What lies ahead? Where are we going?

FUTURIST ALVIN TOFFLER HAD IT RIGHT IN his 1970 book Future Shock when he wrote about the stress and disorientation that can result from the "premature arrival of the future." On the other hand, there is nothing in his book that anticipates the impending shift in health care. Who would have guessed that managed care would dominate the health care industry in the final two decades of the millennium? That physicians would be joining labor unions? Or that they would be going back to school to become Fellows of the American College of Physician Executives? To find out what may be in store for health care in America five to 10 years hence, The Physician Executive asked nine health care experts to participate in a two-part panel discussion. Here's what they see ahead in managed care, information technology, and biotechnology.

The Physician Executive: How will relationships change between consumers, employers, insurance companies, managed care organizations, and providers?

Coile: In more mature managed care marketplaces, like the Twin Cities or Portland, we're seeing a new form of cooperation among businesses that focuses on issues that go beyond price, such as health accountability for the enrollees and customer satisfaction. Over the long term, multi-year contracts are going to provide an economic framework for provider risk-sharing between plans, payers, and purchasers. This will give us an opportunity to focus on health risk management, with a particular focus on the chronically ill. Managing an older population is really the challenge of the future for managed care plans.

LeTourneau: I think these relationships are going to continue to follow the money. They've always been about the money. Initially, it was the patient paying for care. Now, we're seeing the employer and the insurance company paying for care. As we start to look at other ways of empowering the consumer again--spending their own money, in other words--we'll start to see the pendulum swing back. All these relationships are going to change based on who's paying and where the money's coming from.

Reinertsen: All these relationships are strained right now. There's a lot of distrust because of conflicting incentives in the market model, as Barbara mentioned, where the focus is on the purchaser rather than on the individual consumer. There are also markedly different definitions of quality amongst all these different players. In the future, these relationships are going to depend on whether we come to a more rational market model and to a more common definition of quality. If we get that kind of leadership, I think some very interesting things could happen, particularly if we were able to create a market model in which individual consumers really made the health care buying decisions.

Reinhardt: There have always been financial incentives for the providers and for third parties in this century. But the truth of the matter is that in modern medicine, the patient never has played a role. The deal always was between providers and third parties. Since 1967 to the late 80s, basically the providers ran the show. We gave them the key to the treasury and said, "Do for these patients--who know from nothing--whatever you think is right. Then go to the treasury and take your usual and customary scoop." Then we started to shift a little bit the power to third parties, to the insurers, but I would argue only a little bit. Most of the power still rests very much with providers, and the patients are still totally out of it. They have basically no say because they do not understand much about medical treatments and they know even less about the true prices for the services they use, at least not before they "buy" these services. And now, in the 21st Century, power may shift to the patient. My sense is that physicians themselves should at some point try to regain control of part of medicine, but also to regain the trust of patients. At the moment, as you all agree, no one trusts anyone in health care.

Ruffin: I am aware of the strain between providers and contractors. As I teach informatics around the country, the organizations I'm dealing with are bewildered by the financing and the data they need to improve quality and manage costs. We teach quite a few individuals who come to us, but we have corporate contracts to teach hundreds of physicians and managers, and they're all wondering how can we use technology and data definition and data standardization to help collect the information that will allow us to manage quality and costs more effectively.

Reinertsen: I just want to comment briefly on the consumer-driven market model which is just in the first few months of deployment here in the Twin Cities. It will be a while before we know exactly how it all works out, but it's very similar to the Clinton model of a health care purchasing cooperative in effect, where people are given a voucher to go out and buy care not from health plans but from much smaller units called care systems. The consumer payment rate is not risk-adjusted, but the care system payment rate is. There are lots of pros and cons about it, but the neat thing about this market model is that it puts an enormous value on the strength and quality of the physician/ patient relationship. That becomes the primary driver of market success for physicians.

The Physician Executive: You're talking about the Choice Plus plan in the Twin Cities?

Reinertsen: Yes, it's the consumer care system model. It's often called the Buyers Health Care Action Group Choice Plus model.

Vogel: In regard to the relationship issues, I've always been impressed with how slowly change occurs in the health care industry, even though we believe that change is imminent. Typically, it happens in fits and starts with a lot of trial and error, even though all five components of the health care system that we're talking about here will all be moving simultaneously. It's like a huge Rubik's cube in terms of the roles and relationships that will be playing out. In Minneapolis we're seeing probably the most highly evolved examples of the influence employers have on the health care business and on managed care organizations. I don't know of very many markets that are nearly as intense and it certainly is interesting to see the influence they have had on basic organizational evolution--meaning mergers and affiliations among various organizations in Minneapolis over the last few years.

What will probably differentiate some of the more successful organizations from the ones that might not do as well is that the successful ones will identify what I see as an undefined or an unclaimed set of functions in the industry. These have to do with managing care in contrast to primarily managing access and managing reimbursement, which is what most managed care organizations have historically done.

The care delivery systems are essentially what I'm talking about, and if providers take that challenge to really manage care seriously, they will change their relationship substantially with the rest of the system. This is going to need to be addressed somewhere down the road, but I don't have a lot of confidence that many care delivery systems around the country are prepared to do that. Long-term commitments among the components will define key relationships, and the 12-month spot contracting strategies will probably come to a halt one of these days.

The Physician Executive: Will provider-sponsored networks (PSNs) become a force?

Coile: The answer is yes. There are over 500 provider-sponsored networks now. Most are hospital-sponsored, regional "super PHOs." A few are statewide. The ultimate number of these networks may climb to 600 or 700 before we begin the inevitable process of consolidation. I think at least a third, perhaps 50 percent, of provider-sponsored networks will wind up getting a managed care license.

