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.
Instead of paying for each service, as traditional insurers do, the company pays primary-care doctors -- family doctors, internists and pediatricians -- a fixed amount per patient each year.
Specialists, like cardiologists, receive a fee for each service, but well below what traditional insurers pay. The company also demands discounts from lab and X-ray services.
Keeping the gates
That payment system is a key technique for controlling costs. Another is requiring primary-care physicians to act as "gatekeepers," controlling patients' access to hospitals, specialists and expensive tests. The company also saves money through preventive care and "wellness" programs that keep people healthy.
Although these practices are common in the HMO industry, U.S. Healthcare excels at them.
U.S. Healthcare has the "best medical cost management in the business," says Geoffrey E. Harris of Smith Barney Shearson. A report by Janney Montgomery Scott, another investment firm, says: "The company's ideas lead the industry by one [to] two years."
The result: profits for the company -- and for the Abramsons. The payroll includes two of his daughters and a son-in-law, who together earned $790,000 last year. Mr. Abramson received $1.8 million in salary, a bonus of $1.5 million and $311,000 in other compensation.
He's come a long way. A graduate of Pennsylvania State University, Mr. Abramson earned a pharmacy degree and owned two pharmacies before striking gold with U.S. Healthcare. He said in his book: "By applying American capitalism to health care, I have realized the American dream."
Capitalistic incentives underlie U.S. Healthcare's physician payment system, which company officials say is an industry model for improving quality and patient satisfaction, as well as controlling costs. Physicians receive extra money if they meet standards for preventive care, score high in patient surveys, stay open nights and Saturdays and continue their education.
"If there's any one thing that sets us apart from our competitors, it's that -- the quality aspects," says Mr. Simon, the spokesman.
A skeptical physician
But Dr. Ansel is skeptical. By paying him a fixed rate per patient, he says, U.S. Healthcare did not consider the time-consuming needs of the sicker patients in whom he specialized.
And the North Andover, Mass., pediatrician says the company pressured him to refer patients to inappropriate specialists and hospitals.
"I had a kid with scoliosis -- a curvature of the spine -- and it can require some relatively major and risky surgery if it gets worse," he says.
"It's something a pediatric orthopedist is much more experienced in dealing with and taking care of than an adult orthopedist."
But U.S. Healthcare wanted to send the patient to "an adult orthopedist affiliated with a hospital that didn't do this kind of surgery. . . . It's the difference between seeing a doctor who is competent and a doctor who is incompetent."
A U.S. Healthcare spokeswoman insists, however, that the company has always made use of pediatric orthopedists in the Boston area.
The company won't reveal what it pays doctors.
But Dr. Ansel disclosed his pay rates, which were higher for younger children because they generally need more intensive care. For patients up to age 1, he received $33.66 a month, or $404 a year.
At the other end of the scale, for patients 12 to 20, he was paid $7.12 a month, or $85 a year.
These rates were "far less" than other HMOs paid, says his wife and administrator, Gail Ansel, and drastically less than he would have earned under a conventional insurance plan that pays a fee for each service.
In 1992, the doctor received $17,877 from U.S. Healthcare -- $12,000 below what he would have been paid under a fee-for-service plan, she calculated.
Specialists also receive smaller fees. While other HMOs pay about $2,000 for delivery of a baby, U.S. Healthcare pays "$200 less," says Susan Latonick, administrator of an Annapolis group of obstetricians and gynecologists.
John Neff, chief executive officer of Frankford Hospital in Philadelphia, says HMOs like U.S. Healthcare are profiting too much at the expense of hospitals. "The issue is what is reasonable to return to shareholders and what out to be put back in the providers to make sure their organizations are structurally sound," he said.
L Consumers' complaints often concern curbs on access to care.
Following rules
Following company rules, Larry Kimble visited his family physician, Dr. Howard Bond, last spring after he felt spinal pain and numbness. He was referred to an orthopedist, who recommended an MRI test and physical therapy -- both of which required Dr. Bond's consent.
