For ED physicians, PSOs may be a tough balancing act
Hospital-owned HMOs offer more control but at big financial risk
Threatened by the specter of increasing competition and shrinking revenue opportunities, hospitals seem to find ever-newer ways to band together to form novel managed care arrangements. Hospital-driven and owned health maintenance organizations (HMOs) are but the latest wrinkle to appear on the integrated-network landscape.
However, at the same time, the focus of most emergency physicians tends to be rooted in a narrow, hospital-specific view. Most working emergency physicians bother little about what happens outside their individual hospital's walls. This perspective isn't necessarily bad, but by limiting themselves to a narrow, microcosmic view, many physicians get left out of the loop whenever the economic terrain begins to shift under them.
That is the assessment of some physician practice analysts who believe that sooner or later, emergency physicians will have to play a larger role in ensuring the economic viability of whole systems of hospitals and physician practices, not just their own.
"In part, this is a function of managed care. Providers are banding together to better manage not just patients but the financial environment, itself," says John F. Paulk, regional director of recruitment with Irving, TX-based Merritt Hawkins & Associates, a large physician search and compensation research firm. Hospital-owned HMOs and physician-hospital organizations are good examples of the growing trend toward environmental control, Paulk adds.
Physicians becoming more entrepreneurial
Physicians in most specialties are taking a more aggressive stance in determining what is best for them within the traditional hospital-physician framework, Paulk says. This newfound attitude includes the way they determine the contracts that link them with not only managed care organizations (MCOs) but also hospitals and associated providers. (For more remarks by Paulk on physician self-determination, see the cover story in this issue.)
But what if the hospital operates its own HMO? Where do the boundaries lie between achieving high clinical quality and patient satisfaction in the emergency department (ED) and meeting the financial-cost expectations of the hospital-owned HMO?
Exactly where the boundaries lie depends on the nature of the marketplace, says accountant Seth Freedman, an associate at Coopers & Lybrand in Philadelphia, PA. Here's why:
· Where there is aggressive competition by large HMOs, provider-owned health plans are likely to be smaller and less competitive. As a result, they have to be more physician-friendly in order to keep practitioners committed to the financial targets of the hospital-owned HMO, Freedman says. Otherwise, they will not be able to serve their enrollees or keep their providers from going elsewhere.
· But, this has worked to physicians' advantage, Freedman notes. Many start-up PSOs have had to pay higher reimbursement rates to clinicians as a way of enticing providers, including contracting emergency practitioners, to work at their hospitals. They've also established more liberal clinical policies and have given practitioners more flexibility and clinical independence, even when the systems have owned the medical practices.
· At hospital and EDs in over-built hospital markets where there is excess capacity but patient use doesn't change drastically, physicians often find themselves freer to provide better health care to the community, and they worry less about costs constraints than in rapidly changing, heavily managed care markets, Freedman observes.
Of course, these scenarios are generalizations. They don't take into account variables such as the financial strength of the facility, the rate of hospital consolidation in the community, or the amount of cost-shifting going on at the facility, Freedman warns. Nevertheless, they're important to physicians whose hospitals may be undergoing the process of developing into a fully integrated delivery system.
Sudden growth in PSOs pose mixed blessing
According to a Cooper's & Lybrand analysis, hospital-owned HMOs have undergone dramatic growth. Since 1991, the number of these provider-sponsored organizations (PSOs) increased nearly 36%, while their enrollee memberships leaped by 80%. In comparison, the number of non-hospital HMOs grew by a more modest 12% and memberships increased by 60%. Today, there are more than 20 large, provider-owned health plans in existence, and their numbers are increasing.
Organizationally, they function much like an HMO but are owned or closely affiliated with a network of hospitals and physician groups. Each member of the PSO contracts with each other to serve the PSO's enrollees. But they are also permitted to contract with non-affiliated health plans and MCOs. At the same time, the HMO owned by the providers can contract with hospitals and providers outside the network.
Recently enacted Medicare regulations have spurred the growth of Medicare-only PSOs. In fact, many PSOs have been formed for the sole purpose of landing a Medicare-risk contract from the Health Care Financing Administration (HCFA) in Baltimore. HCFA officials have said they believe PSOs can help hold down costs and deliver Medicare services efficiently.
