Managed CareManaged Care

James G. Anderson, Ph.D.James G. Anderson, Ph.D.

Purdue UniversityPurdue University

History of Managed CareHistory of Managed Care

Early Plans:Early Plans:Kaiser-PermanenteKaiser-Permanente

Group Health of Puget Group Health of Puget SoundSound Health Insurance Health Insurance Plan, NYPlan, NY

HMO Act 1973 HMO Act 1973 $200 million awarded to non-profit $200 million awarded to non-profit

groups groups Employers in the 1980s began to Employers in the 1980s began to

contract with managed care plans to contract with managed care plans to reduce health care costsreduce health care costs

History of Managed CareHistory of Managed Care

Federal and State Governments began Federal and State Governments began to encourage Medicare/Medicaid to encourage Medicare/Medicaid enrollees to enroll in managed care enrollees to enroll in managed care plans plans

Managed Care Plans begin to withdraw Managed Care Plans begin to withdraw from covering Medicare enrolleesfrom covering Medicare enrollees

Major Types of Plans: Major Types of Plans: Group or Staff ModelGroup or Staff Model

Group of physicians contracts to provide Group of physicians contracts to provide servicesservices

Physicians are employees and are not Physicians are employees and are not organized in separate medical groupsorganized in separate medical groups

Exercise control over the amount and type Exercise control over the amount and type of care patients’ receiveof care patients’ receive

Primary care doctors act as gatekeepers Primary care doctors act as gatekeepers Pre-approval of specialty services, Pre-approval of specialty services,

expensive diagnostic tests, hospitalizationexpensive diagnostic tests, hospitalization Incentives to physicians to limit servicesIncentives to physicians to limit services

Major Types of Plans: Major Types of Plans: Independent Practice AssociationIndependent Practice Association

Physicians remain in their own offices but Physicians remain in their own offices but contract to treat patients enrolled in plancontract to treat patients enrolled in plan

Health plan contracts with physicians to Health plan contracts with physicians to provide care at a negotiated rate per capita, provide care at a negotiated rate per capita, for a negotiated fee, or on a fee-for-service for a negotiated fee, or on a fee-for-service basisbasis

Physicians may contract with more than one Physicians may contract with more than one managed care planmanaged care plan

A portion of the physicians’ fees may be held A portion of the physicians’ fees may be held back until the end of the year and distributed back until the end of the year and distributed if there is a profit if there is a profit

Major Types of Plans: Major Types of Plans: Preferred Provider OrganizationPreferred Provider Organization

Physicians remain in their own offices but Physicians remain in their own offices but contract to treat patients enrolled in plancontract to treat patients enrolled in plan

Health plan contracts with physicians to Health plan contracts with physicians to provide care according to a discounted provide care according to a discounted fee schedulefee schedule

Physicians may contract with more than Physicians may contract with more than one managed care plan and can see other one managed care plan and can see other patients on a fee-for service basispatients on a fee-for service basis

Plans generally do not use primary care Plans generally do not use primary care physicians as gatekeepers physicians as gatekeepers

Major Types of Plans: Major Types of Plans: Point-of-ServicePoint-of-Service

Encourages the coupling of a patient with Encourages the coupling of a patient with a primary care physician who acts as a a primary care physician who acts as a gatekeeper by offering employee gatekeeper by offering employee incentives (e.g., more benefits, lower co-incentives (e.g., more benefits, lower co-payments) payments)

Enrollees have the freedom to seek care Enrollees have the freedom to seek care from nonaffiliated providers but pay from nonaffiliated providers but pay substantially more out-of-pocket for care substantially more out-of-pocket for care

Percentage of all Covered Workers Percentage of all Covered Workers By Type of PlanBy Type of Plan

1996-20021996-2002

27%31%

28%

14%14%

27%

35%

24%

8%

29%

41%

22%

5%

26%

52%

17%

0%

10%

20%

30%

40%

50%

60%

1996 1998 2000 2002

ConventionalHMOPPOPOS

Number of Persons Enrolled in Medicare Number of Persons Enrolled in Medicare under Different Payment Options 2002under Different Payment Options 2002

28.1

5.6

0

5

10

15

20

25

30

35

40

FFS M + Choice

In Millions

Number of Medicaid Beneficiaries Number of Medicaid Beneficiaries Enrolled in Managed CareEnrolled in Managed Care

1990-20021990-2002

2.3 3.6

7.8

13.315

0

2

4

68

10

12

14

16

18

20

1990 1992 1994 1996 2002

Millions

How do managed care plans How do managed care plans influence physicians’ practice influence physicians’ practice

behavior?behavior?

