that would provide employees like these not just more secure positions but more satisfying ones, which would not have the high burn-out and turn-over rate in the industry right now where these workers suffer tremendous stress from being on the front-lines of telling desperate families that the insurance company is refusing to allow or pay for needed medical treatment. The existence of so many jobs devoted to denying coverage should not be an excuse to thwart reform. Surely, there has to be a better way.

As Members discuss the various compromises that will be floated in the coming weeks, I encourage you to look very closely at the role for-profit insurance companies play in making our health care system both the most expensive and one of the most dysfunctional in the world. I know this hearing, and others you are holding, will help Members of Congress look beyond the misleading and destructive rhetoric making the rounds and help provide a real sense of what life would be like for most of us if the kind of so-called reform the insurers are lobbying for is enacted.

When I left my job as head of corporate communications for one of the country’s largest insurers, I did not intend to go public as a former insider. However, it recently became abundantly clear to me that the industry’s charm offensive — which is the most visible part of duplicitous and well-financed PR and lobbying campaigns — may well shape reform in a way that benefits Wall Street far more than average Americans.

2. Here’s How the Private Insurance Bureaucracy Really Works, or Rather Doesn’t Work for You

A few months after I joined the health insurer CIGNA Corp. in 1993, just as the last national health care reform debate was underway, the president of CIGNA’s health care division was one of three industry executives who came here to assure members of Congress that they would help lawmakers pass meaningful reform. While they expressed concerns about some of President Clinton’s proposals, they said they enthusiastically supported several specific goals.

Those goals included covering all Americans; eliminating underwriting practices like pre-existing condition exclusions and cherry picking; the use of community rating; and the creation of a standard benefit plan. Had the industry followed through on its commitment to those goals, I wouldn’t be here today.

For weeks now, we have been hearing industry executives saying the same things and making the same assurances. And, I am sure you will hear the same refrain tomorrow. This time, though, the industry is bigger, richer and stronger, and it has a much tighter grip on our health care system than ever before. In the 15 years since insurance companies killed the Clinton plan, the industry has consolidated to the point that it is now dominated by a cartel of large for-profit insurers.

The average family doesn’t understand how Wall Street’s dictates determine whether they will be offered coverage, whether they can keep it, and how much they’ll be charged for it. But, in fact, Wall Street plays a powerful role. The top priority of for-profit companies is to drive up the value of their stock. Stocks fluctuate based on companies’ quarterly reports, which are discussed every three months in conference calls with investors and analysts. On these calls, Wall Street investors and analysts look for two key figures: earnings per share and the medical-loss ratio, or medical “benefit ratio,” as some companies now call it. That is the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.

To win the favor of powerful analysts, for-profit insurers must prove that they made more money during the previous quarter than a year earlier and that the portion of the premium going to medical costs is falling. Even very profitable companies can see sharp declines in stock prices moments after admitting they’ve failed to trim medical costs. I have seen an insurer’s stock price fall 20 percent or more in a single day after executives disclosed that the company had to spend a slightly higher percentage of premiums on medical claims during the quarter than it did during a previous period. The smoking gun was the company’s first-quarter medical loss ratio, which had increased from 77.9% to 79.4% a year later, a change of less than two percent.

To help meet Wall Street’s relentless profit expectations, insurers routinely dump policyholders who are less profitable or who get sick. Insurers have several ways to cull the sick from their rolls. One is policy rescission. They look carefully to see if a sick policyholder may have omitted a minor illness, a pre-existing condition, when applying for coverage, and then they use that as justification to cancel the policy, even if the enrollee has never missed a premium payment. Asked directly about this practice just last week in the House Energy and Commerce Committee, executives of three of the nation’s largest health insurers refused to end the practice of cancelling policies for sick enrollees. Why? Because dumping a small number of enrollees can have a big effect on the bottom line. Ten percent of the population accounts for two-thirds of all health care spending. The Energy and Commerce Committee’s investigation into three insurers found that they canceled the coverage of roughly 20,000 people in a five-year period, allowing the companies to avoid paying $300 million in claims.

They also dump small businesses whose employees’ medical claims exceed what insurance underwriters expected. All it takes is one illness or accident among employees at a small business to prompt an insurance company to hike the next year’s premiums so high that the employer has to cut benefits, shop for another carrier, or stop offering coverage altogether — leaving workers uninsured. The practice is known in the industry as “purging.” The purging of less profitable accounts through intentionally unrealistic rate increases helps explain why the number of small businesses offering coverage to their employees has fallen from 61 percent to 38 percent since 1993, according to the National Small Business Association. Once an insurer purges a business, there are often no other viable choices in the health insurance market because of rampant industry consolidation.

An account purge so eye-popping that it caught the attention of reporters occurred in October 2006 when CIGNA notified the Entertainment Industry Group Insurance Trust that many of the Trust’s members in California and New Jersey would have to pay more than some of them earned in a year if they wanted to continue their coverage. The rate increase CIGNA planned to implement, according to USA Today, would have meant that some family-plan premiums would exceed $44,000 a year. CIGNA gave the enrollees less than three months to pay the new premiums or go elsewhere.

Purging through pricing games is not limited to letting go of an isolated number of unprofitable accounts. It is endemic in the industry. For instance, between 1996 and 1999, Aetna initiated a series of company acquisitions and became the nation’s largest health insurer with 21 million members. The company spent more than $20 million that it received in fees and premiums from customers to revamp its computer systems, enabling the company to “identify and dump unprofitable corporate accounts,” as The Wall Street Journal reported in 2004. Armed with a stockpile of new information on policyholders, new management and a shift in strategy, in 2000, Aetna sharply raised premiums on less profitable accounts. Within a few years, Aetna lost 8 million covered lives due to strategic and other factors.

While strategically initiating these cost hikes, insurers have professed to be the victims of rising health costs while taking no responsibility for their share of America’s health care affordability crisis. Yet, all the while, health-plan operating margins have increased as sick people are forced to scramble for insurance.

Unless required by state law, insurers often refuse to tell customers how much of their premiums are actually being paid out in claims. A Houston employer could not get that information until the Texas legislature passed a law a few years ago requiring insurers to disclose it. That Houston employer discovered that its insurer was demanding a 22 percent rate increase in 2006 even though it had paid out only 9 percent of the employer’s premium dollars for care the year before.

