State House News Service

September 7--Secretary of State William Galvin today said he's pausing his efforts to revoke the tax-exempt status of some health maintenance organizations and will instead focus his attention on comprehensive health care and insurance reforms.

Galvin said a coordinated effort by state regulators, the Legislature and Congress is needed to solve the growing health care "crisis" caused in part by the high cost of care, particularly of prescription drugs. He said revoking HMO's non-profit status now could be counterproductive because Massachusetts companies in question all reported substantial financial losses last year.

"The Massachusetts health care industry is falling apart.  The health of our citizens is in danger," Galvin said at a morning press conference in his newly constructed State House conference room equipped with television lights.  "I'm limited in what I can do.  But I can point the way because no one else is pointing the way."

Galvin contrasted current patient protections with regulatory protections enjoyed by electricity consumers.  He said that while patients can be dropped by HMOs without any warning, electric companies cannot shut off someone's power in the winter even if the resident hasn't paid the bill.

Gov. Paul Cellucci, the Democrat-controlled House and Senate, the Massachusetts Association of HMOs, Massachusetts Medical Society and Associated Industries of Massachusetts, the state's biggest employer group, have all offered managed care reform plans.  State lawmakers have been trying unsuccessfully to reach a compromise on the differing proposals for two years.

About 2.5 million Bay State residents are enrolled in some type of managed care plan.  Galvin said state insurance regulators need to fight more aggressively on behalf of those residents.  He said he will refrain from exercising his powers over corporations until at least November.

Last summer, Galvin began investigating HMOs' non-profit charity status - which exempts them from taxes and protects them from patient lawsuits.  The inquiry started when three of the state's largest HMOs stopped providing unlimited drug coverage to members.   Galvin said the decision was driven by profits, and appeared to be at odds with their ostensibly charitable nature.

But in a five-page report released today, Galvin said revoking the tax status enjoyed by Harvard Pilgrim Health Care, Tufts Associated HMO and Fallon Community Health Plan could hurt patients.  While "interlocking" for-profit and non-profit arms of the HMOs may allow for fiscal mischief, patient care "supersedes the narrower issue of inappropriate corporate behavior."

"I'm not looking to simply solve this minor bureaucratic system," said Galvin, who is in charge of the state's corporations division.  "What I'm saying to you is that I think most of the HMOs ... if they're losing all of that money with the subsidy we are providing, then clearly they're not being run very well.  So I think the greater question is how do we fix the system overall.  You can't regulate only part of the system."

Galvin said he would file legislation later this week to provide comprehensive HMO reforms, including stronger patient protections and requirements that HMOs disclose prescription drug costs.  He said state action is necessary because expected federal action hasn't come yet.

Galvin said his Citizen Information Service hotline has received hundreds of phone calls in recent months, mostly from elderly residents spending "every spare dollar" on prescription drugs needed to treat chronic ailments.  And he said hundreds of Western Massachusetts seniors lost their Medicare coverage after a for-profit HMO, Kaiser- Permanente, pulled out of the area.   "These are not isolated incidents," he said.

To prevent the further breakdown of the state's health care industry, which he said is recognized as the country's best, Galvin said state regulators should have the power to limit HMOs' ability to alter services, affiliations or doctors.  He added that state Insurance Commissioner Linda Ruthardt already has similar powers, but does not exercise them.

"We have a limited commodity.  It is a necessity of life.  And we have no real regulatory control," Galvin said.  "Health care affects human lives. It's not just another business."

In March, while launching his inquiry with securities regulators, Galvin focused primarily on HMOs' tax status and ignored their calls to look at the cost of prescription drugs.  Today, Galvin said exercising his "limited power" wouldn't help anyone, although he reserved his right to act if the Legislature doesn't take action by the end of this year's formal sessions in November. 

This afternoon, a spokesman for the Massachusetts Association of HMOs said Galvin's report failed to show why the three HMOs should lose their charitable status and objected to Galvin's claims that health care in Massachusetts is in "crisis."

"We feel that the facts clearly do not support such gloomy descriptions," said MAHMO spokesman Peter Ajemian, who said Massachusetts health care is consistently ranked as the best in the county.   Ajemian said MAHMO supports Galvin's calls for stronger patient protections.  "We think it's important to pass legislation that benefits consumers without adding unnecessary costs and that allows HMOs to continue to do what they are best at," he added.