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OCTOBER 28, 1997


Exactly seventeen months ago, I came here, as a physician and former medical director, to tell you that the unnecessary death of even one patient is unconscionable to me. By informing you of my participation in acts of patient harm, I, in effect, shared my moral responsibility. I return today aware that very little has been done to effectively and uniformly protect other patients from needless suffering and possible death. So, my message is the same, but more urgent: the American public needs your help.

My written testimony gives you details about how the health care industry systemically causes patient harm. What we call "managed care" is an organized system of limitation and denial--an unprecedented market-driven system of rationing medical resources.

Let me demonstrate this first by revealing some things to you I have never before made public. I have here with me four copies of personal reports from my previous days as a company doctor.
The first is a denial for admission to a hospital, for which my supervisor marked "Linda, good work."
The second is a sample of one of my monthly denial profiles.
The third is a memo from a fellow medical director advising me about the euphemisms to use when denying care.
The last is a report I submitted projecting my expected "savings" based on targeted amounts of denials of inpatient admissions, referrals, outpatient services, emergency room use, etc.

Let me note quickly that this is representative of all my work and not isolated to any particular company. Also, before someone attempts to dismiss my experience as too outdated or narrow to be of value, let me assure you that I continue to have inside knowledge of how managed care works. In my teaching and consulting, I see thousands of documents--handbooks, marketing materials, contracts, policy and procedure manuals, denials, patient complaints, internal memos, etc., that substantiate all of this. I am a witness to the rapid growth of a monstrous business whose economic success is based upon the micromanagement of medicine through avoidance, denial and control.

How does this happen? Let's imagine that you are starting a new managed care organization and you have hired me to help you put it together. What do we do?

First, I exchange my traditional doctor's bag for a health executive's box of tricks. Second we agree that we do not want just any group of patients. We will use all the sophistication of modern advertising and marketing to ensure that we avoid those persons who cost money. We have many ways to eliminate the old, the sick, the disabled, the malignant, the chronic, the risky lifestyles, and any other who may be a drain on our premium pool.

Presuming we get a pool of healthy, prepaid members, what do we do now to ensure our maximum economic return--i.e. that we succeed in our business of health management?

First, we LIMIT THE NETWORK. We justify this based on costs and business necessity. It will be of no concern to us that we may create something that requires parents to travel 42 miles in the middle of the night with a sick child.

Second, we LIMIT BENEFITS, MAKE EXCLUSIONS and CREATE AMBIGUOUS LANGUAGE to give us the maximum power to deny services based on coverage issues. It will not worry us that we may eventually cause the death of some persons when they are told that they do not have coverage for necessary treatments. We are doing business, not welfare.

Third, we create COMPLEX, INEXPLICABLE RULES AND PROCEDURES for navigating our managed care maze. This will be some of the simplest, least questionable "denials," because we can just refer to our requirements for payment. We make the rules.

Fourth, we have our most versatile, authoritative, and profitable tool: our ability to make MEDICAL NECESSITY DETERMINATIONS. Empowered with physicians employed by us, we become the final medical authority. Regardless of what any treating physician may want to do, we assume control and practice medicine our way.

Fifth: we cannot do everything directly, so we ensure that our physicians become our agents. We create FINANCIAL ARRANGEMENTS that will encourage them to limit or deny directly without our intervention.

Sixth: we supplement this with extensive contracts devised to control physician's power and authority. We PROFILE THEM ECONOMICALLY; we lure them with SELECTION and threaten DESELECTION once hooked; we usurp their power and authority with CONTRACTS FULL OF CLAUSES EXTRACTING PERFORMANCE, COMPLIANCE, GAG CONDITIONS, CONFIDENTIALITY, GOOD MANAGED CARE BEHAVIOR. We make them our agents of denial.

Seventh: For good measure, we add a TERMINATION-WITHOUT-CAUSE clause to give us the ultimate power of ridding ourselves of inappropriate physicians.

Eighth: Should anyone challenge our decisions, we ensure that THE GRIEVANCE AND APPEAL PROCESS is closed and weighted against the member and in our favor.

Ninth: We add MANDATORY ARBITRATION, in which there is no record of issue or outcome, giving no benefit to other members, case law, or public/legislative action.

Tenth: Even if all this fails, and someone should suffer from our tactics, nearly everything we do will be SHIELDED FROM ANY LIABILITY thanks to our ERISA PREEMPTION.

Finally, we work to CHANGE MEDICAL EDUCATION, creating from the beginning manageable doctors to suit our purposes. Also, by not paying for things, and excluding everything we can under the designation of "investigational" we can DIMINISH RESEARCH, and slowly eliminate the availability of new treatments, prolonging of life, and added expense of the care of persons.

Now--this is what is left...and if we work smart, we will think of ways to deny this as well. Then we will have achieved the ideal health care business: money coming in and none going out--a "medical loss ratio" of ZERO.

Is this fair? I leave it to you to decide. You have the means to intervene and protect the public. I encourage you to use every opportunity to do so.