LeTourneau: I agree with Russ. One of the key factors, I believe, is how states are going to regulate the issue of getting managed care and HMO licenses and the whole issue of reserves. In states that take a very lenient view, PSNs will become a real force to be reckoned with, and health plans will become sort of the third party administrator and do the business functions, but the physicians will run the show. That will be very interesting, to see how the system changes when you have the physicians more in the driver's seat, making more of the actual clinical care decisions without having the health plan influence.

Reinertsen: I think they will be given a chance, but whether they'll be a force or not will depend on two things. One is whether or not we define a PSN as any three doctors willing to get together and work. In other words, whether we set the competency bar high enough for the capabilities necessary to succeed, and I think we're going to have to set it pretty high if they're going to be viable. The second thing will be whether any of these physician and hospital-sponsored networks who see this as an opportunity to kind of get back at the plan, so to speak, and do their own thing, will in fact have the backbone to do the hard things that are necessary to be competent at this.

Reinhardt: I think if PSNs make it, it will be with the help of the Medicare program, primarily. Employers outside of Minnesota really are not that fond of dealing with doctors as a group or even hospitals. They are much more comfortable with insurance carriers. By contrast, Medicare and Medicaid have always dealt directly with docs and hospitals, and I think they will be the major catalyst for getting these networks going. I think PSNs will be a major force.

Ruffin: I think the insurers and the provider organizations are beginning to look an awful lot alike. When I talk to friends of mine at Aetna and in Prudential and Cigna, they don't describe themselves as insurance companies anymore. They say they're health care delivery systems and they're either purchasing group practices or they're contracting with them like Cigna did with Lovelace. Aetna is spending a couple hundred million dollars on a computer-based patient record and network architecture to link doctors' offices into a more cohesive provider organization than you'd think they would spend or invest if they were simply processing claims. Prudential's investing in group practices in many parts of the country, including the Orlando Medical Group. There's a large multi-specialty group practice in Orlando that Prudential has acquired, and they're developing a computer-based patient record at that site to be distributed among all the Prudential sites. So, insurers are beginning to look more like delivery systems, and the organizing delivery systems are beginning to take over insurance functions, and that would seem logical to me.

I think provider sponsored networks are going to succeed in many places. Some may be funded by insurance companies that aren't large enough to create their own. You've got a whole tier of insurance companies that would like to stay in the insurance business, but maybe don't have the capital of a Prudential or an Aetna or a Cigna. I agree with the comment that you just can't have three physicians informally get together. That's not an organization. And I've certainly seen PHOs fail. Usually they're the ones that aren't willing to make the tough decisions about which physicians to include. If they're run by a bunch of subspecialists, it usually doesn't succeed. They can't be all-inclusive and succeed. This isn't a professional association where it's come one, come all, let's all join and be happy.

Vogel: The question is will they be able to deliver the beef? Where is the improvement in clinical outcomes, service quality, or cost in the provider service network? It certainly is not in the PHO concept that we've seen evolve and pretty much unanimously fail over the last 10 years. And it certainly is not in the horizontally integrated hospital and physician cartels that we've seen develop in a lot of markets, primarily for the purpose of dominating the market rather than for the purpose of delivering better value. I think it has to do with whether or not there's any better value coming out of the PSN.

Most PSNs will run into major strategic and operational conflicts if they attempt to also assume the functions of a licensed HMO. There is substantial divergence in the business objectives of a PSN in contrast to those of a licensed HMO and the contradictions in business objectives get in the way of succeeding in both businesses except in some markets that are relatively isolated. Minneapolis may be one of those. Other markets are more regional in nature. Force-fitting a delivery system into the market requirements of a successful HMO really causes major stress and strain that frequently precludes either one of them from succeeding.

Coile: I wonder how many insurance companies are going to follow providers down to the level of the $75 per-member-per-month premium? At that premium level, there's no money for an insurer who's publicly traded and who's committed to generating 15 or 20 percent net return to a national group of shareholders. If we see more of the kind of price-based competition we've seen in the Twin Cities, how many insurers like Metropolitan and Travelers may not just exit the health care business and leave it to the providers if the insurers are not going to be able to make money.

The Physician Executive: Are we going to see more integration in the health care industry?

Coile: There will be more horizontal integration, particularly hospital-sponsored. Also, physician management companies and IPAs are a growing force in creating very large medical networks. All provider networks are doing substantial vertical integration and much more actively substituting continuum of care services for the acute settings.

LeTourneau: I agree. The key is the continuum of care, providing service, making sure that you've got all of the links connected so that the patient moves through the system with a minimum of cost and hassle.

Reinertsen: It depends on the market model. If the employer is the purchaser, you will see a lot more of very large integrated systems because you have to cover a huge geography in order to be a successful competitor and vendor in a market where the employer is the purchaser. If it's individual consumers making purchasing decisions, you can stop once you get to a reasonable actuarial size. There's nothing that gets better by getting bigger in health care that I've been able to determine. So I think you will see some integration just to get to the level of actuarial safety, but after that you don't have to get bigger. The plan provider integrations that I have seen around the country tend to be very tenuous because the plans tend to want to grow by adding providers, generally around the fringes of the partner they've integrated with, and the providers want to channel the members to their facilities, and the two are fundamentally conflicting kinds of imperatives.

Reinhardt: Well, let's first of all admit that an awful lot of integration that took place in the last decade wasn't economically founded, other than that it was to gain market power, basically to be in restraint of trade. I think some of the big insurance companies, Prudential, for example, will probably get out of the HMO business before too long and sell it to U.S. Health Care or some other insurance carrier. What you need again is to have enough selective contracting that you can bully a provider if you're an insurance company, and so far they've given that up. Instead, they've integrated by buying one another, but in fact the networks of providers are getting ever larger, and I think the HMOs now have less market power than they had three years ago.

