Aetna US Healthcare: Godzilla or Barney?

August 9, 1999

Is this insurer a rapacious beast that's mauling doctors, patients, and hospitals as it gobbles its way to monopoly, or a benevolent behemoth that's greatly misunderstood?

Aetna US Healthcare: Godzilla or Barney?

Is this insurer a rapacious beast that's mauling doctors,patients, and hospitals as it gobbles its way to monopoly, or a benevolentbehemoth that's greatly misunderstood?

Neil Chesanow, Senior Editor

Since Aetna merged with US Healthcare in 1996 to become one of the nation'slargest managed care and health insurance companies, it has received a fusilladeof bad press.

Patients fume that the gargantuan insurer denies them essential drugsand treatments. Doctors complain that it takes hours on the phone to obtainauthorizations for procedures or coverage for off-formulary drugs. Theygrumble that the insurer is cutting their reimbursements to the bone andpaying their claims months late. While Aetna may be no worse than many otherplans, it has become a focus of physician discontent with managed care.

Rubbing salt into these wounds is Aetna's tough bargaining with doctorsand hospitals at a time when its profits are soaring. The company posteda 7.1 percent increase in first-quarter net income, beating Wall Streetexpectations. Its operating earnings for the quarter shot up 15 percent,from $146.6 million to $168.2 million. While some of this gain came from1999 premium increases averaging 7 percent, Aetna attributes part of itto better control of medical costs, including physician reimbursement.

Seeing Aetna rack up fat profits at what seems like their expense makesdoctors apoplectic. Many are also furious about Aetna's all-products policy,which requires a physician to participate in all plans Aetna offers in hismarket if he wants to do business with the insurer. In markets where Aetnais a major--or the major--player, they charge, this is nothing shortof monopolistic coercion.

For all these reasons, the company's $1 billion purchase of Prudential'shealth insurance business, which makes Aetna the nation's largest healthinsurance carrier, has provoked howls of protest from physicians. In fact,the American Medical Association asked the Justice Department to challengethe deal, calling the merger anticompetitive and a threat to the freedomof patients and employers to choose their health plans.

Throughout the maelstrom of negative publicity, Aetna leaders have remainedlargely silent. Now, after three years of getting hammered in the press,the beast has emerged from its cave to try to convince the irate villagersthat big doesn't have to be bad.

As part of Aetna's new glasnost, top executives met recently with theeditors of Medical Economics at our Montvale, NJ, offices. Theirpurpose was to explain the company's position on such controversial issuesas the all-products policy, Aetna's growing dominance in many markets, andthe relationship between the benefits Aetna offers and how much employersare willing to pay for these benefits.

Telling Aetna's side of the story at the meeting were Richard L. Huber,chairman, CEO, and president of Aetna Inc.; pediatrician Arthur N. Leibowitz,Aetna US Healthcare's chief medical officer; cardiologist Joseph R. Carver,AUSHC's corporate medical director; and internist Carol Diamond, directorof quality health analytics for US Quality Algorithms, an Aetna subsidiarythat measures quality of care. Here are excerpts from the session, whichwas moderated by Managed Care Editor Ken Terry:

Medical Economics:Many doctors object to Aetna US Healthcare'sall-products policy, which forces them to participate in all your plans--includingyour HMO, PPO, POS, and indemnity plans--if they want to be in any of them.Why this all-or-none approach?

Arthur Leibowitz, MD: We're not the only ones with this policy.When Aetna purchased US Healthcare, Aetna didn't have such a policy. ButUS Healthcare did. After we merged, we acquired NYLCare, which also requiredphysicians to participate in all its products. Now we're in the processof acquiring Prudential, which has an all-products policy, too.

We're seeing a tremendous market shift toward more managed forms of care.Indemnity plans are becoming PPOs. PPOs are becoming point-of-service plans.POS plans are becoming HMOs. An aging population is moving into our Medicareplans. But in an era where employers--not consumers--make most insurancebuying decisions, it's irrational that consumers should be forced to changedoctors because an employer decides to change from one type of health planto another, or because the person turns 65.

The press has called our all-products policy a very doctor-unfriendlyapproach. However, everyone recognizes that it's a patient-friendly approach.The customer we ultimately serve--the patient--expects to be able to seehis personal physician, regardless of which plan his employer offers.