The health industry is the first to extol its success in braking the rising costs of medical care. However, little has been done to really examine the ways in which they have achieved this "success." Studies show repeatedly that HMOs and other managed care organizations achieve their results by lowering hospital admission rates, shortening hospital stays, relying upon fewer subspecialty services, making less use of laboratory, radiology, and other technological services, and limiting networks--all techniques for restricting or denying medical care. Although the numbers for these measures have been drastically lowered, we have only the industry claims that only the "excesses" of the fee-for-service era have been eliminated. Where is the line between "necessary" and "unnecessary" care? How do we define this line, or the standards by which to know it and the circumstances under which we use it, when the managed care processes themselves are constantly changing? Regardless of the health system changes, we can say one thing with certainty: we are in the midst of an unprecedented system of market-based rationing of medical care which is resulting in patient harm. Unless we understand it systemically, we cannot begin to assess its impact or attempt to make appropriate corrections. Meanwhile the suffering, and even death, of some patients continues.


Before exploring the restrictions and denial of care by managed care, it is important to note that several unquestioned assumptions underlie the apparent virtues of these lower numbers and costs. The health industry would have everyone believe that:
any cuts in service effect only care that is excessive and unnecessary;
these cuts can be achieved without independent clinical research to determine the appropriate norms; and
it is unnecessary to monitor the consequences and clinical outcomes of the managed care's economic and cost-cutting tactics.

This means that we do not really know what is happening in the managed care era. Few studies are available to address the actual impact of economic decisions on the clinical care of plan members, especially for chronically ill patients. To date, there is only one extensive outcome study that begins to give us a clue. It reveals that elderly and poor chronically ill patients had worse physical health outcomes in HMOs than in fee-for-service systems. In fact, this conclusion was significant enough to prompt a special hearing before the Senate Appropriations Subcommittee on Labor, HHS, and Education on November 13, 1996. Out of the discussion around this paper, a critical point was made: the data for the study were collected in 1986, and we are now over a decade more entrenched in managed care. What is happening now? Despite claims of success by the managed care industry, we do not know. We are like astronomers examining the light of a star that may have already exploded. We continue to operate under the delusion that all is well in the system. Unfortunately, in our rapidly changing health care system, by the time we know the real facts, it may be too late.

Thus it is critical that we use every avenue of information available to determine the effects of these unprecedented changes in our health care system. The "real time" stories from persons encountering managed care directly have inestimable value. We know this from "quality management" work. Regardless of what aggregate data and statistical summaries can tell us about how a system is performing, when there is a particular failure it no longer matters what the cold numbers of past history show. For example, if a hospitalized patient dies from something the hospital could have prevented, it matters little at that moment for that individual whether the hospital's mortality rate is rising or falling. A failure such as this in a system is 100% evidence of itself. Although we may need studies to identify the sources of failure and the ways for correction, the individual incidents themselves sound the alarm for attention. No one can deny that we are receiving ample evidence (consumer stories, legal cases, public testimonies, etc.) to suggest that increasing numbers of individuals, especially those who are vulnerable and expensive, risk serious obstruction to services and care which they need when placed in some managed care plans.

Of course, the individual cases enable the industry to rationalize or discount each incident, thereby avoiding accountability at either specific plan level or at the industry as a whole. What we need first is to acknowledge that we have evolved a complex, bureaucratic (managed) system for delivering care that has the potential, as with any system involving human lives and their well-being, to cause harm. When an airplane crashes, we do not allow the airline industry to dismiss its importance by calling it "anecdotal." It is something (what systems analysts call a "signal event") which should not occur, and represents a failure of something in the whole system, in this case the system of airline safety. We investigate, not only to identify responsibility, but to use the information for prevention of further disasters.

We should do the same for health care. When a patient experiences inappropriate obstruction to care with increased suffering and harm, then the system of "care" has failed. We need then to use these events to work backwards to determine how this has occurred, and determine if it represents a pattern of failure. Unless we do this, the health industry avoids the kind of detailed dissection that reveals incompetence, exploitation, fraud or abuse, about which the public has the right to know and correct. How do we do this?

First, we must acknowledge that the managed care process is a highly organized integration of delivery and payment. By the industry's own definition, "managed care" is a way of distributing health care such that "different financial incentives and management controls" are used to "alter the decision-making of physicians and hospitals by interjecting a complex system of financial incentives, penalties, and administrative procedures into the doctor-patient relationship." Furthermore, managed care "attempts to redefine what is best for the patient and how to achieve it most economically." Obviously, "managed care" is more than a claims payment system. It distinguishes itself from fee-for-service by directly influencing the decision-making and conditions of care--i.e. THE PLAN PRACTICES MEDICINE.

As all plans make clear to their members, they -- the plans, not the members' doctors -- retain the final medical determinations on any request for services. Of course, a plan wants this control over medical decision-making until there are adverse consequences arising from those decisions, and then the plan claims that it is simply making "benefit" or "payment" decisions. Such sleights of hand enable the plan to play it both ways, and always to its own economic advantage. However, despite the euphemisms, denying payment under managed care means denying care, and when necessary care is denied, there are consequences -- some serious enough to cause death. This is more than a benefit decision, and certainly decisions for which plans should be held accountable.

Second, we must pay attention to the language of the industry. Defenders of managed care repeatedly say that they "do not deny care." Unfortunately, this is just another rhetorical flourish that sufficiently disguises the process. What managed care organizations do, by their own admission and design, is authorize care. This is, in fact, the inherent nature of managed care. The genius of "managed care" is that it integrates delivery and payment, and this can only be done by determining upfront what care will receive payment. Another leading textbook on "managed care" states clearly that "one of the definitive elements in managed health care is the presence of an authorization system...It is the authorization system that provides a key element of management in the delivery of medical services."