Clinical rules - treatment protocols, Clinical rules - treatment protocols, algorithms, practice guidelines, algorithms, practice guidelines, regulations, administrative regulations, administrative constraints, utilization reviewconstraints, utilization review

Incentives - Reimbursement through Incentives - Reimbursement through per capita, discounted fee schedules, per capita, discounted fee schedules, bonuses, etc.bonuses, etc.

Care vs. CostCare vs. CostExamples of US Healthcare Examples of US Healthcare

IncentivesIncentives Hospital Stay. If the patients Hospital Stay. If the patients

collectively average fewer than 178 collectively average fewer than 178 days in the hospital per year, the days in the hospital per year, the doctor receives a bonus of $2,063 doctor receives a bonus of $2,063 per month. If the patients together per month. If the patients together spend more than 363 days, the spend more than 363 days, the doctor receives nothing extra.doctor receives nothing extra.

Care vs. CostCare vs. CostExamples of US Healthcare Examples of US Healthcare

IncentivesIncentives

Emergency-room Use. If emergency-Emergency-room Use. If emergency-room costs average les than $.84 per room costs average les than $.84 per patient in any given month, the patient in any given month, the doctor receives a $453 bonus for that doctor receives a $453 bonus for that month. If the patients average more month. If the patients average more than $1.64, their doctor receives than $1.64, their doctor receives nothing extra. nothing extra.

Care vs. CostCare vs. CostExamples of US Healthcare Examples of US Healthcare

IncentivesIncentives

Specialist Referral. If specialist costs Specialist Referral. If specialist costs per patient average less than $14.49 per patient average less than $14.49 per month, the doctor gets a bonus per month, the doctor gets a bonus of $1,323 for the month. But if the of $1,323 for the month. But if the costs rise above $30.49, the doctor costs rise above $30.49, the doctor receives nothing extra. receives nothing extra.

Typical Hospital Stay for New Typical Hospital Stay for New MothersMothers

Australia: 4-6 daysAustralia: 4-6 days Canada: 2 ½ daysCanada: 2 ½ days France: Up to 2 weeks; 5-day minimumFrance: Up to 2 weeks; 5-day minimum Germany: 7 daysGermany: 7 days Great Britain: 3 daysGreat Britain: 3 days Ireland: 5-6 daysIreland: 5-6 days Japan 5-7 daysJapan 5-7 days Netherlands: Mostly home births with all-day Netherlands: Mostly home births with all-day

nurse for a weeknurse for a week Sweden: 1-3 days w/ midwife home visitSweden: 1-3 days w/ midwife home visit United States: 24-36 hoursUnited States: 24-36 hours

Percentage of Mastectomies Done Percentage of Mastectomies Done on an Outpatient Basison an Outpatient Basis

1.50% 1.50%

3.10%

4.50%

7.50%

0.00%1.00%2.00%3.00%

4.00%5.00%6.00%7.00%8.00%9.00%10.00%

1991 1992 1993 1994 1995

Percentage

Do managed care plans reduce Do managed care plans reduce health care costs?health care costs?

Plans have a significant impact on use and costs of Plans have a significant impact on use and costs of service, although this may not result in lower system-service, although this may not result in lower system-wide costswide costs

A survey of 2,409 employers found that respondents A survey of 2,409 employers found that respondents spent 14.7% less per employee for HMO coverage spent 14.7% less per employee for HMO coverage than the average cost per employee of traditional than the average cost per employee of traditional indemnity plansindemnity plans

The average cost per employee for care delivered The average cost per employee for care delivered through PPOs was 6.1% below that of indemnity plans through PPOs was 6.1% below that of indemnity plans

The average cost per employee of point-of-service The average cost per employee of point-of-service plans was 7.9% lower than traditional indemnity plansplans was 7.9% lower than traditional indemnity plans

How do managed care plans How do managed care plans affect quality of care?affect quality of care?

