The Next Iteration of Managed Care?
But there's little doubt that unprecedented, inexorable forces are impinging on the managed care industry and on health care in general.
Some developments, such as e-health and federally mandated electronic data transmission standards, are already offering the industry desperately needed opportunities to cut costs. Others, like consumerism, labor shortages, and demographic trends, may force managed care as we know it to reinvent itself. Still others, such as genomics, seem flat out incompatible with the whole concept of health insurance.
As you read the following discussion, you'll find a fair degree of consensus about the present, but some disagreement about the future. Not surprising, considering how the dialogue about managed care--and health care--can change in just a few years.
The biggest trend is that consumers who can afford it will be paying a larger share of the cost for health care they need and paying out-of-pocket for the services they want. Those who can't may end up in tightly managed HMOs.
They caution that managed care is as unpredictable and chaotic as ever, but our five experts do their best to tell you how they think it'll all play out in the near term. What they have to say provides insight not only about the present and the future, but also about their individual perspectives on this complex, evolving industry.
The state of managed care?
The Physician Executive: How would you describe the current state of managed care?
Kongstvedt: We're at another point in a continued evolution that has not slowed down in almost two decades now.
Atlas: I agree. What we're seeing is a reflection of economic cycles and the underwriting cycle coming together. Just stay tuned, because it'll be different again soon.
Hickey: While we've had some reprieve with the recent economy, we will come back to having to deal with medical costs. I think there are three main drivers of rising medical costs: labor shortages, an aging population--particularly the bolus of the baby boom--and pharmacy.
Reinhardt: I want to endorse Peter's notion of an evolution. This year we're probably going to have premium increases between 12 and 15 percent. Business will continue to sponsor insurance and do the risk pooling that forces healthier employees to subsidize sicker employees, but employees will get only a defined contribution toward the various health plans on the menu. Lower income employees will gravitate toward tightly managed HMOs, and higher-wage workers might be able to afford more loosely structured PPOs and even open-ended fee-for-service systems. So tightly managed care will have a major comeback for the lower half of the income distribution, along with all the trimmings, like gatekeepers, formularies that favor generics, tight utilization controls, and tough fee bargaining.
Hickey: But even for the very tightly managed component, a significant proportion of those costs are going to be passed on to the employee to pay out-of-pocket. We're already seeing that in our market with triple-tier drug co-pays and a doubling of co-pays from $10 to $20 for an office visit. The day of the $40 co-pay for an office visit isn't too far away. Because of these out-of-pocket cost increases and large premium increases, especially for small employers, we're seeing both small employers and younger individuals opting out of an insurance benefit. We're seeing a decrease in Albuquerque in our commercial base because of this.
Kongstvedt: I'll second that. I've interviewed top executives in all but one of the major managed care companies for our own research agenda, and every one of them mentioned that consumers have to get more in touch with the cost of what they're demanding, and pushing the cost back to them is the best way to do it.
Hickey: Right. I'm in a fully integrated delivery system and health plan, and patient cost sharing will have a phenomenal impact on how we focus on the consumer. Also, the baby boomer with discretionary income will spend money on lifestyle health care, particularly as we wind down the benefits with a defined contribution approach to health insurance. Those two forces, paying more and lifestyle enhancements, are going to come together in a consumerism movement that none of us really understands at this time. The answer lies somewhere in service. We're banking our future on getting people access to their doctor today because we think that's what people will pay for.
Atlas: None of us has said that the industry is going to actually start managing care anytime soon.
Kongstvedt: Just the opposite. The market, the legislators, and the regulators have pushed back so hard that everybody I've spoken to recently is throwing up their hands and saying, 'We'll do disease management, we'll do case management and the rest of it, but we just have to push the cost back to the consumer.' They can't push price down any more. Providers are shoving through price increases that are much higher than they used to be.
Hickey: Providers have finally gotten smart.
Atlas: And they've increased their leverage. Hospitals are close to full in lots of places.
Kongstvedt: If, in fact, we're going to shift costs back to the consumer, will there be a regulatory or legislative backlash?
Reinhardt: No. If you tell the legislators, 'Look, for the defined contribution, we have an array of HMOs that can deliver pretty comprehensive care, but there are formularies and gatekeepers and all of that,' then you're in the clear. What employees now contribute, either in premium sharing or out-of-pocket at point-of-service, that dollar amount's gone up. But the percent of total health spending paid out-of-pocket by households fell in the '90s because drug and mental health coverage was considerably expanded. In 1990, two-thirds of all pharmaceutical spending was out-of-pocket at the pharmacy. Now three-quarters are covered, which in part explains the mushrooming of these costs. There's also been an expansion in mental health coverage, mainly because the pharmaceutical products are so effective in the treatment of mental illness.
