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Physicians reestablishing clinical autonomy. (Part 1: Value-Based Health Care).

CONVENTIONAL WISDOM BELIEVES PHYSICIANS gratuitously rail against the managed care industry because of declining incomes. In fact, their frustrations are more directed at diminished clinical autonomy than decreasing salaries. Managed care has devalued physicians' decisions and their role as patients' advocates. If America's excellent health care delivery system is to survive, this pernicious trend must be reversed. And physicians must initiate the transformation.

Physician leadership, coupled with the intelligent use of clinically reliable information, will enable independent provider groups to successfully manage financial and clinical risks. Such measures can also select and differentially reimburse participating physicians on the basis of continuously improving care processes and clinical outcomes, including patients' health status and satisfaction. Physicians will then be able to market themselves on value, determined by both quality and price.

Virtually every industry differentiates products and services using objective quality and cost comparisons. American health care is unique among industries in that It lacks agreed upon metrics that define the quality of its products and services. Consequently, third party payers "manage" care by directing patients to unfamiliar providers solely on the basis of perceived lowest cost. The resultant perverse incentives create a bizarre triad of: excessive profits for third party payers who do not deliver care; insufficient funding for the excellent providers who do deliver care; and diminishing services for patients who need the care. Chaos in the system and distrust among all parties has materialized.

A true, medical marketplace will emerge when quality measures, comparable to those in other industries, are available to local purchasers and patients. HMOs and other third party payers differentiate providers on the basis of price; yet, the only legitimate appraisals of health care effectiveness are patients' health status and satisfaction, as well as providers' clinical outcomes and efficiency measures. HMOs use price because they do not practice medicine and lack the power to enhance patients' health and clinical outcomes. Proactive clinicians have an opportunity to seize the quality initiative by holding themselves accountable to objective measures of clinical process improvements and patient-centered outcomes of care.

Both patients and physicians benefit when improved clinical and health status measures are used to direct cases to superior providers. Purchasers benefit from the availability of these measures by selectively directing care to the most effective and efficient providers. Organized physicians can capitalize on these incentives, reestablish their clinical prerogatives, and acquire premium patient contracts using marketing strategies based on value, not just price. This defines value-based health care delivery.

The physician organization and its capital partner

Physician leaders are often nurtured by hospital administration through the medical staff structure. This is fortuitous, as a close working relationship with the hospital is mandatory for comprehensive contracting. The medical staff president assists with designated functions, such as credentialing, quality assurance, and overseeing clinical activities. But, such activities may be at odds with independent physicians' business objectives, including marketing a select subset of medical staff members. A new version of medical leadership is needed to create and manage an independent, stand alone, physician organization that can partner with a hospital for marketing and contracting purposes when the needs arise. Independence, however, is not without its costs.

Historically, hospitals have supplied capital to purchase medical equipment and systems. An independent physician organization can no longer rely on the hospital for such capital and may need to contribute its own. More likely, however, the physician group may secure a capital partner to finance the organization and new operating systems. In selecting this partner, physicians should evaluate not only the available capital, but the degree to which the partner understands that physician clinical autonomy will be the definitive attribute that determines the provider group's success.

Reliable information: The means to clinical autonomy

Third party payers and governmental agencies hold physicians accountable to norms and/or standards that are essentially devoid of clinical relevance. Physicians are the uniquely qualified individuals to change this aberration. Heretofore, there have been no dependable data to establish which specific medical processes and/or resources consistently yield best-demonstrated health outcomes.

This paucity of reliable information, plus doctors' insecurity of losing business, has allowed third party payers to impose utilization tactics that coerce physicians into clinical alternatives that are "probably" acceptable. Physicians incessantly find themselves on the receiving end of a "1-800-Don't Do It Doctor" phone line, that ultimately restricts their clinical decisions. These restraints maximize managed cares' profits but, by design, leave the legal and ethical liabilities with the physicians.

There is growing consensus that neither purchasers nor patients are well served by managed care's tactics.

Though conserving resources is a laudable goal, price has no meaning without a measure of quality for the product or service being purchased. "Doing it right, the first time" invariably yields both the highest quality and greatest cost savings. In no industry does this maxim have more veracity than in the practice of medicine.

1. Risk adjustment and reliable clinical data

Sophisticated inpatient and outpatient data that are fully integrated and accurately adjusted for patients' clinical complexities are necessary to manage financial and clinical risks. The interactions of a patient's age, gender, illnesses, and complications determine his or her risks of acquiring various outcomes, such as mortality, morbidity, improved health status, resource consumption, and others.

Physicians' acceptance of medical data is excellent when the risk adjustment method is able to calculate each patient's overall clinical complexity, as well as analyze the data within each illness, down to the individual patient level. Incorporating these measures into a quality improvement strategy is routine if the method has confidence levels superior to simple cohort averages, such as those observed for inpatient DRGs, outpatient APGs, or ETG episode illness classifications.

Most physicians intuitively believe "my patients are sicker." This makes it mandatory for statistically powerful systems to objectively demonstrate which hospitals and physicians are appropriately managing highly complex cases, as well as the routine. But these data can not be confined to the interests of physicians and hospitals. Health care purchasers are genuinely concerned with employees' long term health and total patient costs. Therefore, patients' risk adjusted data must be available for every patient episode throughout the continuum of care settings, such as inpatient. day encounters, extended care facilities, physicians' offices, and all others.

Such comprehensive informative is now being utilized by physicians to continuously improve clinical and patient self-assessed outcomes of care, as well as inform all constituents of the value they have received.