We think that desire is legitimate and that we should support it. Sowe've structured our offerings in a way that asks the physician, in essence,to join our company. It doesn't mean that he receives the same reimbursementfor each of our products. It doesn't mean that the rules for the policieswe sell are the same across the board. But, as a national company doingbusiness with employers that frequently have sites across the country, weneed consistent contracting. Part of that consistency lies in asking physiciansto participate in all of our products.

In specific markets, some physicians have had problems with our all-productspolicy. But these are isolated local problems. Most physicians understandthe competition for patients, the direction of health care, and the financialintegrity behind what we do.

M.E.:What do you do when doctors who care for Aetna patientsrefuse to sign your all-products contract? How do you ensure stable networks?

Richard Huber: Network stability is a very high priority for us.With over 200,000 doctors in our network, we have an annual turnover of1 to 2 percent--4,000 to 5,000 doctors. When a couple hundred doctors inone area leave our network, it's big news. But as a percentage of the totalnetwork, it's really very small. Our network has grown by roughly 30 percentin the last 18 months. We intend to have the widest possible network withthe greatest degree of stability.

Many physicians have signed the all-products contract. Others haven't,and that has caused network turmoil. But we've finished more than 90 percentof that recontracting effort. Now we hope to have much greater stability.Achieving 100 percent stability is probably unrealistic. But we're mindfulof the disruption that any change in the network can have for our membersand their employers.

M.E.: Do you oppose state laws allowing doctors to collectivelybargain with you not only over fees but also over plan policies that affectpatient care, such as the law that was just passed in Texas?

Joseph Carver, MD: The purpose of collective bargaining is tonegotiate prices. For the AMA to say--in reference to the Texas law--thatthe doctors just want to talk about policy is absurd. We already developmedical policy in conjunction with practicing doctors, and we have qualityassurance committees that help drive policy decisions.

The idea of bargaining collectively so people can see a specialist isalso absurd. We have no barriers to prevent a primary care physician fromreferring any patient to any specialist. In fact, we've even instituteda principal care program that provides direct access to specialists forpeople with complex, serious illnesses.

On authorizations, our rule is: Nobody but another physician can sayNo to a doctor who re-quests permission for a referral, admission, test,or procedure. If it's a gynecologic or obstetric issue, for instance, thatdiscussion would be with a board-certified ob/gyn. If the patient's doctorhas a different perspective than the ob/gyn in our office, we seek the opinionof an outside expert, especially if our ob/gyn and the patient's stronglydisagree.

Huber: Dealing with groups and professionally managed IPAs simplifiesour life. Therefore, the question of collectively bargaining with a unionisn't particularly relevant to us.

But we'd dispute some of the comments the AMA has made about the needfor the Texas law. Contrary to what the AMA said, we and other insurersdon't practice medicine. We don't believe our decisions are ever treatmentdecisions. We merely interpret the provisions of an insurance policy thatsays what's covered and what's not.

Leibowitz: We can write a benefit to cover anything, but you haveto pay for it. The issue is people's willingness to pay for services theywant.

The AMA has charged that we keep physicians from writing prescriptionsfor drugs they think can best serve their patients' needs. That's not true.Doctors can write any prescription they wish. To the patient, however, itmay mean the difference between paying $5, $10, or $20 for the drug. Couldwe write a policy with an open formulary, with no restriction on the costto the patient for any drug the physician deems appropriate? Yes. Wouldanybody buy it? No--because they couldn't afford it.

This is what physicians don't seem to understand: What benefits we cover--andwhat costs are passed on to the patient--are driven by the ultimate costof the policy. People are buying managed care because it's cheaper, andthey're convinced that the care is the same or better. For managed careor nonmanaged care, the outcomes are the same for mortality rates, mammographyrates, survival rates after cardiac surgery--you name it. Get the same resultsfor less cost, and people listen.

Because of economics, however, we can't always give physicians what theywant. For example, one physician group wants a 65-percent fee increase.We can't do that and fit the added cost into our premium structure. Couldwe give the doctors the increase they're seeking? Sure. But we'd end upwith nobody in the plan, because it would be too expensive. So the net effectto the doctors would be no income, because they'd get no patients throughus.