It’s little wonder that insurers try to hide information like that from its customers. Many people fall victim to these industry tactics, but the Houston employer might have known better — it was the Harris County Medical Society, the county doctors’ association.

A study conducted last year by PricewaterhouseCoopers revealed just how successful the insurers’ expense management and purging actions have been over the last decade in meeting Wall Street’s expectations. The accounting firm found that the collective medical-loss ratios of the seven largest for-profit insurers fell from an average of 85.3 percent in 1998 to 81.6 percent in 2008. That translates into a difference of several billion dollars in favor of insurance company shareholders and executives and at the expense of health care providers and their patients.

There are many ways insurers keep their customers in the dark and purposely mislead them — especially now that insurers have started to aggressively market health plans that charge relatively low premiums for a new brand of policies that often offer only the illusion of comprehensive coverage.

An estimated 25 million Americans are now underinsured for two principle reasons. First, the high deductible plans many of them have been forced to accept — like I was forced to accept at CIGNA — require them to pay more out of their own pockets for medical care, whether they can afford it or not. The trend toward these high-deductible plans alarms many health care experts and state insurance commissioners. As California Lieutenant Governor John Garamendi told the Associated Press in 2005 when he was serving as the state’s insurance commissioner, the movement toward consumer-driven coverage will eventually result in a “death spiral” for managed care plans. This will happen, he said, as consumer-driven plans “cherry-pick” the youngest, healthiest and richest customers while forcing managed care plans to charge more to cover the sickest patients. The result, he predicted, will be more uninsured people.

In selling consumer-driven plans, insurers often try to persuade employers to go “full replacement,” which means forcing all of their employees out of their current plans and into a consumer-driven plan. At least two of the biggest insurers have done just that, to the dismay of many employees who would have preferred to stay in their HMOs and PPOs. Those options were abruptly taken away from them.

Secondly, the number of underinsured people has increased as more have fallen victim to deceptive marketing practices and bought what essentially is fake insurance. The industry is insistent on being able to retain so-called “benefit design flexibility” so insurers can continue to market these kinds of often worthless policies. The big insurers have spent millions acquiring companies that specialize in what they call “limited-benefit” plans. An example of such a plan is marketed by one of the big insurers under the name of Starbridge Select. Not only are the benefits extremely limited but the underwriting criteria established by the insurer essentially guarantee big profits. Pre-existing conditions are not covered during the first six months, and the employer must have an annual employee turnover rate of 70 percent or more, so most of the workers don’t even stay on the payroll long enough to use their benefits. The average age of employees must not be higher than 40, and no more than 65 percent of the workforce can be female. Employers don’t pay any of the premiums—the employees pay for everything. As Consumer Reports noted in May, many people who buy limited-benefit policies, which often provide little or no hospitalization, are misled by marketing materials and think they are buying more comprehensive care. In many cases it is not until they actually try to use the policies that they find out they will get little help from the insurer in paying the bills.

The lack of candor and transparency is not limited to sales and marketing. Notices that insurers are required to send to policyholders—those explanation-of-benefit documents that are supposed to explain how the insurance company calculated its payments to providers and how much is left for the policyholder to pay—are notoriously incomprehensible. Insurers know that policyholders are so baffled by those notices they usually just ignore them or throw them away. And that’s exactly the point. If they were more understandable, more consumers might realize that they are being ripped off.

3 .A Cautionary Note about All the Spin Going on in the Debate over Health Reform

I would be remiss if I did not add a note of caution about how the industry has conducted duplicitous and well-financed PR and lobbying campaigns every time Congress has tried to reform our health care system — and how its current behind-scenes-efforts may well shape reform in a way that benefits Wall Street far more than average Americans.

Just as the industry did 15 years ago when it led the effort to kill the Clinton reform plan, it is using shills and front groups to spread lies and disinformation to scare Americans away from the very reform that would benefit them most.
Make no mistake, the industry, despite its public assurances to be good-faith partners with the President and Congress, has been at work for years laying the groundwork for devious and often sinister campaigns to manipulate public opinion.

The industry goes to great lengths to keep its involvement in these campaigns hidden from public view. But I know from having served on many trade group committees that industry leaders are always full partners in developing strategies to derail any reform that might interfere with their ability to increase their companies’ profits.

My involvement in those activities goes back to the early ‘90s when insurers joined with other special interests to finance the activities of an organization called the Healthcare Leadership Council, which led a coordinated effort to scare Americans and members of Congress away from the Clinton plan.

A few years after that victory, the insurers formed a front group called the Health Benefits Coalition to kill efforts to pass a Patients Bill of Rights. While it was touted as a broad-based business group, the Health Benefits Coalition in reality got the lion’s share of its funding from Big Insurance.

Like most front groups, the Health Benefits Coalition was set up and run out of a big and well-connected PR firm. One of the key strategies developed by the PR firm as the coalition was gearing up for battle in late 1998 was to stir up support among conservative talk radio hosts and other media.

The PR firm formed alliances with the Christian Coalition, the Family Research Council, and other groups on the right and persuaded them to send letters to Congress and to appear at press conferences. The firm also launched an advertising campaign in conservative media outlets. The message was that President Clinton owed a debt to the liberal base of the Democratic Party and would try to pay back that debt by advancing the type of big government agenda on health care that he failed to get in 1993. Those tactics worked. Industry allies in Congress made sure the Patients’ Bill of Rights would not become law.

The insurance industry has funded several other front groups since then whenever the industry has been under attack. It formed the Coalition for Affordable Quality Healthcare to try to improve the image of managed care in response to a constant stream of negative stories that appeared in the media in the late ‘90s and the first years of this decade.

It funded another front group when lawyers began filing class action lawsuits on behalf of doctors and patients.

The PR firm the industry hired to create that front group, by the way, had planned and conducted a similar campaign for the tobacco industry a few years earlier.

The insurance industry hired that same PR firm again in 2007 to help blunt the impact of Michael Moore’s movie, “Sicko.” It created and staffed a front group called “Health Care America” specifically to discredit Moore and to demonize the health care systems featured in the movie.

Among the tactics the PR firm used once again was to enlist the support of conservative talk show hosts, writers and editorial page editors to warn against a “government-takeover” of the U.S. health care system. The term “government-takeover” is one the industry has used many times over the years to scare people away from reform.