I believe that the HMO industry now is again at the mercy of the provider because why else can they not control their medical costs? Why? Because they discovered that every patient wanted to have access to every doctor, so they had point of service. Now you have direct access to the specialist. You're basically moving more and more toward warmed-over fee-for-service with these HMOs. Now maybe if U.S. Health Care and Aetna got together and bought Prudential, that one entity once again might have enough of one doctor's patients that they could bully the doctor again. But so far, I would score it five for the docs and two for the insurance industry. I think so far, the docs have won this game and the buyer side is on the retreat.

Ruffin: I think integration will continue. At least from a technical perspective, you've got to have some form of integration if you're going to share digital information processing. That's inexorable. You can't fund these enormous investments in computer technologies and networks unless you've got everyone in a single organization. It's just too hard to do it by some sort of committee or some sort of voluntary agreement to pool capital. I believe information is power and quality of care can be improved with retrospective analysis and timely access to data, and if you're going to take advantage of these digital technologies, you need to have integrated organizations to bring about the necessary standardization.

Vogel: I'm not sure. I'm seeing simultaneous integration and disintegration taking place in markets around the country. Why is that happening? I think one of the reasons is that some of the attempts to integrate in the past have not been able to optimize operational efficiencies or profitability or value produced by each component of the integrated enterprise. FHP's removal of its primary care physician component is a good example. You can see dozens of examples like that around the country. Isolation of the components from the market realities creates entitlement mindsets, which cause a great deal of inefficiency and, typically, reduced productivity.

The question is not so much whether or not the movement will be toward greater integration, because I believe it will, but I think the flavor or the complexion of the integration will change. I don't know that it will necessarily result in a single bottom line, but long term success will require long term business relationships that include substantive commitments that improve the prospects for all components moving cohesively toward aligned objectives.

As a result, the "who gets the profit margin" shell game that's currently being played among the components will get identified for what it is and will be played with some agreement among the parties about what the rules are and how to win. Somebody asked earlier what will happen to the insurance companies as the margin goes down. Well, there are still margins in the various components, they're just moving around. The question is, can we settle it down long enough to produce a reasonable margin in each component? Does that require a consolidation in a single enterprise? I don't think so, necessarily.

The Physician Executive: Is consumerism going to become more of a factor in health care?

Coile: In the short term, consumerism is going to become an important marketing factor in health care with the report card movement. Customer satisfaction, because it's the easiest thing to measure, will be the first factor to be reported. Consumer Reports-type indicators will rate the plans and the provider networks. In the long term, the emphasis will shift to clinical outcomes. Health care organizations will try to gain competitive advantage through risk management of the chronically ill patient in a large enrolled population. The short term, though, is going to focus on consumer satisfaction.

LeTourneau: I, too, think that consumerism is going to be king, for the next few years, anyway. I don't agree that risk management's going to be the competitive advantage. I think risk management and the quality of care is going to be the ticket into the game. You've got to have that or you're not going to play. The competitive advantage is going to be the service issue and managing the health care experience for the consumer. Right now in health care, we don't have any Ritz Carltons or a Lexus. We don't really have someone who's done the service thing. But I think that's probably the trend over the next few years as it pertains to consumerism.

The Physician Executive: Would you take a moment, Dr. LeTourneau, and expand on what you mean by service?

LeTourneau: Well, service to me means managing the care experience for the patient. Quality is a given. Managing the risk of the chronic populations is a given. But how well you meet the patient's perceived needs, both from the time they decide that they need something from the system--either from the provider or from the HMO--until the time they decide that they don't need something, making their experience seamless, easy, and pleasant.

The Physician Executive: You're talking about good old-fashioned customer service, aren't you?

LeTourneau: It's about customer service.

Reinertsen: I'd only add that I think we're going to see a lot of niches, almost "tribes," of consumers emerge where they will be able to find tribe-specific practitioners. People who believe in the healing power of prayer and also solid medical care will be able to find vendors they can match up with. The Internet is a wonderful example of how these tribes, which are geographically very broadly scattered and the similarly scattered vendors of services to these folks, can find each other. I think that's going to be an interesting feature of the consumerism issue.

Reinhardt: Well, I've heard this now for 15 years, that the consumer is in the driver's seat, ever since Ronald Reagan came on the scene. I must live in a part of the country where none of that is happening. If you look at New Jersey, consumers haven't the foggiest idea of what goes on. Princeton gives me an 8 1/2 x 11 inch sheet with the names of the HMOs and their premiums. I phoned up and said, "Can you tell me anything more about these HMOs?" and they said, "No, we just list them." I will put to you the case that this is typical of New Jersey, with the possible exception of AT&T.

I don't think consumers will be in the game in any meaningful way, at least for the next five years, and possibly even longer. Possibly in Minneapolis, because of that buying group, they might be given a little bit more say. But I would argue even in California, consumers basically are not in the game. Now I may be pessimistic here, but show me a place in the industry now where a consumer really has any meaningful information about either the insurance part of the deal or the health care part of the deal. Where is there such a place?

Ruffin: I agree that consumerism seems much more prominent in the Twin Cities from what I read. It is interesting that several of you have mentioned the Internet, and I really do think it would be a terrific opportunity at a very low cost for health plans to market directly to the public using web sites. A good example of that is what the Group Health Cooperative of Puget Sound is already doing in the Seattle area to try to build its market share, putting all of its HEDIS statistics and outcomes data on its web site. I shouldn't say all of its data, they're putting out the data where they look much better than the average. But in general, I think I agree with Uwe. Most people are pretty much passive in this. They wait for their employer to tell them what health plans they should consider.