"DENIAL OF CARE" AND ITS EUPHEMISMS "Lack of authorization" is the predominant euphemism for "denial of care." In the reverse, and "authorization" is simply the absence of denial. What this means in practicality is that a member, depending on the extent of "authorization" processes, essentially begins with no benefits until the plan approves them. In other words, all services begin as de facto denials. A plan member (and his or her physician if still committed to patient advocacy) must enter into a maze of dangerous tactics designed to prevent the receipt of the approval.

Technically this begins with the designation of the benefit package, but close examination of most member handbooks reveals that there are wells of ambiguity and nuance that make the even the clearest of benefits questionable. When needs arise, plans erect various barriers to give them the opportunity to examine their merit for "authorization." Approval ("authorization" or lack of denial) is the only way to ensure payment. Only when a request makes it way through the series of "authorization" barricades will it be "given" (paid) to the member. It is easy for plans then to claim that they do not "deny benefits," per se; they only choose to authorize or not their availability.

The textbook quoted above notes that the "authorization" procedures can be "as simple as precertification of elective hospitalizations in an indemnity plan or preferred provider organization (PPO) or as complex as mandatory authorization for all nonprimary care services in a health maintenance organization (HMO)." In fact, this is a helpful way to understand the spectrum of "managed care" organizations. If one understands that they are inherently focused on controlling the two critical aspects of health care -- patients and doctors -- then one could take any organization, regardless of its "alphabet" designation, and plot it along a line of degree of controls. (See diagram A) These controls can be viewed as a series of sieves designed to filter through the medical needs in various ways such that as little as possible will ultimately be covered (paid). Under this schema, one should note that plans can be compared according to degree and intensity of controls, rather than categories. As different plans and their processes are examined, one finds that there are some "PPO" plans that are more worrisome in the nature of their techniques than some "HMO" plans--a reminder that the focus should be on how the plans really work and not on what they claim to be.

These layers of "authorization" utilize "medical necessity" determinations, network limitations, and other less obvious ways to limit and deny care. The inconsistency of benefit availability and the ambiguity of the benefits that are offered provide additional means for plan intervention to control access to medical services. Generally, the layers of controls are organized as such:

BENEFIT AMBIGUITY AND "MEDICAL NECESSITY" DETERMINATIONS: The plan is able to intercede into the medical decision-making process by defining the standards for care, the conditions in which it may occur, the services and providers that are available, and the final medical word on everything that comes under the "authorization" process of the managed care plan -- access to specialists and tests; admissions to the hospital; availability of treatment options, etc. When a service or treatment is not authorized, it is, very simply, denied. For example, if a plan offers coverage for maternity care, but in turn denies admission to a hospital for treatment of "hyperemesis gravidarum," or extreme vomiting of early pregnancy, (on grounds that treatment can occur as an outpatient) that is a denial of a benefit which technically occurs under the contract promise of maternity care. Of course, a plan would argue that this "benefit" does not necessarily include hospitalization for this condition. However, the nature of the benefit and the legitimacy of the "denial" could only be accurately determined by considering all the facts of the particular incident, especially the outcome of the "denial." Whether this "denial" was appropriate or inappropriate can only be determined by some kind of follow-up of the condition of this patient. Did her condition worsen, did she have complications because she was not as aggressively and intensely treated as she would have been in the hospital, were there complications from her outpatient management, did the baby suffer any damages, etc.? These are the many clinical questions that would have to be asked, answered, and tracked in order to determine the consequences of the "failure to authorize" a request for hospitalization of a particular patient. It should be clear though that any decision made here is not a payment or benefit decision only; it is a medical decision with potentially serious clinical effects. Someone other than the treating physician is practicing medicine.

MEDICAL STANDARD AND POLICIES: These decisions, made by the "medical" persons of the plan, are underpinned by medical standards and policies determined by the plan. Even though many plans rely on common sources for these guidelines, there are still predominantly produced within the industry itself. They are neither consistent nor standardized across plans. For example, the criteria for approval of a hysterectomy varies widely in the industry. These clinical details are used by the plan as screens for "nurses" to either authorize, deny or refer requests to a doctor employed by the plan. These doctors in turn rely upon the plan's definition of medical policy rather than their own clinical judgments. Since managed care inherently restricts and limits access, these clinical guides become the additional layer through which "authorization" can fail. If a doctor requests authorization for a surgical procedure and does not give all the magic answers, the plan will "fail to give the authorization number." Once again, the choice of words does not cover up the fact that a member has been denied a benefit through the denial of medical care. A plan has contracted to provide medically and surgically necessary care. By retaining the right to arbitrarily determine what constitutes the criteria for authorization based on "necessity," the plan once again clinically impacts care. Of course, to claim that this is just a "benefit decision" is easier when the plan has no responsibility to report these "denials" or to follow-up on the outcomes of its decisions.

