MINNESOTA'S MANAGED COMPETITION: COMPLEX Series: HEALTH CARE: CHOICES FOR CHANGE SECOND OF FOUR PARTS

Article excerpt

ONE WORD sums up the health care overhaul under way in Minnesota: complicated.

"It's very complicated," says Health Commissioner Mary Jo O'Brien, who oversees the state's efforts to change the system. "It's the toughest thing I've ever done."

"Rather than simplify anything, we have managed to make it very complicated," says Dr. Barbara Yawn, a volunteer in the state effort.

"It's so complicated to put into lay person's terms," says Steve Wetzell, who coordinates one of several reform attempts by Minnesota employers.

Why so complicated? Two more words: managed competition - the economic theory Minnesota has chosen for controlling costs. The approach encourages patients and health care providers to join groups and bargain with each other over prices.

In the national health care debate, the theory has caught the attention of just about everyone. President Bill Clinton has a version of it in his health care plan. Republicans and conservative Democrats have embraced it.

Minnesota is the theory's testing ground. And there, ironically, the theory that is supposed to cut red tape seems to be spawning more overseers.

So far, the impact of managed competition on patients is unclear. Some get additional benefits - like more preventive care. Others find new limits on their choice of doctors and hospitals.

As a theory, managed competition puts faith in the marketplace. Each participant gets a club to wield - the economic clout he can muster as a patient or care giver. Participants are encouraged - sometimes required - to join in alliances, giving them bigger clubs to swing.

For example: Employers can band together to bargain for lower insurance premiums. Hospitals can come together to negotiate with doctors over fees and access to high-tech equipment. Doctors can jointly bargain with insurance companies and hospitals. Insurance companies can merge to increase their influence.

So many clubs fiercely hammering away are supposed to beat prices down, the managed-competition theory holds. But does the theory work? Experience so far reveals at least three possible flaws.

The first involves outside controls. "If you want major savings, you also have to put in a budget," said Joshua M. Wiener, a health care economist at the Brookings Institution. But a budget means spending limits and more government control - the very elements supporters of managed competition want to avoid. And spending limits evoke the health care scare word: rationing.

Minnesota is hoping to dodge the pitfalls. Rather than set a health care budget, it has set a goal: slow the rise of health care costs to 10 percent a year - about what it has been nationally, until recently. A state commission is expected to recommend ways to meet the goal.

The nature of the health care market is a second problem with managed competition. Proponents of the approach assume that the health care market operates like any other.

It rarely does. Patients lack information to make medical decisions or find cheaper alternatives. And buyers in this marketplace are often in pain and frightened.

"You're talking about people's lives, the lives of their loved ones, and in a very real sense the quality of their lives," said Wiener. "It has much more emotional investment than the cold logic of whether Cheerios is more expensive than Kix this week."

Finally, Minnesota has found a third problem with managed competition: how to launch it. The legislature has been trying for two years to establish regional alliances of buyers and sellers.

But lawmakers have succeeded only in tying themselves in political knots over the size of the networks, how they would work and who can remain outside them without being penalized.

Meanwhile, the marketplace is re-engineering itself through alliances and mergers. According to one study by a consumer group, nearly 50 percent of Minnesotans now get care through what's called the Big Three - Blue Cross/Blue Shield and two health maintenance organizations. …