Fred Schulte
Fred Schulte

Fellowship Title:

Selling Seniors on HMO’s

Fred Schulte
December 6, 1998

Fellowship Year

WHEATON, Md.—On a muggy August morning at Hot Shoppes cafeteria, salesman Matt Buckley tells a group of retirees over coffee that Medicare is changing and they must adapt.

The seniors seem worried by the prospect. Yet they know Medicare, the U.S. government’s $211-billion-a-year, health-care system for the elderly and disabled, is going broke and must slash costs.

Buckley tries to calm fears and sell his guests on Aetna US Healthcare, one of dozens of cost-cutting health maintenance organizations that are hotly pursuing senior citizens across the country.

“This is the first step toward privatizing Medicare. This is the way things are moving,” says Buckley, straining a bit to be heard above the clatter of dishes as the serving staff gears up for the early lunch crowd. “We want to become your Medicare.”

Aetna US Healthcare hopes to persuade thousands more seniors to accept managed care, a few tablesful at a time if need be. Toward that end, the company has put on dozens of free Medicare “informational meetings,” mostly at budget eateries, libraries or community centers. Usually, the HMO serves a free breakfast or a light lunch.

Free food aside, it’s been a tough sell in the past. More than 85 percent of the 38 million elderly and disabled Americans covered by Medicare have steered clear of HMOs. Many say they don’t understand the pros and cons of managed care, or are content with Medicare the way it is. HMOs also blame negative news coverage for scaring off many seniors.

But managed care for the elderly is gaining ground, thanks in good part to community sales meetings and other new marketing campaigns regulated by the federal government. More than 79,000 people are joining Medicare HMOs every month, the fastest growth rate on record. Enrollment topped five million nationwide in October, up from about 2.1 million people three years ago, government data show. In Florida more than 600,000 people have signed up for Medicare HMOs.

Aetna US Healthcare now has about 400,000 Medicare members, more than 10 times the number two years ago and wants more. “We believe Medicare has huge growth potential,” said spokesman Walt Cherniak. He said sales meetings are a “key strategy.”

But some critics worry that a blitz of Medicare sales pitches may not provide a balanced view of managed care, which they argue usually works best for seniors who need little medical attention. They also doubt regulators will be able to enforce marketing guidelines written to prevent Medicare plans from misleading the elderly.

“It’s impossible to oversee and monitor these marketing activities,” said Andrew Webber, of the Consumer Coalition for Quality Health Care, a consortium of advocacy groups based in Washington.

Buckley gave his 50-minute sales talk inside a mall about 10 miles due north of the White House, just outside the capital Beltway. He kept the forum low-key. Noticeably fit with short black hair and a business-white dress shirt and tie, Buckley stood beside an easel laden with pie charts and bar graphs, all brightly colored in patriotic red, white and blue hues.

As he began, he handed each guest a small, cubical box, bearing the sales motto, “You’ll Feel Better With Us.” Fitting snugly inside was a shiny red apple wrapped in green tissue paper. It’s a symbol of Aetna US Healthcare’s pledge to keep elderly members healthy and grant them “peace of mind.”

Buckley easily found common ground with his guests, telling them Uncle Sam wants HMOs to help run Medicare because the government is “less than efficient” and “overwhelmed” trying to keep tabs on it. The remark brought knowing nods.

He laid out three major HMO selling points: joining will save money for Medicare, cut out-of-pocket expenses and guarantee members access to superior health care. Here’s how, according to Buckley. HMOs accept a flat monthly fee for each patient. Because HMO payment rates are set at 5 percent less than what Medicare would pay on a bill-by-bill basis for an average patient, taxpayers save money. HMOs can make money from Medicare if they reduce costs by cutting down on needless medical procedures and other waste. “It’s a win-win situation,” said salesman Buckley.

HMOs save seniors money, too, by eliminating the need for insurance to cover gaps in Medicare, such as deductibles for hospital care. Most elderly people pay at least $1,000 a year for policies to cover these gaps. By contrast, most Medicare HMO plans charge little or no premium and throw in extra benefits, such as routine eye exams or a credit toward purchase of a hearing aid. Once they join, 98.7% of members are glad they did, according to Buckley.

Buckley put no pressure on anyone to sign up on the spot. Instead, he reminded his guests at the end of his talk: “You have to evaluate what’s best for you.”

But that may not be so easy for some elderly people baffled by managed care’s peculiar concepts, growing numbers of options and flood of technical marketing materials.

“I’m so confused,” one smartly-dressed widow confided at the get-together in Maryland. “Every day my mail is packed with this Medicare stuff. I’m very reluctant to jump into something like this, but I don’t know what to do.”

Some consumer activists worry that Medicare sales meetings, no matter how well-intentioned and low key, may gloss over controversies and differences among benefits, prompting some vulnerable seniors to make a hasty decision they might later regret.

Geraldine Dallek, director of health policy for the advocacy group Families USA in Washington, said while it is fine for HMOs to hold meetings to drum up new business: “The question is what do they tell people? Do they give them a clear sense of the plusses and minuses of joining?”

