Playing The HMO Game

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--In 1994 Barbara Garvey, then 55, boarded a flight from Chicago to Honolulu. Once she arrived, Garvey noticed her body was severely bruised. A trip to the hospital produced a chilling diagnosis: aplastic anemia. She needed a bone-marrow transplant right away. Her son, who was a good match, was willing to fly to Hawaii for the operation. But her health plan, Rush Prudential HMO, had other ideas. "They insisted that I fly her back at my own expense" to be treated in Chicago, her husband David explains. "They told me that if I declined, I would be refusing services, and they wouldn't pay my bills." Believing she had no choice, Barbara boarded a commercial flight to the mainland. Somewhere in the air between Hawaii and Illinois, David says, his wife suffered a stroke; nine days later, she died. Garvey is suing the HMO. "They had a chance to be heroes or save money," he says. "And they decided to save money." Rush Prudential disputes Garvey's account; they contend that Barbara Garvey had noticed some bruising before she left on vacation and resisted going to the doctor before her trip.

How did America's vaunted medical-care system--with its helpful nurses and doctors who made house calls--get to this point? The story begins back in the 1980s, when rising health-care costs, driven by an aging population, runaway malpractice awards and advances in high-tech surgical and diagnostic procedures, finally caught up with the employers who were footing the medical-insurance bills. Executives at General Motors, for example, reported in 1990 that they were spending more for health care than for all the steel that went into their cars and trucks. Medical care, which accounted for 9.3% of the total U.S. output of goods and services in 1983, had risen to 12.3% of GDP by 1993.

Managed care, which shifted power from the physicians to the gatekeepers--whose job it is to question the necessity of nearly every medical procedure or referral--changed all that. By 1994, the increase in medical-care costs had slowed dramatically, and it remained moderate for the next several years, although an ominous spike this spring seems to presage more bad news. Some economists argue that if the burden of growing healthcare costs hadn't been eased in recent years, the current boom in the U.S. economy wouldn't have been possible.

But like every other revolution, this one produced its excesses. After they had cut the obvious fat, managed-care groups began cutting into the bone. Under pressure to keep lowering expenses, health plans focused more and more attention on cost control, often to the exclusion of everything else. Some administrators started making penny-wise, pound-foolish decisions, disapproving preventive steps and then paying for expensive operations down the road.