2. Physician selection and differential reimbursement

Every physician believes he or she is practicing high quality and cost efficient medicine. Despite these suppositions, there remain wide variations in physicians' and hospitals' outcomes. Objective clinical data can identify where practice variations exist and in which clinical areas patients may benefit when physicians implement a voluntary. continuous process improvement strategy. According to Deming, (1) Juran, (2) and other quality experts, continuously evaluating and refining processes is the basis of outcome and quality improvements. This is born out by large volumes of data and years of experience in health care, as well other industries. (3) The Japanese automotive companies. for instance, used Deming management principles to surpass their American counterparts in the U.S. market during the 1970s and '80s. Detroit is presently closing the gap using these same statistical quality control techniques.

Physician leaders can use outcomes enhancements as the basis of including or excluding physicians in certain contracts. To avoid capricious removal from health plans or contracts, it is imperative that each physician know more about his or her own practice performance than does any third party payer or governmental agency.

Accurate clinical data also provide the means to differentially reimburse doctors on the basis of superior quality. Using clinical and patients' self-assessed metrics, physicians can decide which quality outcomes merit additional reimbursement. Some physician groups, for example. may value higher patient satisfaction or health status scores, in contrast to higher resource performance scores, as measures for greater reimbursement. When leaders have reliable inpatient and outpatient information. potentially contentious physician reimbursement issues can be fairly and rapidly adjudicated.

3. Marketing and contracting strategies

Transitioning from the current "managed price" model to "value-based" health care delivery will be arduous and contentious. Clinical control was not lost overnight, nor will it be instantly or effortlessly regained. Patients want their physicians to control clinical decisions. but most managed care entities aggressively oppose provider initiatives for change. These third parties claim physicians as autonomous partners, but vigorously control utilization decisions using outdated, externally mandated techniques. However, this is changing. Third parties cannot compete against a group of well organized and capitalized physicians, armed with clinically reliable information and an internally motivated process improvement methodology.

1. Short-term strategy

To ensure a successful transition at local levels, physician organizations need to implement both short and long-term strategies. The short-term strategy begins with discriminating managed care contracting. Providers must secure contracts with premium third party entities that control many covered lives. maximize physicians' pay, and contractually give doctors clinical autonomy.

The unfortunate reality is that during this phase. managed care entities will not likely reimburse physicians with greater dollars for higher quality care. Knowledgeable providers understand this and systematically prepare themselves by implementing clinical behavior modification activities to differentiate themselves on quality, while maintaining a competitive price. This strategy secures advantageous managed care contracts and positions the physicians to implement their long-term strategy of direct contracting. During this transition, the inherent conflict between initially working with managed care organizations. then against them, must be recognized and managed.

2. Long-term strategy

Mature, managed care markets usually represent the greatest opportunity for contracting directly with local industries or unions. Providers should target purchasers who have significant numbers of lives and understand that, as payers. they have the power to affect greater efficiencies by eliminating managed care "middlemen." Removing inefficient bureaucratic "overseers" achieves purchasers' and physicians' long-term goal of applying the purchasers' allocated health care dollars exclusively to patient care.

This process of removing "middlemen" is happening in other American industries, where consumer value drives efficiency changes. Wal-Mart is able to offer top quality merchandise at very low prices by dealing directly with manufacturers. thereby eliminating the middleman. And, as with other industries. when physicians supply purchasers and patients with commonly understood metrics, there will be selection and differential reimbursement on the basis of unassailable provider quality, low prices, access, and patient choice.


Now is the time for physicians to reestablish their legitimate right to make clinical decisions by eliminating the intrusive utilization management techniques of managed care "middlemen." Physicians can initiate this power shift by organizing themselves and using objective information to replace price-based, managed care contracting with value-based health care delivery. The evolution from price to value-based contracting is now practical as increasing numbers of informed employers express greater interest in the quality of care and concern for their employees well-being than with the expediency of abdicating health care decisions to inefficient third parties. (4)

Physicians are the only constituency capable of creating this revolution. Documenting and delivering high quality and cost efficient care ensures that proactive physicians and hospitals not only survive, but reestablish their legitimate clinical autonomy and prosper. Purchasers are asking for nothing more, and our patients certainly deserve nothing less.


(1.) Deming, WE. Out of the Crisis. Center for Advanced Engineering Study, Massachusetts Institute of Technology: Cambridge, MA. 1982.

(2.) Juran. JM. Juran on Planning for Quality The Free Press, New York, NY. 1988.

(3.) "Managed Care in Cincinnati: Implication for Health Care Reform." BNA Special Report #2. Washington, DC, The Bureau of National Affairs, Inc., 1994.

(4.) Murphy, TE. Creating Market Conditions for the Delivery of Health Care: The Cincinnati Experience. University of Michigan, School of Business Administration, Human Resource Management. volume 34, number 4, Winter. 1995.

William C. Mahlenbrock, MD, is the Cofounder and Vice Chairman of lameter, Inc. in San Mateo, California. He has more than 25 years of clinical experience in the practice of orthopaedic surgery and is a member of the medical staff at Scripps Memorial Hospital in La Jolla, California. He also serves as an Assistant Clinical Professor at the University of California in San Diego. He can be reached by calling 415/349-9100 or via fax at 415/349-7839.
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Article Details
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Author:Mohlenbrock, William C.
Publication:Physician Executive
Geographic Code:1USA
Date:Jan 1, 1998
Previous Article:Risk alignment in health care quality and financing: optimizing value. (Value-Based Health Care).
Next Article:Purchasers and the impact of managed care on physicians. (Value-Based Health Care).

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