NORMATIVE STANDARDS: The organizational and financial success of managed care depends upon exhibiting certain performance results, particularly in the areas of lengths-of-stay, admissions per thousand, days per thousand, referral rates, etc. These have become the normative standards for comparing the profiles of differing plans, hospitals and physicians. As the recent issue with maternity stays represents, there has been no independent clinical research around the issue of the appropriate care of a post-partum patient. What happened instead was a race to the bottom by the various plans. There were even reports that a plan in California had dropped the postpartum stay to eight hours! What we saw was the industry squeezing down the length-of-stay lower and lower until the public screamed. We should take this event seriously, because it is happening with every condition in medicine. We are aware of it with mastectomies, and other surgical procedures. The current norm becomes the next number to beat, and downward the industry goes. Here the issue about benefits gets grayer because we do not know in any of these cases what the appropriate care is. (Even with legislation now in the area of post-partum care, we still do not know what the appropriate mix of hospital/home care is for mothers after a delivery!) Until we begin to monitor the decisions that are made and their consequences, we will not know the true impact on patient care.

CONTROLLING THAT WHICH CAN BE CONTROLLED: The evolution of managed care has depended upon increasing intrusions into the actual medical decision-making. In many of the plans, financial gains are achieved by targeting the high-cost, high-control, or high-volume requests, e.g. for MRIs, referrals to specialists, admissions to the hospital, etc. Of course, consumers are never warned in plan material that their risks of "failing to get something authorized" (READ: "denied") rises with certain areas of need, especially when certain services become the targets for control or bottom-line improvement in a plan.

MEDICAL DIRECTOR/REVIEWERS: Physicians who take these positions cease to be the autonomous professionals they were trained to be. They become, even with the best intentions, "company doctors." There is no code of ethics, or review body, to ensure that they do not lose sight of their medical ethics and responsibilities. In fact, the pressure to "succeed" (i.e. ensure the success of the plan), is so pervasive that it is easy to quickly become economic agents who use medical knowledge and experience to the benefit of the plan, not for the members of the plan.

APPEALS AND REVIEWS BY OTHER PHYSICIANS: Appeals of a medical decision are usually made by the same physician who made the initial denial, or to a physician or group with whom the plan has contracted for such appeals. Either way, the system is again organized so that the decisions are weighted in favor of the plan, not for the patient.

APPEAL PROCESS: Although this sounds good in theory, even in the best circumstances, it is highly ineffective in ensuring that patients are protected. The very idea of appeal is foreign to most persons who still live with the remnants of trust in health care delivery and doctors. For those who may pursue it, the very conditions that have prompted the necessity for an appeal are usually traumatic and associated with confusion, anxiety, fear, grief, etc. and these conditions are unlikely to produce the strong self- or family-advocacy, clear thinking, and perseverance that would be necessary to make a successful appeal. It is also unreasonable to believe that plans, which do not even have 24 hour "authorization" services available, would have appropriate appeal processes available in emergency situations. Furthermore, with the fox guarding the hen house, a member will always be at a disadvantage in attempting to appeal to the very plan which has made the adverse decision in the first place.


How does one go about forming and examining patterns of practices for these plans? First, there is no single piece of evidence that will suffice. One must pull together a variety of elements and see that they fit together like a puzzle. Also, the evidence that is not there is probably more important than some of the evidence which is present. It is important to note that the most critical information is often the least available. The industry has become adept at avoiding, delaying, disguising, or withholding the most revealing data about their practices and performance. For example, the public may know the percent of women in a plan who receives yearly mammograms, but know nothing about the care of the women found to have breast cancer. Furthermore, the public may never know how the plan's policies and procedures, contracts and network limitations, financial arrangements and bonuses, and other tactics are organized against the patient. Even in those few cases in which there have been legal claims, lawyers find that obtaining critical information from a plan is akin to getting gold bars out of Fort Knox. We cannot continue to have an industry with so much authority and power, with such grave consequences in people's lives with so little accountability and public protection.

It should be obvious that we need full disclosure, standardized practices, and a demand for ethical conduct of business. The following would be a useful beginning:

BENEFIT/COVERAGE BOOKLETS should be readily available for examination in order to determine what is told, and not told, to members, especially with regard to "medical necessity" determinations, disclosure about restrictions, exclusions, rules, etc. Also the promises and marketing claims should be matched to the reality of a plan's practice.

MEDICAL STANDARDS AND POLICIES, along with evidence for the ways in which these are determined, and the ways in which they are used.

Everything that is possible regarding A PLAN'S "AUTHORIZATION" PROCESS: what is authorized; basis for authorization (or denial); details of the processes; who has ability to authorize (and deny); the credentials/qualifications of persons who do this; the information management system for tracking authorizations (and the reverse: denials); how this information is used for utilization management, quality management, physician profiling, credentialing and re-credentialing, and financial management; is authorization people-, telephone- or computer-based; what are staffing ratios; etc.

Although plans rarely track "DENIALS," they will have some information tracking systems that would enable one to determine what kinds of requests are made, the disposition of those requests, and the cumulative effect of those results. It is through this kind of information that plans can keep track of the economic results of their organization and to identify the areas on which they must get tighter control. It is just a matter of getting and interpreting the information that is available. Plans should be required to track and report decisions which restrict or deny care to members, and to include the outcomes of such decisions in their outcome studies.