Vogel: I think the answer will depend on how well or how poorly the newly evolving health care organizations do. They certainly will become bigger targets. Also, they are no longer the not-for-profit community or religious organizations that people have been somewhat reluctant to hold accountable. Now they're becoming industrialized models and they're more visible. If they fail to respond to at least the perception of service that Barbara was referring to earlier, let alone clinical outcome and cost improvements, the stage will be set for justifiable activism by consumers. But we certainly haven't seen much of it in the past, and except in isolated cases, I don't see it right now. I think consumerism will be a longer-term development.

Ruffin: I agree with David and Barbara on this. I just want to point out that if Barbara's vision of service excellence is to occur, then physicians and other clinicians at every stage in the continuum need to know what's happened to the patient before and what plans are there to take care of the patient in the future. In other words, what sort of organized processes of care are the patients following. The communication and the informatics infrastructure required to do this is really daunting. That's what Kaiser's trying to accomplish, this notion of seamless care that's easy and pleasant. That's one of the reasons they're planning to put $2.5 billion into their computer-based patient record project.

The Physician Executive: How are managed care organizations going to try to gain competitive advantage over each other in the marketplace?

Coile: The ultimate battle for managed care enrollees is going to be won or lost in the long term. Whoever is holding the capitation is actually going to have to manage care and not just payments. Providers, I think, have the best potential expertise and leverage to do this. There's going to be a very interesting war fought between physicians, nurses, managed care organizations, third party reviewers, etc., with regard to that integrator of care role. Whoever will be the integrator of care under capitation is going to be master of the universe.

LeTourneau: Once again, I'll say I think the competitive advantage will be service excellence. The infrastructure underneath that, as Marshall said, is the computer system to support clinical decision-making at the point of care. You can't have true service excellence if you're not meeting the clinical needs of the patient by managing their care optimally. The competitive advantage has to be built on top of that, and that's going to be the service piece.

Reinertsen: I think in markets where physicians and hospitals can't get organized and exist in excess numbers, the plans are going to continue to beat them up. In other markets, where the physicians and hospitals get their act together, it's going to be less of an advantage for the plans. They're going to continue to focus on trying to find the profitable markets to the extent that they can still find those. At the care delivery system level, I foresee something very interesting that goes deeper even than service excellence. I think that those providers who are able to rebuild the trust and a true healing relationship with patients are going to succeed in the long haul.

Reinhardt: I agree with Jim on that one and I've written about it. I attempt to use the collegiate model of the Ivy League as a model for physicians, because whatever you can say about universities, the fact is we do have the trust of the public and people love the product we deliver. They're pounding on our doors to get more of it, in spite of the high prices we charge.

When it comes to competitive advantage and I hear other people say service, I'm a little bit nervous about what that could mean. I was with a group of HMOs and it was sort of off the record, but everyone there agreed that you really want to be third-best in the service area. If you're the best provider for AIDS patients, chances are you're going to get stuck with a lot of expensive patients who find you an attractive HMO. If you're the best provider in almost any chronic care, you might, in fact, attract such people. Having the reputation as the best may not actuarially be the smartest thing that you can do, and that is a real conundrum for these plans. They may, like Jim says, try to be the best, but if he winds up with all the AIDS patients in Minnesota, I'm not totally sure that's good for his organization, unless he gets premiums that reflect his higher cost.

LeTourneau: When we talk about service excellence, I would submit to you that also means the quality of caring, not just does the receptionist smile or to get the information in one telephone call. That's service. But the quality of caring of the staff also is part of service excellence. And so I think you can't define it too narrowly or you miss.

Reinhardt: But I don't mean that. I mean you're extremely caring to AIDS patients, and I'm the CEO and I look at my new enrollees and I wind up with all these AIDS patients with the new drug doses that are so expensive, and I'm pulling out my hair and asking, why are my frontline people so caring? Let me repeat, unless you get properly risk-adjusted premiums, attracting chronically ill people to an HMO is a dangerous strategy.

LeTourneau: So you're suggesting that you should not be caring to all the patients, so that you don't get all the AIDS patients or undesirables?

Reinhardt: Well, in fact, these guys were saying that you've got to be somewhat selective. Basically, what they were saying is you want to be third best, not the best, in treating certain expensive chronic diseases.

Reinertsen: I think you're right, there's a real tension here. And the problem is that we don't have a reasonably decent risk-adjustment mechanism.

Reinhardt: That's exactly the problem. Perhaps someday soon we will solve this problem of risk-adjustment. Until then, HMOs face a real dilemma here.

Reinertsen: We're starting to experiment with it, Uwe, and I'm not going to pretend I think it's perfect yet, but at least it's an experiment that's going in the right direction.

Reinhardt: Maybe it will be a good job for Medicare and Medicaid, that is, the Health Care Financing Administration that administers these programs for the federal government.

Reinertsen: Right. Maybe it'll be a good thing for us to be good at taking care of diabetics and cancer patients and so forth. So far, it hasn't been a good thing to be good at that.

Ruffin: Well, it's a platitude, and you can probably guess what I'm going to say, and that's information. The more we know about our patients and the care we deliver, the easier it'll be to standardize the care. And I disagree with the idea that there's not a Lexus [in the health care sector], at least in the general perception of the American public. I think studies still show the Mayo Clinic has got a name that's second to none.

LeTourneau: Not for service. Not in Minnesota, anyway. Mayo has many of the elements of good service and has done a wonderful job of managing poor service experiences, but I would submit that Mayo's reputation is built on clinical excellence, not service excellence.