How will e-health impact health care?
The Physician Executive: How do you see e-health impacting the course of managed care?
Kaiser: e-Health will be the big driver because it will enable consumers to manage their own care. Once you make the information systems available to them, they are able to make judgments, they're able to look nationwide, determine what the offerings are, and choose accordingly. The other thing is, it enables us to really funnel discretionary money. The largest pot of money now that we can tap for health care is not taxation, nor is it insurance. It's discretionary spending, and the big push will be to create very high value-added unique products, advertise them on the Internet, and then put consumers in a position of being able to buy them. e-Health will grow gradually, but as we wire the country, it'll eventually become a major modality.
Atlas: I agree, but right now, managed care organizations are finding that there is a large and immediate payback from e-commerce for the business and administrative aspects of medical management, such as authorizations, referrals, eligibility verification, and so forth. One of the key gaps in performing health care over the Internet is getting physicians engaged, and one of the barriers to that, other than that most physicians still don't want to be online when they're in the office, is how are you going to pay for that. Until that can be paid for, there's going to be very limited take-up.
Kaiser: I don't see that buying medical care will be any different than buying an automobile or an icebox or a college education or anything else we're doing on the Internet. The issue is just wiring the country so that more people have access to the web.
Reinhardt: A good test case of that would be if you go to a university anywhere in the country. You can't wire universities more than they're already wired, and yet how many faculty members and their assistants do this kind of shopping around? Most of the websites on health are confusing. Sure, if you have diabetes or another defined, standard chronic disease then you can find out alternative treatment modalities. I agree with Leland, but the bulk of us will go to a nearby doctor, maybe equipped with that website information. I don't think we'll ever commoditize health care to the point that it'll be like buying cars. In fact, I don't think that came about, either. Most people probably still go to a dealer in the end.
Kongstvedt: That's true. They just refer you to an auto dealer. In a recent study that we did of e-commerce to consumers, most health plans found an increase in the number of service calls after they put material up on the web, not a decrease. They were pretty surprised.
Reinhardt: The Internet is going to kill any physician surplus being predicted because you're going to have patients massively confused by the information they get off the web. My advice to doctors is learn how to swing with the Internet and have a little room with a good geek in there who, when you're through with your patient, can walk them through what is good information on the web. You might even be able to charge enough for that service to cover the geek's cost.
Kongstvedt: Absolutely. It's just killing the docs. Patients come in with an inch stack of printouts and they want the doctor to explain it all to them in 18 minutes.
Hickey: The problem with the Internet is that it supplies information, but it doesn't supply knowledge, which is based on experience, so you're still going to need that mediating factor.
Is HIPAA pushing the industry to be more wired?
The Physician Executive: Will the HIPAA electronic data regulations push the industry to become more wired?
Kongstvedt: It commoditizes all those people that thought they would get into brokering information transmission. Now HIPAA compels a payer to accept a conforming transaction. So you can program it, sit in your office and submit it, and Blue Cross has to accept it. It's going to lower the cost terrifically. It may be the thing that finally knocks down the last barrier to e-commerce, which is the physician s office, because there's only one format. Right now there are 400 proprietary formats for electronic commerce that are in common use. There are another 400 that are uncommon, and there'll just be one in two years.
Reinhardt: Are we saying that government actually did something good?
Kongstvedt: It is a legitimate use of government, even though they're using a creaky old standard. But thank goodness it's there. I calculated conservatively that after subtracting the cost to implement HIPAA data transmission standards, the return on investment for a mid-sized Blue Cross/Blue Shield plan client with about 1.5 million members would be $500 million over the next five years.
Atlas: What about the flip-side of this, which is privacy? The regulations say that patients have to give their consent every time their medical information is used, other than for direct treatment.
Hickey: These regs will inhibit the flow of information for other things that we would like to do, but it doesn't get in the way of the basic transmission of data between payers and providers.
The Physician Executive: Exactly where does the privacy issue come in?
Kongstvedt: The ability to proactively analyze practice patterns based on individual cases. It's not clear whether you can reach out to patients. There's going to be a manual overlay that gets dropped on top of this in terms of obtaining consents and permissions, tracking it, putting in audit trails and audit systems, getting certifications. It's a real morass of tax code-like regulation. Lawyers love it.
The Physician Executive: Are we going to see a couple of big lawsuits when it comes to privacy of medical information?
