This article was downloaded by: [Florida State University]On: 21 December 2014, At: 13:09Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T3JH, UK

Psychoanalytic Inquiry: ATopical Journal for MentalHealth ProfessionalsPublication details, including instructions forauthors and subscription information:http://www.tandfonline.com/loi/hpsi20

Managed care: Where did itcome from? What does it do?How does it survive? What canbe done about it?Harold I. Eist M.D. a ba President, American Psychiatric Associationb 5705 Rossmore Drive, Bethesda, MD, 20814Published online: 20 Oct 2009.

To cite this article: Harold I. Eist M.D. (1997) Managed care: Where did itcome from? What does it do? How does it survive? What can be done about it?,Psychoanalytic Inquiry: A Topical Journal for Mental Health Professionals, 17:S1,162-181, DOI: 10.1080/07351699709534163

To link to this article: http://dx.doi.org/10.1080/07351699709534163

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of allthe information (the “Content”) contained in the publications on ourplatform. However, Taylor & Francis, our agents, and our licensorsmake no representations or warranties whatsoever as to the accuracy,completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views ofthe authors, and are not the views of or endorsed by Taylor & Francis.The accuracy of the Content should not be relied upon and should beindependently verified with primary sources of information. Taylor andFrancis shall not be liable for any losses, actions, claims, proceedings,

demands, costs, expenses, damages, and other liabilities whatsoeveror howsoever caused arising directly or indirectly in connection with, inrelation to or arising out of the use of the Content.

This article may be used for research, teaching, and private studypurposes. Any substantial or systematic reproduction, redistribution,reselling, loan, sub-licensing, systematic supply, or distribution in any formto anyone is expressly forbidden. Terms & Conditions of access and usecan be found at http://www.tandfonline.com/page/terms-and-conditions

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

Managed Care: Where Did It Come From?What Does It Do? How Does It Survive?What Can Be Done About It?

H A R O L D I. E I S T , M.D.

IN AMERICA PRIOR TO THE 1930S, it was considered prudent to put asidea portion of the family income to cover the cost of medical care.

Those families decimated by major illnesses were viewed moralisti-cally as improvident and the proper object of fiscal counseling.

During the depression in the early 1930s, it became increasinglyevident that only the wealthy could ensure the availability of a suffi-ciency of funds to cover the costs of severe or catastrophic illnesses.

The American Hospital Association (AHA) as early as 1927, had asits goal "the provision of hospitalization for the patient of moderatemeans, consisting of 80% of the entire population." Hospitalizationplans, it was indicated by the AHA, which was the primary funder ofwhat was to become Blue Cross/Blue Shield, should be available "forall persons regardless of their ability to pay" and were designed toreach those employed at "low incomes who would otherwise requirethe aid of philanthropy or taxation" (Law, 1974). (Currently, theRepublican leader of the House of Representatives and his discipleswant to remove the floor of suffering, misery, and degradation belowwhich we would previously allow no American to fall and replacewhat Medicaid has provided with "philanthropy.")

The hospitals were strong advocates for hospital insurance out ofself-interest, as well as out of concern for the public, for they foundthat they, too, were suffering financially during the depression. For

Dr. Est is President, American Psychiatric Association.

162

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 163

instance, from 1929-1930, average hospital receipts per patient fellfrom $236.12 to $59.36, and average percent of occupancy fell from71.28 percent to 64.12 percent. This change in perspective led to thedevelopment, in the late 1930s, of Blue Cross/Blue Shield HospitalPlans. This reflected a consensus supported by the people, the hospi-tals, and state and federal governments as well that it was in the com-munal interest to assure that those suffering from serious illnesseswould have the financial wherewithal to pay for care and treatmentwithout enduring financial ruin or worse.

Everyone in the community paid a little each month, and whensomeone fell ill, there was money available to pay for necessary care.Originally, health insurance was based on the concept of whole com-munities sharing the cost of health care, through spreading the finan-cial risk equally amongst its members. All members of the communitypaid the same rate—a community rating—rather than higher ratespaid by high-risk groups or individuals.

Interestingly, the progenitor of community-rated Blue Cross/BlueShield plans was Dr. Justin Ford Kimball, the executive vice presidentof Baylor University in Dallas, Texas. He found in his accountsreceivable the bills of many local school teachers. In order to assurepayment to the hospital, he enrolled 1250 schoolteachers in a programto pay 50 cents a month for 21 days of semiprivate hospitalization atthe Baylor University Hospital.

Only by understanding the social, political, and economic forcesthat gave rise to health insurance and the changes that have takenplace socially, politically, and economically since then, can we under-stand where managed care, as we understand it today, came from.

Section Two

During World War II, confronted by price and salary freezes and ashortage of qualified workers, major corporations were allowed toenhance employee benefit packages as a technique for recruiting.Health insurance became a standard part of employee benefit pack-ages. The cost of the insurance premiums was tax deductible for theemployer and a nontaxable benefit to the employee. From the outset, itis important to note, benefits were provided in lieu of salary and hencewere part of compensation packages earned and owned by employees.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

164 HAROLD I. EIST

Taxes and issues related to taxes and taxation have been and remain acritical element in what has happened in health care in America and inwhat is happening in health care today. This will be discussed further.