Ruffin: Well, maybe the closer you get to it, the more warts you see on it. Actually, I'm thinking of a market research study that was done recently in Virginia that showed the Mayo Clinic was held in much higher esteem than any of the health care organizations in this area, including Hopkins. But, my only point is, one of the reasons they have such a good reputation is that there are an awful lot of physicians who've grown up learning from the health services and clinical research that the Mayo Clinic has published because they had the standardized medical record for decades to look at what happened to their patients in the past.

Reinhardt: Doesn't Marshfield Clinic have a clinical-based patient record, too?

Ruffin: Well, I think most multi-specialty groups have had paper medical records that have been standardized since they were created. But the Mayo Clinic was more aggressive in looking retrospectively at their results and publishing their results. And I think the health care organizations that systematically measure what they do, study their performance, look for opportunities for improvement, and publish their results are going to do the best in the marketplace. I can't imagine that ignorance is going to win out over intelligence when it comes to what we're doing.

Vogel: I think Marshall said it very nicely. The question has a lot to do with timing. There's probably a long-term set of criteria for competitive advantage and success and some short-term criteria. Having information available at the doctor/ patient interface is absolutely critical to long-term success. However, in the meantime, there are some short-term criteria that are still going to follow a variation of Maslow's needs hierarchy. It will start with costs and go to service and will wind up with quality, unfortunately in that order. Those organizations that can meet the short-term success criteria will have an opportunity to demonstrate their excellence in some of the more substantive areas that Marshall was just referring to.

The Physician Executive: How will quality be measured in the future?

Ruffin: Quality, obviously, is in the eye of the beholder. There are some major federal initiatives to define physician exam findings and to structure the nomenclatures that physicians and nurses use, so we can define quality more precisely. I'm thinking of the unified medical language system.

The Physician Executive: Are you suggesting that you need to raise the quality of the information coming into the system?

Ruffin: Yes. Particularly when you're dealing with multiple physicians in many group practices, or solo practice and multiple hospitals, you'll find a real dramatic heterogeneity in the way diagnoses and procedures are assigned, let alone history and physical findings, lab results and pharmaceuticals, and whatnot. How will quality be measured? I think we're going to move toward more standardized measurements.

Reinertsen: I think quality is going to be measured in ways that are most of the time irrelevant to the purchasing decision-maker. And worse yet, it's going to be reported in ways that are statistically illiterate. For example, we see rankings of physician performance. Dr. Deming would turn over in his grave if he saw the public reporting of quality of health care.

Coile: The availability of HEDIS data is not changing anybody's purchasing decisions right now. I was on a panel recently with a guy from the California Public Employee Retirement System [CalPERS]. They buy health care for 1 million covered lives. CalPERS has been requiring their plans to collect HEDIS data for four years and I said, "When are you going to start using this HEDIS stuff?" and he said, "Good question."

Reinhardt: Did you see that piece in the New England Journal of Medicine about New Jersey? They have data on coronary bypass mortality, age, sex, health status adjusted by surgeon, by hospital, and it turns out none of the cardiologists in Pennsylvania use these data at all. They had an enormous difference in the hospitals, some with high cost, high mortality, and a lot of them with low cost, low mortality, and the cardiologists completely ignore these data. The article said the only effect the information had is that some surgeons no longer take high-risk cases. So, I agree, this quality issue is a devil. We won't be ready for that for some time. I think people's fantasies are way ahead of what's really happening.

Ruffin: I'm actually not talking about technology. I'm talking about standardized data, and it will take a long time. There isn't any question about it. But name me one industry where, as it gets more competitive, you don't have more systematic measurement of the goods and services bought and sold.

The Physician Executive: Direct contracting and the Buyers Health Care Action Group in the Twin Cities, do you see that spreading elsewhere in the country?

Coile: There are well over 100 of these employer coalitions, and many have been in existence for over a decade, but few have actually done group purchasing, and for good reasons. Standardization of benefits is very difficult to achieve. The employer unity that they got in the Twin Cities is quite extraordinary. Second, you need labor cooperation, and again, the Twin Cities is something of an extraordinary market. Getting labor cooperation in places like Detroit is not easy. So there are many reasons why employer groups may not be buying a billion dollars of health care with one contract.

But, at the same time, I think we're seeing some important symbolic messages being sent to the managed care plans by some of the most aggressive employers in this Twin Cities group, and the messages have to do with both price and quality. The message on price is very simple. If the plans try to increase prices substantially over the next five years, the employers now have a provider-sponsored alternative that was not available before to keep price competition in the market. The second issue I think that we haven't talked about tonight is the issue of the medical loss ratio which, I think, is shockingly low in some of the plans. I believe that more employers are going to put pressure on their plans to increase the medical loss ratio so that more of the employer dollars are actually going into health benefits.

Vogel: I think the pressure from purchasing groups, as has already been noted, has been remarkably little. If the economy generally stays as is, we probably won't see much change. However, if there's a downturn in the economy, and profitability and employers get a little bit more pinched, there may be more focus on health care and health care costs that are coming out of their pocket. That may light a spark, but I'm not too optimistic about that.

Reinhardt: David, I couldn't agree more. That's the next talk I'm actually preparing for, the calm before the storm, will there be a second revolution in American health care? If you track profits from '87 on, corporate earnings per share have grown at twice the rate of growth of GNP. We've had a wonderful decade for corporations. The first recession, if it hits and these guys can't get their bottom line fed, they will come for a second helping from the health care provider communities. I totally agree, David. There has to be a second revolution.

