Will black doctors win or lose in health reform; threatened by massive changes, black doctors and health care professionals are rethinking their businesses.

DR. MARCIANA WILKERSON, AN obstetrician-gynecologist in Washington, D.C., enjoys an affluent, well-insured practice with offices on Capitol Hill and in Georgetown. Although not affiliated with a group practice, Wilkerson had a managed care contract with an HMO (health maintenance organization) subsidiary of Capital Care to provide medical care for federal government employees. But when the HMO lost its contract with the government in September 1991, it dropped 250 area physicians, including Wilkerson. In Prince Georges County, Md., 127 of those doctors were black. Wilkerson, who had been with the plan more than four years, lost about 800 plan members--a whopping 30% of her practice.

"The HMO never gave a reason," says Wilkerson. "But when you sign an agreement, there is a clause that says either party can drop the contract without explanation." Luckily, by the end of 1992, she had recovered almost two-thirds of her patients through another insurer.

Similarly, business was good for Consolidated Critical Care Inc. (CCC), a home health care services company head-quartered in Atlanta. After only two years in business, the company had grown from $100,000 in gross sales in 1990 to $1.3 million in 1991 with branch offices around the state. But by the end of 1993, CCC was hemorrhaging. Sales had dropped by 40%.

The company's president and CEO, Richard VanNoy, discovered that although his referral network of doctors and hospitals continued to recommend his service, their patients were not calling. Why? "When we called the insurance companies to talk about reimbursement," explains VanNoy, "they said that [because] we weren't on their list of ancillary care providers, the patient needed to be referred elsewhere. So we lost business." Patients couldn't go outside that list unless they were willing to pay for it out of their own pockets.

Challenged, but not defeated, VanNoy was faced with three options: Sell the business that he'd spent the past three years building; sell 49% of it to a large majority-owned company that could take advantage of CCC's minority status in contract bidding; or fight the insurance companies and demand inclusion into their exclusive managed care networks. He chose the latter. "We had to do something. We saw the handwriting on the wall and to do nothing meant going out of business."

For both Wilkerson and VanNoy, the growing movement to a managed health care system has played havoc with their medical practices and businesses. But they are not alone. The range of black practitioners and enterprises affected cover the health care spectrum, from physicians to home care services. And with the Clinton administration's push for universal coverage, no one will go unscathed.

The handwriting is on the wall. Like professionals and businesses in other industries, if black health care practitioners are to survive and thrive in the 1990s and beyond, they must rethink and restructure their businesses to meet the demands of this emerging system.

To become competitive and fight for their share of the trillion-dollar health care market, African-American providers must: (1) convert their businesses from a fee-for-service base to preventive, routine and/or maintenance care for a set fee; (2) build strategic alliances and group partnerships with other physicians and health care entrepreneurs to increase the size, number of locations and range of specialties of their practices; (3) reduce administrative costs by investing in technology that cuts billing expense and time; and (4) adopt a clearly defined strategy for marketing their services to HMOs and insurers, patients and their employers to get their names on managed care rolls.

Since African-Americans currently make up only a little over 3% of all health care providers, they will become an extinct business in the black community if they dont't make these changes--and quickly.

BREAKING INTO MANAGED CARE

"Black health care providers have not wanted to participate [in managed care], thinking that it will go away, but it hasn't," observes VanNoy. While the desire is now there, getting on the roles of managed care insurers is tough.

To control their increasing health care costs, insurance companies are driving the trend to managed care in two ways. The major insurance companies, which traditionally offered health insurance, now supply policy holders with a screened list or "network" of physicians, health care specialists and service providers that members can choose from for little or no co-payment fee. Most also offer the option of going "out-of-network" for care as long as the member is willing to pay a deductible and a percentage of the cost. In the second option, insurance companies not only insure individuals but serve as health care providers, offering direct and ancillary care, and in some cases, hospital services.

Most of the well-established HMOs and managed care plans have a sizable number of participants--albeit white--with large, multi-disciplined practices. Meanwhile, black providers argue that they are not being accepted--or only on a very limited basis--into these exclusive networks. They contend that racism and discrimination against their often poorer, sicker patient base, which costs more to serve, and the inner-city location of their practices are the primary reasons.