In the 1940s, organized labor recognized the importance ofadequate health insurance to the workforce, not only as an essentialbenefit, but as a critical issue in recruiting members into their unions,and they became increasingly active and forceful in negotiating forbetter and better health benefits. The National Teachers Associationhas long been interested in health benefits, particularly mental healthbenefits, recognizing the importance of these benefits to the welfare ofteachers and their families. It was two former officers of the NationalTeachers Association who were key organizers of the American Asso-ciation of Retired Persons, another group with a long-standing interestin health benefits and health policy. (Parenthetically, these are organi-zations we must develop close liaisons with to reverse current nega-tive trends in health care.) It soon became customary and expected byboth labor and management that part of employee compensation wasthe benefit package, which included, among other things, health insur-ance, pensions, vacations, and sick leave. Corporate America in the1950s and 1960s was more generous with benefits when business wasgood, recognizing the contributions of the workforce to theirsuccesses and was significantly more generous than it is today.Employees regularly negotiated for improved health plans, reflectingtheir desire to have available, for themselves and their families, themajor advances that were taking place in American medicine. Bothemployers and insurers were willing to expand health benefits tocover outpatient medical services. During the 1950s health care wasnot particularly expensive at $79 per capita per year; there was noMedicare and no Medicaid, and the bulk of the health care workforcewas nonprofessional and not covered by the minimum wage laws.Product liability and malpractice suits were not the issues they were tobecome, defensive medicine was uncommon, federal health care andindustry regulations were minimal compared to today, and the econ-omy was booming. There was inflation, but inflation was never theenemy of the insurance industry. Importantly, during the 1950s and1960s, right up to 1970, organized labor was powerfully influentialwith Congress and strongly supportive of initiatives by the Democratsfor social equity.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 165

In 1970, major corporations surpassed organized labor as the largestdonor to political campaigns, and with this huge change came adecline in labor's political influence. The waning influence of unionswas accompanied by the fading power of the big city politicalmachines. This shift became a major factor in what was to happen inhealth care, because the bulk of power shifted to those who werestruggling to attain the economic hegemony of the investor classesover those battling for social equity.

With the increased demand for health insurance, many companiesentered this lucrative arena, and commercial companies captured thebulk of the market. After battling for over a decade to maintain com-munity ratings, Blue Cross/Blue Shield abandoned them. The passageof Medicare and Medicaid legislation in 1965 gave Blue Cross aboost, which returned it to its dominance in terms of overall hospitalpayments. Though the Blues had been returned to dominance becauseof their nonprofit status, they ceased, as had been the case with theAmerican Hospital Association in earlier decades, to see their inter-ests as synonymous with those of the communities they had a fidu-ciary responsibility to serve, and they began to participate full-force inthe Balkanization of health care that massively increased profits forthe insurance industry while massively increasing health care costs forthe public at large. By offering low-premium, but high-profit, plans tothe young and healthy who rarely use benefits and charging muchhigher rates to the sick, with the profit margins added on, the insur-ance industry took large amounts of money out of the system, andoverall costs were much higher than if community ratings were ineffect. Further, the insurance industry began to make it harder andharder for the sick, or those they thought might get sick, to obtaininsurance through preexisting condition denials.

Health care costs rose from $79 per capita in 1950 to $324 in 1970,and we're growing at the rate of 7.3 percent per year, as contrastedwith wages, which were growing at a rate of 4.3 percent per year.Hospitals' daily costs rose 15.4 percent in 1968, 13.2 percent in 1969,and 12.4 percent in 1970. Hospital costs increased because hospitalworkers were now covered by minimum wage laws during a time ofsignificant inflation. Salary figures grew at a greater rate than in othersectors of the economy, as unskilled and semiskilled hospital workerscaught up with workers with similar levels of skill in other sectors.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

166 HAROLD I. EIST

Also, with the advent of Medicare and Medicaid in 1965, the healthindustry, which was growing rapidly, now expanded explosively,being second only to the construction industry in average numbers offull- and part-time employees. From 1966 to 1971, the number ofpeople working in the hospital industry rose 38.9 percent, and thehealth industry's earnings of labor and property rose 87.2 percent inthe same period. These changes were due to the increased demand forhospital services brought about primarily by Medicare and Medicaidbut also, to some extent, by technological advances that shifted morecare to hospital centers, though the technology, in my view, waslargely a cost-neutral issue.

During this period, Blue Cross/Blue Shield's operating costs rose ata rate more than double the annual increases in health care costs andnearly four times the rate of wages, at 16.5 percent per year. In manyyears, insurance industry costs have risen three or four or more timesthe cost of direct health care. If insurance industry operating costswere subtracted from overall health care costs, it is likely that actualdirect health care costs rose at a rate slightly lower than wages.