HMOs say they do just that. QualChoice of North Carolina, owned by Wake Forest University and North Carolina Baptist Hospitals, enrolled more than 7,500 seniors in Winston Salem in its first nine months, thanks largely to the Medicare sales sessions.

“I think seniors appreciate that we want to come out to them and explain the program,” said QualChoice sales director David Brown. “We’re trying to make it convenient and fun for them to attend. The program literally sells itself. By thoroughly explaining it and then letting them make up their own mind, we’ve had great enrollment success.”

Aetna US Healthcare, which found success with sales meetings in Atlanta and is starting them in Chicago and in Florida in early 1998, agrees. “Medicare beneficiaries are becoming more aware that there are choices to be made,” said Dr. Sandy Harmon-Weiss, Aetna US Healthcare’s head of government programs. The HMO chain wants seniors to make “informed choices,” she said, adding that they are welcome to bring children or anyone else to a sales presentation. “They can see the information presented is appropriate,” she said.

Yet even some enthusiasts who regard managed care as a sensible, cheaper alternative for the elderly concede that a number of the industry’s sales claims are controversial.

Take the assertion that HMOs save the government money, a selling point that might appeal to patriotic elders trying to do their part to keep Medicare solvent for future generations. Several government studies have determined that HMOs raise Medicare’s costs because they tend to enroll people who are healthier than average – such as seniors sprightly enough to attend a sales meeting on an oppressively hot day in August. Enrolling healthier people helps HMOs reduce their costs, which in turn can boost profits.

Skeptics also point to academic studies showing that Medicare HMOs are less likely to provide the elderly with specialized medical care than traditional Medicare. Patient advocates also note some seniors complain that HMOs have changed their medications to save money, refused to pay bills, or dropped doctors they thought they would be able to see – real problems marketers trying to make a sale are not likely to discuss.

Another major HMO premise – that a plan renders excellent care because it has won accreditation from the National Committee for Quality Assurance – also has detractors. HMOs often describe the accrediting organization as “independent.” But Claudia Schlosberg, a staff attorney with the National Health Law Program in Washington, disputes that the accreditors are truly independent because they are financed largely by the industry. Her advocacy group also opposes industry efforts to persuade federal and state regulators to accept accreditation as a substitute for strict medical-quality standards on HMOs.

“There are some real pitfalls here,” she said. “The managed care industry is raking it in with minimal oversight.”

The use of “patient-satisfaction” surveys, which marketers often trot out to show that 90 percent or more of plan members are happy, also has drawn criticism. The surveys tend to be unreliable because they made no room for questions allowing members to voice complaints, according to a March 1995 federal audit.

The surveys are sharply at odds with government data made public earlier this month by Families USA, which showed that 13 percent of Medicare HMO members dropped out on average last year. Drop-out rates were twice that high or more in some plans, which the advocacy group said could be partly fallout from deceptive sales tactics. Many left one HMO for another.

The U.S. Health Care Financing Administration plays two distinct, somewhat conflicting, roles in overseeing Medi-care’s shift toward managed care. The agency wants to sell the program to both HMOs and people on Medicare. HMOs generally won’t participate unless he government makes it financially attractive to do so. At the same time, government regulators must protect the elderly from exploitation.

Boosting enrollment is mainly a matter of redistributing money. Medicare HMOs flock to areas where the government pays them most generously, parts of South Florida and southern California for instance, where nearly one of two seniors belong and HMOs may get $700 or more a month per patient. California and Florida make up 41 percent of all Medicare HMO members, according to Health Care Financing Administration data.

Medicare HMOs have been slow to develop in other states where payment rates are far lower. In Minnesota, a state where managed care dominates, few HMOs have targeted seniors, mainly because they get about $420 a month per patient in the Twin Cities, almost $300 less than in the Miami area. HMOs in many rural areas have received much less.

The disparities occur because HMO payments are fixed at 95 percent of what standard Medicare pays doctors and other health-care providers for the average patient in a given region of the country.

That means areas of the country known for the highest medical costs, charges often inflated by inefficient practice of medicine or even abuse and outright fraud, receive the highest Medicare HMO payments. For years, critics have argued that the payment system makes no sense because it penalizes areas of the country that take steps to hold medical costs in check.

In late 1997, Congress took the first steps toward more standardizing of HMO payments. This revision, coupled with growing appeals to businesses that provide health care for their retirees, is driving the boom in new Medicare HMO sales.

In the last year, federal officials issued about 100 new Medicare HMO contracts, bringing the total to more than 300 contracts nationwide. While some are start-up plans, six national chains, all but one for-profit, hold more than two-thirds of the senior market and are seeking to expand.

Pacificare Health Systems alone treats one of five Medicare HMO enrollees, mostly in California and other western states. Pacificare bailed out of Florida this summer. In July, state officials levied a $200,000 fine and halted new enrollments after accusing Pacificare of delaying referrals to specialists and violating other state rules.

While many HMOs abide by federal regulations on HMO marketing, such as fully explaining how the health plan works, intense competition for new Medicare patients can lead to abuses, government records show.

