A New England Health Care Provider Stumbles: The Fall of Harvard Pilgrim

by Joe Auciello

Harvard Pilgrim Health Care, New England’s largest health maintenance organization with more than 1.3 million members in four states, has announced financial losses for 1999 totalling $177 million.

Up to this time, Harvard Pilgrim Health Care had for several years been rated as one of the top HMOs in the United States.

Because of this financial catastrophe, the Supreme Judicial Court in Massachusetts has placed Harvard Pilgrim in state receivership, a step above bankruptcy, while the state scrambles for some kind of bail-out solution. The attorney general has appointed an investment banker to summon a panel to investigate the possible options.

State receivership means that the HMO can pay its current bills, thereby guaranteeing continued health care coverage for its members. Overdue bills, including at least 300 million owed to hospitals, are temporarily frozen until a repayment plan is devised. In the meantime, smaller community hospitals throughout Massachusetts, heavily dependent on HMO income, say they may have to shut their doors if solutions are not found soon. Hospitals had already endured cuts as a result of the Balanced Budget Act of 1997 which slashed the federal Medicare budget.

Much of the blame for Harvard Pilgrim’s impending collapse has been attributed to avoidable inefficiency: sloppy accounting, unnecessary duplication of tasks, poor internal communication between departments, etc. Harvard Pilgrim officials do not even know for certain how much money they owe to doctors, hospitals, and other creditors. In addition, departing top executives have walked away with million dollar severance packages, though the attorney general has just suspended those contracts.

While structural flaws and greedy management compounded Harvard Pilgrim’s problems, these are not the source of its calamity. Even with these weaknesses the program could have survived.

The real cause of Harvard Pilgrim’s demise is rooted in business errors of an entirely different kind: America’s health care problems cannot be solved in a marketplace that is ruled by competition and where money matters more than human beings. A national, universal health care system is needed instead.

During the 1990s, as Harvard Pilgrim expanded throughout New England, it enrolled thousands and thousands more members. This number included, as it should, many sick and elderly people, the kind of patients who made frequent visits and required serious, costly care while paying a fixed, low fee. Other regional HMO’s, like Tufts Health Plan, selectively screened out such patients by offering health packages with incentives only for healthy customers. People who were old and sick avoided HMOs like Tufts and turned to Harvard Pilgrim which was eager to sign up new members, hoping that increased volume would reduce cost. That strategy failed. Harvard Pilgrim expanded its enrollments and operation throughout New England not for good medical practices but for what they thought would be good business practices. This HMO, like any other, needed to remain competitive in the regional health market. They discovered — too late — that sound business decisions require them to ignore sound medical decisions. The market allows no other choice, and the business market is unforgiving.

In short, Harvard Pilgrim could not take on so many sick people and still make money. The lesson of Harvard Pilgrim illustrates the bitter paradox of placing health care in the business market where it does not belong. Unfortunately, market competition requires winners and losers. Harvard Pilgrim lost, with consequences that threaten access to health care for its more than one million members.

No single HMO, no matter how large, can afford to operate if it provides health care to the sick and needy. The medical industry is only profitable if its plans cover mostly healthy people who do not need its services. The situation is a medical “Catch-22” that threatens the care and safety of millions throughout the United States.    

The goals of corporate profit and quality health care are contradictory. One succeeds at the expense of the other. In looking for solutions to the Harvard Pilgrim fiasco, Massachusetts politicians and health care bureaucrats tiptoe around this unavoidable fact. Any plan they do create, therefore, will be unstable and will contain the seeds of the next health care crisis.

The second and third largest HMOs in New England also report financial difficulty, though not to the extent of Harvard Pilgrim. These financial difficulties will intensify a climate of cost-cutting that will impose lower quality medical treatment on more workers and their families.

Every parent in America should be able to bring a sick child to a doctor. Instead, millions of parents are forced to choose between giving their children food or giving them medicine. Or they are forced to choose between paying the electric bill or the doctor’s bill.

For the 44 million Americans without health insurance, for people confined to menial, minimum wage jobs, and especially for people whose skin is not white or whose first language is not English, lack of health care is a bitter, constant reality.

In Massachusetts, with record low unemployment, one out of seven residents — 625,000 people — have no health insurance. Contrary to popular impression, a majority of the uninsured hold full-time jobs.

Health should not be a business. Adequate health care is a fundamental right of all citizens. A profit system that values money over medicine blocks that right, allotting charity to the poor and reserving the best treatment for the rich.

Under capitalism good health is regarded not as a right but as a privilege. Good health is an option for the relative few who have good stock options. To be well in America means, first, that you be well-off. This country’s hospitals operate on a kind of caste system where financial wealth makes a mockery of political democracy.

Meanwhile, Republican presidential candidates in their speeches and debates do not even mention health care, while Democrats Gore and Bradley try to score points over Medicaid. None of these politicians have presented a solution that would give Americans access to affordable medical care. They would not dare to mention the need for free, socialized medicine.

A massive, sustained popular protest will be necessary to make adequate health care for all — a fundamental human right — into a reality.

Harvard Pilgrim and the Labor Party’s “Just Health Care” Campaign

Harvard Pilgrim is the largest and richest Health Maintenance Organization to be placed in state receivership, but its collapse is not unique.  To date, twenty-one other HMOs across the country have proven unable to operate and have been taken over by state government.

Recognizing the severe problems of health care in the U.S., the first  constitutional convention of the Labor Party (November 1998) adopted the “Just Health Care” campaign. The Labor Party demands “a guarantee of universal access to  quality healthcare.” It defines the situation in the following terms:

“Democrats and Republicans have responded to America’s healthcare crisis with ineffective or incremental legislation that represents band-aid solutions to a problem that calls out for a national health program guaranteeing cradle to grave health security as its core foundation with public oversight and planning…

“Giant corporations dominate American healthcare and generate wealth by avoiding the sick and unprofitable through medically redlining targeted communities with hospital closures, abandoning insurance ‘markets’ of Medicare seniors and engaging in practices which deny care and abandon patients at their neediest moments…

“Public confidence in insurance giants, HMOs and hospital corporations has eroded due to abuses of patients, hospital shutdowns, interference in the decisions of healthcare professionals and poor care from understaffed hospitals and nursing homes.”

Therefore the Labor Party calls for the following:

“Universal entitlement for all residents [of the U.S.] to comprehensive health care benefits including preventive, curative, rehabilitative and long-term care. There must be freedom to choose one’s own doctors and health professionals, and full information provided to enable all to make informed choices on their medical treatment.

“Single-payer [i.e., publicly funded] health insurance, publicly administered and funded, delivered by a non-profit system.

“Full funding of public health programs performed by the public sector to provide services to vulnerable populations, monitor population disease trends, and to prevent and treat communicable diseases.

“Funding for research that serves the public good, not private gain. Academic health centers must have support for their research mission.

“Unimpeded access to a full range of family planning and reproductive services for men and women, including the right to continue or terminate a pregnancy. We oppose any forms of coerced sterilization.

“Strong representation and a decision-making role for health care recipients and health care workers in public planning and oversight bodies.”