The failure to track "denials," especially with regard to the outcomes of those decisions is a significant deficiency about which we (the public, government) should be concerned. REAL OUTCOME ANALYSIS is not possible unless this kind of information is made available. Also, under capitated plans, there have to be methods to identify, track and correct underutilization in order to ensure that necessary benefits are not decreased or denied. Outcome analysis should include the effects of the plan's financial/reimbursement arrangements on the delivery of care.

All the CONTRACTS, especially provider contracts, should be readily available to determine constraints on providers. Many types of clauses and requirements are designed to ensure that providers become the virtual agents of the plans. Financial/reimbursement arrangements should be disclosed completely.

The MEDICAL DIRECTOR/REVIEWER contracts, performance standards, means for monitoring and evaluation, payment, incentives/disincentives, methodology for decision-making, etc. The presence, or more likely the absence, of any methods for review and assessment of the administrative physicians' decision-making and performance should be available.

MEMBER SURVEYS, especially if there are narrative sections in which members can lodge specific complaints. The specific complaints should be made available, as well as the means by which they have been addressed.

The above is only a beginning, for there are many other aspects that would vary with different plans, e.g. bonuses, quality data for subcontracted services and providers, etc. Anything which has the potential to adversely effect the care of a member should be completely disclosed and available for scrutiny by the public.

With as many pieces of the puzzle as possible, it would be easier to discern the integrity of a plan or group of plans. One could determine the degree to which a given plan attempts to balance their medical and economic responsibilities to their members versus the degree to which it may attempt, overtly as well as covertly, to withhold as much care as possible and to exploit members for financial gain. It is important to realize that this obstruction to care can occur as much in "non-profit" as in for-profit organizations. Some plans, which find themselves struggling to stay alive, often tighten their "authorization" procedures as a first attempt to rein in costs. It is important to understand that the industry itself says that "an effective authorization systems is a requirement of any managed care plan" and "the tighter the authorization systems, the better the plan's ability to manage the care." Translated simply, this means that the success of "authorization" depends upon the flip side: obstruction, restriction or denial of service or care. Like all puzzles, the patterns of potential menace will be obvious when enough pieces are present.

Finally, there is one larger concern which must be addressed: the increasing transfer of risk to the level of the treating physician. Sophisticated managed care plans are shifting the entire process of "authorization" and "denial" to the level of treatment decisions by patients' physicians. The mechanisms then become more subtle and even more elusive for purposes of accountability. Such arrangements remove plans one or two steps further away from the consequences of the processes they have put in place, making it easier for them to claim that they are only making benefit decisions and are not responsible for the clinical consequences of their system of care. Many physicians are agreeing to these arrangements out of ignorance of their implications, and even more are complying as a matter of professional survival. Until the entire process we call "managed care" is systematically understood, we cannot know how to build in the means for industry accountability and patient protection.


The system of "managed care" redefines what is best for the patient and how to achieve it economically. There is no subterfuge here. To work, managed care must alter the decision-making of physicians by interjecting complex management methods into the doctor-patient relationship.

With this kind of explicit statement of purpose, why is there little investigation into the methods of management? From the standpoint of a business only, there are certain principles by which practices and consequences of management can be evaluated, such as honesty, fairness, integrity, disclosure, trust, accountability. No human endeavor is free from ethical considerations, especially management, which, by its nature, involves directing or controlling something toward an end -- an activity fraught with ethical questions. From the choice of end to the choice of means to achieve that end, the way is laden with ethical issues. There is no business now in which this can be clearer than that of medicine and healthcare.

In the pre-managed care days, the division between medical delivery and payment was more distinct. Without getting into whether this separation was good or bad, we can discuss the mechanics of how clinical care occurred. Let us take a simple case of chest pain in an aging male: He experiences a disturbing change in his health and seeks the advice of a physician. His physician takes a medical history, does an exam, and works through a differential diagnosis, moving from the most acute and serious possibilities to the less urgent causes for the complaint. Based upon the physician's assessment of likely causes, he or she may treat the patient conservatively, suggesting dietary and lifestyle changes. If the physician believes there is urgency then he or she may order laboratory tests or diagnostics studies to rule in or out the more serious, life-threatening diagnoses. As a result of additional information gained during this phase, the physician may choose to admit the patient to the hospital for a procedure or for surgery. All of this proceeds through an analysis dependent upon the clinical acumen and expertise of the physician. Presuming the patient has health insurance, at some endpoint claims are submitted to the insurance company for payment. Of course, we know that physicians are no different than any other professional, and payment structures can effect decision-making. However, inherently professionals have a responsibility to train, license, and monitor their ranks for the preservation of the profession as a whole. Presumably, the degree to which any profession does this internally, there is less need for external supervision and control.

Regardless of the reasons for a shift to managed care, it is certain that we have entered into an era in which there are blurred distinctions between delivery and payment. In fact, the hallmark of managed care is, as the definition above claims, the integration of medical services and finances. In such an arrangement, physicians are no longer independent, autonomous professionals. Health care is managed to the extent that physicians (and patients) are managed. This control of physicians has proceeded insidiously, and the practice of medicine is no longer by physicians alone. Many would argue that this is better, that any professional should be scrutinized in proportion to the power they carry over the lives of others. For public and self protection, we must ask ourselves:
What methods are used to manage physicians?
What is the aggregate effect of the various methods?
What are the consequences to patient care?
What are the basic considerations for future reform?