On the other hand, insurers contend that minority physicians and providers don't understand the managed care process. They claim that minorities lack the experience and knowledge necessary to put together and contract with a network of providers. Insurers also point out that undercapitalization prevents minority health care businesses from upgrading their facilities and technology. Finally, HMOs contend that few African-American health care entrepreneurs have the large, multi-disciplined practices or comprehensive services these insurers favor, and the cost of doing business with solo practitioners and small firms is higher.

For African-American providers there is another issue of major concern: the move by managed care companies to enroll Medicaid recipients into the HMO/PPO (preferred provider organization) system. Medicaid patients now make up from 25% to 50% of the business of many black doctors and health care providers. President Clinton's Health Care Security Act, with its emphasis on portable universal coverage, also makes Medicaid patients more attactive, since they will have the same rate of coverage and reimbursement rates as privately insured patients.

Some HMOs argue that they have been providing health care to underserved people for a long time. "We've been serving Medicaid patients since the 1960s," says Anthony L. Watson, president and CEO of the Health Insurance Plan of Greater New York (HIP), the largest HMO on the East Coast. Just over 8% of New York state Medicaid recipients are enrolled in HIP. And by 1996, 50% of all state Medicaid recipients will be enrolled in managed care; if not, the state will tax insurers on 9% of their gross revenues. According to the Group Health Association of America, 3.6 million Medicaid recipients currently receive their care through HMOs.

AN OLD CONCEPT, NEW TWIST

The idea of individuals getting their medical care through a pre-paid health plan is not new. Managed care began during the 1920s in Oklahoma as a health care cooperative for farmers. During the 1930s, California-based Kaiser Permanente, now the largest HMO in the world, began providing pre-paid health care for employees of entrepreneur Henry Kaiser. By the late 1940s, health benefits were formally negotiated as a part of union contracts. This influenced nonunion employers to also begin offering health insurance.

In 1973, Congress passed the Health Maintenance Organization Act to encourage the growth of organized health care delivery systems sponsored by the private sector. The act boosted the overall growth of HMOs from 50 programs in 20 states to more than 200 in 37 states. During the 1980s, HMOs grew substantially. By the end of this year, the $50-billion-plus HMO industry is expected to have 50 million enrollees.

According to a 1992 survey by the Bureau of Labor Statistics, 14% of fulltime workers in businesses with fewer than 100 employees currently belong to health maintenance groups, while another 18% get their health care via PPOs, a version of fee-for-service insurance plans that gives individuals limited choice in selecting a health care provider. The remaining 68% have traditional fee-for-service health insurance, which increasingly have higher deductibles, cover fewer procedures, pay lower reimbursements and now require approval before certain health services are rendered. Because traditional plans cost the average employer about $3,500 a year per employee vs. $3,276 for managed care, more companies are switching to managed care policies.

SOLO VS. GROUP

If today's health insurance battle can be characterized, it can be best described as old vs. new, solo vs. group. And there are health care providers and businesses lined up on both sides of the fence.

"Most patients prefer a solo practitioner," says Ob-Gyn Marciana Wilkerson, who prefers the independence of a solo practice. "They don't want to see five different doctors." However, she admits that as a solo provider, she works harder and sees twice as many patients to maintain her cash flow. Nevertheless, she has resolved to stay solo or leave medicine.

But the era of the independent solo practice is over, according to Dr. Clyde W. Oden, president and CEO of the Watts Health Foundation (WHF), a non-profit minority-controlled HMO headquartered in Inglewood, Calif. "Individual participation was the technology of the 1960s; group practice is the technology of the 1990s," says Oden. "Individuals represent an administrative nightmare."

According to Shelley M. Ferrand, director of provider services for Cigna Healthplan of Georgia Inc., "Once large corporations bought into managed care, majority-owned health care businesses were the first to see their patient base eroding." As a result, these [practices] made the move to HMOs. "Unfortunately," adds Ferrand, "minority providers sat on the sidelines, instead of forming larger groups with partners."

However, Dr. Javette Orgain, clinical assistant professor in the department of Family Practice at Chicago's University of Illinois and a trustee of the National Medical Association (NMA), points out that even if black health care professionals wanted to be in a group practice, there weren't many groups to go into in the 1970s. "Now, everyone is trying to get into some kind of group, network or collaborative effort," says Orgain, who is concerned that many black doctors and other minority providers are not on their patients' managed care lists.

