Managed care: the major culprit? (Physician Anger).

MANAGED CARE WAS viewed as the major culprit in a series of articles appearing last year in a special issue of The Physician Executive with the theme, "The Dance of Anger: Helping Physicians Cope with Change." (1)

Although this market-driven, competitive reimbursement methodology has been successful in reducing the inflationary trend in U.S. health spending experienced in the 1970s and 1980s, most health professionals and the public believe it has been a catalyst in creating the health field's instability.

What is sometimes forgotten is that if the managed care concept had gone unsupported by the health field's leadership in the early 1990s, some other reimbursement methodology would have been "invented" to constrain the double digit increases in health expenditures. The argument then, as it is often today, was simply why not support a concept consistent with America's free entrepreneurial values.

But managed care, now serving as the source of so much anger among physicians, is only one of several causes of what ails the U.S. health system. The fiscal incentives inherent in managed care resulted in merger mania and the formation of immense integrated delivery systems. These alliances are already experiencing significant operational and financial difficulties. Physicians are angry with managed care, but HMOs are only a symptom, not the illness.

Particularly since such regulatory approaches as hospital rate-setting, (2) price controls, (3) and certificate-of-need legislation (4) had proven to be dismal failures in constraining the rise of health costs.

Why is there so much frustration?

While managed care is the most frequent target when expressing discontent, there are other reasons to explain why there is so much frustration among practicing physicians.

1. Merger mania. The industry's headlong obsession with mergers has resulted in politically and fiscally powerful integrated delivery systems being formed in almost every metropolitan area. These alliances are often heralded in the media as an attempt to restructure America's health system by employing business principles to the delivery of medical care services.

These mergers are being driven by an excess supply of health resources (especially those adequately covered by health insurance benefits), hospital inpatient utilization continuing to decline, the need for providers to enhance market penetration to maintain their operating revenues, and a desire to control pricing when involved in managed care reimbursement negotiations. Of obvious concern is that mergers among physician groups, hospitals, and HMOs continue to be consummated in spite of the fact that there is limited empirical evidence supporting either the patient care or fiscal efficacy of these amalgamations. (5-8)

To date, most of the tough decisions to shed redundant and poorly performing clinical resources have been avoided. Until they are shuttered, it can be said that health networks are not consolidating their critical patient care resources. Instead, most health alliances have focused on consolidating management functions and in creating oligopolies that conflict with the professional independence of most community-based physicians.

2. Desire for a multi-payer, pluralistic system. As a result of their cultural heritage and values, Americans are wedded to a multi-payer, pluralistic system of organizing, managing, and financing their health services. The economies of scale concept (for example, consolidating tertiary resources) that would generate significant cost savings becomes exceedingly difficult to implement because such decisions require earning some vestiges of the health field's private sector. Therefore, these closures are often contingent on the network's management team successfully surviving the nasty political fallout that is involved when shuttering services and facilities.

3. Cultural mismatch. Practicing physicians are concerned about the mismatch culturally, programmatically, organizationally, and fiscally that is caused by many of these huge amalgamations. Unsettling are such incidents as the bankruptcy of the not-for-profit Allegheny Health, Education, and Research Foundation, with its medical school, 15 hospitals, and physician offices. Now under way are major divestitures of stakeholders, including such health networks as the UCSF-Stanford Health and Penn State Geisinger Health System.

Equally troubling are reports indicating that the acquisition of physician practices by networks and physician management corporations has resulted in significant operating losses (for example, MedPartners, PhyCor, and FPA Medical Management). The fiscal and legal difficulties that HCA, Tenet, Charter, and Quorum are experiencing provide other examples of how complicated it is to meld sound management principles with enhancing the delivery of quality medical care. Effectively and efficiently implementing mergers, including the acquisition of physician practices, is a far more complex endeavor than the initial "deal makers" envisioned. Problems usually start with paying a premium for the acquisition. Then, there are ongoing difficulties when developing a sound business plan, organizing a seamless integration of clinical and management services, and fusing a harmonious blend of values. After the merger is consummated, often more effort than expected is spent by medical group practices in a frustrating process o f a system's central office and the physicians agreeing on some strategic and operational compromises.

4. Not equipped to assume risk. As insurers are being forced to offer their subscribers a more comprehensive range of health benefits, the managed care plans are pressuring the providers to assume more fiscal risk. Yet, health networks are wholly unprepared to assume a major role as an insurer.