Health Care America also placed ads in newspapers. One of those ads carried this message, “In America, you wait in line to see a movie. In government-run health care systems, you wait to see a doctor.”

With this history, you can rest assured that the insurance industry is up to the same dirty tricks, using the same devious PR practices it has used for many years, to kill reform this year, or even better, to shape reform so that it benefits insurance companies and their Wall Street investors far more than average Americans.

Americans need to be alert to how the industry and its allies are working to influence their opinions and lawmakers’ votes. I know from years as an industry PR executive how effective insurers have been in using scare tactics to turn public opinion against any reform efforts that would threaten their profitability.

I warned earlier this year that Americans and the media should pay close attention to the efforts insurers and their ideological buddies would undertake to demonize health care systems around the world that don’t allow for-profit insurance companies to have the free reign they have here.

Americans must realize that the when they hear isolated stories of long waiting times to see doctors in Canada and allegations that care in other systems is rationed by government bureaucrats, the insurance industry has written the script.

And Americans must realize that every time they hear we will be heading down the “slippery slope toward socialism” if Congress creates a public insurance option to compete with private insurers, some insurance flack like I used to be wrote that, too.

Our nation has many fine publicly funded services that Americans depend on and that reveal the absurdity of this line of argument. America has some of the finest public universities in the world—this isn’t socialism or radical. And, modern-day Americans rely on the “public option” of firefighters who come to your house or business to put out fires, without checking to see if you have special firefighter insurance or a pre-existing condition that would permit them to stand by and let your house burn down. That’s not socialism. It’s common sense. We shouldn’t let this silly rhetoric to create a result that values our homes more than our lives. If someone proposed private insurance as the only solution to fighting fires, they would be rightly viewed as a radical. Defending the status quo is just as radical.

We should ask the skeptics of a public option, who are afraid that giving people a choice of a government-run plan will lead to socialism, if they would want to go back to the day when Americans had to buy private fire insurance. If they lived in Ben Franklin’s day and they didn’t have a shield on the outside of their house indicating they were insured, their town’s private fire insurance companies would let their house burn down. The private insurance companies would keep your fire from spreading to your insured next-door neighbor’s house, but your house would soon be nothing more than a pile of ashes.

The bottom-line is that every time you hear about the shortcomings of what they call “government-run” health care, remember this: what we have now in this country, and what the insurers are determined to keep in place, is Wall Street-run health care.

And know that we already have one of the most insidious means of rationing care in the world — not by people we can hold accountable on election day but by insurance company executives who answer only to a few wealthy investors and hedge fund managers who care far more about earnings per share than your health and well-being.

I am very worried that if Congress goes along with the “solutions” the insurance industry says it is bringing to the table and fails to create a public insurance option to compete with private insurers, the bill it sends to the president might as well be called the Insurance Industry Profit Protection and Enhancement Act.

Some in the media believe the health insurers have already won. That’s not only because the debate over reform seems to have been hijacked recently by insurance company shills and people who believe the lies they have been spewing, but because of the billions of dollars the insurers have been spending on these efforts.

It is not too late to keep the insurers from winning, but time is running short. We need to think of the coming weeks as some of the most important weeks in the history of this country. We need to think that way because they will be. I implore each Member of Congress to put the interests of ordinary, extraordinary American above those of private health insurers and others who view reform as a way to make more money.

For skeptics out there who say they don’t want to saddle their children and grandchildren with additional debt taxes, ask them if they have thought what might happen to their children and grandchildren if they found themselves among the millions of people without health insurance or, maybe more likely, among the underinsured. It’s almost unfathomable to believe that this is what is happening every day, just so insurance companies can continue to pay their CEOs $30 million a year and meet Wall Street’s profit expectations.

So in the coming weeks, to those who are worrying needlessly about a government-takeover of our health care system, I believe that what we all should really be concerned about is the Wall-Street takeover that has occurred while we were not paying attention. It is that takeover that has led to more and more working Americans being forced into the ranks of the uninsured. It is that takeover that has forced millions more of us into the ranks of the underinsured because insurers are making us pay thousands of dollars out of our own pockets before they’ll pay a dime.

It is that takeover that has forced many of our neighbors out of their homes and into bankruptcy. And it is that takeover that is causing more and more small businesses to stop offering coverage to their employees because of the exorbitant premiums that greedy, Wall-Street-driven insurers are charging them.

In Conclusion

I want to conclude by thanking you, Chairman Kucinich and other Members of this Subcommittee who are making genuine and comprehensive health insurance reform a priority. Over these past few months, I have repeatedly told audiences around the country that the public option should not just be an “option” to be bargained away at the behest of insurance companies who are pouring money into Congress to defeat substantial and essential reforms. It must be part of the solution or reform will fail to truly fix the root of the severe problems the Subcommittee is examining this week.

I know that tomorrow you will be hearing from executives of some of the nation’s largest insurance companies, although, as you may know, they rarely use the term “insurance” to describe their businesses these days. Executives refer to their companies now as “health benefits” companies or “health solutions” companies and for a very good reason: they have been moving rapidly away from assuming the risk that insurers used to assume for their customers and toward a business model that enables them to administer benefits for large self-insured companies and also to shift the financial burden of health care to individual workers if their employers are not big enough to self-insure.

If I were a Member of the Subcommittee, I would ask them about this trend. I would ask them what has been happening to their fully insured books of business in recent years. If they are honest, they will tell you that it has been shrinking—and that they have been taking actions to make it shrink through purging actions, as I described in my testimony earlier.

According to a recent story in The Wall Street Journal, the seven largest publicly traded health insurance companies have seen a decline of five million members in their fully insured books of business just since 2007. I would ask the executives why that has happened and if they expect this trend to continue. And I would ask them what kinds of businesses are fully insured these days. I expect they will tell you that they are primarily small- to mid-sized customers that are not large enough to self-insure. If that is indeed the case, it does not bode well for the future of our country or our economy, as most of the job growth in the United States is occurring in small- to mid-sized businesses.

I would ask them what kind of health benefit plans they are marketing now to small businesses and to businesses with a high rate of turnover among employees. If they are honest, I suspect they will tell you they are marketing limited-benefit and/or high-deductible plans to these businesses, as CIGNA does under the name of StarBridge and as Aetna does under the name of SRC.