"Many African-American doctors are not financially positioned to become partners in a group practice," says Dr. Reed V. Tuckson, president of Charles R. Drew University of Medicine and Science in Los Angeles. "They don't have access to capital." Now, black physicians are "finding well-financed and managed facilities moving into our neighborhoods and taking away our patient base. Others are being pushed out of their managed care arrangements."

Adds Orgain: "Many African-American physicians and businesses will be forced to sell their solo practices to managed care groups and become employees [of those groups]."

FEE-FOR-SERVICE VS. MANAGED CARE

But the biggest argument in health care reform surrounds the issue of cost. Should health care continue to be provided on a fee-for-service basis or negotiated at fixed rates called "capitated fees"? The idea behind capitalization is that for specific treatments over a defined period, health care businesses and providers will receive a set fee. The goal is for individuals to have routine check-ups and preventive care to avoid costly illness. If a doctor can keep most of his patients well, then the fixed fees he collects will be mostly profit and offset the costs of sicker patients.

But African-American doctors argue that because their patients are often sicker, seek treatment later and have higher morbidity and mortality rates, physician reimbursements are already low. Add to that a higher proportion of patients receiving Medicaid and Medicare, which pay lower reimbursement rates than most traditional insurance plans, and many black doctors argue that they cannot afford to further capitate their fees.

Black hospitals and other service providers offer the same argument: By the time they see these patients, the cost of treating them is higher. "We struggle with being included in all the plans," says Michael Burroughs, president and CEO of Southwest Hospital and Medical Center in Atlanta. Currently, the hospital is included in 60% to 70% of managed care plans in the area, but Burroughs admits that often his institution is not a full participant, handling both primary and specialty care. The reason given most often: "We're not expanding our network at this time." Adds Burroughs: "Even when we are included, we're not necessarily getting patient referrals."

Managed care proponents argue that under fee-for-service health care, the provider's interest, not the patient's, is being served. "If African-Americans can choose their physicians, and physicians can be organized [in groups], it's a win-win situation," says WHF's Oden. "There will be power, significant economic, social and political power when African-American providers come together," he adds.

But others like VanNoy of CCC say that African-American health care providers must reduce their economies of scale by cutting overhead costs and expenses via the group or network model. "Everyone must be willing to take a hit. Managed care is already revolutionizing health care and will continue to do so long after a national plan is put into action. The people who've paid the bills have determined they will not pay anymore."

UNDERSTANDING MANAGED CARE

Insurers and some employers say the reason African-American health care professionals are not getting a share of the managed care pie is that they don't understand how the process works. For HMOs this means that service providers with whom they contract must be able to "manage the plan," such as negotiate contracts and pay other providers, supervise larger staffs, monitor hospital admissions, and utilize office technology that makes billing more efficient and cost-effective.

A consortium of health care professional organizations led by the NMA is trying to help members make the transition. "We're utilizing our members who know managed care to educate the others on the process and how to form our own groups," says NMA trustee Orgain. "But we're also investigating whether we can or should form a managed care group."

Others besides the NMA are jumping in. Starting September 1994, Los Angelesbased United Health Plan (UHP), the nonprofit HMO of WHF, and Drew University of Medicine and Science will team up to develop courses in managed care. The goal: to educate minority providers on the managed care process, from contracts and administrative procedures to dealing with pricing and cost-containment structures. "We want African-American doctors to be on board with us," says Oden.

Adds Tuckson: "African-American physicians have competitive opportunities in managed care that give us certain strategic advantages. But we must have the expertise to grow and develop in this area." Tuckson points out that insurers must level the playing field so that black docotrs and service providers can participate. "Give us a chance to compete and translate our skills and knowledge into a new managed care base," he adds.

MARKETING BLACK PRACTITIONERS

Not all African-American practitioners are new to the managed care process. There are 10 minority-owned and -managed HMOs in the country, including UHP. Most of these HMOs have their roots in the community health centers of the late 1960s and they developed into pre-paid health plans during the 1970s.