Serving as an insurance company requires the capability to process a comprehensive range of complex clinical and bureaucratic business functions and to manage probability risk. For most payers, there is an element of sunken cost that has been capitalized over decades of experience with underwriting that includes sophisticated data processing systems for decision-making purposes. As a relatively new upstart, networks lack the data and information system capabilities to properly manage risk. When networks have decided to start their own HMOs, the fiscal and other results have been mixed at best.

Providers favor fee-for-service arrangements; insurers desire capitated payment to pass on most of the risk to the providers; and consumers are willing to accept point-of-service or discounted fee-for-service arrangements in return for being assured access to their physicians and maintaining some choice in selecting other providers. This friction in designing an "ideal" reimbursement methodology, the increasing complexity of obtaining payment from insurers, working longer hours, and receiving less net income are other causes of physician anger, particularly since they realize a 'quick fix" is not forthcoming.

Significant downsizing 

As the public demands more health services and the integrated delivery systems experience more fiscal constraints as a result of managed care, Medicare, Medicaid, and other similar cutbacks, practicing physicians in the next decade can expect to experience significant downsizing or rightsizing along a number of avenues:

1. Divestiture of physician practices

The divestiture of unprofitable physician practices and the firing of many employed physicians by integrated delivery systems will become a relatively frequent occurrence. Some reasons for this trend are that: negative financial margins already range from 15 to 40 percent of net revenues among physician practices acquired by networks (8); inherent fiscal and philosophical conflicts will continue to arise between the practice of medicine and the financial wellbeing of networks; and physicians who are "bought out" by networks anticipate working less and increasing their income, while the systems project additional admissions and a fair return on their investment.

There are other explanations of why an integrated delivery system's leadership may start talking publicly about a network's objectives being fundamentally different from the practice of medicine, as these divestitures cause considerable wrath among those physicians who are adversely affected. These forces include dividing the network's total capitated payment between the physicians and the hospitals, causing an enormously politicized process; more physicians focusing on IPAs and unionization as alternatives to gain more control over their practice of medicine; and, a small percentage of physicians with high-income patients opting out of their managed care contracts and only accepting fee-for-service or point-of-service payment.

2. An almost inevitable economic recession

What is often overlooked when discussing downsizing within the health field is that the organization, financing, and quality of care supplied by physicians, hospitals, and other providers is closely linked to the nation's overall economic prosperity. Aside from their conceptual and political appeal, America's attraction to managed care and to the recent welfare reform measures has been influenced by a bullish economy that has spanned more than a decade.

At other times during the second half of the 20th Century, when the U.S. experienced a recession or a significant loss of jobs, the costs of illness and disability surfaced as a more critical concern among elected officials and political parties, irrespective of whether the Democrats (for example, Truman) or the Republicans (for example, Nixon) controlled Congress and the White House. The U.S. health system may have been tweaked because of these economic downturns, but its basic tenant of retaining a quasi-private, quasi-public character is ingrained in our culture.

Nothing could more dramatically impact how health services are provided than a major economic recession that adversely affects the stock market and causes a sizeable increase in personal bankruptcies. Major corporations complaining about the difficulties in meeting the huge expense of their employees' health insurance and other fringe benefits would encourage public officials to more seriously evaluate health reform measures.

Since the United States for many centuries has witnessed normal business cycles, it is anticipated that an economic recession will occur sometime in the next decade. Obviously, it is difficult to predict when, the duration, and the seriousness of Americans experiencing fiscally "tough times." During such an onerous economic period, health providers and their patients will encounter a major shift in public policy and physician anger will be heightened because of fiscal cutbacks that could take several foreseen pathways.

A global budget process: a compromise

When adverse economic conditions become readily apparent, it could be relatively expedient for the public and, therefore, elected officials to advocate global fees (total reimbursement by diagnosis adjusted by age and severity for a comprehensive range of health care services) , (9) global budgetary targets (a lump sum payment to a network to provide specific health insurance benefits to a defined population). (10) or a global budget process (a reimbursement methodology using both competitive and regulatory approaches for rate-setting) . (11)

Using global fees would be more consistent with the Medicare diagnosis-related grouping reimbursement methodology and would require the networks to negotiate dividing global revenues per case among physicians, hospitals, and other providers. (9) Such an approach raises a number of issues, including: whether official agencies can construct a valid and reliable prepayment methodology by diagnosis, age, severity, and other factors related to the patient care resources required; the increased cost in installing and operating more sophisticated information systems to keep track of such a payment system; and providers "cherry picking" patients with favorable illnesses and disabilities based on the reimbursement provided by a specific perspective global fee.

