Life Flow One
The Solution For Heart Disease
by
Karl Loren
The non-taxable part of our society is usually a sorry excuse for a bunch of managers and other "technicians" to earn enormous salaries from an organization that doesn't have the usual expense of income taxes. There are not true charities -- designed to give of their talents and assets to the poor and needy.
They are cynical devices by which a bypass surgeon, in connection with a bunch of other guys like them, can find a cheaper form of organization in which to "earn" their exorbitant incomes.
Like the coming doom of bypass surgery, HMOs are going to fail -- they are in the impossible position of delivering poor care for payments that are also decreasing. They can and will cut the quality of care, while their managers and top doctors make millions.
The Wall Street
Journal
When Massachusetts health plans stopped offering unlimited prescription-drug benefits this year to elderly people in Medicare HMOs, Secretary of the Commonwealth William Francis Galvin started to hear complaints. To him, the cut-off was all the more shocking because many of the HMOs are designated as charities. As a result, he began questioning their nonprofit status. HMOs are frightened. If they lose nonprofit status, they would be subject to taxes and lose their near-immunity from lawsuits.
Are the state's nonprofit HMOs acting too much like insurance companies rather than charities? Yes, says Mr. Galvin, and they should be treated that way. No, says Mitchell Rabkin, M.D., a professor of medicine at Harvard Medical School and former chief executive officer of CareGroup Healthcare Systems in Boston.
YES
William Francis Galvin
Any television viewer who has seen an HMO recruitment advertisement featuring swimming octogenarians or other quality-of-life vignettes would have a difficult time distinguishing these ads from those of insurance or financial-services companies.
But there are more objective means to determine corporate status. And when you apply these standards to many Massachusetts HMOs, they in fact appear to be insurance companies, not charities as they have classified themselves.
Under Massachusetts law there is a special business organization statute for HMOs. This law defines HMOs as "carriers or insurance companies," usually for-profit organizations. However, several major HMOs have chosen to incorporate as nonprofit charities in order to enjoy tax-exempt status and limits on liability.
Perhaps when these entities were originally organized with limited membership providing direct medical services at their own clinics and with pooled resources, they might have been able to make a case that they qualified as fraternal or benevolent nonprofits. Clearly, however, as they have migrated to a role as payer for professional services and underwriter of procedures and medications from a limitless universe of providers, their legal status has changed.
Consider these facts about Harvard Pilgrim Health Care, Tufts Associated Health Maintenance Organization and Fallon Community Health Plan, all chartered as charitable organizations:
-- All three have as their stated purpose of organization "exclusively charitable purposes" and that "no part of net earnings shall inure to the benefit of any member, director or private individual."
-- All three have unique contractual relationships with affiliated for-profit
entities. For instance, the nonprofit Tufts HMO paid a $90 million management fee to the for-profit Tufts Associated Health Plans Inc.
-- These "charitable" entities do not provide free health care to the community at large in the same manner as traditional nonprofit hospitals.
More revealing are the business practices of these "charitable HMOs." Not only did they abruptly reduce their prescription-drug coverage for the elderly based on concerns about profitability, but one of these HMOs, Harvard Pilgrim, continues to use a misleading pitch in advertising to prospective members. The ad says members are entitled to coverage of $800 a year for drugs. But the HMO accounts for the dispensed drugs at the full retail price, rather than at the discounted price it pays for them, so subscribers may receive substantially less than $800 worth of coverage.
HMOs or similar entities are probably a permanent fixture on the health-care scene. But with health care more often delivered on an outpatient basis or by means of prescription medication, whatever economies of scale that HMOs originally achieved are being diminished. Increasingly they are competing with other providers and insurers for market share of a major consumer expense.
So where do we go from here? Remember that HMOs are exempt from not only income taxes but also real-estate, excise and in some cases sales taxes. These charities in some instances shelter significant investment portfolios, and have immunity from liability. Some say making charitable HMOs pay taxes will not help them get better health care. I say preserving the fiction that these businesses are charitable serves no purpose.
