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In October 1991, 40-year-old Lilia Reyes was suffering from stomach pain and cramps, and she paid a visit to the Group Health Association (GHA) for a checkup. Reyes returned to the doctor on several occasions complaining of increasingly acute pain throughout her abdomen, but her doctor failed to refer Reyes for a critical diagnostic test, according to Harlow Case, one of Reyes’ lawyers. According to Case, the health maintenance organization (HMO) had vetoed the doctor’s other requests for the test in the past—presumably, Case says, to save money. At a time when reports have surfaced about HMOs firing doctors for ordering too many tests, Case believes the GHA doctor was “gun shy” about referring Reyes for a full work-up.

So Reyes, mother of two young children and a staffer at the U.S. Conference of Mayors, lived with the pain for months until August 1992, when she was visiting her mother in Miami. There, just as Hurricane Andrew was sweeping through south Florida, Reyes was hospitalized with an intestinal obstruction that required surgery. The Florida doctors quickly discovered what Reyes’ HMO doctor had not even looked for—a cancerous tumor in her colon. A month-and-a-half later, the cancer had spread to other organs—the diagnosis was terminal.

Reyes and her husband sued GHA, and a D.C. Superior Court jury awarded Reyes $2.1 million in damages last July. What makes Reyes’ case particularly sad is that the cancer that will ultimately kill her is treatable if caught early.

If you’re in the market for a hairdo, burger and fries, or even car insurance, you’re (sort of) protected from lice, food poisoning, and scams by the District government. Yet if you’re a member of an HMO, and you’re ailing, you’re pretty much on your own. D.C. is one of the only places in the country where HMOs are not subject to any local government regulation, a fact that many health care advocates find appalling, given the rapacious market forces currently driving the health care industry.

The absence of regulation has profound practical consequences: Unlike their counterparts elsewhere, HMOs that cover District residents aren’t required to meet any quality-of-care standards, they aren’t required to prove financial solvency before taking money from city residents, and if the chest pains that sent you to the emergency room turn out to be heartburn rather than a heart attack, and your HMO refuses to pay the doctor’s bill, there’s no place to go to complain—except to the HMO, that is.

Industry folks argue that HMOs have helped stanch the rapidly rising costs of health care and made health insurance more affordable for lower-income workers. They argue that much of the public outcry against managed care is being whipped up by doctors whose pay has been reined in by the cost-cutting measures of HMOs.

Larry Mirel, the former general counsel for the D.C. Council, represents the Alliance of Managed Care, a group of large insurance companies including Prudential and Aetna. “Physicians will claim that laws are needed to protect consumers when really they protect physicians,” he says. Mirel also says that HMOs are merely responding to employers’ desire to cut their health care costs, and to make their plans more affordable. “[HMOs] do certain things to hold costs down, and sometimes that’s a limit on what they’ll pay for. Sometimes the things you need aren’t covered.”

Mirel and others in the industry say that HMOs leave medical decisions in the hands of doctors, yet stories like Reyes’ are legion, revealing a disturbing side effect of the health care industry’s drive to push down costs while generating huge profits for stockholders and high-ranking executives. Ellen Shaffer, director of the Coalition for Health Care Choice and Accountability, has been collecting HMO horror stories from people around the country, and they all point to a uniform trend. “The financial incentive gives providers a reason to deny care to people. You’ve got bad incentives to begin with and then no system of accountability,” she says.

Cases like Reyes’ show that the District is just as susceptible to HMO abuses as other jurisdictions, but no one knows for sure just how extensive the problem is. Since HMOs are a hybrid of medical services and health insurance, they’ve slipped between the District’s regulatory cracks. While the insurance commission of the Department of Consumer and Regulatory Affairs regulates traditional health insurance, and the State Health Planning Agency regulates clinics and hospitals, neither entity has authority over HMOs. Basic statistics on the number of HMOs operating in the District and the number of people enrolled are nonexistent because no one is empowered to collect them.

Attorney Jack Olender, who’s been handling medical malpractice cases in the District for 20 years, says his caseload suggests that HMOs frequently err on the side of the bottom line when it comes to medical decisions. Lately his firm has been seeing cases where doctors aren’t giving people information about all the treatment options available to them, because the treatment is either expensive or not covered by the HMO. Olender claims that in some instances the doctor is actually barred by his contract from offering the information.

He says the worst complaints tend to come from “capitated plans,” where doctors get a set fee for each patient under their care. For example, if you’re covered under such a plan and your general practitioner suspects your abdominal cramps might be caused by ovarian cysts, he would have to pay for your trip to the gynecologist out of his own pocket—a heavy disincentive to send you for additional tests. Other plans give doctors cash bonuses for minimizing referrals to specialists. And the doctors are frequently prohibited by gag orders from disclosing these payment arrangements to the patients. “The less services given, the more money the health plan makes,” says Olender.

