Class 9 – MANAGED CARE ORGANIZATIONS (“MCOs”/ INSURERS PERSPECTIVE

It has been said that managed care will evolve in three stages and that the physician will regain power in the second stage. Stage One is characterize by cost containment and price competition; StageTwo by value improvement and customer satisfaction; and Stage Three by health status improvement and at-risk population management.

Accreditation

  • Accreditation is a method of determining accountability and to be accredited is to have received a seal of approval from the accrediting entity – accreditation means certain standards have been met
  • Managed Care Organizations and providers may want to be accredited for marketing purposes 
  • A question about accreditation:  is there a consistent scale of measure to make comparisons?

It has been said that managed care will evolve in three stages and that the physician will regain power in the second stage. Stage One is characterized by cost containment and price competition; stage two by value improvement and customer satisfaction; and stage three by health status improvement and at-risk population management. The first stage of managed care is reaching maturation in certain markets. As this happens, physicians will gain control of healthcare, since stage two relies on both clinical innovation and theexpertise to deliver what the market demands. Currently, stage one still dominates.

During the first stage, managed care focuses on cost cutting in five areas: (1) reduce hospitals lengths of stay, (2) avoid at-risk populations, (3) compete against “unmanaged” indemnity insurers, (4) impose aggressive premium cuts and (5) cut deals through discounted care.

Stage two’s main function will be to develop value enhancement and patient satisfaction. Its cost target is resource use, its locus of control is internal or physician/peer-driven, and its focal point is the physician group. Carve-outs for specialty services are an example of this stage. Other elements of managed care’s second stage include encouraging physicians to followclinical paths that allow them to manage resources, and a greater focus on consumer satisfaction.

The third stage of health status improvement and at-risk population management would come about sometime in the future. Theoretically, stage 3 would bring the whole managed care movement full circle where the end goal is to improve the health status of the patient population.

It has been said that managed care will evolve in three stages and that the physician will regain power in the second stage.

  • Stage One is characterize by cost containment and price competition;
  • StageTwo by value improvement and customer satisfaction; and
  • Stage Three by health status improvement and at-risk population management.

Population based care relies on clinical based guidelines.  Patients want the best care when they need it and physicians want to provide it to them.  Physicians don’t want to weigh the value of heroic measures to save a 90-year-old patient against the value of giving more poor women mammograms.   In order to choose what is best for both the population and the Managed Care Organizations, plans will most likely use some combination of profiling, financial incentives and quality, with feedback to physicians to persuadephysicians to choose what is best for the population and for the plan.

Even the National Health Service (NHS) in Britain is focusing on improving the health of the population, reducing health inequalities, and preventing ill health.  Frank Dobson is Britain’s secretary of state for health since May, 1977 and responsible for the NHS, public health policy, and personal social services.  According to Dobson’s article, “Modernizing Britain’s National Health Service,” Health Affairs (May/ June, 1999), some of the steps taken by the NHS include a ban on tobacco advertising and sponsorship, creating 26 Health Action Zones – local areas of public health innovation, taking action to improve income and employment opportunities, housing, environment, education and training.  The article states “clear national standards matched by strong local incentives with new external performance monitoring and intervention”.

To raise performance, NHS hopes will come by aligning local clinical incentives with transparent quality and efficiency standards.  Access to doctors’ national comparative clinical audit data, in “which all hospital doctors will be required to participate for the first time.”  NHS will be monitored and assessed against a new National Performance Framework to provide a “balanced scorecard” of “performance covering health and health care outcomes, appropriateness, equity of access and patient experience” and efficiency. 

One way to think of the reason the managed care industry has grown so much in the United States is to consider how the United States managed care industry is perceived by some people in other countries.  For example, according to the article by Carolyn Hughes Tuohy, “Dynamics of a Changing Health Sphere: The United States, Britain, and Canada,” Health Affairs (May/ June, 1999)the United States is perceived internationally by some as being in a “competition revolution” where health care is driven not by the supply side but by the demand side.   According to this thinking, by increasing activism and sophistication of purchasers of health care services fueling the development of intermediaries to play the role of “organizing and managing consumption of care”, the managed care organizations (MCOs) proliferated.

Tuohy’s article indicates that in comparing the health care systems of Canada, United Kingdom and the United States, and the dynamics of how change is made in such systems that the United States fueled by free market and private investors with the quest for more profit creates rapid growth and opportunities along with volatile change if there is a loss in profits for investors.  As compared to public finance as used in Canada and Britain where political support moderated the pace and nature of change so that the basic features remain remarkably constant. 

A. MCO PROFITABILITY

Consider HMO’s profitability issue: do HMO’s have right to make loads of money, even when their decision affects life and death? Nine of the largest publicly traded HMO’s have $9.5 billion in cash and marketable securities. The profit accumulated by the HMO’s is being used to: (1) acquire other HMO’s to attempt to dominate regional markets with strategy to grow as quickly as possible as compared to pumping money back into the company to achieve higher level of patient satisfaction and performance; and (2) executive salary increase where average compensation was $1.05 million per year for the 29 top executives of 28 for profit HMO’s. It has been said that: “If you have an economy of providers pushing against HMOs and employers pushing on HMOs, then we’ll gravitate to a balance point where HMO’s are not going to be able to price-gouge.” There has been some discussion that profits from MCO over a certain dollar amount should be reinvested directly back into the healthcare system such as to fund medical research, help pay for medical student loans and as a source of funding for other medical related public interest areas.