I would ask Aetna and CIGNA in particular why they are sponsoring the first annual Voluntary Benefits and Limited Medical Conference in Los Angeles next month—and I would ask them what “voluntary” really means. If they are honest, they will tell you that workers enrolled in voluntary benefit plans pay the full premium as well as high out-of-pocket expenses. Their employers do not have to pay a dime toward their employees’ health care benefits. Many of the plans actually prohibit employers from subsidizing the premiums.

As the organizer of the Los Angeles conference notes on its Web site, “Voluntary benefits and limited medical plans are a multi-billion dollar industry and one of the fastest growing segments in the insurance industry in America.”

A look at the enrollment totals of some of the largest insurance companies bears that out. While their fully insured books of business have been shrinking, enrollment in their voluntary and limited-benefit plans have been growing rapidly. Aetna and CIGNA are leaders in the voluntary and limited-benefit movement. According to the organizer’s Web site, “The conference will feature key speakers from CIGNA, Aetna, McDonalds, Black and Decker, CKR Restaurants and some of the largest associations in the country.”

As Voluntary Benefits Magazine reports in its August 31 edition, “limited coverage plans are becoming more and more appealing to small business owners as their primary plans because they can no longer afford the high monthly premiums associated with major medical group coverage.” In addition, the magazine reports, “it’s simply not feasible for someone making $20,000 a year to spend several thousand dollars to meet his or her annual health plan deductibles.”

I would ask the executives if the reason they are insisting on maintaining “benefit design flexibility” is so that the federal government does not ban them from selling these kind of plans and also so they will be able to charge older Americans up to 7.5 times as much as they charge younger people.

I would ask these questions because there is abundant evidence that these voluntary and limited benefit plans are the kinds of plans insurers have in mind when they think of the millions of people who currently do not have coverage but who will have to buy insurance from them if they can persuade Congress and the President to include an individual mandate in health care reform legislation—and not to include a public insurance option.

Mr. Chairman and other Members of this Subcommittee, I believe you will agree after hearing honest answers from the executives tomorrow that insurance companies are counting on health care reform to provide them with millions of new customers, a steady stream of new revenue from those new customers and the federal government in the form of subsidies, and the ability to continue to shift more and more of the cost of health care away from them and employers and onto the shoulders of working men and women.

We already have 25 million Americans who are underinsured. If the insurance industry gets what it wants out of reform, that number will grow very, very fast in the years ahead. People you know, maybe even your sons and daughters and grandchildren, will be joining the ranks of the underinsured—and they will be forced by law to pay private insurance companies for their lousy coverage. And you and other taxpayers will have to subsidize the premiums for those who cannot afford them.

Testimony of Linda Peeno, MD

Mr. Chairman, members of the Committee, thank you for inviting me to this hearing today.

My name is Linda Peeno. Over three decades ago I obtained a hard-earned M.D. degree, expecting to practice medicine for the benefit of patients. After finishing medical school I had a series of jobs in which I functioned as a company doctor for several health plans. As I began to witness and participate in harm and death to patients, I left my lucrative corporate career and have spent the past 2 1/2 decades working to educate others about the inner workings of the American health insurance industry.

I made one of my first appearances here before Congress in 1996, when I came as a former medical reviewer to talk about the way I had caused the death of a patient. I naively expected the country to be shocked into action. Little changed happened since we are here again, and clips from that testimony have re-emerged with shocking timeliness. I come back here today with 13 years of additional insider experience from work on over 150 legal cases against managed care companies, as well as extensive knowledge gained by helping thousands fight for needed care. I am here today representing no special interest group, and without any agenda except to urge you to force open the black box of corporate health insurance and to hold them accountable for the practices that destroy the lives of patients, families and communities, and the health professionals who must bear the consequences of their damaged care.

Things have never been worse for patients. The corporate machines are well-developed and expertly operational. The methods are more insidious, covert and devious. In addition to outright denials of care, new tactics proliferate to avoid, delay, limit, substitute, and manipulate care for the maximization of profits. The difference between the kinds of denials I testified about in 1996 and the current system is akin to the difference between surgery with a kitchen knife and a scalpel. Cost-cutting, —saving, and —making tactics have never been so expert and deadly.

I come here today with several warnings:

There is an abyss between what insurance companies say and what they do: Do not be fooled when the health insurance industry claims that it has abandoned its “old” practices of managed care. Although they say they have become more efficient, this “efficiency” works can be deadly for patients. It is easier to target high costs conditions and patients, more tactics can be recruited to deny care either directly or indirectly. Methods can be more oblique and hidden. For example, I have seen a case in which an insurance company claimed to cover a certain type of transplant, but when specific patients needed that particular category of transplants, they encountered delays, obstacles, hidden policies and other strategies that prevented them from ever receiving what they needed. Companies claim to deny less, even though a recent study shows that denial rates ranged up to almost 40%. (LA Times, September 3, 2009) Even this rate does not take into account all the de facto “denials” that occur when care is altered in ways that do not leave a record to monitor, e.g. “requests” and “encounters” that never make it to a claim. Furthermore, insurers defend their reported denial rates by claiming that they are mostly “technical,” and not “medical.” This distinction is an artificial shift that companies have perfected as they have systematized medicine into something that can be codified and contractual, eliminating clinical judgment and patient particulars that are the essence of the practice of medicine. The increase in new “health information networks” that integrate administrative, financial, and clinical date and services is a troubling sign of this trend.

There are new “agents” of denial: Treating doctors and other health professionals often become a company’s “agents” for limitation, avoidance, substitution, delay and denial: Over the past two decades, insurance companies have learned how to manipulate criteria, data, contracts, payment schemes, performance evaluations, profiling, marketing and other means to co-opt physicians in their profit schemes. These sophisticated forms of behavioral modification force many physicians to adjust their ethics to fit corporate economics. When treating physicians become company doctors there is no record of denials and nothing to regulate. I have recently become aware of a situation in which a treating physician not only withheld care, he actually subjected a patient to harmful care in order to ensure that she did not qualify for a more costly procedure. Even a medical director does not have that kind of denial power. Yet this pales before the best denial method of all: forcing patients to limit their own care. I know of a case in which a woman will die because she does not have the money to pay for something she needs. She has insurance but it will not cover her condition. There is little need for company doctors when patients themselves become the agents of their own denial. More and more patients discover that the copayments, co-insurance, and other cost-shifting tactics mean that they may have “insurance” but it will be useless at a time when they most need it.

