The managed care debate: will Alaska ever see managed care? And do we want it?
Once the darlings of the health care industry because of their ability to reduce costs and generate huge profits, Health Care Maintenance Organizations, better known as HMOs, have recently received a lot of negative press.
Consumers think HMOs limit their health care choices and options. Frustrated doctors say HMOs compromise patient care by allowing a third party into the healthcare decision-making process. Stories abound in the media about HMO patients who were denied access to care or who were refused life-saving treatment and drags.
The U.S. Congress is soon to be hearing legislation such as H.R. 719, the Managed Care Reform Act of 1999. According to a press release from the American College of Occupational and Environmental Medicine, "the bill would allow physicians to determine what treatment is medically needed, and it would establish an external grievance and appeal process for patients and physicians."
Because Alaska's limited population has kept its market closed to HMOs, the state has sat on the sidelines throughout much of the managed health care debate. However, many people in the medical community have started to prepare for the day when HMOs or other managed care plans possibly become part of our lives.
Traditional Indemnity Insurance
Under indemnity (or fee-for-service) plans, consumers-or more often their employers - pay a premium to an insurance company. The company pays health costs after the consumer meets a fixed deductible. Patients have freedom to choose their doctors, but the system lacks financial checks and balances.
"It's like going to the grocery store and not having to pay for your groceries," says Dave Pfeifer, CEO of Valley Hospital. "There's no hit to your pocket under fee-for-service. The consumer is not paying for the cost; the employer or the health plan is."
As health care costs soared in the 1980s, governments and insurance companies looked for ways to make health care plans more cost effective.
Managed care plans attempt to combine the delivery of health care services with the financing of that care. HMOs are the most restrictive of all managed health care plans.
A typical HMO assumes the risk for a large population, say 150,000 people, by pre-paying for medical services. This is called capitation. Patients choose a primary care physician from a list provided by the HMO, and physicians in the plan receive a monthly statement for each covered patient.
A primary care physician acts as a "gatekeeper" in coordinating patient health care. This doctor treats the covered person and decides if the patient needs to see a specialist from an HMO-approved list. Care that is not pre-approved via the primary care physician and the HMO may not be covered.
Physicians and consumer groups object to HMOs because of practices that seem contrary to the patient's best interests.
Some HMO contracts provide financial incentives for doctors to limit hospital stays. Others may include gag clauses, which prevent physicians from discussing heath care options with their patients. Because their business is based on volume, HMOs limit the amount of time a patient spends with his or her doctor.
Doctors feel they've been made to compete with each other financially to such an extent that lowered costs impact the quality of medical care. Patients don't like being limited to a particular list of doctors.
Despite their negative press, HMOs have successfully controlled short-term costs in the past five years. However, they have recently begun to see substantial increases in premiums again. Pfeifer explains:
"You don't really know when you get a population of 100,000 what the costs are long term. Out of the premiums they receive, HMOs pre-pay a portion to physicians, to hospitals and to marketing, but then one patient may have a catastrophic event that eats up all the money," he says.
The National Center for Policy Analysis, a non-profit public policy research institute, predicts that premiums for midsize firms may rise as much as 20 percent this year. In May, the center reported that, "the increases are being driven by rising drug prices, reduced competition in the health care field due to consolidations, and insurers playing catch-up after initially setting low rates to gain market share."
To counteract this trend, many HMOs are implementing other methods to keep costs in check. For example, Health Net, a large for-profit HMO, offers wellness programs and preventative care such as patient education, weight loss programs, and pre-natal care. Shifting the focus toward keeping members healthy is a more sustainable way to control long-term costs, and it improves program image.
"They're putting money up front, and the consumer can see they're offering favorable services," says Pfeifer.
The Alaska Market
Alaska has experienced managed care for years by way of government programs such as Native Health Services, Medicare, Medicaid, and the Veteran's Administration. However, in the private sector, the primary form of insurance is still fee-for-service and, to a lesser extent, Preferred Provider Organizations or PPOs.
In a PPO, a group of doctors contracts with a particular insurance company, a hospital, or a self-insured employer, to offer services. Plan participants can go to any doctor in the network and get full coverage. Out-of-pocket expenses may be higher for doctor visits outside the provider network.
Another variation on PPOs is Physician Hospital Organizations or PHOs. Under PHOs, physicians and hospitals contract together to offer services, which offers greater negotiating power than the physicians might have by themselves.
