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Status quo won't work.

Status Quo Won't Work

Although business coalitions have been around for some time in the health care field, their record of performance has been spotty. The avowed goal has been to get a handle on health care costs. Because costs continue to rise unabated, it can be argued that the effort has not been an over-whelming success. But does that trigger the need for another organization to represent the interests of business in the health care delivery system? Convinced that managed care is the approach of choice, Joseph Duva answered in the affirmative and created the Managed Health Care Association last year.

"The association was established with a letter that I sent in August 1989 to about 100 key people in major corporations," Duva says. "I asked if they were interested in joining an organization whose primary purpose would be to look at alternative delivery systems as a more cost effective way to provide health care for employees and dependents." Seventy-seven people indicated an interest, which was the "significant response" that Duva was seeking.

The group had its first meeting last November in New York City, with 110 people in attendance. "Basically," says Duva, "the format of the meeting was to allow insurance and health care companies to talk about what they're doing in managed care and about the various approaches to managed care. I felt it was too early to lock in on one approach. We are still trying to find out what works and what doesn't." When the attendees were able to meet and talk among themselves, they were able to compare notes on their programs and learn what was working well and what has flaws, he says.

Because of his new position with a national consulting firm, Duva no longer has a direct role in the organization he founded. The future direction of the Managed Health Care Association is now in the hands of its elected officers, he says. But it is already moving on a number of initiatives that should begin to attack the deficiencies of the health care system, he says. An important goal for the group, he says, will be the development of "uniform standards of quality and data requirements for managed care programs. One program can't be compared with another because they have different datasets. We get different data from insurance companies, and we don't get it as often. But it basically will be a spokesperson for managed care on a nationwide basis."

The Managed Health Care Association was never intended as a lobbying group, for the health care field or for industry, however. Its function will be data gathering and education, Duva says. "There are a lot of organizations that represent employers in Washington. We want to be more of an action group that is a laboratory of experiences." Another important function of the group, he says, will be information exchange--"to know what is going on in various companies and how it is working." He believes that the organization will be instrumental in helping companies make the transition from fee for service to managed care. He is encouraged by the interest that has been shown in the organization by small employers and government agencies, including state and local.

Allied Signal was one of the first companies to make a total commitment to managed care. Duva says that the company was driven by the three major problems that cause people to do bold things in health care. "There was a bottom line squeeze, pending FASB requirements for retired employees' medical benefits were going to be onerous both as a charge to earnings and balance sheet, and health care was out of control. In 1987, health care costs were up 39 percent, and we were looking at trends of more than 20 percent a year."

There was little argument at Allied that something had to be done. "We had to treat health care like we treat any other business," Duva says, "and we had to find ways to make it more affordable. As much as possible, our objective had to be to get cost increases down to single digit. Increases in that range can be dealt with. Especially when you are competing worldwide with companies that don't have these kind of cost swings."

When Allied Signal put its total, nationwide managed care plan in effect in 1988, only one other company, Southwestern Bell, had attempted anything similar, and its program was regional in nature. "What has happened since then is incredible," Duvs says. "Marriott, Sears, McGraw Hill, First Interstate Bank Corp. Everyday you pick up the paper, another one or two companies have moved to point-of-service managed care programs. If you add those that have moved to direct contracting--Southern New England Bell, Bell South, BP Petroleum, etc.--and those that deal directly with clinics--Goodyear, RJR, and Gillette--the use of this technique is expanding at a rapid rate."

If Duva is correct in his assessment of where the health care field is headed, business will play an increasingly important and influential role. And its involvement will go well beyond mere cost reduction. Allied Signal's efforts are instructive. "All the health care experts I talked to said you have to be serious about managing health care, be pro active, and get involved in appropriateness and quality of health care. If you are willing to do all this, you can get a payback. Allied Signal management was advised that there were some managed care programs that could deliver increases of about one half of what fee-for-service indemnity plans were offering. However, it would not be without pain."

Allied Signal management bought the approach, and the rest, as they say, is history. Duva says that, in 1987, the company believed that the time frame for introduction of national health insurance in this country was three to five years. He believes that the time frame has gotten uch wider. "Where I would have agreed in '87 that national health insurance was three to five years away, I am inclined to think it is more like 10 to 15 years away today. I think we have the opportunity to prove whether we can correct the health care system from the private sector."

Duva believes that the comfort level of companies with this approach to managed care is rising. "When the Allied Signal plan went into effect, we were three to five years ahead of our time. Nobody was ready for point of service nationwide for a lot of reasons. There weren't any systems in place. There were networks, but they were run by local management and were not coordinated by the parent company or corporate buyer. A lot of administration and coordination problems had to be overcome, and regional differences had to be resolved. When a plan is set up on a national basis, you will discover that in some parts of the United States, even at this late date, it is difficult to find providers to join certain types of managed care programs."