M.E.:You portray Aetna as being more doctor-friendly thanmany doctors and patients perceive it to be. Why the discrepancy?

Huber: Each day, 80,000 Aetna HMO members will have an encounterwith a health care provider. If only eight of those people have somethinggo wrong, one will probably be a friend or relative of a member of the press,one will be a brother-in-law of a member of Congress, and one will be anincredibly photogenic kid whose picture will appear on the front page ofthe New York Post. It just seems to be some perversity of the law of averages.

I'm being facetious, but we deal with vast numbers of people, and wetry very hard to attain perfection, even if we sometimes don't.

M.E.: Doctors say they spend hours on the phone trying to dealwith Aetna nurses and clerks. Is this untrue or an exaggeration?

Huber: Such incidents are isolated. While administrative snafuscan occur, spending hours on the phone per incident does seem like an exaggeration.

There's no reason for us to have an adversarial relationship with themedical community. We have the same objectives, and we're working on improvingour interactions. For instance, we've completely rewritten our providercontract to make it more intelligible, simple, and user-friendly.

M.E.: At one time, your contract had a hold-harmless clausethat left doctors on the hook for adverse outcomes of patients. Does itstill?

Leibowitz: Our contract says that we have a certain responsibilityfor damages, that providers have a certain responsibility for what theydo, and that members are held harmless. That's really key to the hold-harmlessclause in the contract.

Huber: Even the AMA has admitted that our new contract is, ifnot wonderful, much better than the old one. We've also introduced E-Pay,a groundbreaking electronic system that pays claims in under 15 businessdays. We're actually paying claims in less than 10 days right now.

I'm probably too old to see the day when doctors love us. But I'm determinedto see the day when they dislike us least. That we will achieve.

M.E.: Will doctors who don't want to deal with you electronicallybe penalized financially?

Leibowitz: We intend to connect electronically with all our physicians.It's the Health Care Financing Administration that drove this. HCFA originallysaid that by 1998, all Medicare claims had to be submitted electronically.It also said that it would charge doctors a penalty if they continued tosubmit paper claims. But doctors weren't ready, and HCFA backed off. Weourselves have no penalty.

Huber: But someday we might. In northern New Jersey, our pilotsite for E-Pay, we quickly doubled the number of electronic claims--from35 to 70 percent--in just a few months. Through education and persuasion,we should be able to get that figure up to about 80 percent. But if theremaining doctors won't do it, perhaps we'll have to require it.

M.E.: Many physicians are also worried about your health planbuying spree. Inevitably, it will reduce the choices for doctors and patients.How can this be good?

Carver: Our franchise as a national player is different from theperception you have of us. Today, Aetna US Healthcare has about 16 millionmembers. Roughly 10 million of them are not in HMOs. Those peopleare mostly members of self-insured plans. The benefit and plan design isthe work of General Motors, Du Pont, or Citicorp. We merely administer theirpolicies and offer them consistency in administration and medical policydevelopment. And we're very good at paying claims. That's what we do aspart of our national franchise. But many markets we're in also have stronglocal plans that are very healthy and very competitive.

Huber: Having fewer, financially stronger health plans is betterthan having a plethora of weak, poorly capitalized, and often poorly managedhealth plans that go bust. Many regional and local plans will continue tocarve out profitable niches, and will probably beat the socks off of usin individual markets. But I don't see more than three or four nationalcarriers that can afford to invest in the massive databases we use to betterpredict outcomes, risk-stratify our members, and actually practice diseasemanagement, which has often been heralded but is still seldom seen.

M.E.:As part of Aetna's disease management, you might issuea provider report card that says, "Your performance with asthma patientsis below average, and here's the percentage of inhaled steroids you prescribe."Yet most physicians use inefficient paper charting systems, so it's hardfor them to keep track of what they do. Are you trying to help doctors practicebetter medicine?

Carol Diamond, MD: Yes. Our asthma early warning program is anexample. We know that when asthmatics have trouble, they're often prescribedan oral steroid. Clinically, though, they're out of control. Knowing whenthat occurs can help us intervene much more quickly. Now, when a memberfills a prescription for an oral steroid, he's enrolled in a case managementand, possibly, a disease management program within 24 hours. This real-timeuse of information will ultimately improve quality.