The dirty work of denial and other cost-cutting practices are increasingly outsourced: Insurance companies have learned to diffuse responsibility by shifting risk to other entities. For over two decades, they have perfected the means to “carve-out” and outsource the management of diseases and other processes to subcontracted companies. This is booming business as indicated by the rise in disease management companies, evidence-based/criteria companies, and other third party management companies. I am aware of a case in which a single patient had a primary care gatekeeper with financial incentives to control access to tests, treatments and referrals to specialists, a disease management company for congestive heart failure, a case management company for another separate condition, a pharmacy benefits manager, and a managed mental health company. None of these entities communicated with the others. They were paid by “capitation” — a payment method by which the insurance company’s costs for the services was fixed and paid per member per month. Under this arrangement, the insurer fixes its costs and the outsourced company manages the costs of care within a fixed budget, making money to the extent that it spends little by developing its own definitions of medical necessity, experimental and investigation, and other methods for delay, substitution, avoidance, and denial.

Adverse insurance actions cause harm and death to real individuals — these are not statistics or mere anecdotes Every adverse insurance action, whether it is direct or convoluted, whether it medical or technical, involves a real patient, a real human being with family, friends and community. Insurance companies have mastered the rhetoric necessary to discount the harm and death of their practices. They keep the focus on the majority of claims that are routine and relatively low cost, failing to disclose their aggressive efforts to mitigate or eliminate the high costs of the smaller percent of patients who must be managed. Stories of suffering in this group are quickly discounted as “mere anecdotes” — an unconscionable way to disregard the value of a fellow human being

The terms “medical necessity” and “experimental/investigational” are proprietary business tools supported through the huge medical guideline/criteria/evidence-based medicine industry. These are terms of art and contractual terms that are used like rapiers to limit and deny care. They have no standardized meanings. They differ not only among companies, but can vary even within the same company. I have seen cases in which the “medical necessity” definition in the insurance plan was more generous than the hidden definition used by a carve-out group, but when members needed treatment managed by the third-party company, care they should have received under their insurance contract was denied based on the more restrictive and undisclosed definition of the subcontractor. I have seen a case in which the definition of “experimental” grew more detailed and restrictive as it went through the various review processes. The definitions shift and are often adjusted to make a denial “stick.” Companies may appear to cover something generally, for example a particular kind of transplant, but when that category of transplants is needed almost no individual patient will meet the hidden criteria that excludes their particular condition. Various companies have grown up to supply increasingly restrictive criteria for medical services, so that almost any medical treatment or service can have medical judgment systematically eliminated. The new field of “evidence based medicine” is also an area that should be examined carefully. The so-called “evidence” is by its nature, public (from academic centers, peer-reviewed journals, research supported by tax dollars, etc.) and yet it become “criteria” to be manipulated and controlled by companies for their proprietary ends.

Health insurance companies operate in an ethical and legal void. Companies do not believe that the ethics of medicine apply to their business practices, yet their practices can hold greater life and death power over a patient than any other entity in the system. For-profit health insurance is a business with obligations to stockholders, not the best-interests or well-being of patients, families and communities. Even when their actions cause harm and death, legal accountability is difficult. Americans who received their insurance through an employer will find their insurers have legal immunity provided by ERISA. Even those who have some legal recourse, find that the industry is adept at using the legal system to protect itself from disclosure of practices, key documents and accountability. I initially believed that a few key lawsuits would demonstrate how insurance practices are systemic and calculated, however the past thirteen years have taught me that insurers see the few legal cases as the cost of doing business. In addition, insurance battles have become lucrative for many. Over the past decade I have seen many—even other doctors, plaintiff lawyers, legislators, and other advocates who were supposed to help people—find ways to benefit from the broken system. I too reached a point where health care battles in the press, court rooms, legislative halls, and speaking events rewarded me more than patients I tried to help, which is why I have been mostly silent thus far in the health care debate.

I could continue for hours, but our time is brief. My written testimony includes more details about these practices and others.

I would like to close with this last warning: we will have no health reform unless we change or eliminate the for-profit model of insurance with their growing sophistication in profit maximization. We will have no health reform unless we have a medical and health care ethic — from the boardrooms to the bedsides — that is patient-centered.
Thank you for the opportunity to speak to you.

Bio

*Linda Peeno is a physician who has spent over two decades educating and advocated for ethical systems in health care. In the early 1980’s, which the advent of “managed care,” Dr. Peeno moved from clinical work to executive positions in a variety of health care corporations, including an insurance company, an HMO, and a hospital. In the early 1990’s, she left this corporate work to focus on the ethical issues emerging from changes in health care organization, financing and delivery. Dr. Peeno’s struggle to bring these issues to public and professional attention is the subject of a movie, Damaged Care, first aired in 2002 by Showtime and Paramount, and now used all over the country in medical and health care ethics classes. A clip from her 1996 Congressional testimony recently appeared in the movie, Sicko.

Dr. Peeno is recognized as a leading authority on the operation of health care organizations, corporate effects on medicine, and health care and medical ethics. She has testified before Congress, state legislatures, and various policy groups, and regularly provides analysis and consultation to business, medical, legal, policy and media professionals. In the past two decades, Dr. Peeno has written and spoken nationally and internationally on health care changes and reform. Her current passion, however, is teaching anatomy, physiology and pathology to students who will be entering into complex and demanding health care work.

Supplemental Material
Introductory comments:

The for-profit insurance industry in not about health care or cost control — it is about increasing the profits of the companies. Despite the existence of several major companies which appear to compete in the market place, they all engage in well-designed, resourceful methods to systematically increase their earnings and satisfaction of stockholders. Individual companies will try to claim that they are unique, that their methods are distinct and more competitive. However, the practices are the same (take in as much money as possible and limit/deny as much as possible). No health care reform can proceed without serious attention to how this system really works and the consequences for the American people. Once understood, it should be obvious to anyone that this is an industry that cannot be controlled by either competition or regulation. It is an industry that can no longer justify its existence as it now operates.

The effects of the insurance industry spread beyond just a single denial for an individual patient. In a poignant story recently told about a “wrenching family experience,” a woman writes that “having insurance does not mean being able to afford health care when you need it the most.” (“A Wrenching” Health Care Experience,” Fonda Butler, Courier Journal, August 31, 2009) More and more Americans are discovering this.