Kongstvedt: Maybe at the state level. Remember, there's a sentence in HIPAA that says nothing in HIPAA shall create a civil liability, which has the trial lawyers fuming mad, but the states can still do this.
Complementary and alternative medicine
The Physician Executive: What role will complementary therapies play in the future?
Kaiser: We're looking at a big growth market for CAM modalities. A lot of what we've been talking about in terms of health care assumes we're going to spend most of our dollars because people get sick. My guess is the opposite's true, that more of our dollars will be spent bringing people to a higher level of wellness. Certainly in terms of consumer-driven and discretionary spending, we're talking about a huge market, and, for the first time, we're getting decent research out of the National Institutes of Health and other places. Also, the practitioners do not have to be MDs, so we're going to see a reconstituting of health care, maybe moving more toward health. As we get into the discretionary end, it'll be toward lifestyling, life extension, all the things older people are interested in, and the CAM modalities do very well there. Plus, there's a whole range of conditions, like chronic fatigue syndrome and fibromyalgia, which don't respond well to allopathic medicine.
Reinhardt: I recently heard a talk where somebody said this is a $24 billion market and everyone's mouth dropped open. But I divided that by 1.3 trillion and got 2 percent. That's all this market represents of total health spending? Obviously, it depends in part on what you call alternative medicine. Enthusiasts are probably going to draw a wide circle and call anything they can think of alternative medicine. It's going to be there and people will use it, but, for the long haul, allopathic medicine will still be the big ticket item.
Atlas: A big question is whether insurance is going to start paying for these things. It'll continue as long as there's all this disposable income, but in any kind of a downturn, it's not going to sustain its growth.
Will genomics become a booming industry?
The Physician Executive: Will genetic testing and counseling become a booming industry as some suggest?
Kongstvedt: Only if you can actually do something about it. For example, the majority of patients who are at risk for Huntington's chorea do not get tested because they don't want a death sentence, and there's nothing they can do about it. Same thing for breast cancer. I know lots of women with a very high family history who are not going to get tested because what are they going to do?
The Physician Executive: Assume a few years down the road that there is, if not a cure, some sort of mitigating therapy that's going to decrease the odds of contracting the disease. Somebody's going to have to interpret these tests for all these consumers and advise them on how to proceed.
Kaiser: There's going to be a huge demand for it in dealing with whether to get pregnant, for example. One of the biggest applications would be that the genetic profile will determine what medication, what dosages, allopathic or otherwise, are going to be most effective for a particular patient. My guess is everybody will be genetically profiled at some point to determine the appropriate treatment.
Hickey: For certain diseases, like cystic fibrosis, that will expand over time. Once we really understand it and can do the genetic intervention, it will make a phenomenal difference. It has a great deal of promise, but it's still ten to 15 years down the line.
The Physician Executive: Who's going to interpret the genetic information to arrive at the appropriate therapeutic agent and dosage?
Kaiser: There will be genetic experts that are specialists, just like we have specialists in any other area. And once we have the genetic profile, the pharmacist will consult with the physician, and if a physician doesn't have a genetic profile and prescribes something and the patient has an adverse reaction, it will result in litigation. It means you haven't used science to indicate what treatment you should use.
Labor shortages exacerbated by the aging baby boomers
Hickey: I'd like to add one factor that is going to have a significant impact on all of us and how we do business, and that's the nursing shortage. The average age of an RN in the United States is 44, and the average nurse retirement age is 47. There's almost a 3 to 1 demand to supply ratio. We're feeling the impact of it in Albuquerque. We're limited not by our physical capacity but by our capacity to hire nurses. We may not be able to hospitalize all the people that we want to because we don't have the ancillary staff. It could change the way we do things.
The Physician Executive: I recently read a brief article that the MIT media lab is working on nanotechnology for diagnosis and treatment because they believe that the capacity of the health care system may be insufficient to meet the needs of this "bolus" of baby boomers.
Reinhardt: A chart in the Social Security Trustees' report shows we have about 3.9 workers per one elderly person, and by the year 2030 that'll go down to 2.3. Just imagine what that means for health care.
Kongstvedt: They'd better be good workers.
Reinhardt: Those 2.3 workers per elderly person will have to bake the bread, make the cars, defend the nation, teach in schools, staff the hospitals, and staff the nursing homes with all these elderly baby boomers. We always talk about Medicare's viability as if money were the problem. The real problem is where will we get the human hands to lay on all these people in all these nursing homes. Immigration can help a little, but a Princeton colleague who's a demographer says there's less relief there than you may think. So the question ultimately becomes, to what extent can you find machines that can substitute for some of this caring.
