Last fall Californians surprisingly defeated ballot measures aimed at controlling the methods managed-care plans use to limit health care.

Conventional wisdom had painted California consumers as fed up with the excesses of their health-maintenance organizations. Horror stories of HMO-care lapses abounded while managed-care executives earned incomes in the Michael Jordan range.Yet California's Propositions 214 and 216 - which would have imposed strict consumer protections on managed-care plans - went down in defeat. How could this happen, and what does it say about the future of health care?

Proposition 214 mandated that patients be examined before they are denied care by their HMO. It provided that plans disclose excessive overhead and profits and outlawed gag rules placed on doctors when discussing treatment options with patients as well as giving doctors bonuses for denying care.

It also called for the state to set rules for staffing level and qualifications at hospitals and prohibited HMOs from selling confidential medical records to third parties.

Proposition 216 had similar provisions, but also imposed fees on health facilities that converted to for-profit status, downsized or merged and also taxed ''excessive'' compensation to HMO executives.

The initiatives failed in part because consumers obviously were not as hostile to their HMOs as the conventional wisdom proclaimed. While a few patients may have suffered injurious callousness or cruelty on the part of penny-pinching HMOs, most patients have experienced these horror stories only through newspaper and television exposes.

The majority of patients have seen their health costs go down under managed care, and have adapted well to the restricted physician choice and treatment options imposed by HMOs.

Doctors have experienced more horror stories first-hand but, fearing HMO retribution, failed to forcefully back the measures or educate their patients about why the measures might be good for health care.

HMOs were expert in managing the political process and the doctors in their employ. They succeeded in portraying the initiatives as expensive largess to such special interest groups as nurse and hospital worker unions.

The managed-care industry spent millions in advertising against the initiatives. Those consumer groups and nursing and physician organizations in favor of the initiatives, on the other hand, displayed political skills that would make Bob Dole's campaign staff snicker. The backers of each individual proposition wasted time and effort bickering and discrediting each other.

As a result, California, the first place where managed care dominated the market and the first place where there was an outcry against HMO practices and profits, became the first place where consumers took a stand against tight government regulation of HMOs.

Will California also be the first place where managed care gains consumer backing for stratospheric profits at the expense of the health of its patients?

The answer is no. With the defeat of these measures, the electorate may have expressed its continued wariness of government regulation and even its general satisfaction with its HMOs. But it did not signal its willingness to be trampled upon by managed-care plans.

Rather, just as it did with its hostility to the failed Clinton health plan of three years ago, the public has declared its preference for incremental, market-oriented health-care reform. In this case, the health-care system being reformed is the managed-care industry.

The engine driving reform will be the same as in any other marketplace where consumers select products and services to purchase. Managed care will be reformed by consumers purchasing their health care from those HMOs that give the best service at the lowest price.

There is an information and quality revolution under way in health care. Information on health plans' level of consumer and physician satisfaction is becoming widely available. Organizations have begun to rate various HMOs on clinical outcomes, cost-effectiveness, and breadth of treatments options covered.

Employers, who purchase the majority of the nation's health care, have paid close attention to these trends and such corporations as IBM, Xerox, Kodak and United Airlines have signed on to fund and use the quality and financial ratings of managed-care plans.

If necessary, the courts will help correct the market's wrongs. When excesses develop within the marketplace, people will sue. And when those suits prove successful, the calculus of cost-benefit analysis will lead managed-care plans to reform themselves.

The combined power of widely available information, free movement of consumers among managed-care plans, and legal confrontation will combine to drive the reform. With this powerful triumvirate as the driving force, neither the Keystone Cop antics of doctors, nurses, hospital unions and consumer advocacy groups, nor the hardball tactics of the managed-care industry, will be able to stop health-care reform.

For the full story: Log In, Register for Free or Subscribe