Duva is not inclined to let the health care system off the hook easily. There is waste, he says, and it has to be removed. "If we eliminated unnecessary and inappropriate care, we would have enough dollars to provide health care for everybody. It has been in existence for only two years, but the Allied Signal program is already showing remarkable results. Clearly the program has squeezed out inappropriate and unnecessary care. Our costs without the program would have been $750 more per amlloyee annually. That's a significant savings for a company with 45,000 employees in the program, 120,000 people when you add dependents."

Moving from a fee-for-service system to managed care is no easy task, Duva says, especially when the move is on a national basis. "There are a lot of problems. The mindset of the American people is a major hurdle. They've become comfortable with the health care system. And there are regional variations in health care services. Clearly, the United States is not one country when it comes to health care. The attitudes of both providers and employees vary around the country," he says.

Provider resistance can be a substantial impediment to the establishment of managed care programs. Duva's experience in New Jersey, the home base of Allied Signal, is illustrative. "My experience is that providers generally will resist managed care as long as they can. When it becomes inevitable, they will participate. Northern New Jersey did not have a network in place when we decided to move ahead with this program, and we felt we had to do it in New Jersey if we were going to do it in the rest of the country. We proceeded and had CIGNA build a network only to find out that some of the providers we wanted in the network would not join. They told us that Allied Signal wasn't big enough for them to change how they practiced medicine. But I think the road blocks that have been in the way of managed care are breaking down everywhere at a rapid rate. As more employers do it, there will be baster growth. Providers now know managed care is inevitable. In fact, they are developing their own managed care programs."

Duva believes that major employers have both the will and the ability to come to grips with the cost reductions that are necessary. He also believes that these employers will be moving ahead aggressively to control costs, without significant damage to benefits, in the near term. He is less confident about the ability to small employers to become part of this changed system in the absence of outside assistance. And the results of failure to include small businesses in the solution could be a disaster, he says. There are models, Duva says, that offer hope. He believes that we have to work state-by-state in "establishing some kind of ability for small employers to buy just as large employers do. A small business coalition in Cleveland has been effective in keeping the rate of increase in health care costs down for about five years. Unfortunately, there are some state laws that prohibit those kinds of arrangements, and they have to be wiped off the books. That is the only way we are going to solve the problem."

"Large employers will eventually have the tools, such as standards for quality and data management techniques, to effectively control their health care costs," Duva says. "Small employers have to have the same advantages, have to be able to purchase health care on the same basis. If they don't, the whole system will fall apart. They will stop providing health care benefits. Their employees will not have the insurance, and this country will have a lot more than 31 to 37 million uninsured."

When the situation is finally turned around, and health care costs are finally under control, it will be because business has become actively involved in the process, Duva says. "Companies can no longer leave it just for the providers and the insurers. Companies have never really seen that they have any ability to manage health care costs. They have always felt very uncomfortable in the health care field. They could make great decisions everywhere but in health care. The cost of health care has gotten so high that companies are now saying they have to do something." Duva also believes that companies have to deal more honestly and forthrightly with the health care system as a matter of obligation. The purchasers of health care, he says, have been part of the problem. "Business has paid blindly for services. Clearly, the more buyers that join the system, the better it works. If only isolated companies use the approach, it is doomed to failure."

Duva's biggest concern is the definition of managed care that finally evolves. "It means different things to different people. I think there are a lot of managed care programs that were doomed before they were put in because of the structural or financial model that was used. Unfortunately, those situations will give people reason to say managed care isn't working. Real managed care does work. The data prove it. If a company stays with fee-for-service indemnity plans, its cost increases are likely to be in the 20-26 percent range, maybe worse in some areas because of cost shifting. If some soft kind of managed care program, something that has very little intrusion, very little pain, is used, the increases will be 13-17 percent. However, if the managed care programs have some discipline and control, and providers feel some pressure on them and employees realize there are limitations on them, there is the opportunity to reduce increases to the 6-12 percent range. Too many companies facing these alternatives go for the middle of the road. It's easier. There are fewer employee relations and provider problems, and they can say they have managed care."

The business community has to make some hard decisions, according to Duva. "Are we going to touch the system up, or are we going to make a real change? Are we really going to pinch the system and make people understand that they will have to be more disciplined?" Many years ago, he says, the business community made a fundamental mistake with the insurance companies when it forged administrative services contracts with them. "We thought we were doing well. We would just pay them for handling claims. What we did was remove any interest on their part in cost containment or cost control or in dealing with providers, because they were paying with our dollars. In fact, the more claims, the more dollars they got paid. We have to get the incentives right. The current system rewards for higher volume. If we can reward for doing less and for providing good quality of care, we will lower our health care costs. It's an approach that might also be used profitably by the federal government with the Medicaid and Medicare."

Wesley Curry is Editorial Director, American College of Physician Executives, Tampa, Fla.
COPYRIGHT 1990 American College of Physician Executives
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Title Annotation:Ernst and Young's Joseph W. Duva on managed care plans
Author:Curry, Wesley
Publication:Physician Executive
Date:Jul 1, 1990
Words:2341
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