Kaiser: Things will happen. Number one, we're going to have to look more to robotics, which is really what you're suggesting. Two, family members are going to have to become more involved. And third, people are going to buy outside the allopathic system because it's going to reach a saturation point.
Kongstvedt: The nanotechnology that I know MIT and others are working on is more for use inside the human body, inside the GI tract, inside the blood vessels.
Reinhardt: And it would send out messages?
Kongstvedt: Or take photos, take biopsies, do chemical analyses, do genetic testing, deliver drugs. There's fascinating work going on with nanotechnology to deliver drugs in situ instead of this crude way of injecting a little radium pellet. They would put in a little nanotechnology robot that'll get close to where the drug needs to be and deliver it.
Kongstvedt: That's not because of a shortage elsewhere. That just gets added onto the system.
High volume specialty clinics
The Physician Executive: What role will high volume specialty clinics play?
Atlas: It's a slow-moving thing. First of all, it's challenging entrenched interests in a big way. It occurs in markets where physicians have leverage over the hospitals and can say, 'If you don't do this for us, we'll take our business across town.'
Kaiser: Yes, and it'll be sellable to markets in which there's a concentration of highly educated upper middle class consumers with a lot of money.
Hickey: It's a niche. First, physicians are not good partners in Wall Street ventures. Second, physicians on their own are even worse when they try and do some entrepreneurial venture. I don't know that it's peaked, but I don't think you're going to see it explode.
Kaiser: Just like the Mayo Clinic has a majority of fly-in business, we will have dozens of clinics competing on the numbers across the country that are very well financed on the entrepreneurial side. They'll have crack teams with the best numbers in the business, and will become destination sites that support hotels and motels for people who simply fly in for the procedure.
Hickey: They already exist at the Cleveland Clinic with cardiovascular surgery, and they do that for the world.
Kaiser: I think you'll see more of it.
Will we have a national health system?
The Physician Executive: Are we getting closer to some kind of organized national health system?
Kongstvedt: Although I will raise one minor little twinkle of light in the gloom. State legislatures have become so wild and unpredictable, and when you combine that with the fact that HIPAA is the first federal intrusion into the states' regulation of insurance, there's a low grade sentiment among some health insurance and managed care industry executives that federal regulation of health insurance might not be so bad.
Kaiser: If Bush makes it through his educational initiative and gains some momentum, he's going to start building a groundswell and pulling from various sectors for support. And the reason is, we're in trouble, and everybody knows we're in trouble.
Reinhardt: Only a Republican president can introduce universal coverage without being called a Socialist. But there has to be the money. At the moment we do have the money. It's in the surplus. But after the tax cut President Bush proposes, that money will be gone for good. In fact, his budget suggests that they may have to finance the administration's contingency reserves partly with the Medicare Part A Trust Fund surplus. Frankly, I think it's time to kiss the idea of universal health insurance coverage goodbye. It'll never happen.
Managed care in the next five years?
The Physician Executive: Let's wrap up with your views of how managed care will change in the next five years.
Hickey: The short answer is, I don't care. I'm worried about tomorrow. Lee said it, the whole industry is under severe duress. There are a lot of conflicting incentives. There's no policy, there's an uncertain Wall Street interest, there's a reactionary component that has taken hold among the physicians. Those of us in large multispecialty groups are having a hell of a time making it. We're experiencing true revenue starvation, We've already cut out a significant amount of cost, and the information system revolution won't be here for another five to ten years to improve efficiency. If I had to identify one key driver for the next five years, it would be the impact of consumerism. But we don't know very much about it, so it's hard to say where we're going to go.
Reinhardt: This is a little hard to understand. We have premiums rising again at double digits and maybe total health spending at 8 to 9 percent per year, and yet providers are aching. Where's all this money going?
Hickey: Well, it's not going to the physicians. A lot of it's going to pharmaceuticals, nursing, and technical labor shortages. And it's going into utilization with the aging of the population. Now that might play out positively on a volume basis for hospitals, but we're not seeing it yet on the physician side.
Kaiser: I would say for the next five years the best word would be flounder.
Atlas: Another place where the money is going is to post-acute and long-term care. My answer on the five-year question is that managed care is becoming more and more of a misnomer, that basically we've sort of reinvented Blue Gross. Everybody is starting to look alike and the business has become commoditized with price being a key factor, along with service and convenience. It'll take a while until somebody invents a new way of differentiating before we see a real revolution.