"We started out 21 years ago serving primarily Medicaid patients," says Oden of WHF. "Today, UHP is a $185 million network of community health centers, staff and group model HMOs and independent physician associations (IPAs) that serve over 100,000 members in Southern California." While UHP's patient base still consists of mostly Medicaid (66%) and Medicare (16%) recipients, it has developed a growing list of commercial (18%) contracts. By using an insurance agent to market its managed care plan to small companies and selfemployed individuals, by contracting with health care provider groups in Hispanic and Asian communities, and by developing relationships with individual primary-care physicians and specialists along with ancillary service groups, the company has grown at an annual rate of 20% over the past five years.

Its strategy is working. "Every plan is pretty similar in costs and benefits," says Annis Collins, director of provider relations for UHP. "Our growht has mostly to do with customer satisfaction, quality of service and whether we meet our customer's needs and desires," she adds.

Because bigger is considered better in the managed care movement, Collins says HMOs prefer to contract with large physician practices and specialty care groups that can cover a wide area or offer a number of services. "We're trying to ensure that our [HMO] members have access to care," she says. "Often minority health providers don't provide a broad enough base of services. If I can go to a chain of black-owned facilities, that's better than going one-to-one because I can cover a larger service area with one vendor," explains Collins.

Until now, most health care companies have been white-owned and controlled. Today, African-American entrepreneurs are getting into these businesses. But the black-owned companies suffer the same problems as physicians: They are comparatively small, service a narrow niche and have a limited referral network, so they are not the mega-agencies HMOs prefer.

"As a small vendor, I'm having to compete against the giants," says VanNoy. "Now, I'm having business taken away that the larger majority companies didn't work for because I'm not in the insurer's managed care network," he adds.

Gradually, there has been a move by some insurers, employers and government to increase minority participation via joint ventures and/or equity partnerships. "There is a concerted effort to include minority providers in our network," says Ferrand of Cigna, "so we are intervening in the process."

Such was the case for Georgia Physical Therapy Inc., a white-owned provider that had a Cigna contract for physical therapy services throughout metro Atlanta, and the Georgia Association of Private Rehabilitation Specialists Inc., a predominately black physical therapy group of seven independent practices with no managed care contract. Ferrand brought the principals of the two groups together and worked out a three-year agreement that created a new company, Consolidated Therapy Services Inc. Each business has a 50-50 equity stake in the new company, which provides physical therapy services to all Cigna members.

"We wanted to see a clearly defined relationship between the majority company and this vendor," explains Ferrand. "So we subcontracted the business so that the minority provider has an equity partnership," she says.

Similarly, black-owned CCC has entered into an alliance with Visiting Nurse Health Systems, a majority-owned home health care agency in Atlanta, to share in a percentage of Cigna's home health care business. As of June, CCC began supplying durable medical equipment and respiratory care for Cigna's 100,000 Georgia members. The contract calls for CCC to have 50% of the business, potentially adding $250,000 to $400,000 in revenues by year-end to the company's bottom line. And the opportunity to enter into shared arrangements with other managed care insurers looks promising.

"What we did in a month last year, we now do in a week," says VanNoy, who projects that business is now back to its 1992 pace. "I see a future now after worrying day-to-day for the past two years."

WHAT THE FUTURE HOLDS

For black doctors and other health care providers, the fight continues. If they are to survive the managed care process, they will need the experience, expertise and support of other African-American professionals. "This is the time for black business people to come into partnership with black docs to help them manage and market their practice," says Tuckson.

Others like VanNoy suggest employees demand that minority providers who service their neighborhoods be added to their managed care plans. He also suggests that when BE 100s companies are looking for and contracting with health insurers, they should ask whether minority physicians and businesses are included on the list of providers and whether those services are conveniently located in employees' neighborhoods.

For African-American physicians and other health care entrepreneurs, fighting the trend to managed care is futile. It is here--and here to stay. To remain in business, African-American providers must position themselves to participate in every facet of the system--political, social and economical.

"We must be diligent and play the game," says Dr. Jeffrey Miller, president and CEO of HealthQuest 2000, a Los Angeles-based IPA representing 150 area doctors. "But we must be persistent in the use of political and economic pressure to keep [managed care companies] as honest as possible."