A Physician’s Perspective on Managed Care
Key trends for 1999: The good and the bad
Projecting trends in the health care industry is risky business, but some clear patterns are emerging. When the clock strikes midnight at the turn of the century, we are likely to have a much better sense of the role providers will play in health delivery. Until then, the following trend lines point to an industry that in many ways winds up looking like every other industry that has been pressured, and even battered, by intense competition and increasing customer demands.
• With premiums up about 8% on national average, employer coalitions are bound to be energized to try to curtail more increases in premium prices.
• Physicians who participate in professional and global risk are much more likely to see pay increases that are commensurate with premium increases. Physicians who contract for only primary care capitation rates are not as likely to see raises because their negotiating power is minimal.
• The momentum for mergers and acquisitions among carriers is likely to continue. The industry may wind up like other industries with three big competitors, like the Big Three in the auto industry, and other carriers as niche players. This consolidation is forcing provider organizations to look at how they can shore up their negotiating clout. Columbia/HCA took a turn at becoming the national hospital giant and wound up falling flat on its face. Physicians will have to turn to IPA management firms or PHOs to have a chance to match the carrier powerhouses. Fortunately, consumers still see physicians as their strongest ally, and that may win the day, with politicians interested in keeping constituents happy.
• The reduced number of carriers has an upside and a downside for provider organizations. The good news is that providers will see more uniformity in protocols; the bad news is that the remaining carriers could use their increased enrollee volume to try to make provi der organizations acquiesce to unreasonable demands. The recently announced proposed merger of Aetna and Prudential will be a litmus test of how a titan carrier chooses to act toward provider organizations. At-risk physician organizations may well hold the trump cards in some markets if carriers want to ensure both their margins and greater provider and patient satisfaction.
• Industry analysts have begun to view carriers in two camps: those more likely to try to handle medical management within their own organization, such as United Healthcare and Aetna, and those more likely to look to at-risk provider organizations to keep the medical loss ratio in line, such as Humana and CIGNA. However, several carriers, such as United, saw red ink in their bottom lines last year and may choose to look at other options to improve medical loss ratios.
Medical directors gaining R-E-S-P-E-C-T
For many reasons, health insurance carriers are giving medical directors more influence in their organizations, whether it is an IPA, a PHO, or an insurance carrier. Three crucial reasons for the position’s improved stature are:
— the critical impact the medical loss ratio has on the financial success of the organization;
— political pressure at the state and federal level to give consumers more rights within their health care systems;
— increased ability of medical directors to find their way through corporate labyrinths and influence the direction of health care delivery organizations. Here is what is behind those changes:
• Medical directors can help lower medical loss ratios.
Medical management is the single strongest determinant of whether money will be left over from premium revenue to fall into the carrier’s net income bucket. More carriers are trying to improve this ratio through tighter provider relationships with IPAs and PHOs that have learned how to control the health care dollar and provide patient satisfaction.
Physicians should not mistake the recent jump in premium rates as offering long-term relief for the carrier industry. Nor should physicians be lulled into thinking they will derive even short-term benefits from these premium increases, though participants in risk contracts are in a much better position to negotiate corresponding compensation hikes.
At some point, perhaps in the near future, physicians and provider organizations will see a backlash against higher-priced premiums, and that backlash will likely be supported by employers and a growing number of employer coalitions. The carrier industry itself also will force rates to level off or will even put downward pressure on premiums as carriers aggressively try to cut into each other’s market share with competitive premium rates and new product benefits.
With markets maturing and competition among carriers intensifying, more carriers will merge or move out of unprofitable markets. At that point, the health care industry will have more leverage to increase prices, but under any circumstance, providers will continually feel pressure from carriers to force costs down even further and increase their profits.
• Medical directors help physicians lessen consumer concerns.
Once the Senate and House are done wrangling with impeachment proceedings, two issues are expected to surface: Social Security and health care reform. At the state level, health care reform is already at the top of the list. The impact of consumer rights legislation, whether already enacted or even at the proposal stage, is causing the carrier industry to fear declining medical loss ratios. The fear may be warranted as specific legislation moves to the congressional floor.
Of course, physicians are not likely to speak positively about a carrier unless the carrier is providing them with economic incentives to deliver quality care efficiently.
Physicians participating in at-risk IPAs and PHOs are more likely to think positively about a carrier because of their upside, which likely will influence the physician to speak positively about the plan when talking with patients.
• Medical directors are becoming more confident in working with managed care.
Another factor contributing to the growing role of medical directors in shaping managed care is their developing sophistication in the corporate environment. Physicians are graduating from MBA programs in significant numbers, but just as importantly, physician leaders with authority and responsibility in clinical management are learning the ropes in the halls of insurance carriers and provider organizations.
For all the above reasons and more, medical directors are likely to enjoy increasing clout and influence in the year 2000 and beyond. Ideally, they will have the advantage of working with provider organizations that are incentivized to deliver quality with efficiency. Working with at-risk IPAs and PHOs will give carriers the opportunity to truly partner with physicians, and that will result in the best use of the premium dollar to care for patients and a healthy bottom line for carriers. To develop such a strong partnership with physician organizations, carriers like Aetna and United may need to get over their fears about working more closely with physicians, and that may not happen until POs take a stand on behalf of themselves and their patients.
There is no doubt that consumer rights and health care reform will be front-and-center issues of the 2000 election campaigns. In many ways, this political pressure will be felt in the offices of medical directors because they are in the pivotal position to help physicians balance patient rights with appropriate utilization and protocols. A carrier looking for ways to address consumer rights issues would do well to look to its medical directors as a communications conduit to physicians and their patients. After all, it is within the physician-patient relationship that clinical decisions such as utilization are decided.
By educating physicians about how to make managed care work for their clinics and their patients, medical directors can help create satisfied providers, and this has a positive ripple effect toward creating patient satisfaction and enrollee retention. Carriers’ typical top-down, unilateral approach to communicating with physicians will only generate criticism.
How medical directors communicate with physicians, as well as what they discuss with physicians, will go a long way toward creating stronger relationships with physicians and their patients. Medical directors need a well-thought-out communications strategy for educating physicians in a step-wise fashion about how to make managed care plans work best for themselves and their patients. Currently, carriers are justified in fearing that physicians often criticize their plans when speaking with patients. This negative communication encourages expensive enrollee churn to other plans.
In 1999, we may see more physicians doing just what physician groups did in Texas last year. They told Aetna they’d had enough of Aetna’s ways and they were not going to take it anymore, and they drew a line in the sand. The outcome of that stand-off will no doubt be telling for the rest of the country.
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