Consumer Choice Decimates HMO Business Plan

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I ENCOURAGE YOU TO CAREFULLY READ THE STORY about the financial woes of managed care plans in this issue. After virtually every big HMO company reported sizeable losses for 1997, Kaiser Permanente joined the club with a $270 million loss. Following years of soaring profits, it appears that health insurers are about to enter a sustained phase of financial difficulty.

For commercial laboratories, this is bad news. If managed care plans cannot make a profit, they certainly don’t have the cash flow to increase meager reimbursement levels for laboratory testing. For better or worse, the fortunes of clinical laboratories are closely linked to the success or failure of the HMO industry. Clinical laboratory executives already have their own experience with the problems plaguing managed care companies: bidding premiums below actual costs, higher than expected utilization, and inability to accurately collect cost data in a timely fashion (to use in establishing profitable insurance premiums).

But there is an emerging trend now catching managed care plans off guard. Its ramifications are immense. As the number of individuals enrolled in HMOs became a sizeable percentage of the total population, these enrollees began a rebellion against the HMOs’ limited choice of hospitals and providers. HMOs are finding that ever-increasing numbers of enrollees are opting for flexible benefit plans which allow them to easily go “outside the network” for care. This increases the medical costs of the typical HMO. One financial analyst described it as “ripping a hole in the organizations’ financial projections.”

I believe that we are seeing the early stages of a rebellion by insurees and their families. After experiencing strict limitations in their healthcare options caused by rigid HMO rules, many middle Americans now vote with their pocketbook. They chose to pay extra, enroll in a flexible-choice plan, and maximize their ability to go to the doctor of their choice. This is a consumer revolution which is a free-market response to dictatorial, autocratic, and arbitrary managed care plans. Expect to see a similar rebellion in Medicare and Medicare HMOs, particularly as increasing numbers of savvy baby-boomers begin dealing with Medicare’s byzantine rules!

These are positive developments for the clinical laboratory industry. Consumer choice will translate into doctors’ choice of laboratory provider. The battle for consumer choice is now in its earliest stages. These opening broadsides by the consumer prove that Americans are not to be denied their freedom, even in the choice of healthcare!


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