Reinertsen: You mentioned the word direct contracting, and I would just comment that as long as employers are the purchasing deciders, direct contracting is pretty much a dead duck because no single group practice can cover the geography for any given employer. But if employers give a voucher to individual employees, direct contracting could become a reasonable option, and that makes all the difference. The Twin Cities market is unusual in that the employers are able to come to a common benefit set. If that turns out to be a dramatically better purchasing model and gets a lot of consumer satisfaction to boot, you'll see some employers taking that big gulp around the rest of the country, but it will be slow to evolve.

The Physician Executive: Will Medicare go to managed care?

Coile: Big time. Medicare's going to try to shift a substantial number of seniors, at least a million per year for the next five years. If Medicare costs have historically been going up at 10 percent a year and employer health costs with competitive managed care have been going up at two percent a year, guess which direction the federal government would like to go? But I do think that to make this happen, Congress and HCFA are going to have to restructure Medicare HMO pricing in order to make this a real market opportunity for HMOs and provider-sponsored networks.

LeTourneau: I agree with that, although I would look for a transitional phase because I think that the elderly population is going to really kick and scream about this.

The Physician Executive: What's your time line on this?

Coile: Well, the trends show a potential scenario where Medicare HMO enrollment doubles from 4.5 million to 9 million in the next five years, and potentially doubles again to 18 to 20 million in the following five years. At that point, more than half of all seniors would be in Medicare HMOs.

Reinertsen: My only take on this is that after reading today's New York Times, I'm going to move to a state with a really, really high AAPCC [Adjusted Average Per Capita Cost] and wait until the federal government will pay me not to train excess numbers of residents.

Coile: What Congress is going to have to do is reset the premium to $325 to $350 per-member-per-month to make this shift to Medicare HMOs happen.

Reinhardt: Well, actually Medicare spending is no longer rising at the rate of 10 percent a year. On a per-capita basis, it's more like 6 percent. But certainly the Administration and the Republicans both would like to shift more of the elderly into HMOs. The problem is that, so far, this shift has cost Medicare money because the HMOs get paid 95 percent of the Adjusted Average Per Capita Cost, the so-called AAPCC that Medicare experiences in the elderly beneficiary's county under the current fee-for-service system. The AAPCC is adjusted for age, gender, and certain other risk factors. Studies have shown that the elderly who do choose HMOs are relatively healthy and would have cost Medicare less than the 95 percent of the AAPCC had they stayed in the traditional fee-for-service system.

To remedy that overpayment, the Administration wants to cut the HMO payment to 90 percent of the AAPCC. Furthermore, there is now a huge variation in the AAPCC across regions. In some counties, it is about $200 per-elderly-per-month, while in others it is more than $800. To remedy that inequity, the Administration wants to make the lowest payment $350 per-elderly-per-month and finance that by cutting the payments in counties with a high AAPCC. Lobbyists for the HMO industry will argue that if these policies are implemented, then the shift to HMOs will slow, because at lower payments in the high-AAPCC areas the HMOs won't be able to throw in as many additional benefits as they now can to entice the elderly into HMOs. It's going to be quite a battle, I suspect.

The Physician Executive: Where will information technology have the biggest impact on health care? Will it be electronic medical records, based on what you've said so far?

Reinertsen: The biggest impact is likely to be from two things inside the record at the point of doctors entering orders into the system. One will be decision support for complex decisions and the other will be mistake-proofing decisions at the point of order entry.

LeTourneau: I would agree with that. Decision support and mistake-proofing, giving physicians and caregivers information that they need at the time they need it. The other thing that's going to be key is what Marshall mentioned before. You're going to have to have the infrastructure to link all of the pieces, otherwise the electronic medical record is going to be useless. So, you're going to have to have some kind of data storage, a server or a data bank.

Coile: I think the health care market is going to be revolutionized by the power of information. The report card movement in health care will do for health plans and provider networks what public disclosure did in the airline business. It's going to focus on a very short list of publicly reported data like on-time departures and lost luggage, a very short set of statistics that the average consumer can actually use to differentiate between health plans and provider organizations.

Reinhardt: How many American airline consumers actually use that information? Do we actually know? Because I would doubt that many really do.

LeTourneau: Well, we might know what the information is, but whether we actually use it to make decisions about which airline to fly, I think you're right, probably not.

Reinhardt: I believe information technology is important, but I think we're assembling an enormous amount of data without any research whether anyone would use this stuff. Take the way Americans pick colleges. What do you really do? You take the kid in the station wagon in the summer, when there are neither students nor classes going on, you visit these campuses and then you decide. None of these parents ever looks at anything that's really very important, like where did the profs study, what did they publish, or go to sample some classes. They basically go to campuses in the summer and look at the trees and the buildings. That's how we pick colleges in America. It's consumerism, alright, but what kind of consumerism!

I think we're producing too much information and not the simple things people might use. Like, if somebody is chronically sick, how were they treated in the HMO? If somebody died, what was it like in these HMOs? That's cheap and simple information that people might use. But I don't think we'll get that. I think Jim Reinertsen said it, we're producing an enormous amount of information of the wrong kind that no one will use. That's my big fear.

Ruffin: Uwe, I would disagree that we don't use the data. I think the competitive market immediately publicizes statistics that are very influential. In the airline industry, you see the statistics are very close to one another, so we may not be paying much attention now. But if I knew that one airline was five times more likely to lose my baggage than another, I would pay attention. But their differences are so small, I ignore it.