June Brown, the Medicare agency’s Inspector General, reported to Congress in August 1995 that some HMO agents fraudulently enrolled the same two dozen South Florida patients more than 800 times to rack up commissions. Investigators found that nine percent of HMO patients in the area did not know what they were signing when they joined, while 17 percent had no idea they could reconsider their choice of an HMO at any time. Brown urged “improved safeguards.”

In a second case, Blue Cross and Blue Shield of Massachusetts paid a $700,000 civil penalty last September after an employee falsely advised federal officials that a group of Worcester County doctors and a hospital had agreed to treat the HMO’s Medicare patients. The government relied on false statements and altered documents in part to award new marketing rights to the HMO, federal prosecutors said.

Blue Cross had promised former executive Sandra J. Wolf a $25,000 bonus if she met a deadline to win government permission to begin offering the Medicare HMO in a new territory, according to the U.S. Attorney’s Office in Boston. Prosecutors indicted Wolf on criminal charges of lying to a federal agency. The case is pending.

“Fraud in the managed care field will be one of the greatest challenges facing law enforcement in the future,” Charles A. Bateman, the Medicare agency’s Inspector General for New England, said in announcing the results of the Boston marketing investigation.

Some state regulators also are wrestling with complaints of deceptive Medicare sales tactics. In November of last year, Texas Attorney General Dan Morales ended a Medicare marketing investigation of Physician Corporation of America (PCA) after the HMO agreed to reimburse members $230,000 in expenses they had incurred because the HMO refused to pay health care bills.

Morales also accused the HMO of failing to advise new members with serious medical conditions that they might not be able to get back their Medicare supplemental insurance, or might have to pay more for it, if they decided to quit the HMO. Morales also said sales agents sometimes were “overbearing and misleading.”

The settlement limited Medicare sales presentations to 20 minutes and required the HMO to set up an “undercover” program to monitor the conduct of its sales agents. The company did not admit wrongdoing.

PCA now is owned by Humana, one of six HMO chains that dominates the Medicare market nationally. The alleged infractions occurred prior to the sale. PCA’s current marketing activities “meet or exceed” all government standards, said Pam Gadinsky, a Humana spokeswoman.

Mindful of the potential for misleading marketing, the Health Care Financing Admin-istration spent two years writing guidelines to give managed care the room to sell its goods, while still protecting consumers.

Completed in September 1997, the guide sets new standards for all forms of HMO advertising, from direct mail to television and newspaper ads, all of which must be approved by the government.

The guide prohibits sales agents from handing out gifts worth more than $10 or any certificate which can be redeemed for cash. New television ads must identify actors and cannot say they are members of the plan when they are not, for instance.

The guide also requires HMOs to tell enrollees that they must use the plan’s physicians and hospitals exclusively and that the plan is open to everyone eligible for Medicare, not just those 65 and older. In the past, many HMOs have spurned the 5 million disabled Americans eligible for Medicare.

Some of the marketing guidelines seem to split hairs. HMOs cannot say, for instance, they have a “special contract” with Medicare, but they can say that they are “Medicare approved.” The guide suggests seniors will soon face an onslaught of creative new marketing tactics, from offering to help pay for braces to straighten their grandchildren’s teeth to free concerts and social functions. The agency did nix a proposal to ferry prospective members to a casino or bingo hall where winnings might exceed the $10 limit, however.

Bruce Fried, director of the health care financing agency’s Center for Health Plans and Providers, said the agency keeps no statistics on the most popular HMO sales strategies and does not favor one approach over another. To guard against misleading sales, the agency sends everyone who joins a Medicare HMO a letter explaining their rights and obligations under managed care.

“There is a certain amount of caveat emptor (buyer beware) and everybody needs to be cautious,” Fried said. “But given the size of the Medicare program we have very few problems.”

However, the Medicare agency has twice tried to conduct an experiment which would forbid HMOs from undertaking any Medicare marketing campaigns, once in Baltimore two years ago and last year in Denver.

HMOs dynamited both proposals. In Baltimore, HMOs enlisted the aid of a coalition mainly of legislators and business figures to kill the proposal before it got off the ground. Like the Baltimore project, the Denver plan would have forced HMOs to bid for Medicare business and use an independent firm to explain the pros and cons of managed care. HMOs argued the plan was unfair and the concept of using outside brokers untested.

The Association of American Health Plans in Washington, an industry trade group, joined several Colorado HMOs in filing a federal lawsuit to block the Denver project, then persuaded Congress to refuse to fund it, according to association spokesman John Murray.

That flexing of lobbying muscle alarmed some patient advocates, who fear that if the managed care industry begins to solidify control over Medicare it will gain the political power to torpedo other sales restrictions it finds distasteful.

While they staunchly defend managed care because they hope it will save money and improve the quality of medical care, some federal officials worry that growing competition for patients in coming years may prompt a rise in overly aggressive marketing. “Some companies will want to push the rules a little bit,” said Fried. “We will have to become more vigilant.”

© 1998 Fred Schulte

Fred Schulte, an editor at the Ft. Lauderdale Sun-Sentinel, is examining the shift in Medicare and Medicaid to managed care.