The impact of health care reform on group practice.

Change in the health care industry had already begun to accelerate by the start of this decade, particularly with respect to the way that health care is financed, organized, and provided. In 1982, only 10 million people were enrolled in HMOs; by 1994, the number had risen to 50 million. Another 45-50 million were in some type of managed care plan. Last year's HMO enrollment growth was the largest since 1987. The Group Health Association of America projects that HMO membership nationwide will reach 100 million by the end of the decade.[3]

Networks of medical providers have been emerging everywhere. Consolidations of hospitals, physician practices, medical groups, and other health-related companies have been occurring throughout the industry. Hospitals have begun to experience the impact of declining bed usage. Between 1971 and 1990, there was a reduction in the number of hospital beds from 1.7 million to 1.2 million. Despite this decline, the average hospital occupancy rate today is less than 66 percent. This means that there 440,000 unoccupied beds on any given day, and $22 billion in wasted health care dollars annually.[4] Faced with further declines in inpatient bed usage due to managed care, hospitals are merging with one another, closing down underutilized programs and services, or closing their doors.

New methods of paying for medical care have been spreading rapidly across the marketplace. The diagnosis-related group (DRG) system for hospitals and the resource-based relative value scale (RBRVS) for physicians were the new payment methods of the 1980s, but they are being replaced rapidly by capitation and other forms of prepayment (e.g., package prices). Medical providers are being asked to work within fixed budgets and to share financial risk.

The term that most aptly describes the changes in the private health delivery and insurance sectors is system integration. Fully integrated health care systems are emerging across the country.[5,6] The essence of these health systems is that they combine the financing and the delivery of care. Those who insure, accept the financial risks, and administer payments work together through contracts, partnerships, or other arrangements with those who deliver care. The efforts have been initiated most often by health insurers or managed care companies, but increasingly hospitals, and even physicians, are taking the lead.

Reform Directions

Although President Clinton endorses the concept of managed competition, his version of what it means differs from that articulated by others. The Clinton Plan was prepared with broad input from many individuals, some with very divergent views. Therefore, it is not surprising that it contains aspects that will satisfy conservative Democrats who favor market-based reform as well as aspects that will appease liberal Democrats who favor a government-controlled, single-payer approach. Proponents of true managed competition, such as Rep. Jim Cooper (D-Tenn.), believe that the Clinton Plan is far too heavy with government regulation and mandates and leans toward government control of the system. Cooper, and a growing, bipartisan group of House members, espouse an approach that would focus on market-based reforms and universal access to affordable coverage, but not mandated coverage by all employers. The Cooper plan was recently endorsed by the U.S. Chamber of Commerce and the Business Roundtable and appears to be gaining support.[7]

In the final analysis, however, the views of Democrats and Republicans will need to be melded. Because Republicans favor less government intrusion in the health care market-place, we should expect a final product that has much less regulation and government control than what the President has proposed. It is a fair bet that the following elements will probably survive the bureaucratic fights.

* Voluntary health insurance purchasing chasing cooperatives (HIPCs), with enrollment limited to small employers.

* Accountable health plans (AHPs).

* A comprehensive standard benefits package.

* Open enrollment in health plans.

* Individual choice of health plans.

* Requirements for health plans to monitor and make public certain quality measures.

* Some version of a modified community rating.

* Portability and guaranteed issue of insurance coverage.

* Restructuring of Medicaid to allow states to "fold in" beneficiaries to HIPCS.

* Recommendations to reduce paperwork and increase electronic data interchange.

* Recommendations to reduce liability concerns and defensive medical practice.

* Additional funding for technology assessment and practice guideline development.

* New taxes on tobacco to support financing of newly covered individuals.

* Certain measures to provide states the flexibility to pursue and implement their own versions of reform.

Elements that are not predictable at this time include.

* Whether there will be a proposal to limit the tax deductibility of employer-based health insurance coverage.

* Whether there will be some element of an employer mandate.

* The "phase-in" period for universal coverage if it does get included.

* The additional tax sources that will be needed to fund universal coverage.

* The mechanisms that will be recommended (besides the market forces associated with managed competition) to restrain health spending in the short and long term.

These last issues are probably the most difficult, because none of the options will be politically popular. The most likely result, in my opinion, is that moderate Republicans and conservative Democrats will join forces and put forward a plan that focuses on insurance market reforms and extension of coverage to low-income families. A Clinton-like plan is very unlikely to pass, in my view.

Impact on Physicians and

Group Practices

The impact of health care system reform on physicians will be substantial, regardless of their specialty, geographic graphic location, or type of practice. With respect to physicians in group practices, the question is not simply whether one is a member of a group practice, but also what kind of group practice is involved. How large is the group? Is it oriented to primary care or specialty care? Does it have a relationship with an HMO or managed care plan? Does it have a relationship with a hospital? Is it located in an urban or rural setting? Is it affiliated with an academic center, or is it community-based Could it effectively compete for patients as part of an accountable health plan? How well is it managed, and how efficiently does it operate in comparison with similar groups in the community? Does it have effective leadership and a governance structure that will allow for prompt decisions? How old are group members, what are their current career aspirations, and how willing are they to make changes that might become necessary?

As noted earlier, the underlying trend in health care delivery is toward integrated and accountable health care systems that combine the activities and align the interests of physicians, hospitals, and health insurers. In a "managed competition world," the three parties would work together, ideally cooperatively, in a local community as an accountable health plan. The plan would compete against one or more similarly structured plans. Related trends are an increased demand for primary care physicians (and thus higher salaries), a decreased demand for subspecialist physicians (and thus lower salaries), larger medical groups, movement toward prepayment and capitation and away from fee-for-service payment, increasing sophistication in medical management, improved information technology and quality assessment within medical groups, and the formation of new structures, such as physician-hospital organizations (PHOs). All of these changes will have an impact on the roles of primary care and specialist physicians. The primary care physician will have a much more prominent role. He or she will be viewed as the patient's "personal care manager," managing referrals to specialists and overseeing care throughout the system.