Kongstvedt: For a couple of years I've been working on the application of complexity theory to the operations of health care markets, and I believe it more than ever. It's like the weather. You can't predict it five years from now. It's complexly adapting, and anybody that predicts five years and is right is either Jeff Goldsmith or lucky. And that's the best I can do. The big wheel keeps on turning.
Reinhardt: As far as health care delivery itself goes, the system is much better than it was ten years ago. And ten years from now it'll be great, at least for the bulk of us who are insured. The financing will continue, as Peter says, to be the old "pass the hot potato" game. American health care financing has always been a game of cost shifting, and that'll always be chaotic. But for the next ten years we're looking at a fairly steady increase of 6 to 7 percent in health spending overall. Name me another industry with that kind of revenue flow.
This is one of the most stable, most well-endowed systems in the entire economy. Look at fiber optics, e-commerce, automobiles, telecommunications--what a mess. Even Wall Street's revenue flow is not so secure as the health system as a whole. Health care will be the growth industry of the new millennium.
Bob Carlson moderated this panel discussion. He writes about health care and is working on his MHA at Indiana University.
* Managed Care
* e-Health and the Internet
* HIPAA Electronic Data Regulations
* Complementary and Alternative Medicine
* High Volume Specialty Clinics
What did our five panelists predict for the next iteration of managed care? What do they see happening now? What will the health care industry look like in ten years? Employers will shift an increasing share of rising medical and prescription drug costs to consumers through higher co-pays and defined contributions. Some providers may market their services to attract these consumers. Tightly managed HMOs will provide access to lower-income consumers. So far, e-health is helping managed care organizations cut administrative costs, but not medical expenses. Genetic testing and therapies will not be commercially available for ten to 15 years. Based on demographic trends and labor shortages, demand is likely to exceed the capacity of the health care system within the next three decades. Our five experts caution that managed care is as unpredictable and chaotic as ever, but they do their best to tell you how they think it'll all play out in the near term.
Health Care Experts Who Participated in the Panel Discussion
The following experts participated in this panel discussion on managed care, conducted via conference call on February 21, 2001.
* Bob Atlas, MBA, is Senior Vice President of The Lewin Group, a national health care consulting firm. He has more than two decades of experience consulting on strategy, program development, and management for health care financing and delivery organizations, with a focus on managed care. He has consulted with 250 clients in 43 states, including insurers and managed care plans, institutional and professional health care providers, and state and federal government health agencies.
* Martin Hickey, MD, CPE, FACPE, FACP, is President and Chief Executive Officer of Lovelace Health Systems, a fully integrated health system that includes a 270-physician multispecialty group, a health plan with 3,000 IPA physicians, and a large medical center in Albuquerque. He is an Associate Clinical Professor of Medicine at the University of New Mexico, and lectures nationally on managed care, disease management, physician leadership, and health care administration. He serves on the American College of Physician Executives Board of Directors.
* Leland Kaiser, PhD, FACPE, is President of Kaiser Consulting in Brighton, Colorado, co-founder of the Kaiser Institute, and a faculty member of Estes Park Institute and the American College of Physician Executives. He is a health care futurist, an intuitive, an executive coach, a community organizer, and an organizational consultant. He is a pioneer in many emerging areas of health care, including the healthier communities movement, integrative medicine, electronic teaching technologies, the use of nonlinear brain processes in management, and the role of spirituality in medicine.
* Peter Kongstvedt, MD, FACP, is a thought leader in the managed care practice of the international consulting firm Cap Gemini Ernst & Young in the firm's Washington, D.C., office. He has 20 years of operational leadership experience in senior positions with managed care organizations throughout the U.S. He is the editor and primary author of The Managed Care Handbook, Fourth Edition, and primary author of numerous innovative monographs, including The Managed Care Maze: Chaos Theory in Motion. He is a frequent speaker and the author of numerous articles for health care and consumer publications.
* Uwe Reinhardt, PhD, is the James Madison Professor of Political Economy and Professor of Economics and Public Affairs at Princeton University. He has received several honorary doctorate degrees and serves on numerous boards of directors and government committees and commissions, including the Institute of Medicine of the National Academy of Sciences and the External Advisory Panel for Health Nutrition and Population of the World Bank. He is also a Trustee of the Duke University Health System and of Duke University. He is widely published, speaks frequently on health care, and is often quoted in print and electronic media.
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|Author:||Carlson, Robert P.|
|Article Type:||Brief Article|
|Date:||May 1, 2001|
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