Clinical and scientific medical advances paid for themselves inshortened lengths of hospital stays and reduced morbidity but couldnot pay for the egregious profits of the insurance industry. In the1950s, the length of stay for a heart attack was 3 weeks, and the mor-tality rate was much higher than today, when the length of stay after amyocardial infarction is 5 to 7 days. Blue Cross/Blue Shield and otherinsurers cared little about costs since they paid hospitals on a costs-plus basis. The more money they spent, the more money they made.

Other factors increasing health care costs were Medicaid and Medi-care, as well as the increasing cost of regulations of these entitlementprograms since both the federal and the state governments felt itessential to show that public monies were not being squandered. Thecosts of regulation far exceeded the costs of administration of theseprograms. Thus far, it can be seen that the major increases in healthcare costs have little or nothing to do with the medical profession, letalone psychiatry. Product liability became an ever-increasing problemduring this era also. Product liability refers to the excess costs ofeverything purchased by hospitals and physicians, as well as others inthe health care industry, such as test tubes, pharmaceuticals, antisep-tics, tires or ambulances, x-ray film, dishes, surgical instruments,

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 167

windowglass, and so on. Product liability was not a problem exclusiveto the medical sector, but it was nonetheless a cost escalator for whichthe health care system was not responsible. For instance, the chemicalindustry, which has generally maintained a positive balance ofpayments, exporting more goods and services than they imported,were constrained in their development of new agents because of thehigh cost of product liability.

Malpractice insurance became increasingly expensive during thisperiod. With improvements in technology, defensive medicine and theresponse to increased risk of lawsuits became more expensive. Forexample, a CAT scan is more costly in ruling out a significant headinjury than a skull x-ray. While malpractice insurance and defensivemedicine have popularly been considered major cost escalators, they,in fact, though onerous to both patient and physician (and this is aninestimable cost); probably cannot be held responsible for more than1 to 2 percent of the overall increase.

Clearly, the insurance industry and the federal government, withconsiderable assistance from the states, were doing a first-rate job ofbringing about tremendous cost escalation in health care. In this,corporate America became an ally while all the while pointing thefinger in other directions. As corporations strove to become bigger andbigger and they gobbled up smaller competitors, they discriminatedagainst employees with prior medical histories. Those employeesdenied coverage for preexisting conditions frequently had to obtainservices in the public sector. This is particularly the case with thementally ill, and of course, the shifting of responsibility and costs tothe public sector increased overall costs. In summary, manynonhealth-related factors were involved in substantial, but neverthe-less not economically onerous, increases in health industry costsbetween 1950 and 1970. There was an increased demand for healthcare services by both corporations and organized labor, aided andabetted by the extensive lobbying of the American Hospital Associa-tion. The insurance industry balkanized health care with experience-rated contracts, extracting enormous profits from the system. Theadvent of Medicare and Medicaid made health care affordable formany previously denied care and further increased demand. Increasednumbers of workers poured into the health sector, and their inclusionunder minimum wage laws significantly increased hospital payrolls.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

168 HAROLD I. EIST

Inflation further increased payrolls, other costs, and insurance premi-ums. Liability costs soared and malpractice suits became more preva-lent with an increase in malpractice premiums and defensivemedicine. Improvements in medical technology and treatments paidfor themselves but could not compensate the system for the hugeprofit-taking in the insurance industry. The major orientation shift inthe tax code from supporting social equity to supporting investorfinance resulted in further egregious profit-taking from the healthdelivery system, increasing overall system costs.

Section Three

Concerned about increased costs of Medicaid and Medicare, whichwere virtually strictly a function of increased utilization, RichardNixon brought forth "Fraud and Abuse" statutes under Medicare.Unable to find huge savings from fraud investigations, Nixon nextcreated PSRO's (Peer Standards Review Organizations) in 1972. Heused typical bureaucratic threats to get the physician community toagree to establish and, largely voluntarily, run these organizations.The threats were, in effect: "Either the medical profession sets upthese peer review organizations voluntarily or we, the government,will do it and take control of this vital issue away from you." UnderPSRO, local medical societies established medical guidelines forevery type of care and then reviewed all Medicare cases admitted tohospitals according to these guidelines. As the chair of the local PSROData Committee for eight years and as the local delegate to the statePSR Council and as a member of the state PSR Data Committee, I hadaccess to and was involved in the review of hundreds of thousands ofcases. We had nurse coordinators and physician reviewers on thewards. Five percent of all cases, according to our criteria, requiredspecial review. In 80 percent of these cases, care was deemedadequate. The problem we discovered was one of documentation. Inthe remaining cases, we disagreed with the treating physician andrequired some modification of treatment or we would approve nofurther care. The treating physician had three levels of appeal. Hecould appeal to the local PSRO, the state PSR Council, or the Secre-tary of HEW. From the outset, PSRO was set up to cut costs. Every-where in the legislative language that the words costs and quality were

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 169

used, the word costs preceded, to our dismay, the word quality. PSROturned out to be a good thing for the patients of America. We wereable to evaluate all Medicare hospitalizations, and where problemswere discovered, we were able to correct them.

