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Lee Hochberg of Oregon Public Television reports on the impact of managed care plans that limit doctors' fees.

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LEE HOCHBERG: Plastic surgeon Stiles Jewett is preparing for a long day of surgery, reconstructing the breasts of a cancer patient who had a double mastectomy.

DR. STILES JEWETT, Plastic Surgeon: Very poorly. These cases take an awful lot of time and considerable effort. As you see, we have a team of three here. We'll be here five to six hours.

LEE HOCHBERG: The Portland physician says reconstructive surgery is one of the most important things he does because it serves a medical, not just cosmetic, function. But he's doing it less than ever because he can't make any money off it. He says cost-cutting managed care systems have slashed his fees for surgery as much as 60 percent.

DR. STILES JEWETT: Much of what we do anymore in the reconstructive realm, the things that really matter and that we certainly feel obligated to do and are part of why we went into medicine in the first place have become much more difficult to justify doing on an economic basis.

LEE HOCHBERG: So, instead, Dr. Jewett is increasingly using his skills to do what he considers less important procedures, like breast lifts and liposuction. Managed care doesn't cover those procedures at all, but wealthy patients are willing to pay full price for them out of their own pocket.

FILM SPOKESMAN: Using a modern laser and skillful surgical techniques Dr. Haeck can literally turn back the clock on aging.

LEE HOCHBERG: Jewett is not alone. Thousands of doctors, frustrated by low reimbursement from managed care systems, are restructuring their practices to emphasize procedures patients will pay for even if insurers won't. Seattle plastic surgeon Phillip Haeck tore up contracts with eight managed care systems and now targets wealthy patients with videos and TV ads for elective surgery. And Portland Ophthalmologist Tim Denman uses laser surgery to treat nearsightedness and at a charge of $2,000 per procedure to treat his sagging income.

DR. TIM DENMAN, Ophthalmologist: I have all of my tax record filed for the last few years, and I just picked them up. And I was dismayed to see that my W-2's had actually decreased by 45 percent since 1991 and another like 15 percent since last year.

LEE HOCHBERG: The journal "Health Affairs" reported average salaries for all types of doctors dipped nationally in 1994 as managed care took hold. In response, 40 percent of plastic surgeons now say cosmetic work is their main business, up considerably, with the number of cosmetic procedures doubling to more than a million. In Portland, where nine out of ten patients are in managed are, doctors of all kinds are performing uncovered procedures to avoid managed care's cost cutting. Oregon Medical Association's Jim Kronenberg.

JIM KRONENBERG, Oregon Medical Association: Specialists in ear, nose, and throat surgery are doing surgery to reduce or eliminate snoring, for example. I think that more dermatologists are doing hair transplants for those who wish them. You have many specialists in obstetrics and gynecology who are likely to use more of their practice time doing infertility work for couples who are childless and want children.

LEE HOCHBERG: Plastic surgeon Jewett says he understands the need to cut medical costs but says by capping his fees insurers leave him no way to cover his costs, like rent, malpractice premiums, salaries, and supplies. This breast reconstruction operation took seven hours, requiring the skills of Jewett, another surgeon, and an assistant. He sent a bill for $9,000 to the patient's managed care plan. That plan, called Vantage, reimbursed the doctors only $3300. That's just $1,000 more for a seven-hour operation with two surgeons than for the ten-minute ophthalmology procedure we saw earlier, but Jack Friedman says there's another side to the story.

JACK FRIEDMAN, Vantage Managed Care Plan: We feel that that is fair in this market. We think that this more than covers their cost.

LEE HOCHBERG: Friedman runs the Vantage Managed Care Plan which insures 300,000 Oregonians.

JACK FRIEDMAN: What they charge and what their costs are are two very different kinds of things. I think that their expectations for reimbursement, their income expectations are out of kilter with the reality of managed care.

LEE HOCHBERG: Friedman says Vantage's reimbursement rates are based on the federal government's resource-based relative value scale, a scale of doctor's worth the government developed to rein in soaring Medicare costs. Experts assessed the amount of work physicians actually do for different medical procedures and assigned a financial worth for those procedures. They determined breast reconstruction to be worth only about $2800. That scale, set up for Medicare, soon became the insurance industry standard, managed care systems usually paying just slightly more.

JACK FRIEDMAN: Physicians who do procedures in this country have been reimbursed at levels that have been higher than what should be the case. I think they need to do a reality check on what their expectations are going to be in the future, and they are not necessarily what they may have been led to believe in medical school or based on their peers from years past.

DR. STILES JEWETT: It's not a matter of buying my third Mercedes or getting a bigger boat or anything like that. It's a matter of getting my kids through college and providing a retirement not only for me but for my employees and keeping the lights on, keeping the rent paid.

LEE HOCHBERG: Jewett claims his salary has dropped $70,000 in the last decade. He now earns slightly below the average physician's income of $170,000 a year. Managed Care Administrator Friedman earns more than that but still calls some physicians' salaries obscene.

JACK FRIEDMAN: I don't have--it's hard to have a tremendous amount of sympathy for them really.

LEE HOCHBERG: Ellen Pinney, a patient rights advocate, questions whether reducing doctors' compensation helps consumers. She thinks cost cutting is just being used to pad the profits of managed care firms. She notes some managed care CEO's are earning as much as $15 million a year, and Oregon's non-profit Blue Cross/Blue Shield plan reported a cash balance at the end of 1995 of some $534 million.

ELLEN PINNEY, Patient Advocate: A $15 ½ million a year annual salary for a chief executive officer of a managed care plan is something that we should not be asked to sustain as consumers who need health services. And, frankly, I would much rather have that reimbursement spread among the providers than have it go to administrators of plans whose bottom line is to make money for stockholders.

LEE HOCHBERG: Friedman says he agree that some publicly traded managed care systems are spending too much on high-priced administrators, but he says that's not the case at his company.

JACK FRIEDMAN: In our case we're a not-for-profit health care entity. In our Medicare program we take 7 ½ percent for administration, which is as low as anybody in town. Our goal is to return as much of the premium dollar to consumers for actual medical care and not marketing and high senior management's salaries.

LEE HOCHBERG: The Oregon Medical Association's Kronenberg says many physicians have left Portland to go to rural Oregon and places like Iowa, where managed care hasn't made strong inroads. But with 75 percent of Americans with company-paid insurance now in managed care plans, it's hard to escape.

JIM KRONENBERG: Given the increase in the penetration of managed care throughout the country it's the old story about for physicians I think it becomes you can run but you can't hide.

LEE HOCHBERG: Those left behind are reporting a record incidence of stress-related ailments. In Colorado, for example, one study finds the number of doctors seeking help for stress and depression has doubled in four years. Managed care administrators seem unconcerned.

JACK FRIEDMAN: Until there is a larger movement, or until there are more of these Dr. Jewetts coming in collectively to put it on the table and say we will not do this work for this price, I have very little reaction to that, other than to say that, welcome to managed care.

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