Wall Street is betting on those provider organizations that develop the most cost-effective systems of care and can demonstrate value to payers and customers through outcomes measurements with emphasis on shrinking excess capacity, eliminating duplication of services and providing cost-effective care through partnerships with other providers. It has been suggested that if the free market dictates pace and direction of health care reform then we will see the formation of ogliopolies where each market or state will have three or four major players and that is it, a utility model by the end of the decade and then government will have to step in.

According to the Children’s Hospital of Columbus, Ohio as a healthcare organization employer, healthcare organizations may move more towards incentive pay, to establish pay structures that reward employees for productivity, quality and cost containment. For example, organization wide “gain sharing” programs typically incorporate across the board bonuses if organizational goals are achieved. Incentive plans typically rely more on individual performance to determine bonuses. Competitive pay and incentives for increased productivity and cost control will have a competitive advantage.

Consider how Blue Cross and Blue Shield had moved more and more into managed care. For example, Maryland Blue Cross and Blue Shield wanted to create a for profit subsidiary from its parent not-profit to: sell products without using the Blue Cross and Blue Shield logo, create a Third party Administrator, Information technology and other managed care services, purchase doctor practices or form new ventures with hospitals. The Maryland Department of Insurance did not allow this because the plan was “riddled with conflict of interest” by making for profit the dominant motivation of the overall organization. Doctors in the Maryland State Medical Society (7000) also opposed the Blue Cross and Blue Shield’s proposal as not being in the public’s best interest and that it would divert many assets, including large sums of money, to support the development of multiple for profit entities. Also, in the 1990’s Blue Cross and Blue Shield of Maryland had a U.S. Senate investigation that found widespread instances of financial mismanagement and misuse of funds.

In Massachusetts, Blue Cross and Blue Shield is quickly transforming itself from an old-line indemnity operation to a managed care company. It has signed an agreement to bring the doctors of Partners Healthcare System to Blue Cross and Blue Shield, offer real-time patient electronic information on prescriptions, lab results and medical histories to doctors, hospitals and other providers and expand managed care coverage through Medicare.

Managed care (including HMOs, PPOs, and point-of service plans) covers 90 percent of insured workers, over half in Medicaid and 16 percent in Medicare.  Consider the following:

  • Total HMO enrollment and growth rate, January 1990 to January 1999.  1990 – 33.3 million to 1999, 81.3 million.  Source:  The InterStudy Competitive Edge: HMO Industry Report 9.2.
  • HMO Profitability. Median:  in 1994 2.4% to -3.5% in 1998.  Source:  The InterStudy Competitive Edge: HMO Industry Report 9.2.
  • National Employee Enrollment, 1993 to 1999. Comparing Indemnity, PPO, POS, HMO: in 1993, 48%, 27%, 6%, 19% to 1999: 11%, 43%, 16%, 30%.  Source: William M. Mercer Inc.
  • Annual Change in Average Total Health Benefit Cost, 1987 to 1999.  In 1987, 6.9% to 1999, 7.3%.  Source: William M. Mercer Inc.

Current managed care concerns include (besides making a profit and being able to stay in business with all of the regulations and litigation occurring):  Consumer backlash, expensive new technology and rapidly aging population.  Another issue, just in general, is the problem of uninsured, approaching 45 million.

B. CARVE-OUTS

Carveouts is the practice of carving out or separating a particular class of health benefits from the overall healthplan. The practice is to manage those carved-out benefits more cost effectively by using precertification, utilization review and case management. Current carve outs that are most effective in controlling cost are: prescription drug, mental health, and substance abuse services. The next generation of carveouts is likely to be: chiropractic, physical therapy, diagnostic testing services, high risk pregnancy care, asthma, diabetics and chronic disease management.

C. ACCREDITATION

Accreditation is a method of determining accountability and to be accredited is to have received a seal of approval from the accrediting entity. The accreditation means certain standards have been met.

  • Managed Care Organizations and providers may want to be accredited for marketing purposes 
  • A question about accreditation:  is there a consistent scale of measure to make comparisons?

MCO’s and providers may want to be accredited for marketing purposes. Also, certain entities will not contract with other entities unless there has been accreditation. For example, employer groups may require all HMOs that they contract with be accredited by NCQA or use HEDIS reporting format. Another example is that many HMOs will not contract with hospitals unless they are accredited with JCAHO.

There is debate over the quality of some of the measures used for accreditation, the cost to and capacities of the entities requesting accreditation to produce the information necessary for accreditation, and the validity of the data reported. A question about accreditation is: is there a consistent scale of measure to make comparisons?