Over the years, multiple attempts have been made to hold insurance companies accountable with little effective change in their practices. I have participated in cases that have included negligence, bad faith, breach of contract, unfair business practices, interference with doctor/patient relationship, intentional misrepresentation, negligent misrepresentation, fraud, civil RICO, corporate practice of medicine, corporate negligence, negligent credentialing, vicarious liability, fraud, and many other causes of actions. Every case is an invaluable opportunity to gain a peephole into the inner, hidden practices. Although companies try to portray any particular case as unique and isolated, the documents and testimonies that come from these cases reveal that the practices are well-developed, systematic and calculated. These practices are little known and studied because they occur behind layers of protection and obscurity. It is even worse when we realize that the premiums of the insured are used to develop these tactics, creating conditions in which patients fund the development of the very tools that will be used against them in times of need.

The model that I use to understand these practices and their collective effect is that of a large funnel with layers of filters. One can see the effects of the simple business model: increase premiums and decrease payments. Each of these tactics is based upon engaging in some practice that achieves this.

THE HEALTH INSURANCE BUSINESS MODEL:
THE FUNNEL OF PROFIT MAXIMIZATION AND COST SAVING
1. Marketing, public relations and other corporate influences:

a. Power of money and resources: The power of money to influence policymakers and media (more recent details provided by Wendell Potter) and well-documented by reports about the influence of lobbyists and other means.

b. Mere anecdotes: Public relations spin described by Mr. Potter, which extends to the discounting of any evidence of harm or death as a “horror story,” a “mere anecdote,” a media sensation, etc.

c. Censorship by prior restraint: when the information and media are controlled to the point that “negative” (read “truthful”) stories are suppressed. This occurs in many insidious ways. I have known several journalists who were forbidden to do stories or whose stories were killed (“into the buzzsaw” — a term that describes this practice) or suppressed because they were critical of a company with power in a community. I experienced the attempts by the industry to prohibit the release of Damaged Care. After the film was released, the major trade group for the health insurance industry entered into a large contract with an leading agency in Hollywood (William Morris — the account of this was reported in several leading newspapers in the summer of 2002) to influence the production of any future negative accounts of the industry. Wendell Potter has detailed the organized fight against the movie Sicko. (http://www.cjr.org/campaign_desk/excluded_voices_6.php) I personally experienced the backlash after Sicko has Humana tried to discount the importance of the heart transplant story and my association with the company. (See.”Statement by Dr. Linda Peeno and Response to Attacks from Humana — July 3, 2007” available on www.michaelmoore.com)

d. Exploitation of media constraints for advantage: Mr. Potter has mentioned the deception, misinformation, selective disclosure, and omission of facts as a way to control the message. He has also mentioned the “laziness” of many journalists, although my experience over the years has been that few journalists have the time or means to understand the industry enough to break through the rhetoric and well-financed shields. I have spent thousands of hours over the past two decades educating journalists who have worked hard to grasp the complexity of the systems of corporate health care. Even when they do grasp it, the information that is available is limited by all the corporate strategies of protection. I know from the legal cases how it is nearly impossible to acquire critical documents for evidence of practices, even with the power of courts and their orders. Nearly everything written by a journalists or an academic researcher is limited by the lack of real information about what is really going on behind the scenes.

e. Marketing to select and desirable populations: There is abundant evidence about these practices over the past couple of decades. Many of the marketing practices are deceptive and some are even fraudulent. There are legal cases that address the misrepresentations, illusory promises, and fraudulent claims regarding plans, benefits, networks, and other methods designed to acquire targeted populations who have best health and financial means.

2. Plan/benefit design and Pricing: We have more than enough evidence now to demonstrate that the insurance industry engages in practices that influence the products and pricing available.

a. Reduction of benefits/Increase in exclusions: Over the years, benefits have been systematically reduced. For example, I participated over 20 years ago in the change for short-term and long-term benefits. The plan for which I worked has previously defined long-term rehabilitation as medically necessary as long as an individual continued to demonstrate improvement. For those conditions in which rehabilitation can be a slow process (after some head and spinal cord injuries), months of medical rehabilitation might be required. However, these are the most expensive and undesirable patients, so plans began to put artificial and unrealistic time frames on the benefits, and we shifted our policy language to that taking hold in the industry. We restricted rehabilitation to 90 days only. In the years to follow, I was involved in many cases, trying to assist patients whose care had been worsened by this definition. In one case a plan stated that the 90 days began at the time of the injury and a young patient who had had both a head and spinal cord injury ate up the 90 days while still in a coma. By the time he recovered from the coma, he was had no benefits available to assist in his recovery of basic functions. He was left to languish in a nursing home eventually at the expense of the state in which he lived.

b. reased premiums and other pricing tricks: Mr. Potter has provided details about how the health insurance industry has systematically gutted benefits while simultaneously raising premiums. We have abundant evidence by now of the most recent tactics to the financial costs to consumers and patients. (See the unpublished editorial included in the appendix regarding the evolution of health insurance tactics.)

c. Insurance without insurance: These tactics and others result in our current situation in which almost no one who has insurance is really protected in the event of a significant and expensive medical event. We have research that shows that nearly ¾ of individuals bankrupted by medical bills had insurance. (See “Insured, but Bankrupted by Health Crises,” by Reed Abelson, NYT, July 1, 2009.)

3. Selection of who gets insurance: These tactics have been well-documented as well. The industry terms “cherry-picking” and “adverse selection” reflect the strategies to select the healthiest and avoid the sickest — two companion strategies that provide the least risk to a company. Underwriting and actuarial analysis has become sophisticated and plans can select and deselect with great precision now.