A leading health industry text claims that the management of physicians is one of the "common operational problems" for managed care organizations. Failing to deal with "difficult or noncompliant physicians" can result in rising expenses, ill effects on members, and negative morale. Despite this internal admonition, nearly every managed care contract holds itself out to the public as having an "independent contractor" relationship between plan and physician. A member will be told in various ways that their physician will exercise independent medical judgment in their care. Indeed, the managed care industry banks on this remnant belief in autonomy from the fee-for-service era. All the while they are fully aware that they would not be managed care if they did not have extensive methods used to ensure that their participating physicians were kept in line with the plan's ends. So the idea of independent physicians is more than wishful thinking on the part of managed care plans. The logical impossibility of independent decision-making midst the kinds of methods used to manage physicians makes this claim blatantly fraudulent. This becomes clear if we work through how management of care, especially the implicit methods, actually works.

The evolution of managed care processes, as it relates to physician control, can be understood in terms of the ways in which a plan intercedes into the patient/physician relationship. [See Diagram B] On this timeline of patient/physician interaction, three phases are significant:
Post-care controls: methods occurring after care is delivered
Intra-care controls: methods occurring during the delivery of care
Pre-care controls: methods occurring before any particular patient receives care

It is important to note before going into detail that these divisions are somewhat artificial. They are most effective when interrelated and working in concert. As seen below, data compiled on physician's past practices can be used to create profiles designed to change current and future care decisions.

Post-care processes/controls
Retrospective review for utilization/quality assessment
Retrospective review for "medical necessity"
Retrospective review for coverage issues
Aggregate profiling of provider network to assess and determine normative statistical standards for utilization, e.g. lengths-of-stay, admissions per thousand, referral rates, etc.
Physician monitoring and profiling, with individual and comparative utilization and economic report cards
Economic credentialing

Post-care processes involve all the management processes used after some service has been rendered, best represented by retrospective review of claims and charts to assess appropriateness of medical treatment and charges. Although the results of such reviews do not effect the specific patient event in question, they can have sentinel effects on future decision-making. For example, if a hospital documented that a surgeon was removing too many "normal" appendices, such information could be used to rein in an aggressive (or greedy) physician, or identify a physician who may need additional training in diagnostics. Similarly, if a physician admits too many sick elderly patients, such information could be used to identify the physician as "wrong" (expensive) for the hospital, or a plan. This kind of review was commonly used before managed care gained prominence. As with most of these activities, it is not the methods itself which is questionable, but the ends to which it is used which should concern us.

With the entrenchment of managed care, a new kind of retrospective management developed. Information management enables plans and hospitals to do extensive physician monitoring and profiling. Although informative and educational, such data is often used to change physician behavior toward a norm determined by the managed care plan or the industry as a whole. This is particularly true when the data provide statistical quantification, such as length-of-stay, admissions-per-thousand, referral rates, etc. With such report cards, certain physicians will fall away from the median. These physicians, known in the industry as "outliers," become immediate, identifiable targets for control. Since such reports are rarely accompanied by qualitative, clinical information on actual patient conditions or outcomes, physicians are left with little real information about their practice patterns. This means that one ceases to be an outlier less by improving clinical care and more by changing numbers.

For example, OB/GYNs are regularly profiled on lengths-of-stays for the maternity patients. If the norm for a specific plan is 1.7 days, and a particular physician has a length-of-stay of 2.4 days, he or she may appear as an "outlier" on a report which compares him or her to all of the plan's OB/GYNs. If the physician is worried about maintaining participation in the network, receiving a bonus or return of a "withhold," or simply appearing to be a "compliant, good" managed care doctor, he or she will begin to do what is necessary to lower the length-of-stay. The plan does not even need a twenty-four hour policy if they indicate in some way that the norm they prefer is a length-of-stay of 1.0, or if the physician knows his or her withhold/bonus will be greater is the length-of-stay is closer to 1.0. When there are no report cards indicating complication rates to mother or baby from premature discharges and there are no incentives for providing patient education or home health follow-up, the guiding factor will be staying at the "norm," set either by the plan, the financial arrangement or the physician's own colleagues. The net result will be a push of all patients to the lowest possible stay, striving to make the magic number. Even with the mandates from Congress, indirect pressures ensure that physicians will make decisions consistent with their financial arrangement and in keeping with a plans' expectations for performance.

Managed care has certainly spawned the progress in data acquisition and management for health care delivery. However, this would not have been possible without the progress in information collection and management made available by the proliferation of computer technology. When used properly, information on practice patterns is a powerful educational tool for physicians. Unfortunately, it is also being used as a bludgeon to herd practitioners toward managed care norms. It does not take long for physicians to learn that they must practice "by the numbers," concerned more for their statistics on utilization (e.g. lengths-of-stay, admissions per thousand, referral rates, etc.) than they may be for their complication rates. As teachers have long known: you get the results you can measure. Serious ethical questions arise when the measurements in turn are used to elicit results that are economically, rather than clinically, driven.