PSRO was an organization that was external to hospitals. It did notreplace internal medical peer review but could more easily intervenein some problem situations than could internal reviewers, who hadpersonal relationships with colleagues who had engaged in practicesoutside the guidelines. In most instances, the physicians operatingoutside the guidelines were competent colleagues who had honestdifferences of opinion with the PSRO. It was an extremely rare eventthat we had to take disciplinary action against a colleague. We did notshorten lengths of stay much, for several reasons. Alternative nonhos-pital care was either generally unavailable or not paid for by Medi-care. In the case of the mentally ill, outpatient benefits were almostnonexistent, while hospital benefits were relatively generous. Anindividual suffering from serious, major depression or a manic episodecould get the needed care in the hospital but not as an outpatient.This had nothing to do with doctors' fees but was an artifact ofMedicare itself, which we regularly pointed out to the government, tono avail.

Unfortunately, the federal government canceled PSRO because itbarely saved enough money to pay for itself. There was significantdisappointment that we were unable to save the billions of dollars itwas hoped and expected that we could. It was clear that the assurancesof quality care that the PSROs were providing were not seen as suffi-ciently important to keep it alive.

We learned several important lessons from PSRO. By far and awaythe vast majority of medical care being provided to Medicare benefi-ciaries was both adequate and necessary. The government was clearlymore interested in the cost than the quality of care, yet this was pecu-liarly contradictory. The bureaucracies set up to oversee medical carewere more expensive than the cost of physicians' services, and theywere wedded to unearthing largely nonexistent fraud, to guaranteetheir own perpetuation. Further, we learned that eliminating thesehuge bureaucracies would save billions of dollars and that, to theextent that there was fraud, it in no way even closely approximated thecost of the bureaucracy. Additionally, the division between Medicare

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

170 HAROLD I. EIST

Part A and Medicare Part B was arbitrary, forced unnecessary hospi-talizations, and further increased costs, and the government would donothing about this. We learned then that, although PSRO was set up tocontrol costs, it could not do so within the parameters of ethical medi-cal practice if the government would not change major cost-escalatingfactors for which it was responsible. The government, though, hadprovided an early blueprint for how managed care was expected tooperate, but they could not get physicians to follow the plan, whichwas to arbitrarily shorten lengths of hospital stays and deny the elderlyaccess to essential care. In retrospect, it is now clear that this is whatPresident Nixon intended but which, for political reasons, he could notdirectly and forthrightly insist upon. (It is clear that Newt Gingrich hasno such compunctions though he, too, is fearful of the reactions ofAmerica's elderly. It is for this reason that he has engaged wordsmithsto help him delude the people by terming his destruction of Medicare,something the Republicans have always disliked as a vestige ofsocialism, "The Medicare Preservation Act." In a meeting with theinsurance industry, he recently said he wanted Medicare to witheraway.)

Continuing his attempts to reduce health care costs, Richard Nixontook the advice of Dr. Paul Elwood, who came up with the idea of thehealth maintenance organization (HMO) as an answer to rising costs.HMOs were to constrain costs through limiting patients' choice ofservices and doctors and by focusing on preventive care. On Decem-ber 29, 1972, President Nixon signed what was to become the HMOAct of 1973. This was his next to last official act, to be followed byhis resignation. Under the HMO Act, the federal government grantedHMOs start-up funds and required that all companies with more thantwenty-five employees offer an HMO plan to their workers. As aresult of this legislation, the loans, and the employer's wish to spendless on employee benefits, HMO enrollment grew from 3 millionsubscribers in the early 1970s to 28 million enrollees in 1987. Virtu-ally all of these plans discriminated against the mentally ill.

In 1976, Gerald Ford signed the Employee Retirement Security Act(ERISA) into law. The goals of this Act were to provide equalpensions to employees of multistate corporations preempting thehodgepodge of state regulatory laws that would have led to differentpensions in each state. More importantly, it was designed to make

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 171

honest fiduciaries of the corporate employers who had been undercut-ting the promises made to their employees' pension plans under statelaws. Also, as a tag-on, this Act exempted employers' self-paid healthbenefit plans from state insurance regulations.

This law, in combination with the HMO Act and the depredationsof the insurance industry, gave official blessing to tens of millions ofhealthy workers, who would ordinarily only use insurance sparingly,to leave community plans and laid the groundwork for the costs ofhealth care to soar and the creation of the current crisis in health carefor the majority of Americans, particularly children, minorities, theelderly, and the mentally ill.

Jimmy Carter, when campaigning for president, called the tax codea national disgrace and promised to eliminate many of the flagrantloopholes for corporations and the wealthy. He proposed to raise thetax on capital gains and lower rates for individuals. Egged on bycorporate lobbyists, right-of-center Democrats turned on their leadersand the people they were sworn to represent and cut the capital gainsrate in half, lowered the corporate tax rate, and made the temporarytax credit for business permanent.