Reinhardt: What I'm telling you, if you look at such tabulations like report cards, is the first thing you notice is how close the ratings are. You're talking about 89 percent satisfaction versus 92. What really strikes you in all these HMOs, there isn't really a dog and a really excellent one. You know, no one hurts five times as many patients as the other. It's all going to be very, very close, like with the airlines, like with the colleges. So I'm just not sure that we have measurements that are discriminating enough. And that's because we ask everyone in an HMO, when we really should ask only those who had occasion to be unhappy, very sick people, chronically ill people, and families who had someone die. That's perhaps where you might get a little variance, but if you survey all enrollees, even those who hardly ever used the system, you won't get any variance.

Ruffin: But there is an enormous variance among physicians and among hospitals in many of the common indicators, and I think you will see some substantial effects there where you won't include every physician or every hospital. That's happening now.

Reinhardt: Where is that happening on the basis of such data? It isn't happening in Pennsylvania. Have you heard of an HMO saying, "I'm not going to deal with XYZ Hospital because their cost-quality combination is unattractive"? I don't think it's happening, at least not yet.

Ruffin: In New Jersey I can't comment. In the D.C. area, it happened in a dramatic way a few years ago. Blue Cross created a profiling database for the providers in D.C. and created a new select PPO and eliminated a third of the subspecialist physicians from contracts with the PPO. The database they used explicitly looked at referral patterns and cost of care. The outcomes that were evaluated were entirely financial, but nevertheless, it was a computer-driven profiling system that eliminated over a thousand physicians from contracting to take care of a million people.

LeTourneau: I think we're talking about maybe two different kinds of databases. I mean, one might be the HEDIS data, what's your immunization rate, and how many of your diabetics get annual eye exams, and I would agree that I'm not sure that information's going to make a huge difference. But when we talk about provider profiling and giving physicians and even purchasers and customers information that is good, valid, useful information, I think you do see some changes. I'm sure we've all seen many, many physicians look at the data that is specific to their practice and object to it, of course, but change their practice. And that's going to be a huge technological influence when we start to get good solid provider profiling that means something to the docs and their practice.

Vogel: I would agree with Barbara. The initial value of information technology is an internal value within the organization as a management tool to help change behavior within the organization. We do see dramatic changes in behavior when meaningful, objective information is presented to physicians. You see it a little less dramatically with hospitals because of the institutional nature of their behavior. There are several slices to the information, and I agree with the comment that was made about simplifying to a couple of key statistics for the general public. Then, the question is will it be meaningful information that people will use to make decisions? Usually, the proper information isn't available at the right time to the right people.

Ruffin: I would agree that retrospective data analysis will lead to substantial changes in practice habits. There's plenty of evidence to show that it happens. I disagree, in fact I think it's wishful thinking, that we're going to have any type of expert systems that will really affect orders any time soon. I know the HELP System gets a lot of press in Utah, but most of our computer systems have very limited clinical information, not enough to guide sophisticated, rule-based logic except in a few circumstances like intensive care units. I think we're maybe not decades, but we're certainly five years away from collecting enough detailed information on physical exam findings, laboratory results, and having them in electronic form for expert systems to give you sophisticated guidance in selecting medications.

Reinertsen: Marshall, I agree with you, but I wasn't talking about those kinds of things. I was talking about when you enter an order for penicillin, it says no, you can't do that, this person is allergic to penicillin. That sort of bullet-proofing on order entry.

Ruffin: Okay, but even that requires someone having entered the information that the patient's allergic. And standardizing the way the allergy is defined between group practices or an outpatient setting is much harder than in an inpatient setting.

The Physician Executive: What about biotechnology, things like applied human genetics research, new diagnostic tests, new pharmaceuticals, that sort of thing.

Coile: Clinical trials in genetic therapies are already under way. I believe that biotechnology ultimately will have a very powerful role. We're not that far away from the completion of the so-called genetic map. Some really extraordinary biotechnology breakthroughs may occur within the next generation, perhaps much sooner with regard to the inherited conditions. We know that major predisposing factors for much of the chronic illness in the population are genetic. We're certainly not going to bullet-proof society, but I think we've got an opportunity to develop some really exciting pharmaceutical products, as well as increasingly precise diagnostic tools. Under capitation, better and more timely diagnosis is going to be a very important management strategy to control costs, intervene early, and improve health levels.

Reinertsen: It seems to me that it's really hard to pick out any one area where it's going to have a major impact. Is it going to be in diagnostics? Is it going to be in therapeutics? Is it going to be in predicting how people will respond to diseases or who will get diseases? My answer is all of the above.

LeTourneau: Well, I would like to be a real optimist and say that we're going to get a good handle on how to deal with the biotechnology issues, the morals and the financial issues, but I don't think so. I think we've had huge biotechnological advances in the last 10 years and they've been dealt with piecemeal. When a hard issue comes up, like the issue of test tube babies or surrogate motherhood, there's a lot of navel-gazing by clinical people and the courts tend to decide or a law is passed. I would like to think that we would change that and start to develop from sort of a philosophical approach, but I don't see it happening. I think it's going to be chaos. I think we're going to continue to have this stuff, but will continue to address it piecemeal, primarily on an individual case by case basis. I just don't see any leadership coming from anywhere to create a forum in which to start to develop some public awareness and social decision-making.

Reinhardt: Barbara, this elegant algorithm you're looking for is impossible in a pluralistic society such as ours. I mean, in Sweden they can do this because they call diversity northern versus southern Sweden, which is like North and South Dakota. But in our country, I think the most we can hope for is sort of muddling through. And maybe the court is the only instance that can actually solve these problems for us, because the court system is the only thing we are ready to obey.

We do not like government and its verdicts and simply don't accept them. So I think lamenting that we do not have an elegant algorithm for solving morally troubling social problems is like lamenting the climate. We shall simply have to get used to a chaotic system whose decisions in individual cases do not necessarily make sense to us. In a pluralistic system such as ours, it may not be possible to get a social consensus on a rational algorithm for solving the problems of rationing health care.