4. Data Mining and Prospective cost management: New resources in date acquisition and management allow companies to identify and even make predictions about the potential costs of patients. (See section on “Predictive modeling and prospective” care” in the “Second Coming of Managed Care” in the appendix.)
5. Contract/benefits:

a. Language and importance: Few people understand that their plan documents are contracts to which the company will refer when seeking justification for an adverse action. Often members do not even receive member handbooks and are unaware of the contents until they have to challenge a plan’s decision. Even if the documents are read, most consumers will find the documents full of fluffy promises for “best care,” “highest quality of care,” etc. — promises that are rarely fulfilled. The language is often general and vague with little to no disclosure of the company practices and organization that will be used against the patient in the event of some costly medical event.

b. Exclusions: These multiply and are rarely appreciated by someone until they discover that something they need is listed as an “exclusion.” For example in one plan I worked we specifically excluded dialysis, something a young couple did not know or understand until the husband needed dialysis to support him during an episode of acute renal failure.

c. Pre-existing conditions: We have abundant examples of the extent to which companies use this to their advantage. I have worked in the past with a team who combed through claims kicked out by the system based on cost or service triggers. Out task was to acquire and review previous medical files in order to justify a denial based on some pre-existing conditions. We also used this process to rescind policies — see below.

6. Pre-existing: We have plenty of evidence that this remains an effective tool to limit liability for health insurers. Despite attempts to limit the use of this, insurance companies continue to use this abusively, often going back into medical records for years and pulling out minor complaints as justification for the denial of payment. Recent documents reveal that some insurance companies have gone so far as to claim that “domestic violence” is a pre-existing condition.

7. Network restriction and selective contracting: Although most people associate this with the HMO plans that restrict panels of physician and facilities, most insurance plans have limitations on who and what is available. In my hometown of Louisville, there are two current disputes that seriously affect patient care. In one, a major hospital system and insurer could not agree on a contract and overnight the care of thousands of patients was disrupted when they were told by the insurer they could no longer use the doctors and hospitals in this system. In another dispute, several leading specialists in the community were told their contracts would not be renewed by a major insurer that seeks to narrow its network. This forced many patients with long-standing relationships with these physicians and in the midst of medical treatments to seek other physicians who would be covered by their insurers. Many consumers believe they have “choice,” only to discover that this choice is serious restricted and can be costly, and in some instances may be so costly as to prohibit the very care they need for their condition. :

8. Medical Necessity: This is addressed in the oral statement above and in the article that is appended to this list. It is the key to the goldmine for insurance profits. As the threads of this filter are tightened, fewer conditions meet proprietary definitions of “medical necessity.”

9. Medical criteria/evidence-based medicine: This too is addressed above and at the end. Despite the advantages to having practice standards and guidelines, medical “guidelines” become company dictates. They are purchased from companies that make money by increasing restrictions and applications to deny care. A company adjusts criteria to their proprietary needs, negating their claims for standards. For example, criteria that determine the appropriate conditions for a hysterectomy should be the same whether it is Boston or Biloxi. It should be the same whether it is Humana or Cigna. However, I have seen a case in which an insurer subcontracted with a medical criteria/medical review company whose proprietary criteria for hysterectomies and their company doctors’ reviews guaranteed at least a twenty-five percent denial rate.

10. Experimental/Investigational: This is an area that has become the most devious of all the practices. Many insurees have insurance benefits that appear to cover needed procedures and even many transplants, however most patients will discover that there are hidden policies and practices that may cause their tests, procedures and treatments to be denied for this reason. Increasingly, companies will appear to cover something like stem cell transplants, but when particular patients need one, they discover that the company will claim that that the particular medical condition does not meet criteria — for example, stem cell transplants may be covered but not stem cell transplants for certain stages of certain conditions. In addition, the definition of these terms can shift around as companies attempt to justify a denial. Language in the contract may be general and leave open consideration for many treatments that will be denied by definitions behind the scenes that can go for pages. Companies also pick and choose what information and studies they use to justify their determinations, often discounting or rejecting academic studies in favor of the patients because they included a wrong group of patients, the studies were done outside of this country, or any number of other reasons.

11. Denials and de facto “denials” — limitation, avoidance, delay, substitution & the hidden denial record, encounter data and denial rates: This is discussed above and at length in the attached article. However, the evolution of managed care relies upon the use of avoidance, substitution and inconvenience to shift the cost-saving actions to less obvious and less direct denial methods. In one recent case, a health plan employee discussed how physicians would call and get informal rulings on patient tests and treatments, insuring that only the “approved’ were ordered and recorded. Companies understand that a “claim” represents only what has been submitted for payment after a test or treatment. All the tactics to use prospective and concurrent interference and obstruction are unrecorded and difficult to untangle.

12. Physician compensation, corporate incentives and other forms of behavioral modification: Although companies claim that the more direct payment methods for treating physicians and corporate employees have diminished or changed, bonuses and other rewards remain key methods to ensure that decisions are consistent with corporate goals. Profit-sharing and bonuses based on earnings-per-share may have replaces the more direct bonuses for denials, but the results are the same. Companies have also developed systems that will identify the physicians most compliant with their rules and financial goals. One company would “gold card” its most compliant physicians, providing quick authorizations and claims payments for their allegiance and performance. There are signs that this practice has become more sophisticated and will be part of new “health information” and claims payment systems. Financial success to the companies and their agents depends directly on decisions that increase money in and decrease money out.

13. Hassle factor — both patients and physicians: Plans deliberately create complex, difficult, and inexplicable policies and procedures for navigating the managed care maze. The industry knows that only a small percentage will fight denials or other problems. They know too that even fewer of these will persevere through the labyrinth of rules and requirements. Some of this is calculated; some of it is the inevitable consequence of organization complexity and ineptitude. Either way the hassles can be great and overwhelming, serving as an advantage to the companies who make money for delays and denials in the process. The same kind of “hassle factor” works for physicians as well. Over twenty years ago I learned the term as we systematically beat down the physicians who attempted to challenge the medical decisions we were making for their patients. Eventually the sheer volume of patients affected, the resources needed, and threats about contracts and payments resulted in more compliant physicians willing to accommodate to the company’s decisions about patient care.

14. Utilization management, call centers, triage and other methods of prospective, concurrent and retrospective review: These methods multiply daily and it nearly impossible to address fully here. Patient stories are full of the obstacles and tricks. However, one method is little known but widely used. Many insurees will find that they have obtained “approvals” from their plan. In fact, an authorization number will be issued for doctors and hospitals to submit claims. Hidden within the approval letter will be a clause — “authorization does not guarantee payment” — that enables a company to review the file after the service has been received and then to refuse payment based on some technicality. In addition, sophisticated claims processing allows certain claims to be targeted as they go through the system. Claims can be suspended for review based on any type of “trigger” — from specific medical codes that may indicate conditions that are expensive to financial thresholds and other variables. These targeted claims can by used for any of the other kinds of denials that are discussed in this list.