By persuading politicians that the problem of lagging productivityin America was the high cost of capital, corporate lobbyists and like-minded economists succeeded in passing the 1978 Tax Bill, therebychanging the premises of tax policy from achieving equity toaugmenting the returns on capital. This bill was probably the mostregressive tax bill since the 1920s, helping to firmly set in place thetyranny of the bottom-line, which has reinforced in the health caresector what Reinhart has termed the tyranny of the healthy over thesick. Ronald Reagan in 1981 so gutted the corporate tax code thathundreds of profitable corporations became free riders in our politicalsystem, paying no taxes at all or getting refunds. While this $750billion giveaway was a major factor in increasing our national debtand budget deficits and proved to be an embarrassment to the Repub-licans, its message to corporate America was, "Grab all you can, thehell with communal responsibility; let's frenetically get after thebottom-line" (Greider, 1992, p. 11).

During the Carter years, inflation was rampant but the insuranceindustry "made out like bandits" since their investments in high-riskreal estate, corporate finance, and other high-risk nonhealth-related

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

172 HAROLD I. EIST

ventures, as well as living on-the-float through delaying payments,were paying off.

Policies instituted by Jimmy Carter reined in inflation through theearly Reagan years, but at the same time, the bottom fell out of thereal estate market, resulting in major losses to the insurance industry.The drop in interest rates also reduced income from the float. In aneffort to regain profitability without risking their premium-based cash,insurers moved as quickly as they could into managed care. This hadnothing to do with reducing health care costs and everything to dowith increasing profits.

Managed care has been described as "pig heaven for profiteers"—in effect, all premiums and few payouts. Managed care telephonephantoms now decide what care, if any, should be given, while tax-sheltered corporate contributions to benefit plans saved from healthcare denied, are split with their corporate clients (J. L. Schoenholtz,M.D., 1995, personal communication). Managed care arose, then, inthe social context of the bottom-line iiber alles created and supportedby government, big business, and the insurance industry combined.These three groups systematically drove up costs in the health caresector while pointing the finger elsewhere. When insurance premiumsbecame exorbitant, business and government moved to reduce carethrough denial of access, rather than set limits on the real culprits.Government created managed care, required it in the business com-munity, has failed to regulate it and supported through the tax code aculture of corporate greed and excess, which has led good people,according to Estes, to place a greater value on a few dollars of profitthan on the lives of our people.

Managed Care—What Does It Do?

Following the explicit formula of El wood's HMOs and the directimplications of PSRO that cost was to come before quality and theimplicit expectation that medical services were to be reduced, theinsurance industry set out to change the way medicine was practicedin America. This has led to attacks on direct care, training programs,and our research establishment. A managed care executive wasreported in AM News to have stated, "What we're selling topurchasers is not the future of psychiatry." In order to contain costs,

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 173

managed care has employed the following strategies: 1) coveringprimarily healthy people; 2) limiting the use of any medical servicesthey might need; 3) limiting any treatment provided to the minimum;4) reducing hospital days; 5) reducing follow-up visits; 6) limitingdiagnostic studies; 7) controlling formularies; 8) eliminating the use ofcostly medications and treatments wherever possible; 9) reducingvisits to specialists; 10) reducing or eliminating laboratory procedures;11) reducing or eliminating expensive measures to preserve life; 12)providing care using less trained and hence cheaper "providers"; 13)making people struggle through gatekeepers; 14) placing health careprofessionals at financial risk; 15) rewarding professionals for limitingtheir services through salary increases, bonuses, pay-backs, and so on;16) dropping sick patients from panels at the time of contractrenewals; 17) forcing professionals to follow rigidly defined proto-cols; 18) limiting physicians' judgments; 19) firing, deselecting, or notreferring patients to "noncompliant" physicians; 20) using utilizationreview techniques in an arbitrary manner, which are intrusive, has-sling, and destructive of the doctor-patient relationship and whichdefine appropriate treatment as medically unnecessary; 21) requiringcumbersome precertification; 22) mandating the use of a rigid treat-ment hierarchy before more expensive care can be offered; 23) inappeals, using appeals processes that assure their judgments are irre-vocable; 24) insisting on the use of mail-order pharmacies; 25) limit-ing the service of ancillary care providers, such as nurses, physicaltherapists, special nursing assistants, and sitters; 26) care and costshifting into the public sector (57 percent of all psychiatric care occursin the public sector); 27) playing upon differences within medicalgroups and between professional groups, dividing and conquering,using threats, misinformation, and handsome rewards for collabora-tion; 28) the use of "Big Lie" mantras, false advertising to confuseboth the public and professionals; and 29) spending huge amountson lobbying to prevent legislative intervention into their practicesand to market their approaches (R. Hall, M.D., 1995, personalcommunication).

Twenty Years of Experience with HMOs: A Vignette

Staff model HMOs, which were established between 1940 and 1970,though they were not called HMOs until 1970, involved only a small

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

174 HAROLD I. EIST

percentage of the people, generally relatively young, working folk.Though, initially, cost-saving was not a primary goal of these organi-zations, it was noted that their costs were lower than community-wideindemnity plans. It has not been widely recognized, however, thatHMOs limited treatment for the mentally ill from the outset. Throughselection biases, the elderly, poor families who could not afford theirpremiums and many of the severely ill were excluded.