Group practices that survive and even prosper in such an environment will be those with established relations with successful, growing managed care organizations; those that have strong relationships with hospitals that could effectively manage or partner with group practices; those with strong physician leadership; and those freestanding primary care group practices that are well managed.

Multispecialty group practices lacking a clear vision or a long-term managed care partner could be vulnerable, as could single-specialty groups that do not have an established niche or a reliable partner. Academic medical center group practices are particularly vulnerable, because they have not focused on primary health care delivery and because their members have not been used to competing for patients. Also, academic physicians are accustomed to time for research and teaching - functions for which there might be fewer dollars in the future - and they have limited experience with utilization management.

Recommendations

What can physicians in group practices do to increase the likelihood that their groups, or that they individually, will succeed in a reformed health care environment?

* Learn all that you can about health care system reform proposals and policy options, at both the national and the state level. Pay particular attention to what is occurring at the state level, and how health care delivery is being reorganized in your community. Regardless of what transpires at the national level, it must all be "played out" at the local level.

* Get involved in your local and state medical societies, but also consider participating in other groups, such as employer health coalitions, the American Group Practice Association, the Medical Group Management Association, the National Association of Managed Care Physicians, the Group Health Association of America, and the American College of Physician Executives. All of these organizations are good information sources on changes in the health care environment and on how to manage through these changing times.

* Understand what you and your group practice do well and focus on that. Do not try to do everything or to add services to compete. Remember that your competition will likely be at the local level. You probably know who they are now. Focus on improving the way decisions are made and on how individuals are held accountable within your group practice. An example would be implementation of a performance-based compensation system that includes criteria to measure patient satisfaction, utilization, and clinical quality. Improvement in these management processes will be far more valuable than a focus on how revenues are distributed or on how to satisfy individual physicians, desires.

* Be prepared for change and remain open to new ideas. Think in terms of being a driving part of an integrated health care system. Remain positive, because there are always opportunities for those who can find them.

* Seek an organization that has a proven track record of working together effectively with physicians, that shares your values, and that is worthy of trust if your medical group is considering an affiliation, partnership, merger, or acquisition. Make sure this organization has knowledge and experience that is beneficial for the long term, not just "buying power." Take time in appraising your partners. Ask all the questions you can possibly imagine. If your group is small, realize the potential power and inherent long-term advantages of working together with a larger group of physicians, even if it requires giving up something in the short term. Look for partners with good reputations, experienced medical leadership, and solid values. Clarify at the outset how governance issues will be addressed.

* Get clear commitments if your group is seeking capital. Understand the terms and limitations of any agreement with an entity that is providing financing for growth or expansion. Explore fully the risks that may be involved. Seek expert advice to provide perspective on these situations.

* Consider retraining and pursuing a career as a generalist if you are a subspecialist and your future is very uncertain in economic terms. There is a significant shortage of primary care physicians, and their compensation is likely to rise consistently over the next several years. Also, because of the increasing sophistication of practice management tools and organizational supports, primary care practice is becoming more and more attractive to many physicians.

Summary

We are already in the early stages of dramatic change within our health care system. Reform of the health care system is occurring, but final decisions are far from being made. It is not too late to become involved and to help shape the outcome. There are many ways in which the current environment presents great opportunities for physicians in group practices, but physicians must take steps to ensure that their practices will continue to be personally rewarding. Today is a time to be optimistic about the possibilities for an improved health care system.

Nominations Sought

for Literary

Achievement Awards

Nominations are being sought for the 1994 Rodney T. West Literary Achievement Award. This program acknowledges and rewards members' written contributions to the field of medical management. The award is for the year's outstanding contribution to the periodical literature on medical management. Clinical literature will not be considered. The deadline for applications is January 31, 1995.

Articles must have been published in professional or nationally circulated magazines or journals during 1994. If the article was cowritten, verification of primary authorship must be provided.

All applications will be reviewed by a panel of experts, and the winning author will be recognized in May 1995 at the College's Perspectives in Medical Management conference in Chicago, Ill. The winner will receive a Jaffa Emerald Crystal, and press releases detailing his or her accomplishments will be sent to leading health care publications.

William Winkenwerder Jr., MD, MBA, is Vice President and Chief Medical Officer, Prudential Health Care System, Southern Operations, Atlanta, Ga.

References

[1.] Ladenheim, K. "State Legislative Action: The Year in Review." Health System Review 26(5):10-3, May 1993.

[2.] Iglehart, J. "Health Care Reform: The States." New England Journal of Medicine 330(1):75-9, Jan. 6, 1994.

[3.] "HMO Enrollment Increase Biggest Since 1987." Managed Care, Jan. 1994, pp. 9-12.

[4.] Farag, F. "Public Needs More Facts to Measure the Scope of Healthcare Problem." Atlanta Journal Constitution, Jan. 30, 1994.

[5.] "Toward a Seamless Health Care Delivery System." Frontiers of Health Services Management 9(4):1-45, Summer 1993.

[6.] Meyer, H. "Braving the New World: Reform or Not, Managed Care Is Shaping the Future." American Medical News 37(2):3,6-8, Jan. 10, 1994.

[7.] Clymer, A. "Big Business Group Backs Rival Plan for Health Care." New York Times, Feb. 3, 1994.