UNITING PHYSICIANS & PATIENTS AS A VOICE IN HEALTH CARE
This study concludes that the administrative costs of Minnesota's largest HMOs are almost certainly considerably higher than the ten to 15% figure proclaimed by the HMOs. This result is consistent with other studies that suggest that HMOs cannot save money because they have such high overhead costs. In a little-noticed study published in 1993, Minnesota's commissioners of health and commerce reported that administrative spending by Minnesota's HMOs rose by 354% between 1980 and 1991 while HMO spending on administration rose 502%.(12) Other studies of national level data have found the same pattern.(13, 14) These reports indicate that as HMOs spread, administrative costs rise. These studies, coupled with the body of literature indicating that HMOs have cut health care utilization rates, suggest that HMOs are directing the savings extracted from patient care into administrative costs, not into reductions in premiums.
HMO advocates claim to be in favor of "empowering the consumer" with information. If Minnesota's consumers and voters are ever going to be able to evaluate the Minnesota experiment in HMO management of the health care system, they will need to know where their health care dollar is going and why HMO overhead appears to be so high. But consumers will never have that information if the HMOs do not report more precisely. MPPA is particularly concerned about the HMO expenditure data now reported under the rubrics "administration and taxes" and "other professional services." Together, these categories accounted for 29% of all HMO spending. We believe Minnesotans should know how much of this 29% was accounted for with expenditures on: advertising, lobbying Congress and our state legislature, HMO utilization reviewers who quarrel with doctors, claims processors, and other "services" that do not constitute health care. The single most important reform the DOH could make would be to require HMOs to extract from the "other professional services" category, and report separately, all true health care services. Utilization review, administrative nurses, janitorial services and other services that do not qualify as health care services could either be reported in a new category (for example, "other health care support services") or could be folded into the administration category.
MPPA recognizes that some administrative spending is inevitable in any form of health care system. Minnesotans who pay health care premiums cannot possibly evaluate whether existing levels of administrative spending are too much or too little when information on this question is so inadequate.
This study required over 200 hours of research by MPPA including by our volunteer researcher, a retired CPA, a former chairman of the Minnesota State Board of Accounting and president of the Minnesota Society of CPA's. The question of how Minnesota HMOs spend our health care dollar is one of the most important questions one could ask about Minnesota's health care system. It is not enough to know that HMOs are reducing health care utilization rates. Until we know whether HMO administrative costs have declined or have at least not increased, we cannot say with any confidence that we are making headway against health care inflation.
Minnesotans should not have to rely on HMO officials for information on how much of our health care dollar is going to HMO overhead. Nor should Minnesotans have to rely on our volunteer efforts. Accurate annual reports on where HMOs spend our money should be the responsibility of the HMO's and a state agency. MPPA calls on Governor Arne Carlson and the Attorney General's office to develop a plan by which the Department of Commerce or some other state agency will issue accurate reports annually on HMO administrative spending. This annual report should be based upon an audit of the financial records of all of the enterprises affiliated with the non-profit HMOs.
We call on Minnesota's HMOs to open the books of their non-profit companies and of their affiliates and explain to Minnesotans where their health care dollars are really spent. We call on them to detail their relationships with for-profit vendors and subsidiaries. We call on them to explain the rationale by which so many millions of health care dollars are spent on care management and administration rather than on true health care. Minnesotans deserve a health care system that spends its health care dollars directly on true health care.