At least five accrediting bodies that play a significant role in the managed care area are:

  1. National Committee for Quality Assurance (NCQA) – focuses primarily on state-licensed managed care plans that provide comprehensive benefits to defined populations. The NCQA has begun a process to certify verification organizations and has issued standards for behavioral health organizations.
  2. Accreditation Association for Ambulatory health Care (AAAHC) – focuses primarily on ambulatory care delivery sites, including clinics and ambulatory surgery centers.
  3. Utilization Review Accreditation Commission (URAC) – has two accreditation programs, one for utilization review entities and one for provider networks.
  4. The Medical Quality Commission (TMQC) – surveys medical groups and individual practice associations that provide care in a capitated or prepaid setting. This group’s base of strength is in California.
  5. Joint Commission on Accreditation of Healthcare Organizations (JCAHO) – accredits hospitals and has relaunched a network accreditation program.

D.    LIABILITY ISSUES

Many Managed Care Organizations (MCOs) are being sued based on various theories of liability.  Some of the theories alleging liability are based on breach of contract issues, breach of implied warranties, tort related allegations such as negligence of some kind, and the list goes on.

For example, see the Illinois case Petrovich v. Share Health Plan of Illinois, Inc. 188 Ill.2d 17; 719 N.E.2d 756; 241 Ill. Dec. 627 (Sept. 30, 1999).  This is a case that went to the Supreme Court of Illinois in which the court held that an HMO may be held vicariously liable for its independent-contractor physicians under both the doctrines of apparent authority and implied authority.

This case involves a patient who is required by her HMO to select a primary care physician, Dr. Kowalski, to act as her gatekeeper.  The patient experiences pain and other symptoms in her mouth and other areas.  Dr. Kowalski refers the plaintiff to a neurologist and an ear, nose and throat specialist, Dr. Friedman.  Dr. Friedman recommended that plaintiff have a MRI or a CT scan performed on the base of her skull.  Dr. Friedman reports this recommendation back to DR. Kowalski, rather than ordering the tests himself because of Dr. Kowalski’s role as primary care physician.  Dr. Kowalski informs plaintiff that her health plan, Share, would not allow new tests as recommended by Dr. Friedman.  However, Dr. Kowalski did later order a MRI of plaintiff’s brain, but it failed to image the portion recommended by Dr. Friedman.   Plaintiff’s pain persisted and Dr. Kowalski again referred her to Dr. Friedman who performed multiple biopsies and discovered cancer.  He did surgery and plaintiff underwent radiation treatments and rehabilitation.  Plaintiff sue for medical malpractice against Share, Dr. Kowalski and others.  Dr. Friedman was not named as a party defendant.  The plaintiff died during the pendency of the appeal.

This case also looks into some issues with the quality assurance techniques used by Share so as to negate the independent contractor issue claimed by Share in reference to Dr. Kowalski.  The defendant, Share, claims that because the quality assurance program is retroactive in nature, after the fact, that there is no control over the Doctor’s actions.  The Plaintiff claims that by having a referral system in which a patient must be referred by a primary care physician to a specialist is evidence of Share’s control.

This court held that all the facts and circumstances in this case raise the reasonable inference that “Share exerted such sufficient control over Drs. Kowalski and Friedman so as to negate their status as independent contractors.”  Accordingly, the case was remanded to circuit court for further proceedings.

It is interesting to note that the Illinois State Medical Society, a physicians group filed an amicus curiae (friend of the court) brief in support of the plaintiff, as did the Illinois Trial Lawyers Association.  Also, it is interesting to note that though the primary care physician did get sued, the specialist, Dr. Friedman, was not named as a defendant in the case.

This case looks at the issue of primary care physicians (PCPs) as gatekeepers and the role of HMOs who claim that such PCPs are independent contractors of the HMO as compared to employees.  Essentially, this is a case where the HMO is saying:  we only pay for healthcare, we do not render the care; we do not employ doctors, we only contract with them.  The court essentially is saying that because the HMO had so many controls over the doctors involved in this case, and for other reasons including the information given to people covered by the HMO and these peoples understanding and perceptions (such as the doctor seemed like an employee of Share) that for the earlier court (circuit court) to have granted summary judgment on these issues without hearing the case, claiming there is no question of fact, was error.

Depending on the court system and the allegations made and supporting facts and laws and other factors, some of the allegations are accepted by the court system and some of the allegations are not upheld.  Also, cases may be held in favor of the plaintiff (the suing party), be taken on appeal and get reversed by the higher court.  Lawyers research other cases similar to the case they are working on and use these other cases as precedent to show the court why their case should be decided in a certain manner.  This is what precedent is about.  Precedent is defined by Black’s Law Dictionary as “an adjudged case or decision of a court, considered as furnishing an example or authority for an identical or similar case afterwards arising or a similar question of law.  Courts attempt to decide cases on the basis of principles established in prior cases.  Prior cases which are close in facts or legal principles to the case under consideration are called precedents…”

Different states have different laws and some cases in one state such as in California or Texas with similar fact pattern might not necessarily result with the same verdict in another state such as in Illinois due to reasons such as applicable law and precedent.

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