HMO changes medicine with tough bargaining Outspoken founder of U.S. Healthcare rebuts complaints

October 06, 1994|By John Fairhall | John Fairhall,Sun Staff Correspondent

BLUE BELL, Pa. -- For months, Americans nervously watched Washington try to overhaul the nation's health care system. They should have been looking to Blue Bell instead.

This southeast Pennsylvania town is the home of U.S. Healthcare, a leader in a revolution that is shattering the traditional relationship between doctor and patient.

If you don't belong to U.S. Healthcare or another health maintenance organization, odds are that you will someday. Already, more than 45 million Americans, including 1.4 million Marylanders, get their health care through HMOs.

That trend is likely to continue, no matter what Congress does -- or doesn't do -- about health care reform. Even as many doctors and consumers worry about the quality of care provided by HMOs, businesses are embracing them as a cheaper alternative to traditional insurance.

People scoffed when Leonard Abramson launched U.S. Healthcare in 1976. Back then, most patients and doctors shunned HMOs, which provide comprehensive medical services while restricting a patient's access to more expensive care from specialists, such as surgeons.

But Mr. Abramson's success in taming health care costs has made U.S. Healthcare the largest HMO company in the East -- with nearly 2 million patients -- and an expanding presence in Maryland.

An immensely profitable business, U.S. Healthcare has made its founder very rich. At age 61, Mr. Abramson is on his way to becoming the first HMO billionaire. He's worth more than $600 million -- including $3.6 million the company paid him last year.

Company officials boast that a commitment to quality gives it a leg up on competitors.

"A health plan for living," proclaims a Baltimore billboard, part of a marketing campaign to make U.S. Healthcare a "significant player in the Maryland market," as one official puts it.

But the real secret to U.S. Healthcare's success is a business formula that sounds a lot like Wal-Mart's: Keep prices low by squeezing the middlemen -- doctors and hospitals.

U.S. Healthcare's size gives it the clout to dictate terms, the way Wal-Mart uses its buying power to cow suppliers. Over the years, the company has demanded more of doctors and hospitals, bending them to the HMO's rules for managing patients' care and holding down costs.

The company reflects the maverick qualities of Mr. Abramson, who has attacked tradition in the corporate culture the way he has in the health care system. There are no doors on offices at headquarters here, northwest of Philadelphia. He has all but banned memos and committees.

For a time, he resisted assigning titles to managers.

Boxes of red apples, the company symbol, are kept full for visitors and employees, who are exhorted to improve by an electronic bulletin board that spells out goals -- like 98 percent attendance -- for which workers are paid bonuses.

'Not a typical company'

"This is not a typical company," says a spokesman, David F. Simon.

Being different pays off. Last year, U.S. Healthcare's revenues reached $2.65 billion, a 21 percent increase over 1992. Profits jumped 50 percent, to $300 million.

Results like these win rave reviews on Wall Street. But the company's profit-minded aggressiveness turns off some consumers, doctors and hospitals. They look at the shiny red apple and see a worm.

Dr. David Ansel, a Massachusetts pediatrician, terms U.S. Healthcare "by far the worst" HMO he's dealt with. He says he had to fight to obtain specialized care for many seriously afflicted children.

Larry Kimble, a U.S. Healthcare subscriber in Baltimore, tripped over cost-control rules: He underwent a $900 magnetic resonance imaging test without getting approval in advance. Now he fears that the company won't pay for it. It's been a "nightmare," he says.

U.S. Healthcare's toughness in negotiating prices with doctors and hospitals carries over to its dealings with competitors. The company once tried to undercut its arch-rival Independence Blue Cross in Philadelphia by warning potential customers that Blue Cross plans in general were financially unstable -- which was true of some plans but not true of Independence.

Rebutting criticism, U.S. Healthcare officials note its reputation as a pioneer in preventive-care programs. They cite their own surveys to demonstrate that, contrary to Mr. Kimble's experience, most subscribers like their health plan.

But the combative Mr. Abramson -- who declined to be interviewed for this article -- doesn't apologize for clamping down on doctors and hospitals that he believes rip off the system.

Like the late Sam Walton, Wal-Mart's founder, Mr. Abramson speaks his mind.

"We have created an environment in which providers have become better at billing than they are at practicing their craft," he wrote in a 1990 book, "Healing Our Health Care System."

Podiatrists "treat an individual patient as 10 patients, each toe representing a billing opportunity."

He made sure doctors can't do that at U.S. Healthcare.

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