PSOs, however, have not performed to expectations. Although there's been considerable growth in this sector, "the expansion has not been matched by stellar financial returns, and many start-up organizations are struggling," according to Maura O'Neill, a Coopers & Lybrand research analyst.
In April, Sacramento, CA-based Sutter Health placed its HMO, Omni Healthcare, on the auction block. The HMO, which has 160,000 enrollees, reported losses of $196,000 in 1997 from a net gain of $1.3 million in 1996. Omni is the latest provider-owned HMO to run into trouble. PSOs in several states have reported difficulties. In Wisconsin alone, three large PSOs report steep financial losses in the same week.
An analysis of data culled by Coopers & Lybrand from InterStudy, a Washington, DC-based group that tracks HMOs, found that in 1996, hospital-owned HMOs had much smaller net profit margins (-0.59%) than non-provider owned HMOs (1.58%). The results occurred despite higher mean per-member, per-month (pm/pm) revenue, which, for provider-owned HMOs, stood at $241.27 compared with non-provider-owned HMOs at $148.83, Coopers & Lybrand reported.
So, how can ED physicians balance their concerns for patients with the HMO's mandate on cost-effectiveness? The two aren't necessarily in opposition, notes Beverly Slavik, executive vice president and chief operating officer with Health Plan of Pennsylvania, a provider-owned HMO operated by Crozer-Keystone Health System, a five-hospital network in Philadelphia.
"Achieving high quality at a reasonable cost is just a way of saying appropriate health care," says Slavik.
Essential to the working environment for physicians has to be the degree of separation perceived between the hospital administration and the HMO, says Paul Horton, MD, director of the ED at 700-bed Forsyth Medical Center in Winston-Salem, NC.
"In several ways, it makes things better and worse," Horton says. Although they are parts of one system, the separation of provider and HMO allows contracting physicians a great degree of independence but also creates additional bureaucracy that sometimes leads to delay and inefficiency. Forsyth is owned by Novant Health, a nine-hospital system. The PSO operates Partners Health Plans with 200,000 enrollees.
PSOs worry about balancing quality and cost
At Health Plan of Pennsylvania, the EDs at each of the system's five hospitals are under the spotlight. "Every managed care plan is looking at utilization in the ED because it's the gateway to potentially high-cost encounters. We're not different," says Slavik. But what seems to make the Medicare-only HMO work is the information system that links the health plan with providers to hold down costs.
Unlike more traditional HMO-hospital situations, physicians have a greater degree of support in accessing enrollee information, including an extensive patient history, primarily because the patient is enrolled in a company-owned health plan. Here's how it works:
· Usually, the patient data is obtained immediately, Slavik says, because there is an staff infrastructure that includes hospital case managers who have a vested interest in the care of the patient and in the health plan's ability to provide the patient with covered benefits now and in the future.
The support system saves time and money by avoiding superfluous clinical work-ups and invasive diagnostic procedure on every enrolled patient who presents at the ED. When referenced by clinicians, the patient history and diagnoses help reduce costs and needless repetition for clinicians, Slavik adds.
· The information comes from the case managers, relayed by a computerized information system directly to physicians in the ED and throughout the network of hospitals. In most cases, the patient's primary care physician is on the same team with the ED staff, which reduces the awkwardness and second-guessing that often goes on between providers from different organizations.
· The PSO is also working on a longitudinal medical record encoded on an electronic smart card that it expects to distribute this year. The plastic, wallet-size card contains the entire patient file on a magnetic strip. Therefore, the enrollee can go to virtually any provider within or outside the system with a reasonable assurance that the patient data will be easily accessible, Slavik adds.
· And, like the case managers, the PSO's physicians are also affiliated with the health plan and therefore are made to feel the same commitment to the PSO, Slavik says. In Crozer-Keystone's case, the system owns the practices of some 250 physicians, including more than 100 primary care and emergency practitioners.
But, at hospitals that contract with physicians for ED services, the PSO should make the contracting staff feel they are part of a system-wide enterprise, Freedman says. "Overall, most PSOs are positioned to offer physicians competitively priced incentives. But, what is a great advantage to providers, if not properly managed, could spell financial doom for the system," Freedman notes.
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