LeTourneau: Well, you know, that may be it, but until there's a court decision, what you have is a medical director of some health plan on whose shoulders rests the decision of whether to approve the use of a technology for an individual or whether to deny coverage because of some known genetic problem, or whether to allow an experimental drug. It's not a very good way to do it. Certainly we are pluralistic and there's not going to be a panacea, but there should be a better way than to have piecemeal decision-making, depending on who's the medical director of the health plan and what their approach is. I just don't think that's the best thing for the patients or the members.

Reinhardt: But that's how we administer our system of justice.

LeTourneau: Well, that's true, too. Look what happened to O.J. Simpson.

Reinhardt: I don't really understand it, I'm no expert, but there's definitely a system of justice for the rich and for the poor, and court cases are not systematic. We never worry about this in jurisprudence, but in health care we are so fussy about being right. I'm saying that we have to get used to health care as an extremely messy, chaotic situation, particularly at the margin of economics and ethics. It'll not be clean. I read yesterday in the New York Times that some HMOs put a $3,000 upper limit on what they will spend for drugs per enrollee and others a $10,000 per year limit. For someone stricken with AIDS, those limits can make quite a difference. Yet, somehow we'll put up with this form of rationing, I suspect. We always have in the past.

Vogel: I recently participated in an international meeting with representatives from a variety of different countries. This subject came up and I was impressed with the fact that most of them had, in fact, addressed the prioritization and allocation of resources to the highest research priorities, including biotechnology. As the only representative from the United States, I was feeling a bit embarrassed and certainly uneasy about the fact that our country had no systematic approach to this vital component of our health system. Sooner or later we will realize that basic economics will demand that we prioritize our research more effectively than we have been, but it probably won't be for some time.

The Physician Executive: What countries were those, by the way?

Vogel: There were a lot of northern European countries and a large number of South American and Central American countries including Mexico. Uruguay, for example, was quite impressive. Some Central and Eastern European countries were also participating.

Ruffin: I don't think anyone said it directly, but I think an enormous issue with biotechnology and the databases we've already talked about are the markers for genetic predisposition to chronic diseases and expensive diseases later in life. We don't have an answer to it, but it's going to be a big issue as we learn to predict with more accuracy who's going to get sick later. This might be something where our messy system may break down and we may have an awful lot of people predisposed to significant illnesses just excluded from the insurance market.

The Physician Executive: Jim Reinertsen, Marshall Ruffin, and David Vogel will be unable to join us for the second part of this discussion, so I'd like to ask you now what you think the future holds for physician executives.

Reinertsen: Given the trends toward a more systems-oriented approach to improving the quality and efficiency of health care, there are going to be more and more systems looking for physician leaders who have not only walked a mile in the shoes of the physicians in their organization, but have also had significant experience and responsibility in managing complex organizations in managed care environments within a budget. Physicians who have both credibility with practicing physicians and credibility with boards [of directors] are going to be in great demand.

Ruffin: I am a physician executive and I think it's a wonderful opportunity for physicians to use their clinical and managerial experience to deal with the most important issues our civilization is facing. How to allocate resources to maintain as good a quality of life as possible. As technology allows us to live longer and allows us to predict the future illnesses with a fair amount of accuracy, I think physician executives are going to face stunning challenges. Many people have said it, and I agree that physician executives are going to be the ones called upon to make these decisions because I don't think this is the province for actuaries or finance officers.

The Physician Executive: Is it the province of the courts, as Barbara LeTourneau and Uwe Reinhardt were suggesting?

Ruffin: The courts may very well be an appropriate place to do battle, to come to some sort of national decisions, but those lawyers and those judges are going to be turning to the physicians and physician executives for much of the analysis.

Vogel: I would certainly agree with what Marshall just said. The opportunities are going to be enormous. The fear I have is that those of us who are MBA types will continue to dominate in the health care arena and in major policy and strategic decisions that have implications on clinical outcomes and clinical behavior. I've seen many cases, some of which wind up in court, where we find lay managers making decisions that are increasingly intrusive in the clinical process. Many times these decisions are damaging to the overall outcome for the patient and for the organization. Much of this is happening because we don't have adequate clinical input in top level, as well as middle level, management decisions in our health care organizations. We have an enormous amount of catching up to do in bringing physicians up to speed with the dynamics of management processes. Once they get that under their belts, they will be able to make significant contributions. The opportunities are really phenomenal.

Health Care Experts Who Participated in the Panel Discussion

The following participated in Part 1 of this discussion, conducted on February 18, 1997 via conference call:

Russell C. Coile, Jr., is President of the Health Forecasting Group in Dallas, Texas. He is the Editor of Russ Coile's Health Trends newsletter.

Barbara LeTourneau, MD, MBA, FACPE, is Vice President, Medical Affairs, North Region, of Allina Health System in Minneapolis, Minnesota.

James Reinertsen, MD, is Chief Executive Officer of HealthSystem Minnesota, an integrated care system in Minneapolis.

Uwe Reinhardt, PhD, is James Madison Professor of Political Economy and Professor of Economics at Princeton University.

Marshall Ruffin, MD, MPH, MBA, FACPE, is President of the Informatics Institute in Bethesda, Maryland.

David E. Vogel, MS, is a management consultant based in Corrales, New Mexico. He has advised more than 400 health care organizations in 46 states on strategy and design.

Robert P. Carlson conceived and conducted this panel discussion. His articles appear in health care journals throughout the United States. He also works as a marketing communications consultant with physician groups and other health care entities. He lives in Indianapolis, Indiana and can be reached at 317/769-4609.