DEFEAT OF PROPOSITIONS 214 AND 216: The End of Health Care Reform?

By Lloyd M. Krieger, M.D., M.B.A.

In the last election, Californians defeated ballot measures aimed at controlling the methods managed care plans use to limit health care. This took many by surprise. After all, the conventional wisdom went, California consumers were fed up with the excesses of some of their HMOs. Recent news accounts had announced Californians’ hostility to managed care. Business Week proclaimed it with the headline, “In California It’s ‘Hell No, HMO!'” So did Time with a cover story, “What Your Doctor Can’t Tell You,” while Consumer Reports asked, “Managing Care–or Cutting Costs?”

Horror stories abounded. People being denied HMO approval for emergency surgery. A managed care plan coldly refusing a woman with breast cancer her life-saving bone marrow transplant. A primary care physician–rewarded by his HMO contract for not treating patients–allowing rectal cancer to spread in his young patient’s body until there was no hope for cure. All of this while managed care executives earned incomes in the Michael Jordan range.

Yet California’s Propositions 214 and 216, which would have imposed strict consumer protections on managed care plans, went down to defeat at the hands of the electorate. How could this happen? And more important, what does it say about the future of health care in a managed care-dominated marketplace?

The two measures were similar. Proposition 214 mandated that patients be examined before an HMO could deny care. It demanded that plans disclose excessive overhead and profits, outlawed both gag rules placed on doctors to bar discussion of treatment options with patients and payment of bonuses to doctors for denying care, called for the state to set rules for staffing levels and qualifications at hospitals and prohibited HMOs from selling confidential medical records to third parties. Proposition 216 had similar provisions, but also imposed fees on health facilities that converted to for-profit status, downsized or merged, and taxed “excessive” compensation to HMO executives.

The initiatives lost for a variety of reasons. Obviously consumers were not as hostile to their HMOs as the conventional wisdom proclaimed. While a few patients may have suffered injurious callousness or cruelty on the part of penny-pinching HMOs, most experienced these “horror stories” only through newspaper and television exposés. The majority of patients have seen their health costs go down under managed care, and have adapted well to the restricted physician choice and treatment options imposed by HMOs. Doctors who work with HMOs every day have experienced more serious problems first-hand. But fearing retribution from the HMOs that control their livelihood, doctors in general failed to back the measures forcefully or educate their patients about why the measures might be good for their health care.

HMOs were expert in managing the political process and the doctors in their employ. They succeeded in portraying the initiatives as expensive largesse to such special interest groups as nurses and hospital worker unions. They created a climate of fear among doctors to the point that they remained mute. Even the politically powerful California Medical Association declared itself “neutral” toward the ballot measures.

Meanwhile, those consumer groups and nursing and physician organizations in favor of the initiatives displayed political skills that would have made Bob Dole’s campaign staff snicker. The backers of each individual proposition wasted time and effort bickering and trying to discredit the other instead of fighting for the common reforms that both propositions sought.

Rejecting reform–or regulation?

In health care, California leads the nation. It was the first place where managed care dominated the market and the first place where there was an outcry against HMO practices and profits, and now it is the first place where consumers have taken a stand against tight government regulation of HMOs. The question becomes: With the defeat of these two ballot initiatives, will California also be the first place where managed care gains consumer backing for high profits at the expense of the health of its patients?

The answer is no. With the defeat of these measures, the electorate may have announced its continued wariness of government regulation and even its general satisfaction with its HMOs. But it did not signal willingness to be trampled upon by managed care plans.

Rather, just as it did with its hostility to the failed Clinton health plan in 1994, the public has declared its preference for incremental, market-oriented health care reform. In this case, the object of reform is the managed care industry.

The engine driving reform will be the same as in any other market where consumers select products and services to purchase. Managed care will be reformed by consumers purchasing their health care from those HMOs that give the best service at the lowest price. This can and will happen because there is an information and quality revolution under way in health care. Information on health plans’ level of consumer and physician satisfaction is becoming widely available. Organizations have begun to rate various HMOs on clinical outcomes, cost-effectiveness and breadth of treatment options covered. Employers, which purchase most of the nation’s health care, have paid close attention to these trends and such corporations as IBM, Xerox, Kodak and United Airlines have signed on to fund and use the quality and financial ratings of managed care plans.

Each year when employees select a health plan, more and more employers are presenting them with comparative information on the quality and costs of the available HMOs. The information includes data on prices, medical outcomes and patient-satisfaction surveys. Many have begun to specify the financial incentives plans have for doctors with regard to providing or limiting care, the presence or lack of physician gag rules and the amount of each premium dollar that goes to health care and to profit. Some employers are doing the research themselves, and using financial incentives of their own to steer employees toward what they consider to be the best plans.

Managed care will continue to undergo reform in California–with consumers voting for HMO improvement with their premium dollars rather than at the ballot box. And whenever dollars are at stake, companies quickly get the message. Many of the mandates set forth in Propositions 214 and 216 will soon become the norm in California. Only this time neither the Keystone Cops antics of California’s doctors, nurses, hospital unions and consumer advocacy groups nor the hardball tactics of the managed care industry will be able to stop health care reform.

The author is a resident in the integrated plastic surgery program at the University of California at Los Angeles Medical Center. His articles about financial issues in health care have appeared in Managed Care, The New York Times, The Los Angeles Times and Barron’s.