Managed Care M.D.

Doctors to patients, hospitals to insurers, no one can escape the managed-care revolution

Managed care is sweeping the nation.

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The enigmatic industry now covers more than half the country’s population. By year-end 1995, 150 million people were enrolled in managed-care health plans, a 13 percent increase from the year prior, according to the American Association of Health Plans. And in Colorado, an estimated 60 percent of the population is covered by some form of managed care.

The shift is nothing short of a revolution, which kicked into high gear less than a decade ago, when the economic bite of health costs spurred employers into battle against high premiums. What government couldn’t do, industry did. Reform began in earnest, and health care evolved into a competitive, market-driven entity.

Now, employers stoke competition among insurance companies to provide high-quality care at the best price; insurance companies offer hospitals and physicians incentives and bonuses for cost-effective service; Wall Street tracks for-profit health companies’ profits and losses; and mergers, acquisitions and affiliations give players greater strength in the marketplace.

Managed care is big business, and many insiders believe it will save the country’s health-care system from financial catastrophe.

Many outsiders, however, are still wondering what managed care is exactly and how it will affect them. For the average person who thinks about health care only when they need it, changes in the industry have come at such a furious pace they might have been left in the dark.

As the public struggles to grasp the concept of managed care, players in the field must deal with a paradigm shift of grand proportions, which demands that they embrace a less-is-more philosophy after years of unchecked excess. Plans (insurance companies), payers (employers and the government), providers (doctors and hospitals) and patients (you and me) have all had to learn a new game and reassess their roles and responsibilities.

What is managed care?

Simply put, managed care refers to the health-care industry’s effort to control access to the health-care system and manage the way services are used.

Perhaps the most striking and definitive feature of the managed-care phenomenon is the development of managed-care systems – plans or organizations that integrate the financing and delivery of health care. Powerful insurance companies still thrive, but now they share the burden and the reward of providing managed care with partners in complex, coordinated systems.

“The nature of managed care is shared accountability,´ said Dr. Don Wells, executive director and medical director of United Physicians of Northern Colorado, and clinic administrator and medical director for Associates in Family Medicine P.C. “Partners in a managed-care system work together to determine appropriate care, given at the appropriate time for the appropriate cost.”

Some of these partnerships are more exclusive than others, but ideally, all have a common goal: to provide quality care and contain costs.

The companies

In a managed-care system, the insurance company, or managed-care company, is a management middle man responsible for putting patients in touch with doctors and, in many cases, monitoring how care is dispersed. The 10 largest in Colorado cover more than 50 percent of the population, including much of Northern Colorado, and the competition to win more enrollees is fierce.

“A managed-care company must have lots of money, lots of members, excellent service and high-quality products in order to survive the competition,” FHP Health Care regional medical director Dr. Michael Paddack said.

The number of managed-care companies continues to increase, but Paddack and others suggest that smaller companies will be swallowed up or eclipsed by the larger ones, and the numbers will start to dwindle within the next few years.

“In the last five years, we’ve seen a lot of growth in the number of HMOs in the state,´ said Susan Gambrill, special assistant to the commissioner of the Colorado Division of Insurance, “but usually things go in cycles, and logically we can expect to see more consolidation and shrinking numbers in the future.”

Shared financial risk between companies and providers is one feature of managed care that improves an insurance company’s chances for survival.

In HMOs that use capitated payments — set fees based on a head count of plan enrollees and the anticipated cost to service them over a specific period of time — primary-care physicians charged with managing a patient’s care share financial risk by accepting a preset amount but increase their bottom line by keeping the cost of their services down and, in some cases, limiting specialist referrals. Hospitals profit by limiting inpatient care.

Physicians contracted with PPOs agree to accept a discounted fee for service in exchange for an anticipated increased in patient volume.

Both of these types of plans and their variations are rapidly replacing the standard fee-for-service and indemnity health care plans that got the industry into financial trouble in the first place. Under those traditional plans, doctors and hospitals set the price, and insurance companies or patients pay for services after the fact. The system, when unmanaged, provides few checks and balances to monitor unnecessary costs.

The question has been, however, do incentives to limit services, see more patients and keep costs down compromise the quality of care?

Proponents say, no, that it’s in the provider’s interest to provide necessary care in a timely fashion to keep patients healthy and keep costs down in the long run.

Wells, a big fan of capitation, said, “Overtreating patients can be as dangerous as undertreating them. HMOs don’t kick people out of the hospital when they need to be there. They provide cautious incentive to provide less service.”

Wells added that doctors who curtail necessary care in order to save money will eventually lose patients and money.

Critics, however, say that money-saving incentives discourage doctors from providing quality care and encourage them to seek healthier patients less likely to use services. They call it “cherry-picking.”

Ultimately, Wells observed, the ethical doctor will do the right thing and the unethical doctor eventually will be weeded out.

The providers

Physicians and hospitals have had a bumpy ride in the wake of the managed-care movement. To control costs, insurance companies have taken a higher profile in case assessment, sometimes second-guessing a physician’s recommendation or even censoring information that contracted physicians can provide patients. New fee structures have become increasingly complex, and the proliferation of networks, associations and mergers has been a shock to the system for many.