The government implementing global budgetary targets would have less appeal, a concept used in almost every western industrialized nation. (10) In the long term, this could require establishing national protocols of care by diagnosis to reduce resource allocation and to improve quality of care, an alternative that would generate considerable apprehension among physicians.

Another possible option is to implement a blended competitive-regulatory, more patient-provider friendly approach. A global budget process (11) could be structured around enhancing access to health services and social equity, using multi-payers (managed care plans), a capitated payment reimbursement methodology, price and quality competition among integrated delivery systems for prospective subscribers (patients), and the region's total health expenditures being determined on the basis of market conditions (competitive bids). This market-driven process with minimum government oversight could be implemented by relying on HMOs and other insurers to negotiate with employers and public officials concerning the cost (premium) for specific coverage and with providers concerning the capitated payment amount necessary to provide specific benefits.

An example of a single-payer approach is the Arizona Health Care Cost Containment System (AHCCCS), a government-sponsored model for allocating health services across multiple providers for people covered by Medicaid and for employees of small companies. All Medicaid eligible beneficiaries are required to obtain health benefits from managed care plans selected in a competitive bidding process, while insurers are paid by the state on a capitated payment basis. This plan offers consumer choice across a broad range of providers (except in rural areas) and fiscal incentives for hospitals and physicians to provide quality care and to be highly efficient. (12-13)

Drawbacks

The global budget process is not without its drawbacks. A major concern is that the low bidders' cumulative dollar amount for health services would still be greater than what major corporations, smaller employers, and public agencies can afford or are willing to spend for health insurance benefits. Also, how do you avoid the issue of a hospital, the only one in the region and part of an integrated delivery system, suggesting to its central office to submit a bid (capitated payment) to provide benefits for its area residents at a price significantly above facilities in other similar areas providing roughly the same services?

There are other issues: How do you divide a capitated payment arrived at by a global budget process equitably and amicably among hospitals, physicians, and other providers within a large and complicated integrated delivery system? Patients traditionally have trusted their physicians to act in their best interests. (14) However, if physicians are reimbursed with a capitated payment and profiled by an insurer on their utilization of services: (1) how can patients be assured with these fiscal incentives that they will receive "adequate" care; and (2) how can participating doctors be assured that "high cost utilizers" will not be excluded from the plan's eligible panel after the next contract negotiations occur?

Since mergers have already led to price increases at hospitals that have amalgamated, as well as many of their competitors (regardless of a not-for-profit or government sponsorship), (15) providers in the next decade could simply raise their bids (prices) as they exploit their market power. Thus, if a global budget process is implemented, federal and state anti-trust regulators eventually will become more vigilant.

When a public agency becomes involved in controlling health expenditures, any federal or state statutory authority responsible for administering a global budget process would quickly become dominated by the providers and insurers that it is supposed to regulate. (16) If the managed care approach causes physicians and providers significant anguish, it is doubtful whether a more regulatory reimbursement approach would result in a more harmonious health care environment.

Reduction in health manpower

When there is increasing pressure to reduce health expenditures as a result of an economic slowdown, Americans will again look to our north and to various European health systems to study how they provide more patient care with fewer dollars. The Canadians and Germans spend a third and a quarter less, respectively, of their gross domestic products (GDP) for health services than the United States. (17) In making comparisons among Canadian, German (a multi-payer system), and U.S. physicians and hospitals, there are four areas of significant difference. Canada and Germany have:

1. Higher utilization of hospital days and physician visits per capita (18-20)

2. Fewer manhours for administrative and management personnel per hospital discharge (18,21)

3. Fewer manhours for medical technologic support, but a relatively comparable number of nursing hours per discharge as the U.S. (22,-23)

4. Lower physician incomes per annum (17)

Based on these findings, implementing a global budget process could eventually result in 2 million less workers employed (mostly in hospitals and physician offices) in the U.S. health industry. (21) Health care positions are among the most sought after in many communities and laying off 15 percent of the field's labor force during a recession would have serious political and social implications. However, those who claim that there are an excess number of managers would think that such a downsizing is a long overdue outcome and could reduce the increase in the GDP health expenditure. Some physician executives and doctors employed by various providers would be terminated and would need to seek alternative roles in a marketplace with a greater supply than demand for doctors.