Studies have shown that elderly, poor and Studies have shown that elderly, poor and chronically ill patients have worse physical chronically ill patients have worse physical outcomes under Managed careoutcomes under Managed care

Hospitals under managed care plans more Hospitals under managed care plans more frequently deny admission or prematurely frequently deny admission or prematurely discharge mentally ill patientsdischarge mentally ill patients

HMOs frequently limit access to National HMOs frequently limit access to National Cancer Centers and enrollment in clinical Cancer Centers and enrollment in clinical trials of experimental cancer treatmentstrials of experimental cancer treatments

Potential BenefitsPotential BenefitsPatientsPatients

Less over-treatmentLess over-treatment More preventive careMore preventive care Lower costLower cost Minimal paperworkMinimal paperwork Low or no co-payment and deductiblesLow or no co-payment and deductibles

Potential BenefitsPotential BenefitsPhysiciansPhysicians

Lower practice start-up costsLower practice start-up costs Dependable incomeDependable income Regular hoursRegular hours Structured practiceStructured practice Incentives for cost-effective careIncentives for cost-effective care Assured patientsAssured patients

Potential BenefitsPotential BenefitsPayersPayers

Lower health care costsLower health care costs More predictable costsMore predictable costs Use of business management practicesUse of business management practices

(e.g., CQI) (e.g., CQI)

Potential BurdensPotential BurdensPatientsPatients

Incomprehensible benefit plansIncomprehensible benefit plans Limits on specialty services, Limits on specialty services,

hospitalization, etc.hospitalization, etc. Physician is no longer the patient’s Physician is no longer the patient’s

advocateadvocate

Potential BurdensPotential BurdensPhysiciansPhysicians

Physician’s role is changed to that of a Physician’s role is changed to that of a business-person business-person

The physician is less responsive to the The physician is less responsive to the patient’s needspatient’s needs

Physicians lose clinical autonomy in Physicians lose clinical autonomy in ordering tests, treatment, hospitalization, ordering tests, treatment, hospitalization, etc. etc.

Potential BurdensPotential BurdensPayersPayers

Complex health care plansComplex health care plans Inadequate data concerning outcomes, Inadequate data concerning outcomes,

quality of carequality of care Concerns about price-fixing, Concerns about price-fixing,

monopolizationmonopolization Uncertainty concerning liability Uncertainty concerning liability

Percent of Public Dissatisfied with Percent of Public Dissatisfied with Health CareHealth Care

90%83%

44%

80%

66%

82%73% 75%

0%

10%

20%30%

40%

50%

60%

70%80%

90%

100%

U.S. Canada Australia UK

1988/19901998

The Backlash Against Managed The Backlash Against Managed CareCare

AMA’s patient Protection Act.AMA’s patient Protection Act. Patient’s Rights bills in the U.S. Congress.Patient’s Rights bills in the U.S. Congress. Over 27 states have passed patient protection Over 27 states have passed patient protection

laws that include some or all of the following:laws that include some or all of the following: Right to sueRight to sue

External appealsExternal appealsReferral out-of-networkReferral out-of-networkCoverage of Emergency servicesCoverage of Emergency servicesAccess to prescriptions not Access to prescriptions not covered by the plan covered by the plan

ConflictsConflicts

ChoiceChoice

Cost Quality Cost Quality

Employer BacklashEmployer Backlash Minneapolis businesses launched a program to Minneapolis businesses launched a program to

overhaul local health delivery systems. Their overhaul local health delivery systems. Their objective was to bypass the region's three large objective was to bypass the region's three large health maintenance organizations (HMOs), health maintenance organizations (HMOs), contract directly with doctors and inject a dose of contract directly with doctors and inject a dose of free-market economics into medicine.free-market economics into medicine.

No fewer than 26 of the region's largest No fewer than 26 of the region's largest corporations -- including 3M, Honeywell, Dayton corporations -- including 3M, Honeywell, Dayton Hudson, Pillsbury and Carlson Companies -- Hudson, Pillsbury and Carlson Companies -- entered into the arrangement, which has been entered into the arrangement, which has been described as a rebellion.described as a rebellion.

Employer BacklashEmployer Backlash In the new scheme, doctors are free to charge, In the new scheme, doctors are free to charge,

organize and operate as they choose. organize and operate as they choose. But employees get booklets which rank doctor But employees get booklets which rank doctor

groups on what they charge and how they fare in groups on what they charge and how they fare in terms of customer satisfaction -- and employees terms of customer satisfaction -- and employees who choose expensive doctors must pay the who choose expensive doctors must pay the extra out-of-pocket. extra out-of-pocket.

Payments to doctor groups are raised if they wind Payments to doctor groups are raised if they wind up attracting sicker-than-average patients -- who up attracting sicker-than-average patients -- who cost more to treat. cost more to treat.