Seeking strength in numbers, many of the country’s care providers have surrendered some degree of autonomy and joined associations or networks.

The number of physician organizations in Colorado increased by 10 this year to 86, and 63 physician networks are in place compared with 42 last year, according to the Directory of Colorado Managed Care.

In Northern Colorado, independent physician associations are popular. Fort Collins IPA and United Physicians of Northern Colorado count hundreds of doctors in individual and group practices among their members.

Individual practice associations offer physicians an enticing combination: They can associate with a large group that negotiates with insurance companies on their behalf, they can compete with hospitals that beef up services by acquiring local practices and they still remain independent and free to see out-of-plan patients on a fee-for-service basis.

“We have more than 300 physicians in our IPA, including most of the physicians and specialists in town,´ said Geri Jones, CEO of Fort Collins IPA.

Jones said the IPA contracts with HMOs and PPOs, and many of their providers work with both.

New trends in patient management also have brought changes for care providers.

As former regional medical director of FHP and current director of an IPA and PCP group practice in Fort Collins, Wells said he delegates patient care to the least-expensive person capable of doing the job.

That means that PCPs often do jobs once reserved for specialists, physician’s assistants often do jobs once reserved for PCPs and so on. Cost-effective care decreases demand for high-paid specialists and increases demand for general practitioners, physicians assistants, EMT’s and other moderately-paid care-givers.

A glut of high-paid specialists has been created, Wells said, because their patient load has shrunk. The trend in HMOs now is to reduce the number of specialty providers and expand primary-care bases.

The employers

While insurance companies strategize to keep premiums down and increase choices and providers vie for affiliations with groups and networks, plan purchasers stand to reap the rewards of a buyer’s market.

Employers are in a position of strength. They have more choices than ever before, better data with which to compare plans, and in many cities, such as Minneapolis — a leader in managed care — they are forming alliances and entering negotiations with insurance companies as influential groups.

Along the Front Range, the Colorado Health Care Purchasing Alliance is a cooperative of small, medium and large employers who’ve banded together to purchase health care.

Accreditation procedures for HMOs and PPOs established by the National Committee for Quality Assurance and HEDIS (Health Plan Employer Data Information Set), a report card for health plans developed by the NCQA and employers nationwide, enable employers to assess health-care quality and price. And the variety of plans employers can offer employees has never been greater.

In Colorado, almost half of qualified employees have a choice of health-plan types, including managed plans, according to the Colorado Survey on Family and Employer Health Insurance.

Mark Smith, director of human resources for Steele’s Markets, couldn’t be happier with the choices HSI Health Plans Inc. offers the grocery chain’s qualified employees.

Through HSI, Steele’s offers employees a PPO option, a major medical option, and HSI’s relatively new WellSteps Program – a community health EPO program featuring wellness and lifestyle education.

“We’ve been really happy with the plan and its focus on preventive care,” Smith said. “We’ve really kept costs down, especially in WellSteps. They cover annual physicals and blood screens, and that gets people in the habit of going to the doctor and keeps costs down in the long run.”

With the help of a broker, Steele’s was able to compare price and value of several insurance companies before going with HSI. Smith said Steele’s was looking for a locally based plan with money-saving options in addition to standard major medical coverage still preferred by some.

In a customer-driven industry, a choice of plans is important, but Paddack notes that while a majority of enrollees will opt for a PPO at first, within three or four years, most will move to an HMO.

“People have to be in the system for awhile before they realize they can save money and receive the same quality care in an HMO,” Paddack said.

Wells also believes that the HMO is the way to go, but many would-be patients aren’t ready to surrender their freedom to see whomever they please whenever they please.

The patients

Patients have perhaps the biggest challenge of all in the migration to managed care: To work within the constraints of a new system, which places limitations, both real and perceived, on choice.

Patients’ stories about managed care run the gamut from horrible tales of “drive-through” mastectomies and refused treatments to accounts of streamlined, timely, conscientious care.

Of course, horror stories are more memorable, and the result has been a rebellion against the industry and its focus on the bottom line. Due to the lack of federal regulation, state legislatures including Colorado’s have taken a stand.

Almost 1,400 pieces of legislation to regulate managed care were introduced last year, according to The New England Journal of Medicine. Among them is Colorado’s bill 97-1122, now in the Senate, which would enact a Consumer Protection Standards Act for the Operation of Managed Care Plans.

Review panels, bans on some cost-cutting incentives, guaranteed rights to specialist referrals and other reforms could ensure that managed care doesn’t become managed cost and put patients at ease.

The managed-care movement has been described as being in the “bra-burning” stage. A lot of change and a lot of emotion have charged the atmosphere of the industry but things are starting to calm down.

In the future, managed care will most likely bring continued emphasis on cost control, strengthening of HMOs, greater if not complete integration of services among physicians, hospitals, management organizations and insurance companies and increased consumer-protection measures and quality assurance.