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Who’s in
Charge Here?
Accountability becomes health-care
industry's ‘hot potato' game
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Business New Haven
5/4/1999
By: Lori Green
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First, insurers wanted to assume as much risk as possible, since where risk goes premium dollars follow. Then large employers began to develop self-funded ERISA plans and assumed greater liability for their own employees. Now insurers, employers and health plan administrators all claim that they shouldn't be held accountable for medical decisions - because after all, they're not doctors. No one seems convinced that accountability brings financial rewards, but it does bestow greater market power, and who doesn't want that?
In the new health-care marketplace, accountability and quality will not earn industry players robust revenues, but instead will become the price of admission. And it's not only profit-driven companies that are intently focusing on fiscal results, efficient clinical outcomes and consumer satisfaction. Public sector and not-for-profit health care organizations are behaving more and more like their private counterparts.
Shifting demographics such as an aging population with increasing longevity, fewer available public dollars for pay for health care, and a growing need for improved information management are challenging the entire system.
While the merger frenzy of the past year has slowed, consolidation continues, particularly in the form of “horizontal” integration where entities are allied but do not operate under common ownership. Overall health care costs have stabilized, but HMOs racked up $55 million worth of losses last year on top of the $11.5 million loss during 1996.
Still, most of the state's 16 HMOs are expected to adapt and survive, at least in the short term, amid thinning margins and regulatory pressures. Consolidation strategies that result in integrated delivery and financing systems have helped some health-care entities to handle increased levels of risk for medical costs.
For others, the only way up is out.
Some insurers and HMOs are looking for ways to get out of the business of micro-managing medical care by delegating more responsibility (and liability) directly to physicians and other health-care providers.
Naturally, physicians and hospital groups are eager to assume more than just greater risk. Many see wider entrepreneurial vistas in being able to provide Medicare and commercial coverage to patients without having to obtain the commercial HMO license now required by the state's Department of Insurance.
Regulations are under review by legislators that would permit provider-sponsored organizations (PSOs) to sit at the top of the delivery pyramid and own the health plans they manage. Hospitals and providers would enroll patients directly into their system and contract with HMOs to provide claims management, marketing and other administrative services.
Perhaps a contract of a different hue will foster better relations between physicians and managed care organizations. “The road is quite bumpy. There is a lot of dissatisfaction according to our last survey of physicians in Fairfield County,” says Seyed Aleali, M.D., president of the Fairfield County Medical Association.
Problems include long lags in reimbursement payments to physicians, HMO strong-arm tactics in “recruiting” physicians for their networks, and the inability of many patients to choose or retain physicians of their choice.
“When Medicare patients are converted to HMOs under Part B, they often have to change physicians for the first time in 20 years,” says Aleali. Since physicians are still saddled by anti-trust prohibitions against organizing around fees or direct labor issues, one of the only avenues open to them is to persistently campaign for regulatory reforms. However, as the state's HMOs merge or are acquired by mega-HMOs, their anti-reform lobbying coffers swell.
ConnectiCare, the state's third largest HMO and one of the few still operating on a strictly local and independent basis, has seen vibrant growth in membership during the past year. Says its vice president of sales and marketing, Rick Kaplan, “We utilize our relationships with chambers of commerce around the state to service the small-business market, which is where we expect much of our future business growth to be.”
Also, since different provider networks have different approaches to care, flexibility is key. “The bigger players have to be more cookie-cutter and more standardized in order to be successful and we don't think that's the way the medical delivery system is going,” says Kaplan.
“No matter how big you are, people are not going to be satisfied with a lot of red ink on an ongoing basis,” he adds. “With rate increases hovering around an average of five percent statewide across all market segments, if anybody gets too far out of line it will hurt their ability to grow. So you have to stay in the ballpark.”
As in most ballparks, there's only a limited number of bases. Take for example the Medicare marketing blitz of the past year. With overall managed-care penetration of the state's health care market at 85 percent, Medicare is one of the only segments left where there's still work to do other than stealing market share.
Market penetration for Medicare risk products is only around 15 percent, so nearly all health-plan providers are predicting rapid growth. Yet reports from other regions of the country, where the elderly are less skeptical of new-fangled health-care contraptions than they are in New England, show that the over-65 set may sign up for premium-free Medicare policies but once they are hit with a rate bill, quickly revert back to their basic Medicare coverage - an option that is always available to them.
The sharp decrease in in-patient admissions at hospitals over the past few years, and the concurrent rise in out-patient care, has driven many hospitals to form partnerships to realize advantages of scale and consolidation.
“There has been a slowing of the move to integration somewhat over the last 12 months,” says Dennis May, executive director of the Connecticut Hospital Association (CHA). “It's still happening, but there is a nationwide slowing-down.”
On average, hospital financial performance was nowhere near as dramatic during 1997 as was the case for managed care. “It's quite clear that compared to prior years, a half-dozen hospitals will end up with operating losses, but most will cluster around three to four percent total gain on average,” May says. “These numbers are a percent or two higher than they were two or three years ago.”
Although data has not yet been collected on cases treated at non-hospital-owned, free-standing surgi-centers, May reports that hospitals are also staying ahead of the cost curve in competing with them.
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