Some people consider PPOs to be a type of managed care, but Jeff Davis, executive director of Blue Cross of Alaska disagrees. "Preferred Provider Organizations are a way to take advantage of volume discounts. The provider exchanges a price break for volume of patients, but it's still a wide open plan where you can go anywhere and still have benefits."
Blue Cross of Alaska currently offers PPO plans as well as fee-for-service options. Davis doesn't see anything more restrictive on the horizon for Alaska.
"One reason would be simply the number of people in the state, the other reason would be market acceptance of that type of a program. We see products moving toward more, not less choice," he says.
Changes in Alaska?
Employers tend to drive the move toward managed health care because they bear the burden of higher health premiums. But there have to be other market conditions for managed care to succeed, says Marcie Burton, regional director for Managed Health and Physician Integration for Providence Health Systems. Burton negotiates contracts with insurance companies and self-insured employers like BP, and she sees hesitancy, on the part of employers, to limit choice.
"I came here from Sacramento-a hotbed for HMOs - and I thought it would be just a matter of time before the Anchorage market caught up to where Sacramento is. But Alaskan employers find their health care costs are not out of line with other expenses in the state. It hasn't reached the threshold where employers feel they have to do something," Burton says.
Additionally, Burton says managed care won't be successful until Alaska has a surplus of physicians. "HMOs work in markets where you see physicians competing for contracts because they need them to keep patients in their practice," she says.
Marianne Burke, director of the Alaska Division of Insurance, says that although the legislation to allow HMOs in the state has been on the books since 1990, she doesn't see HMOs in Alaska's future.
"I certainly don't think it will happen at all. We have geography and lack of population against us," she says. Companies periodically call Burke's division to feel out the market, but they all give her the same feedback. "It's just not economically feasible," she says.
The Preventative Approach
Doctors, hospitals and legislators are still expecting to see some form of managed care in the state. Over the course of the past three years, four Independent Physician Associations (IPAs) have formed, one in Fairbanks, and three in Anchorage.
"The purpose of an IPA is to keep the practice of medicine in the hands of professional physicians and nurses and to not only be dictated by the management of costs," says Mike Hogan, spokesman for the Alaska Physician's and Surgeons Inc., one of the Anchorage IPAs.
Hogan believes Alaskans will have managed care eventually. "It's probably inevitable in some form or another. Alaska will not remain an island forever," he says.
Dr. Jerome List, president of the Alaska State Medical Association, feels that the formation of Alaska IPAs may send a message to the insurance companies. "They've seen that we've organized, we've prepared, and hopefully we've learned to be proactive as a result of the activity in the Lower 48," he says.
At the request of the Alaska State Medical Association, state Legislator Norman Rokeberg is sponsoring House Bill 211, also known as the Alaska Patients Bill of Rights. Dr. List says the purpose of the bill is to establish parameters so the state can avoid some of the errors of managed care.
"Insurance companies have insisted on deciding what's medically necessary for the patient. We think it should be physicians and medical practitioners who should be making those decisions," says List.
Jeff Davis of Blue Cross says HB211 is restrictive enough to prevent PPOs. "As I read it, you would not be able to have plans that had an incentive for members to choose one group of providers over non-contract providers," he said.
Dr. List doesn't agree. He says the bill is meant to establish guidelines that standardize insurance contracts in the state.
"A lot of times physicians don't know, or they can't get advice about signing a good contract. We're not averse to having this type of system come into Alaska, we just want to make sure physicians and consumers are protected. I think insurance companies are not too happy about this because it will limit some of their profits," he says.
Even Dr. List admits that some good has come out of managed care. He says physicians have learned to practice medicine more cost consciously and efficiently. However, he says his number one priority is patient care.
"I'm very concerned about making sure that our communities continue to have good medical care in spite of what the business interests are of health care companies," he says.
A Better Solution?
Several professionals interviewed suggested Medical Savings Accounts (MSAs) as an alternative route to control health care costs. Consumers, or their employers, would make tax-free deposits into accounts that would be used to pay for routine or minor medical expenses. At the year's end, individuals could withdraw or rollover any money left in the MSA. Consumers would regain the freedom to choose their own doctors, and they would only rely on insurance companies for catastrophic coverage.
The National Center for Policy Analysis reports that most Americans are actually over-insured. They use health insurance to pay for minor medical expenses, which drives up the administrative costs in the health care system. The NCPA noted several studies that indicate the nation could save billions of dollars in administrative costs if people switched to MSAs.
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|Publication:||Alaska Business Monthly|
|Date:||Jul 1, 1999|
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