To compound this problem, the data used, by the industry's own admission, is often inadequate and maybe inaccurate. In the managed care text mentioned above, another "common problem" is identified as: "Failure to Track Correctly Medical Costs and Utilization." Within this section, the author notes that: "As growing plans develop problems with operations (the authorization system, claims, or data gathering in general), medical expense and utilization reports frequently suffer." Despite this, aggregate and physician-specific data is being regularly used to direct care and impede independent decision-making by physicians. No one raises the obvious ethical concern: by changing the practices of physicians with these methods, inadequate and even erroneous data are used in ways that can result in serious harm to patients. Where are the consumer protections?

Finally, since most of the monitoring and profiling focuses on utilization and the resulting economic consequences, this information provides a rich resource for physician selection and deselection. This phenomenon, known as "economic credentialing," is often the basis upon which physician networks are formed. A leading managed care textbook warns about the "expense" involved directly and indirectly when a physician causes a plan to "lose on each member." Plans cannot afford expensive physicians for any reason. Physicians who wish to be members of a managed care network, or wish to remain members of the network, learn quickly that the plans have extensive utilization and financial information available from which they can make determinations about their continued ability to practice medicine. Those physicians who care for the neediest members of our society -- women, some children, the aging, patients with chronic illnesses and other disabilities, the economically disadvantaged -- suffer under such measurements. Plans want neither costly patients, nor the physicians who must care for them.

Intra-care processes

Intra-care processes arose as managed care plans moved to control the physician decision-making at the time care was in progress for a particular patient. Essentially this occurs through the general process of "authorization," and its most significant subset: the medical necessity determination. My previous written testimony of May 30, 1996 discusses this more extensively. However, the authorization process as such should be examined more closely.

The authorization system is considered to be "one of the definitive elements" in managed health care. As noted above, this can range from a precertification of elective admissions in a "managed" indemnity plan and extend to the mandatory authorization of all nonprimary care services in an HMO. Whatever the extent and structure for such authorizations, the purpose is to enable a plan to question a medical provider's decision regarding the care of the patient. This is most often done for "medical necessity." The plan, through use of its own criteria (rarely grounded in clinical studies, and even more rarely made public), holds itself (by way of its own doctors) as the point of final medical determination.

Whether through a gatekeeper system, or a structured system in which physicians must make each request for their patients, the result is the continuous, micromanagement of decisions regarding the care of a patient at hand. Physicians have varying responses to this:
some are intimidated easily into submission to the plan's requirements, easily done by physicians from a distance, often anonymous, and with unknown power over the practicing physician's professional future;
some physicians are "hassled" into submission, simply giving into plan's requirements because other patients and practice demands prevent them from battling it out with numerous individual patients and plans; and/or
some physicians are rebellious and confrontational, but plans soon identify these physicians as "noncompliant," as noted above.

Whatever the response, eventually physicians understand that they do not practice medicine alone. Despite claims that a plan does not practice medicine, the final medical determination, as every plan states in their coverage booklet, is the prerogative of the plan. Medical reviewers and medical directors, employed or contracted by the plan, operating under no ethical codes for their hybrid positions, and monitored themselves by no one, make decisions based on little information, and from a distance, without ever seeing or touching the patients. Few physicians can afford, professionally or economically, to advocate for their patients against these decisions.

The power to influence decisions about care during the diagnosis and/or treatment phase is underestimated by the public. Strong financial concerns drive virtually every decision. Real quality and outcomes monitors are still too primitive, superficial, labor-intensive and/or costly to pick up the consequences of "medical necessity" determinations made for the best interest of the plan at the expense of the patient. In the meantime, physicians are increasingly walking a tightrope between allegiance to the system which makes it possible for them to practice and advocacy of the patients for whom they have primary professional, ethical and legal responsibility. It should be no shock that more and more physicians are just accepting the medical criteria and decisions of the plans. To do otherwise is professional suicide. Meanwhile, the unsuspecting public continues to believe that their physician is their trusted advocate. Once again, the managed care industry banks on remnants from the fee-for-service system to achieve its surreptitious goal of physician control.

Pre-care processes

Pre-care processes are those mechanisms by which professional decision-making is influenced and constrained so completely that a physician essentially becomes a "dual agent," with some other interest competing equally with any commitment to patients. In the worst cases, these other interests -- a plan, success in the managed care market, professional viability, economic survival, etc. -- become pre-eminent. The effect of "pre-care" controls is to change the very way a physician thinks before any patient enters his or her domain of care. If the physician begins to think as a "medical director" of the plan, then he or she will no longer need to have medical decisions overturned by another physician. The physician has "learned" to practice a new kind of medicine -- that defined by the managed care plan or the industry as a whole.

Understanding this kind of management technique is critical to understanding the most evolved managed care plans. When the right conditions are created, the plan simply sets processes in motion. The treating physicians themselves do the "dirty work" of managed care. In the most sophisticated forms of this, plans have come full circle, appearing to give back "independence" to their physicians. However, such autonomy is elusive when the conditions have been designed to limit the range of "independence." A mouse in a maze has choices, but if there is no way out, freedom is reduced to exploring the impediments.

This is the most insidious form of management, for it involves eliminating the conditions which previously enabled a professional to remain independent and autonomous. The most effective payment arrangements and contract provisions are calculated to induce restrictions on resource use -- a powerful, effective method to change the way a professional approaches the distribution of those resources. To argue that physicians continue to practice appropriately under such circumstances is essentially wishful thinking, for it ignores several critical facts:
we know from the fee-for-service era that financial arrangements linked to quantity do effect what physicians decide;
physicians are equally susceptible to human forces of greed, self-interest, or just ordinary apathy as the rest of the population; and
there are virtually no ways to identify or measure underutilization or inappropriate treatment currently.