"The specialist says you need physical therapy," says an exasperated Mr. Kimble, chief of prosthetics at the Veterans Administration Medical Center in Baltimore. "Why does the primary-care physician have to refer you?"
Mr. Kimble had the MRI, believing that the orthopedist had obtained approval of it. Not true, according to Dr. Bond, who says he would have consented, but can't do so after the fact.
"It is incredible," says Mr. Kimble, dreading the possibility of having to pay for the MRI.
These complaints -- from Mr. Kimble, Dr. Ansel and Mr. Neff -- reflect the broad concerns many Americans express about HMOs.
HMOs remain suspect, dogged by a perception that they provide cheap care -- in the worst sense.
Workers at a Baltimore company went on strike this year rather than accept a new insurance plan that would have pushed most into HMOs.
Democratic lawmakers in Congress, sympathetic to doctors' complaints, added language to health reform legislation -- now dead -- that would have given physicians more power in dealing with HMOs and enabled consumers to pick doctors outside their HMO plans.
But independent experts say that there is no proof that HMOs provide lower-quality care. To the contrary, by emphasizing preventive care, HMOs often are credited with improving health.
U.S. Healthcare officials bristle at criticism of their HMOs.
"I don't know of any situation that's come up where substandard care is rendered," Mr. Simon says.
Company officials say U.S. Healthcare is in the vanguard of HMOs that are trying to prove they provide better care than traditional insurance plans. Unlike those plans, U.S. Healthcare monitors the performance of physicians and nags patients to obtain preventive care like mammograms and cholesterol tests and vaccinations.
"We have a fair amount of data now to show that we've changed things," asserts Dr. Steven L. Zatz, president of U.S. Quality Algorithms, a company subsidiary. "Those immunization rates are going up. The mammography rates are going up."
The company is among the first to develop "report cards" on its own HMOs and physicians and is working to perfect an accreditation system for HMOs. But measuring and improving quality is still an inexact science.
While U.S. Healthcare officials can claim progress in improving physicians' performances, the company still has a long way to go, says Jonathan P. Weiner, associate professor at the Johns Hopkins School of Public Health.
"It's a very difficult thing to do, and very few HMOs have been successful," he says. Although "U.S. Healthcare is a leader, they have only scratched the surface in terms of having an impact on their physicians' practice."
Maryland doctors and consumers are still getting acquainted with the company.
Two years after opening an office in Owings Mills, U.S. Healthcare has 12,000 subscribers, less than 1 percent of Marylanders who are in HMOs.
But company officials say this was the fastest start of any of their HMOs. And U.S. Healthcare is pumping millions of dollars into advertising and marketing. It's vintage U.S. Healthcare: TV commercials that resemble Broadway musicals and funny radio ads, all designed to build brand-name identification and warm the image of HMOs.
"Nearly 1 1/2 million Americans have turned to us for a healthier way of life," begins one commercial, now dated. (The total today is 1.7 million.) Then Maurice Chevalier sings "Thank Heaven for Little Girls" as the camera cuts to a wedding with a smiling bride.
The commercials are "intended to convey two things," says Mr. Simon. "One is the name; the second is the company's mission is quality."
Rivals are watching U.S. Healthcare the way wary retailers keep tabs on new Wal-Mart stores.
"They're coming in like the 800-pound gorilla they are in other markets," says an executive at another HMO company in Maryland.
"When you have a company like U.S. Healthcare that knows how to market health care, then you have a powerful firm coming into the market."
With the clout to meet or beat competitors' rates, U.S. Healthcare is signing up customers, who, in turn, put pressure on their doctors and hospitals to sign contracts with the company.
Even though many doctors say the company doesn't pay as much as other HMOs, they don't want to turn away a big potential source of patients.
"I'm betting on them to be big in this part of the country," says Dr. Charles L. Franklin Jr., a Silver Spring family practitioner with 80 U.S. Healthcare patients.
"They're a big player, and I figure they're going to increase that with time."