Control of pharmaceutical expenditures

Whether prescriptions should be included as a benefit for all Medicare eligible people has received considerable attention during 2000 by The National Bipartisan Commission on the Future of Medicare, the two presidential candidates, and the U.S. Congress.

To date physicians and hospitals have been able to sidestep the issue of an annual increase of 10 to 14 percent in non-hospital pharmaceutical drug expenditures. A number of reasons are given for this significant rise: an additional number of prescriptions are being dispensed: new and costlier drug therapies are being introduced: antidepressant drugs are being substituted for more expensive psychotherapy: narcotic analgesics and other prescriptions are used as an alternative to avoid or to shorten hospital inpatient stays: and some patients demand that their physicians prescribe by trade name or they will find a more willing practitioner. (24)

Integrated delivery systems, managed care plans, Medicare, and other insurers have historically avoided providing benefits for prescriptions. Western and central European countries provide coverage for prescription drugs, usually with a modest deductible or coinsurance provision, and the number of prescriptions per capita filled there are twice or more than in the United States or Canada. (25-27) With an increasing aging population on modest fixed incomes in the U.S., many of whom have one or more chronic illness, the cost of pharmaceuticals has become a serious problem for those without drug benefits.

Rather than providing Medicare pharmaceutical benefits, Congress could follow the Canadians and Germans in establishing a patent medicine review board that prices new drugs. Such a proposal would be opposed by the pharmaceutical industry with its powerful lobbyists, but Congress would receive strong endorsement from an equally powerful group, the American Association of Retired Persons. It is unlikely that either the health networks or the managed care plans will be able to grapple with the pharmaceutical industry in lowering drug costs. Providers and insurers, with the endorsement of consumer groups, should be expected to eventually lobby federal public officials to step in by adding pharmaceutical benefits to Medicare or a patent medicine review board.

While the pricing of the most popular drugs might be monitored by the review board, the region's total pharmaceutical expenses might eventually be tied to provider revenues with the physicians serving as the gatekeepers' to constrain expenditures. Telling physicians if they "over-prescribe" that any "excess dollar amounts" will come out of their revenue stream, as enacted in Germany in 1993, (28) would certainly make American doctors angry.

The U.S. health scene in 2010

As a reaction in the next decade to an inevitable slowdown or recessionary period in the United States, health networks will divest themselves of unprofitable physician practices: shutter economically unproductive programs, services, and facilities: eliminate a large number of management and business office-oriented positions: and pressure the federal government to control pharmaceutical pricing. It is unlikely that physicians and health networks would lobby Congress to enact a national health insurance plan through organizations such as the American Medical Association and the American Hospital Association. This is primarily because Americans are innately opposed to government officials being responsible for delivering their health services and don't embrace the concept of universal access and social equity.

Americans have traditionally rationed health services by family income and the ability to pay for care. Therefore, instinctively, health providers will perpetuate a three-tier health care system whereby the uninsured poor continue to receive care in urgent circumstances; the middle class obtain coverage for almost all medically needed services through managed care plans: and the wealthy continue to opt for the flexibility of using providers of choice (upper income Medicare eligible will select fee-for-service or point-of-service plans).

Conclusion

If these predictions for the next decade are anywhere near being "on target," physician executives can anticipate that their colleagues who practice in the community will become more agitated, particularly among those who diagnosed and treated patients "in the good old days." Younger physicians, who grew up with HMOs, will be more tolerant of the more bureaucratic approaches used by insurers to curtail utilization and cost, and of third-party payers who are not overly concerned with quality of patient care.

It is difficult to envision that the role of physician executives when working with community physicians will be anything but more demanding in the future. The most skillful management, often requiring downsizing to constrain costs, will be needed as physicians express more anger as they are forced to cope with change--something that is expected to come in huge dosages in the new millennium.

References

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Thomas P. Weil, PhD, a hospital and health care consultant for the past three decades, is the author of Health Networks: Can They Be the Solution? being published later this year-jointly by The University of Michigan Press and the American College of Physician Executives. He can be reached by calling 828/252-1616 or via email at [e-mail].