Carver: I'm a cardiologist. Let's say I think I'm putting allmy congestive heart failure patients on ACE inhibitors. Then I get a reportcard showing that I'm doing it for only 70 percent. From that point on,I'll make doubly sure that all my heart failure patients get the medication.The next time that report comes out, I want my score to be perfect. I thinkthat's true of most physicians.

Doctors are highly motivated, type A people who want to be the best.Now we're giving them the data to truly achieve that level of care. Guidelinesjust reinforce what doctors are supposed to be doing. And report cards merelytell them where they fit on a continuum with other doctors, with the hopethat it will motivate them to do better.

Leibowitz: Since the advent of managed care, the public has shiftedtremendous accountability and responsibility to managed care plans. Whenmy parents bought insurance, it was typically a Blue Cross indemnity plan.No one expected that Blue Cross had any responsibility to improve the qualityof care patients received. That job was the doctor's. The insurance companymerely provided coverage.

Managed care raised the question: If you change the dynamics of the healthcare delivery system, how do we know whether the care will be as good asit was before you changed it? If patients must go to only those doctorsin a given network, how do they know those doctors are among the best?

As people began to look for answers, they found that the quality of medicalcare--whether fee-for-service or managed care--was extremely erratic. Youcouldn't say managed care was worse, for under the old system nothing wasmeasured. Everything was anecdotal. So managed care plans started to beheld accountable by HCFA and employers for improving the quality of caretheir members received--although we don't practice medicine, and we don'tactually treat members. Nor do we force our doctors to do anything thatgood doctors shouldn't do.

Our goal is to help doctors offer the best care. We do it altruistically--becauseit's good medicine--and because now we also have the responsibility andobligation to do it. In 18 states, we're required to report HEDIS [HealthPlan Employer Data and Information Set] data, and other states that don'tmandate HEDIS data have other requirements. In addition, the Health CareFinancing Administration reviews the infrastructure of our Medicare HMOs.

As a result of all this scrutiny, health plans now have a responsibilityto be in the middle of the doctor-patient relationship. It causes a lotof friction, but it's an accountability that we've been asked to assume,and it's what people should expect from a health plan.

But the system also expects accountability from providers. It expectsdoctors to feel responsible for the care that they give to all theirpatients, not just the ones who come into the office. This population-basedmodel says: "Doctor, if one of your patients doesn't get a mammogramand then develops breast cancer, that's bad care--even if she didn't cometo the office--because it's your responsibility to get her into the office."

M.E.:You say that you're altruists who want to improve medicalcare. What if a pharmaceutical company created a medication that cured,say, Alzheimer's disease, but it was expensive, and making it generallyavailable would hurt your bottom line. Would you give it to every patientwho needed it?

Huber: If patients and employers want a covered benefit and arewilling to pay for it, we'll provide it. But that's not generally understood,because we've done a really lousy job of explaining what insurance is.

Insurance is the pooling of risk. Policyholders pool their payments tocover the costs of managed care. It's not our money. We're like a pump drippinglots of little drops of water into a pond. Occasionally, water is lost ina big shot. That's when we pay a large claim. But if the level of the waterbegins to go down, we need more drops going in. So we increase the flowof all those little drops, and that's called "the premium."

What gets lost in these debates is that the vast majority of Americanswith health insurance are reasonably satisfied with it. The real publicpolicy debate we should be having is what to do about the 43 million Americanswith no health insurance. That's a major disgrace for our country. I'm embarrassedabout it, and you should be, too.

The problems of the uninsured and of Medicare are genuine issues. I don'tparticularly care whether patients have a bill of rights. To me, that'snot a major issue, although it continues to get press attention. Drive-throughmastectomies? Politicians dreamed those up. They make provocative soundbites, but they're not real public policy issues.

What's your opinion about Aetna US Healthcare?

Aetna executives maintain that most of the HMO's 200,000 doctors aresatisfied with their dealings with Aetna. Are you? We'd like to know. Sendyour comments by fax to Neil Chesanow at 201-722-2688 or by e-mail to

. Aetna US Healthcare: Godzilla or Barney?. Medical Economics 1999;15:79.