As early as 1968-1969,1 had entered into negotiations with GroupHealth Association (GHA) of Washington, DC, regarding the treat-ment of their lower-income moderately and seriously psychiatricallyill policyholders.

Psychiatric benefits were limited, and since the HMO provided onlybrief therapy for conditions deemed responsive to brief interventions,lower income and seriously mentally ill individuals had to go outsidethe HMO for their care, as did families with troubled children andadolescents. This might be seen as an early "point of service option."Since those going outside the HMO had to pay a 20 percent or higherco-pay, the moderately and seriously ill were discriminated against ina multiplicity of ways. They were denied care in-house; the seriouslyill, hence, were forced to subsidize the care of the less seriously ill—they paid premiums but got no benefits or had to pay more forbenefits.

Low-income policyholders had to endure dumping into the publicsector. Because of high co-pays, they could not afford private care.Early on, when Group Health provided some small benefit outside theHMO, the poor were, once again, cruelly put in the position of havingto subsidize the care of the more affluent, seriously ill patients whocould afford co-pays.

Initially, GHA responded responsibly by referring their policyhold-ers needing extensive mental health services to the clinics with theirsmall benefits packages intact. We had to find the funding to providethe care that extended far beyond what GHA paid. But at leastthey came with the benefits they had paid for and had a right toexpect.

In the first few years of our involvement with GHA, they would,after discussions between their chief of psychiatry and myself, renewthe benefits for the chronically and seriously mentally ill from year toyear.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 175

GHA, in these early days, was responsive to the cost-offsets argu-ment, and I made them aware of the extent to which the communitywas subsidizing the care of their patients. We had to fund three-fifthsof the cost of this care. If the HMO was spending 3 percent of thehealth care dollar on the mentally ill, the actual cost of the care fortheir mentally ill population was 7.5 cents, precisely the same as thatof the FEHBP from 1970-1980. Group populations of generally func-tional, largely young, healthy workers and their families will require7.5 cents of the health care dollar to get essential psychiatric treat-ment.1 It was clear that for the mentally ill, HMOs were neitherproviding higher quality nor less costly care.

Eventually, GHA refused to renew patient benefit packages fromone year to the next, arguing that, under the more stringently inter-preted terms of their contract, they did not cover chronic mentalillness. By definition, if an individual used all 20 sessions one yearand then needed more the next, they were chronically mentally ill.GHA management was unpersuaded that an individual could suffer anadjustment reaction one year, an episode of major depression respon-sive in fewer than 20 sessions the next year, and so on. Medicalanalogies carried no weight when confronted with, "If an individualbroke his leg one year and had pneumonia the next, would you denytreatment?" They responded, "That's different." "What if an individ-ual suffered repeated asthma attacks from year to year or was diabeticand required ongoing medical supervision and treatment from year toyear?" They responded, "That's different. Our contract specifies wedo not treat chronic mental illnesses." Their contract clearly discrimi-nated against the mentally ill and the HMOs had no difficulty in both

1 With capitation rates running at 5 percent or less of the health care dollar for care of thementally ill and managed care companies keeping half of this or more for profit and adminis-tration, only 2.5 percent or less of the health care dollar is being allocated for care of the men-tally ill. This is roughly one-third of what mixed populations of healthy young workers andtheir families require for care, which approaches, but is still not, parity care. Seven and one-halfpercent will not come close to covering the cost for care to Medicaid and seriously ill popula-tions. It is unethical for physicians to accept capitation rates that will not allow for decent care.Further, profit-taking on capitation rates that are already discnminatorily inadequate should bedeclared criminal, no less than diverting food supplies designated for famine victims into profit-making enterprises is seen as clearly criminal. Physician entrepreneurs arguing that this is thenature of the business and to compete they have to rob care from the needy and defenseless aresimply justifying their more egregious wrongdoing, because they are physicians, by the wrong-doing of corporate America.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

176 HAROLD I. EIST

engaging in this medically improper behavior and rationalizing it asappropriate. It was a serious failure of the house of medicine that theydid not openly challenge the ethics of these activities. By the late1970s and early 1980s, it was clear that the GHA offered up to 20sessions per year for mental illness that would respond to brief, time-limited interventions. They had defined chronicity so that anyone whoneeded the full 20 sessions in one year could never again obtainpsychiatric care in their system.

Since, often, they could not predict whether an individual withmajor depression or anxiety attacks would respond to brief therapy,they would begin treatment in-house. Twelve to sixteen sessions intothe treatment, they would "discover" the patient needed more than thecontract allowed, and they would refer the patients to the clinics,but they came largely bereft of benefits. Arguments about fair play,medical ethics, and communal responsibility fell on deaf ears. Manywere dumped altogether, sans benefits, into the community. Havingreceived inadequate diagnosis and care in-house, they were thenabandoned.

This cost shifting formula became a sine qua non of managed carein the 1980s and 1990s as 57 percent of all psychiatric care came to beprovided in the public sector.