15. Carve-outs and outsourcing: This is discussed in the oral statement and the article included at the end. It is important to note that these new management companies fall outside of most regulatory and accreditation requirements, making it difficult to get to their inner workings and hold them accountable for consequences to patients.

16. Disease management: This too is discussed above and in the end article.

17. Capitation: In its heyday, this method was widely used to pay physicians. Despite industry claims, it is still used frequently with physicians, but more frequently for outsourced management companies. Under this form of payment, the insurers costs are fixed, and the management/cost risks are shifted to some other entity — either physicians or a company managing a condition or process. Since money is saved or made only by limiting payments, this creates incentives to withhold, delay, substitute and deny care at the level of the treating physician or the stand-alone management company that can harm patients.

18. Physician profiling and other methods of behavioral modification: As the amount of data increases, physicians are subjected to more comparative evaluations. If a physician shows up as an “outlier,” which can have little to do with the actual quality of medicine practiced, then this can trigger reviews and other corrective measures to bring a physician into line with a company’s goals. The big brother effect chills professional autonomy and judgment as well, and slowly physicians can be molded into practicing the kind of medicine that is desired and dictated by health care plans.

19. Appeals & third party reviewers: Although appeals are required, the process can be cumbersome and difficult for patients, especially when they are in the midst of life-threatening medical conditions. In many cases, there is a difference between the appeal policy and the actual appeal process that occurs behind the scenes. Appeals are heavily weighted in favor of the companies, and can be easily manipulated. Even outside appeal and third party reviewers have incentives that are not aligned with objective evaluation and patients find that getting a real independent consideration of an appeal is impossible.

20. Rescission: This has gotten much recent attention, but as far back as the late 80’s, I participated in a group that was charged with reviewing certain claims that were submitted to us for review as possible candidates for rescission. At that time, our claims systems were set up to kick out certain codes that suggested conditions like HIV/AIDS and other expensive conditions. We would then request all prior medical records and comb these in detail in order to determine a way to claim that the individual had failed to disclose something and we could terminate their insurance. This practice has only grown in sophistication over the two decades.

21. Limitation of legal and ethical constraints: I have discussed this at length in many other documents, especially the two Congressional testimonies:

22. Many others… The methods continue to proliferate and are too many and too complex to list completely. In addition, new filters are added daily. Other methods include: inadequate access to specialists who are qualified for treatments; lack of physicians who will advocate for necessary treatments or do the work that is required to make an effective appeal; episodic care and single event denials that interfere with the overall plan of care for chronic, complicated conditions contributed to a downward spiral of care; illusory prevention/early intervention that is driven by short-term profit/loss concerns…

I would like to close, with the following considerations:

Real purpose of insurance: What are the real purposes and effects of managed care/HMO/insurance companies? What do they really do for patients?

Are they Are they insurance companies that simply pay claims, while the other aspects of the health care system (physicians, academics, etc.) determine what is medically appropriate or do they influence and direct medical care (basically practicing medicine) through their various resources? If they sell insurance plans and pay claims, then their activities should be transparent and easy to evaluate based on traditional insurance law by evaluating contracts, adherence to contracts, fair claims processing, etc.

If they are influencing medical care and the health of members and patients, then they should be accountable for the results, both the negative and the positive. Companies focus on the positive actions — how they are engaged in prevention, wellness, etc., but the same mechanisms that allow organizations to influence patient care in these so-called positive ways are also used negatively — by restricting, substituting, delaying and denying care. We should be able to assess the effects of this, and organizations should be accountable for the consequences of their decisions and actions on individual patients with whom they have contracted.

Managed care plans practice medicine. While there have always been contractual limitations to what would be covered, the claims were paid after the care was delivered. There was little to no interference in the practice of medicine. With the advent of managed care, organizations began to influence, direct and determine medical care. Marketing materials and member handbooks make claims about assuring “highest quality of care,” etc. These positive claims to make medical care better became the rationale for all of the interferences, e.g. restricting choice of doctors, controlling admissions to hospitals, denying “medically unnecessary” care. The member/insure/patient was and is led to believe that these actions are in the best interest of the patient.

With the managed care backlash of late 90’s, health care companies began to mask and withdraw some of these claims. Language was changed in member materials, advertisements and other documents that would be seen by the public. However, the tactics to control doctors and patients continued to evolve.

In addition, the rise of HSA’s and other methods to shift the financial management to consumers allowed the companies to appear to move into a type of broker role — simply managers of money. However, as many people have discovered, they may have many choices when it comes to inexpensive, low levels of medical care, but when something expensive happens, all the managed care machinery gears up and services are limited or denied as if the patient is in a HMO/managed care plan.

Where the dollars go: In what way do the high administrative expenses contribute to better health care and patient care, either for individual members/enrollees or the health care of the country overall? Consider the exorbitant resources that are spent on marketing and advertising, executive salaries and perks, and other areas that have come under question. The dramatic ethical epiphany I had in 1987 about the expense of the sculpture (which I later came to know cost 3.8 million dollars) juxtaposed with the money “saved” by denying the heart transplant (about half million dollars) remains. Even when there are legitimate savings by appropriate, patient-centered managed care, companies cannot demonstrate that the savings go back into health care and medical needs for the members/insurees. The “savings” convert to profit, further fueling the development of means to further “save” and make money. In this sense, patients are funding their own tools of rationing.

The history of managed care has been one of companies engaging in egregious practices and when backlash occurs, they “correct” them and call this reform. We are in the midst of such a cycle now and should be aware of the ways in which many so-called “new” tactics are illusory or deceptive.

In summary, insurance companies have become ingenious machines for generating increased premium dollars and decreasing claims payments — an obscene business model supported by the life and death of real people — and anyone of us could be next.

Additional resources by Linda Peeno:
1. Managed Care Ethics, Congressional testimony, May 30, 1996.
2. The Menace of Managed Care, Congressional testimony, October 28, 1997
3. What is the Value of a Voice? US News & World Report, March 1, 1998
4. Burden of Oath, Creative Nonfiction Journal, Issue 21
5. Statement regarding heart transplant patient, July 3, 2007, www.michaelmoore.com
6. The Second Coming of Managed Care, TRIAL, May 2004 (appended)