Paying physicians in advanced managed care markets.

MUCH HAS BEEN WRITTEN ABOUT PHYSICIAN compensation in managed care. Historically, the most notable and consistent feature is that physicians now receive less money almost universally. Most employers and payers will still cite low cost as the most important consideration in purchasing managed care benefits, so it seems that paying physicians less is consistent with market demand.

Physician payment mechanisms in managed care are abundant. Very few providers are paid billed charges; most are based on a managed care generated fee schedule that equates to a discount off billed charges, and still fewer are paid by some form of capitation. For primary care physicians, reimbursement may be capitation for primary care services only, or involve accepting risk for specialty, hospital, ancillary, or catastrophic services.

For specialists, capitation often implies the use of discounted fee schedules as a method by which the physician will "draw" a fee for services rendered that will eventually show as a debit against the overall capitation payment for that specialty. In addition, some specialists are placed at risk for hospital expenses, providing greater risk/reward for those specialties participating. Other, more creative mechanisms are in place (i.e., point of service capitation), but still only represent a fraction of total provider payment.

Beyond reimbursement for services rendered (fee schedule), or receipt of capitated payments, there are managed care models that have begun to include rapidly increasing physician rewards for desired behaviors mainly directed at primary care physicians. These behaviors include, but are not limited to, compliance with medical management programs, patient satisfaction, participation in quality and outcome committees, keeping practices open to new managed care patients, and most importantly, superior economic performance defined by clinical resource allocation for a defined population.

The economic performance models have mainly been directed at primary care physicians, and the measures usually pertain to specialty referral, inpatient days per thousand covered lives, and total per-member-per-month medical expense for a covered population. Newer measures involve compliance with various HEDIS measures and various specific outcome objectives (i.e., cesarean section rate).

The last major category of physician compensation models in use involves deselection from the health plan. This results in indiscriminate removal of specialists perceived to be in excess, without regard for any specific parameters defining specialist physician "value" to the health plan. "Downsizing" specialists is required because of oversupply, and the desire to more effectively channel specialty care.

Surveys of managed care organizations find most are proficient at delineating the financial consequences of physician reimbursement. They can, to the penny, describe the implication of physician expense as it relates to total medical expense, loss ratios, and profitability. In addition, there is a consistent relationship between managing physician expense and the urgency of the next quarter's bottom line in either a for-profit or not-for-profit managed care organization. Often overlooked is the relationship of physician compensation to the adequacy of patient care--the extent to which we prevent illness and a responsibility to keeping our patient population productive both at home and on the job. Employee productivity and quality of life must become the measure of physician performance and compensation in managed care.

Consider the evolving picture developing in our most advanced managed care markets. Price is still paramount, but the development of HEDIS, the birth of NCQA, and a new and expanding emphasis on patient satisfaction do not have as their common denominator immediate financial gain, but instead emphasize quality. More sophisticated payers (e.g., Washington Business Group on Health) are looking significantly beyond price as a determinant in selecting managed care organizations. Price, to this group of payers, means maintaining a reasonable budget item for several years to come. What should be important to managed care organizations is why employers provide a health care benefit in the first place.

Simply stated, the goal is productivity--having employees at work, performing useful tasks. The ability of the health plan, its providers, and staff to take shared responsibility for the well-being of the population it covers is vital to the success of managed care. Included in the emphasis on productivity are the various disciplines surrounding managed time loss, with a focus on not only Workers' Compensation, but also short-term and long-term disability. Health plan performance will not only be enhanced by control on medical expenses associated with disability, but also through managing time lost from work.

To meet the emerging needs around productivity, the first step is to determine marketplace needs around overall productivity and disability management. Some employers have articulated their needs in this area, while others would welcome the opportunity to develop requirements and strategy around the subject.

Observations to date include:

* Most employers would like an integrated approach involving their managed care purchasing and disability management.

* Most vendors are unwilling or unable to offer such integrated solutions.

* The roles and responsibilities of the primary care and specialty care physicians in the triage and care of injured or disabled workers is not well understood by providers in general.

* There is no clear model delineated to determine a physician's reward around the increased productivity of their managed care population.

It is apparent, then, that advanced managed care organizations need to take steps toward developing products and services to meet these rapidly emerging needs, including:

* Incorporate into the provider panel those physicians and allied services necessary to support the preventive and curative aspects of occupational medicine; (personnel skilled in safety, workers' compensation laws, and disability claims management).

* A thorough, market-driven education and communications plan to providers regarding the key drivers of disability and productivity and a clear explanation of their expected role in these disciplines.

* A well-articulated physician compensation plan that will align physician incentives and help achieve the ultimate goals of enhancing productivity and minimizing disability.

Whereas it is important to create compensation arrangements that will support desired behavior, there is a danger in making these arrangements too complex. As discussed earlier, there are many parameters in place to reward physicians in a managed care environment. Adding additional performance measures based on productivity and disability management may become an administrative burden, and cause physicians to lose focus with regard to prioritizing the various incentives. With direction from employers and input from physicians and plan management, new incentive programs can be streamlined to be effective physician behavioral management tools.

Physician compensation models in managed care have progressively evolved over the past five years. The most important measurement parameters of variable compensation include appointment access, patient satisfaction, and economic performance. These have been significant advances in changing the focus of the health care industry towards more customer satisfaction. Most would agree, however, that an active, productive lifestyle in leisure and at work is the most desirable outcome of any encounter with the health care system.

Paul R. Berger, MD, is the Director of the Eastern Region for William M. Mercer's Provider Consulting Practice in Atlanta, Georgia. He can be reached at 404/614-2956 or via fax at 404/523-1504.