Of course, delays in obtaining adequate treatment early not onlyincrease suffering, morbidity, and cost but, not infrequently, led toirreparable damage to the seriously mentally ill, many of whom couldnot, absent prompt continuous sensitive care, return to their full pre-morbid functioning. Of course, the costs of not providing early,adequate, prompt diagnosis and treatment are enormous but, unfortu-nately, have not been calculated and may be incalculable.

Managed Care: How Does It Survive?

Managed care justifies its existence by claiming it reduces cost andimproves quality, and, in doing so, it provides significant rewards tothose who accomplish this magical task. Managed care has failed todeliver on the most important two of its three promises. It neitherreduces cost nor improves quality. This is all summed up by Berwick(1994) who stated that managed care "has led to something simple andbad, to less care and worse care" (p. 797).

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 177

However, they have made good on their pledge to achieve profits.They have accomplished this through the denial of essential care,dumping into the public sector and delaying care—not only discharg-ing patients from hospital "quicker and sicker" but putting off treat-ment until patients' conditions deteriorate to the point that they needmore care and more expensive care. While insisting they providepreventive care, they actually prevent care. Not content with squeez-ing profits out of doctors, hospitals, and patients' premiums, they havevoraciously attacked our training programs and our research estab-lishment as they search for yet more profits. HMOs have slashedpsychiatric benefits by 80 percent, while other medical/surgical bene-fits have gone up 20 to 25 percent. If this process continuedindefinitely, the mentally ill would simply be eliminated. This willmake our psychiatric residents, the seed corn of our profession,superfluous.

Clearly, managed care companies do nothing but act as middlemen.They ravage health care for profit, particularly psychiatric care. Thechief executives of HMOs and insurance industries extract huge com-pensation packages from direct health care, which include: Stephen F.Wiggins, Oxford Health Plans—$2.8 million; George T. Gochum,Mid-Atlantic Medical Services—$3.7 million; Leonard Abramson,US Healthcare—$3.9 million; William W. McGuire, M.D., UnitedHealthcare—$6.8 million; Malik M. Hasan, M.D., Health SystemsInternational—$8.8 million; Roger F. Greaves, Health Systems Inter-national—$8.9 million; Daniel D. Crowley, Foundation Health—$13.7 million; Norman C. Payson, M.D., Health Source—$15.5million; and up to $52 million per year for the head of PruCare. In1980, the average compensation for corporate CEOs in America was42 times that of the average worker. By 1992, CEOs' compensationaveraged 157 times that of the average worker, after massive firingsand layoffs. By contrast, the health care industry CEO earns more than200 times that of the average worker. Even by modern greed-drivenstandards, their compensations are excessive. They continue tosurvive by using the public's health care dollars against them. Theyspend more on lobbying politicians at the state and federal level thanany other group. This lobbying, plus tax-free kickbacks that are givento corporate America, have led to the federal and state governmentboth supporting managed care and letting managed care contract for

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

178 HAROLD I. EIST

Medicare and Medicaid HMOs. This is in spite of the GAO statingthat managed care will increase costs, that horror stories abound in themedia, and Bruce Vladek, the head of HCFA, has stated there is nomagic in managed care for Medicare. If any "financial savings" are tobe realized by managed care, ignoring the long-term costs of these so-called "savings," it is inescapably evident that they will be accom-plished primarily through denying our elderly, our poor, our minori-ties, our children, and our disabled citizens access to the health careservices they require. It is not only antidemocratic and against ourcreed to refuse care to those most disadvantaged among us, but itdenies a significant proportion of our citizens the right to life, liberty,and the pursuit of happiness. Finally, through the inaction of heavilylobbied politicians, the managed care industry continues to escape theregulation that sound public policy demands.

This includes hundreds of millions of dollars spent on deceptiveadvertising. In their ads, they support freedom of choice, maintainingcontinuity of care, and the importance of the doctor-patient relation-ship. While being PC—politically correct—in their pronouncements,they are PC—politically corrupt—in their deeds, working energeti-cally to undermine the very issues the public insists are critical to theirwell-being. But lobbying and deceptive advertising alone cannotperpetuate their existence. They repeatedly accuse the medical profes-sion of engaging in their own misdeeds. The head of one for-profitmanaged care company stated, "We are trying to control the greedypractices of entrepreneurial doctors." In other words, they accuse us ofwhat they do, a strategy as old as Virgil, who said

Who suffer'd from the malice of the timesaccus'd and sentenced for pretended crimesnew crimes invented, left unturn'd no stoneto make my guilt appear and hide his own.

Finally, they pay some of our fellow physicians handsomely to collab-orate with them. They promise "those who go along will get along"and reap rich rewards. They threaten those who do not "comply" withfinancial ruin, taking advantage of their timidity, fear, and cynicaltendency to become narrowly self-interested under stress.

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 179

What Can Be Done About It?

To negotiate without the willingness to fight is a lack of courage; tofight without a willingness to negotiate is a lack of wisdom. To date,we have shown little wisdom and less courage in the face of the colos-sus threatening to destroy us. Except for a strong cadre of extremelyable advocates, we have been too silent, too timid, and excessivelyreluctant to do battle for what is right.