If the bare-bones approach yields a botched diagnosis, it’s usually the doctor, not the HMO, who is left holding the bag. While the District’s board of medicine rarely disciplines doctors in these cases—the D.C. medical board has been ranked the country’s worst by the watchdog group Public Citizen—doctors do end up getting sued. So far, Olender says, the malpractice bar hasn’t filed many cases in the District directly against capitated plans, but he says they’re in the pipeline. “And there are going to be a lot of them,” says Olender. Even though it’s been good for business, he says the District would be crazy to rely solely on malpractice attorneys to police the HMO business.

As employers move toward managed-care plans to cut health-insurance costs, the number of District residents enrolled in cost-cutting HMOs will grow. And D.C. residents with steady jobs aren’t the only ones taking the hit. Around 42,000 D.C. welfare recipients have moved into HMOs under a District program to contain escalating Medicaid costs, and by Jan. 1 all Medicaid recipients will be required to join HMOs.

Thanks to the federal government, though, people in Medicaid HMOs are actually a little better off than those who join HMOs through the private sector. According to D.C. Health Care Finance Commissioner Paul Offner, HMOs that contract with the city for Medicaid reimbursement have a quality-assurance system, federal requirements for care standards, and grievance procedures not required of other HMOs. Offner says that Medicaid recipients are also free to get out of their HMOs at any time if they aren’t happy with them. Folks who are forced into HMOs through their employers usually lack similar protections. “There’s no state regulation,” says Offner. “It’s like anything. It takes staff and money, and the District doesn’t have that right now.”

While states around the country are passing laws to take the edge off profit-driven managed care, the D.C. Council has lollygagged for the past three years over a measure to ensure that new D.C. HMOs are at least financially sound. The impetus for the bill came in 1993, when GHA was on the verge of financial collapse, which threatened to leave thousands of District residents without insurance coverage. At-large Councilmember John Ray introduced the bill to impose solvency requirements on District HMOs. The bill went nowhere but is now percolating in Ray’s committee on regulatory affairs.

Since then, local HMOs have expanded and multiplied in the absence of any regulation from the city, according to Hank Carde, an AIDS activist who monitors the local health care market. Carde says HMO expansion follows a predictable pattern: New HMOs move into the market, snatch up patients through aggressive marketing, hammer the hospitals and doctors to get prices down, and then sell out to another company, making a huge profit for shareholders and CEOs. For example, GHA has been bought out twice since Reyes filed suit against it in 1993. “There’s so much money in this, it’s virtually unstoppable without government regulation,” says Carde. And the way the system in the District works now, says Carde, anybody “could put a shingle up and call yourself an HMO.”

Yet Carde says the pending council legislation will do little to address the more pressing concerns of sick HMO patients. “This is not a consumer-protection bill,” he says. He points to a recent survey by Families USA showing that other states have forced HMOs to disclose whether doctors have a financial incentive to provide consumers less treatment than they might need, while others have prohibited gag orders on doctors. The council bill, which is likely to pass in the next few months, has neither of these provisions. Ray’s bill mandates solvency standards and a trust fund that HMOs must pay into for their own regulation. The bill would also authorize the city’s insurance commission to regulate HMOs as it does other forms of insurance. (Congress has addressed many of the issues raised in Ray’s 1993 council hearings by prohibiting health plans from barring coverage for pre-existing conditions and kicking women out of the hospital just hours after giving birth.)

Mirel says criticism of the bill from advocates is unfounded. “The Ray bill is the first effort ever to regulate HMOs in the District. To think that the bill is going to solve all the health care problems in the District is dreaming. It just sets the ground rules for HMOs,” he says, adding that the industry is not opposed to many of the consumer protections that other states have already instituted.

Indeed, Sharon Ambrose, director of the council’s regulatory affairs committee, says that there’s no real opposition to the current bill, except for a provision that would require HMOs to pay some of the treatment costs for patients who go outside the plan’s network of doctors. The HMOs don’t like the provision because it increases costs, but Ambrose says, “They aren’t going to fall on their swords over it.”

Sue Andersen, project director of the D.C. Health Insurance Counseling Project at the George Washington University Law School, says that the absence of meaningful HMO regulation in the District is not something that will be cured overnight. “I would like to see some more pro-patient pieces put into the thing. I think they could do better, but it’s at least a step in the right direction.”—Stephanie Mencimer