Increasingly, physicians are simply the instruments for a philosophy and practice dictated by persons without training, license or permission to practice medicine. Ultimately, the most sophisticated form of pre-care control will occur when medical education is sufficiently controlled and directed toward managed care goals. Few external controls, and very little management of physicians will be necessary when they have all been trained to practice as economic extensions of a particular health care organization.


In this kind of environment, the practice of medicine becomes little more than a trade in which sophisticated means are used to manage job performance. Imagine the effect of all of the methods above as a physician attempts to do his or her work. [See Diagram C] This slowly erodes the professional's capacity to act independently, to use education and training for the benefit of his or her charges, and to continue to develop ways that accentuate clinical acumen. Although skill is important, there is some special dimension of the profession of medicine that makes a doctor more than just someone who services malfunctioning parts of a machine. A physician is a professional to the extent that he or she sees an illness as more than disease, infection, injury, or just numbers on a report. As a professional, a physician is granted the means to enter into a web of psychosocial relationships and responses to conditions of need.

Although medical ethicists explore in depth the autonomy of patients, there is little concern about the autonomy of the physician. A significant aspect of that autonomy derives from the ability to make independent decisions about how to treat. When a physician and a patient enter into a relationship, we need more than assurance of clinical competence. We need to know that a physician and a patient have a space conducive to care, compassion and choice. There must be mutual respect and trust by both parties. Self-interest of the physician (or interest by some other party) must not effect what occurs here. There must be confidentiality. There must be peace -- or at least as few disturbances as possible. This means that we, as a society, must do the hard work of figuring out benefit and payment decisions before the emotionally laden events of need occur. We should strive to create conditions which enable physicians to be open, fair, compassionate, and caring -- indeed to be the professionals we train them to be -- with every patient equally. We should provide uniform structures and operations to ensure that the health plan does not amplify existing fear, pain, suffering, anxiety and confusion.

Justice in health care means that there should be no financial, geographical or discriminatory barriers to a levels of care that provide relief or care to any member of our society. If care is to be denied, particularly beneficial care, it should only be because resources will be better used elsewhere for other patient care. The determination of that should be open and explicit. Currently we do not have a system in which "cost- savings" from the "denial" of any services, however and whenever that occurs, can go back into the care of more people or more conditions.

With the combination of controls on all aspects of care, from post- to pre-care, we enter the most treacherous of management techniques: management by avoidance, denial and control. Is this the managed care goal -- to have a physician


We are already deluged by patient stories. How many more will it take?

Under such an subtle and obstructive management, the physician becomes essentially an agent of the plan or the society which is allowing these constraints to occur. Initially, the limitation or withholding of care could be supported by a genuine attempt to provide appropriate care. Gradually, reasons of self-interest, financial gain and assurance of professional future within managed care can begin to creep in. As troubling as this might be, there are more serious stages of concern. Empowered by the ability to grant or deny care, and rewarded financially when care is denied, a physician can easily slip into other reasons (consciously or unconsciously) to deny care based on personal, religious, and sociological factors. There is no perceptible line between denying care to someone because it incurs financial reward and denying care because spending the money is considered a "waste" for a particular type of patient or a specific condition of need.


It is interesting that that this phenomenon called "managed care" has developed and evolved with very little significant and effective ethical challenge. Serious questions must be answered:
Are we willing to tolerate a system of access and resource allocation which depends upon constraints of professionals in order to achieve its results?
If we object to the micromanagement of plans by the government, why do we allow, without examination, the micromanagement of physicians by managed care plans?
If we believe that physicians must be scrutinized and controlled, then should not the other health care professionals undergo the same degree of scrutiny and control?
Are we really making cost-cutting changes for some "greater good"?
Under what circumstances can an individual be harmed or even sacrificed for this "greater good"?
Who defines this "greater good"?
Is any "greater good" so great that it justifies ethical transgressions to achieve it?


A few months ago, a writer in the Wall Street Journal posed this question: "Think of the health-care system as an airline that freezes ticket prices while inflation drives up the price of everything else. It makes a big difference how the airline has cut costs. If it is using aircraft more efficiently and firing underworked baggage handlers, customers will be pleased, even if baggage handlers aren't. But if the airline is avoiding maintenance and forcing pilots to fly without adequate rest, customers will be rightly worried."

We may be pillaging our most vital resource, changing dangerously the very system we each must rely upon as we age, as we care for our children, family members, friends, and neighbors. Let us hope that we have the willingness to understand and challenge the ethical assumptions made by managed care's dangerous practice of medicine. The real care of patients is difficult enough without the menace of an industry who eludes its responsibilities through avoidance, denial and unconscionable controls. We should be rightly worried.

John E. Ware, et. al., JAMA, October 2, 1996.
Kongstvedt, 182.
Kongstvedt, 287.
Kongstvedt, 287.
Kongstvedt, 286.
Kongstvedt, 287.
Kongstvedt, 182.
Kongstvedt, 182. 16