We have ethical, moral, and legal obligations to advocate for boththe best care for our individual patients and for excellent systems ofcare. In fulfilling these obligations, we will be seen as a moral forcefighting to preserve the sanctity of life over the sanctity of the dollar.

If we believe HMOs or other managed care corporation organiza-tions are engaging in practices antithetical to the health and welfare ofindividual patients and to the public good, we are obliged to speak outloudly and clearly against these practices. We cannot ethically workwithin systems compelling us to provide suboptimal care. We mustdemonstrate that we have the will and the courage, in spite of hazardsand threats, to bring our advocacy for decent health care to the public.Remember, corporate middlemen cannot provide care. They feed offthe work of physicians. If physicians walk away from their systemsbecause they are unethical, the managed care companies will be out ofbusiness.

There is a reciprocity between society and its healers. We mustinform policymakers and the people at large of what is needed toprovide adequate health care. We must repeatedly point out that man-aged care, out of greed, is extracting such egregious profits from directhealth care that we lack the resources to provide the care our peopledesire and deserve.

In every available forum, we must counter the false advertising ofthe insurance industry. Friedman stated that, in the health reformdebate, silence is not a virtue and he went on to say that physiciansmust frame the debate in clear, honest terms and above all must notremain silent and must not give up. We must attack the big-lie mantrasof the insurance industry that we have brought this problem onourselves through inducing unnecessary services. The public must bemade aware of the fact that there never has been adequate funding for

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

180 HAROLD I. EIST

the mentally ill in America—fewer than one in five get any treatment.This is a national travesty that we must reverse through legislativeactivity at the state and federal levels, through public education andpublic advocacy. We must extend our strategic alliances to includediverse, broad, and sufficiently large segments of society in which amovement will develop that will enable the people to take back thehealth care so essential to their welfare.

Psychoanalysis, which has been more egregiously raped than manyareas of our profession, must broadcast that it is a small cost itemcritical to the care of many deeply suffering people. It must challengebiases and prejudices and insist that it remain the core discipline of allpsychotherapies, including cognitive, behavioral, and brief psy-chotherapies. It is a major source of ongoing clinical insights, essen-tial to the best practice of all medical specialities.

Psychoanalysis must go on record as being critical and essential tothe teaching and learning of psychotherapy to future generations ofpsychiatrists. They must be given to appreciate that even their medi-cating of patients must be informed by dynamic understanding if it isto be optimally effective. With 50 percent or fewer of patients takingmedications as prescribed, at enormous cost to their health and thehealth of the nation in excess hospital days, the development of resis-tant strains of bacteria and increased morbidity and mortality, psycho-analysis and psychoanalytic understanding is essential for patients'education and cooperation for optimal care.

Psychoanalysts must become more active as public educators andspokespersons regarding the value of their services. The public needsto know the minuscule cost of psychoanalysis when contrasted withthe total cost of mental health care, but also how disproportionatelyvaluable this investment is.

Psychoanalysts must interact with colleagues in the APA and theAMA and other professional associations to fight for parity for thementally ill and freedom of choice and, above all, must be leaders inarticulating the importance of confidentiality and privacy as the sinequa non of the healer-patient relationship. Psychoanalysts must assid-uously avoid powerful pressures to circle the wagons, retreat into theirsmall compounds, and bemoan their fate. We must find, within theethical constraints of our discipline, methods to inform, not only ourpatients, but the public at large of the decimation of their health care,

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014

MANAGED CARE 181

of the fact that the market is neither holy nor free, but that it is impris-oned and more controlled by corporations than controlling of corpora-tions. We have enormous experience in aiding individuals in strikingdown false idols. This must be employed to strike down the currentmean-spirited idol that making short-term profits is the greatest goodin America.

In summary, all these activities must be accomplished through: 1)legislative activity at the state and federal level, with the readiness topublicly challenge the actions of those corporations and insurancecompanies engaging in practices antithetical to the public good; 2)public education initiatives, including small business and corporateinitiatives demonstrating the cost-efficiency and humanitarian valuesof our service and the enormous indirect costs of not providing them;3) expanding our strategic alliances into a movement; 4) interactingwith our medical and other professional colleagues to fight for parity,privacy, and freedom of choice; 5) strengthening our ethical standardsto support the efforts of colleagues working within managed systemsto advocate for their patients; 6) participating in litigation against falseadvertising and discrimination, often as part of class action lawsuits;and 7) not resting until we have attained victory while never forgettingEdmund Burke's words, "All that is necessary for evil to succeed inthe world is for good people to do nothing."

REFERENCES

Berwick, D. M. (1994), Eleven worthy aims for clinical leadership of health system reform.J. Amer. Med. Assn., 272:797-802.

Greider, W. (1992), Who Will Tell the People: The Betrayal of American Democracy. NewYork: Simon & Schuster.

Law, S. A. (1974), Blue Cross: What Went Wrong? New Haven, CT: Yale University Press.

5705 Rossmore DriveBethesda, MD 20814

Dow

nloa

ded

by [

Flor

ida

Stat

e U

nive

rsity

] at

13:

09 2

1 D

ecem

ber

2014