I suggest that all such HMO corporations that engage in commerce in a necessity of life, namely health care, ought to either pay taxes or compensate for their tax-exempt status by providing meaningful services to their members and the community at large. Their activities should be regulated like utilities, with careful attention to any change of service that would affect the well-being of customers. The state does not allow an electric utility to shut off power during winter months, even for nonpayment. Likewise, it shouldn't allow an HMO to stop a life-saving drug supply.
Profit itself is not the issue. The issue is the level and consistency of life-sustaining services that these HMOs provide in return for their special privileges.
NO
Mitchell Rabkin
Massachusetts' Medicare HMOs are nonprofit agencies working to make quality health care affordable. They are not insurance companies. Secretary of the Commonwealth Galvin thinks they are, and threatens to remove the tax-exempt and liability status of the commonwealth's major nonprofit HMOs because they no longer provide unlimited drug benefits to their Medicare HMO clientele. (Neither do the other 49 states'.) But the fact is that no organization can pay out more than it takes in without soon going belly-up.
Medication costs are rising faster than any other component of health-care costs today. That is a problem both HMOs and patients face: Medicare's payments to HMOs are not keeping up with the costs of care. In 1998, Fallon lost $21 million, Tufts Health Plan lost $12.8 million and the bond rating
of Harvard Pilgrim was lowered by Standard & Poor's on the expectation of an operating loss of over $35 million.
What about the investor-owned, for-profit insurers? How do they stay in business? The pat but incorrect answer is that they are more efficient. The truth is they may be more selective in the patients they choose to insure, leaving out less healthy people who have greater needs for care. Basically, out of the health-care dollar they first take their profit and their own administrative costs and tax obligations. Then, the balance -- they call it the "medical loss ratio" -- is what's left to pay for health care. With some publicly traded HMOs, as little as 75 cents on the dollar is left over.
By contrast, the nonprofit HMO pays no tax, returns no profit to investors and thus has more of the Medicare dollar to apply to health care, generally between 85 and 90 cents. At least one nonprofit HMO labels that piece its "medical cost ratio," an important symbol that their primary interest is in what is available for health care rather than what is "lost" from their profit.
After a federal judge declared invalid the Massachusetts law requiring unlimited drug coverage for Medicare HMO members, each Massachusetts nonprofit HMO did set up assistance programs for its more vulnerable patients. The major for-profit HMO, United HealthCare, has offered no such plan. Another, U.S. Healthcare, has left the Massachusetts Medicare scene. For-profit HMOs are in business to make a profit by providing health care. And when health care will not provide that profit, the company will turn its activities elsewhere, where its economic requirements can be met.
Nonprofit HMOs are in business not to make a profit but to provide health care, and they stick around when the going gets tough. Yet they can stay in business only if revenues can match their expenses.
Mr. Galvin wants to remove the tax-exempt status from our nonprofit HMOs because they face escalating needs greater than the revenues they can get. What would happen if the commonnwealth were to tax these HMOs? First, since they currently have no profits, what is to be taxed? If they were taxed anyway, there would only be less money for health care. Even if all taxes collected were set aside for health care administered by the state, surely some of it would disappear in added administrative costs.
When Mr. Galvin cites HMOs' ties to for-profit affiliates, he implies that money is taken from medical care and goes instead to shareholders. The fact is that any such "profit" goes back into the plan's medical budget. To tax that profit would only take money away from medical care.
Blaming the other guy is no way to deal with a problem as complex as the rising cost of health care. Enough cost control already has been imposed that patients are becoming wary, hospitals are losing their niceties and worrying about losing necessities, and doctors are increasingly concerned over controls that ride herd on their professional judgments. For our hospitals, especially our teaching hospitals, these problems are intense and disturbing. The state, the HMOs, the providers of care and the community need to work together on this dilemma, dealing with the facts. There are no quick fixes, and to chew out the other guy is no solution.
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