Managed Care in Transition

1. Managed Care in Transition

2. Public’s Assessment of the Job Various Industries are Doing Serving Their Consumers, 2000 - % saying a “good job” • Computer Software 78% • Banks 73% • Car manufacturers 67% • Drug companies 59% • Health insurance co’s 39% • Managed care co’s 29% • Tobacco co’s 28%

3. Why Managed Care? • Continuing problems related to cost, quality and variations, access. • Perverse incentives that FFS establishes. • The effects on utilization of self-referral, doctor shopping, and open access to specialists. • Overall need for efficiency, e.g. appropriate use of inpatient and outpatient services. IBM model. • The belief that optimal rather than maximal use of limited resources is appropriate. David Eddy – “As a society, sooner or later we will have to determine whether there are some benefits that are too plain small to justify the cost”

4. Is Managed Care Working? • Taken together, empirical studies have found little difference in quality between managed care and FFS care. “Deficiencies in quality occur in both types of health plans.”Dudley (MD, MBA) & Luft (PhD), NEJM, April 5, 2001, p. 1088. • Increase in health care costs have slowed dramatically. Will this trend continue?

5. “Sad Story of Cost Containment in One Chart” Health Affairs Jan 2002

7. Managed Care Basics • Physician network • Gatekeeper • Capitation, withholds, bonuses • Utilization review (e.g., second opinions, assignment of L-O-S, profiling, satisfaction surveys) • MCOs responsible for health of a defined population - all those who pay “dues.” (e.g., vaccination rates, consumer satisfaction surveys - CAHPS) • Practice guidelines - clinical management systems informing physicians and patients & directing their actions.

8. Atrial fibrillation is a common type of heart arrhythmia. In fact, more than 2 million — mainly older — Americans have this heart rhythm abnormality, which can cause heart palpitations, shortness of breath and fatigue. In atrial fibrillation, the heart's two upper chambers (atria) beat chaotically (fibrillate). They also don't beat in coordination with the two lower chambers of the heart (ventricles). The result is an irregular and often rapid heart rate. The heart can still pump blood — but less efficiently. Atrial fibrillation is often associated with changes in the heart that occur with age or as a result of heart disease. It may occur occasionally or be a chronic condition. Although atrial fibrillation isn't life-threatening, it can be serious. Left untreated, it can lead to complications, such as stroke and congestive heart failure. www.mayoclinic.com

10. Co-pays, deductibles Gatekeepers Preauthorization and utilization review Provider networks Restricted formularies for medicine Capitation, withholds, bonuses Provider profiling Preventive health care & wellness Risk skimming & dumping??? Horizontal and vertical integration – IDS Practice guidelines - Eddy Disease management* Better use of IT (prescription entry, guidelines, e-mail consultation) MC Cost Cutting? (&QI?) Tools *Multidisciplinary effort to minimize the burden of disease by educating patients, encouraging them to take an active role in their care, and establishing a long-term therapeutic plan.

11. Insurance Plan Type Enrollment

12. 1981 1993 2000 For Profit 12% 52.2% 63.5% Non-profit 88% 47.8% 36.5% HMO Ownership

13. What is “Traditional Indemnity” or FFS Insurance • Patients choose a physician from among all those in a community, receive care and a bill, and then submit the bill to the insurer. • Insurers pay fees that are “usual and customary” in each community, which means that the local physicians set fees.

14. FFS Incentives • Demand inducement. Incentive for physician to provide unnecessary treatments for additional reimbursements. (Marketing inducement? Worried patient inducement?) • Duplicate tests, unnecessary procedures, are examples of wasted resources that result from a FFS system.

15. Earliest forms of Managed Care: Group- or Staff-Model HMOs Care provided through salaried physicians for a defined population of patients. Or, MCO contracts with physician groups who accept capitated payments. Providers primarily treat own plan’s HMO patients. e.g., Kaiser-Permanente.

16. Traditional Group Model HMO Insurer & Provider (assume risk) Employer Patient

17. Individual Practice Association IPA • Care through a panel of contracted providers for the provision of services to a defined population of patients. Insurers can exclude physicians who did not accept their rules and fee schedules (discounted FFS or capitation). • Physicians practice out of their individual offices - a “virtual structure” • IPA physicians have patients who are not HMO members.

18. IPA Model HMOAggregated or Disaggregated Risk? Employer HMO Shareholder Discounted FFS payment Shareholder Network of Physicians Physician A Physician B Hospital M

19. IPA Model HMOAggregated or Disaggregated Risk? Employer HMO Shareholder Capitated payment Shareholder Network of Physicians Physician A Physician B Hospital M

20. IPA Model HMOAggregated or Disaggregated Risk? Employer HMO Shareholder Shareholder Network of Physicians Capitated payments Physician A Hospital M Physician B

21. Preferred Provider Organization PPO Contractual arrangement between providers and purchasers for the care of paid enrollees. Gatekeeper often not required; limited utilization review.

22. Point-of-Service (POS) Plan Member chooses provider at point of service (illness) rather than upon enrollment into plan; higher co-pay or deductible when going outside the network. POS plans more likely than PPO plans to use risk sharing arrangements (e.g., capitation).

23. New “Multi-tiered” Plans give the patient three options Coverage in a strictly managed HMO with a limited number of providers – low co-pays Access to a PPO with slightly higher co-pays Use of of out-of-network providers/hospitals, with the highest co-pays and deductibles. Note: Patients “pay” for greater choice of providers & hospitals.

25. Managed Care Plan’s Problem • Must satisfy customers • Consumers • Payers • Must organize, coordinate and negotiate with providers • Often must maximize share holder value

26. Backlash Against Managed Care • Plans seemed to do too much managing and not enough caring. • Consumers, providers, hospitals, government agencies… started pushing back. • As health plans eased off the cost-control brakes, doctors and patients started using more services. • The result: double-digit premiums.

27. “Giving doctors the final word.” U.S News & World Report, November 1999 UnitedHeatlh Group had just dropped a bombshell…the company would no longer second-guess a doctor’s decision. The dramatic policy shift was hailed by consumer groups as a first step toward HMOs putting patients before the bottom line. Prior approval for treatment, until last week , had been a rock-hard principle that allowed HMOs to halt double-digit yearly increases in the cost of health care.