Physician groups which find ways to treat patients Physician groups which find ways to treat patients more efficiently get to keep the savings -- while more efficiently get to keep the savings -- while inefficient or wasteful doctors who go over budget inefficient or wasteful doctors who go over budget are penalized. are penalized.

Physician-Patient ConflictsPhysician-Patient Conflicts

A number of studies and press A number of studies and press reports indicate that the financial reports indicate that the financial arrangements Health Maintenance arrangements Health Maintenance Organizations (HMOs) make with Organizations (HMOs) make with doctors reward physicians and doctors reward physicians and hospitals for deferring or withholding hospitals for deferring or withholding care that is deemed too expensive, care that is deemed too expensive, pitting the financial interest of the pitting the financial interest of the doctor against the medical needs of doctor against the medical needs of the patient. For example:the patient. For example:

Physician-Patient ConflictsPhysician-Patient Conflicts The brain tumor of a 5-year old Florida girl was repeatedly The brain tumor of a 5-year old Florida girl was repeatedly

misdiagnosed as the flu until her mother took her to a misdiagnosed as the flu until her mother took her to a facility outside the HMO - which refused to pay for the facility outside the HMO - which refused to pay for the surgery resulting from the correct diagnosis. surgery resulting from the correct diagnosis.

Long Island Jewish Hospital in Queens replaced private Long Island Jewish Hospital in Queens replaced private doctors in its anesthesia department with lower-paid and doctors in its anesthesia department with lower-paid and less-experienced salaried physicians, and in one 10-week less-experienced salaried physicians, and in one 10-week period four patients died from anesthesia-related period four patients died from anesthesia-related complications after successful surgery. complications after successful surgery.

A California HMO was fined $500,000 by the state for A California HMO was fined $500,000 by the state for refusing to refer a young girl to a specialist for her Wilm's refusing to refer a young girl to a specialist for her Wilm's tumor and instead assigning a physician who had never tumor and instead assigning a physician who had never operated on children or on a Wilm's tumor. operated on children or on a Wilm's tumor.

Public Misunderstanding of Public Misunderstanding of HMOsHMOs

Some 55 percent said they have either never Some 55 percent said they have either never heard the term "managed care" or didn't have a heard the term "managed care" or didn't have a good understanding of what it means. good understanding of what it means.

Nearly one-third said they have never heard the Nearly one-third said they have never heard the term "health maintenance organization" -- or had term "health maintenance organization" -- or had heard it but didn't know its meaning. heard it but didn't know its meaning.

Only 52 percent knew that HMOs put emphasis on Only 52 percent knew that HMOs put emphasis on preventive care. preventive care.

One in three who knew what HMOs were didn't One in three who knew what HMOs were didn't know that they provide coverage for set monthly know that they provide coverage for set monthly fees. fees.

Moreover, one in four in an HMO didn't know that Moreover, one in four in an HMO didn't know that their choice of physicians was limited. their choice of physicians was limited.

Patients’ Bill of RightsPatients’ Bill of RightsEnrollmentEnrollment

Prohibit managed care plans from Prohibit managed care plans from refusing to enroll patients with refusing to enroll patients with preconditions.preconditions.

Patients’ Bill of RightsPatients’ Bill of RightsPatient Information Patient Information

Publish managed care plans’ Publish managed care plans’ performance ratings.performance ratings.

Establish and inform members of Establish and inform members of grievance procedures.grievance procedures.

Ban physician gag clauses in Ban physician gag clauses in contracts.contracts.

Patients’ Bill of RightsPatients’ Bill of RightsMandated ServicesMandated Services

Require coverage for a 48 hour hospital Require coverage for a 48 hour hospital stay after delivery and mastectomies.stay after delivery and mastectomies.

A Hospital patient who is too sick to be A Hospital patient who is too sick to be discharged may request their case be discharged may request their case be reviewed by an impartial arbiter.reviewed by an impartial arbiter.

Require coverage for emergency room Require coverage for emergency room visits when there is a reasonable visits when there is a reasonable expectation that an emergency exists.expectation that an emergency exists.

Guarantee patient’s right to be referred to Guarantee patient’s right to be referred to a specialist when they require specialty a specialist when they require specialty care.. care..

Patients’ Bill of RightsPatients’ Bill of RightsMandated ServicesMandated Services

Permit members to seek care from Permit members to seek care from providers outside the plan when providers outside the plan when more experienced providers exist for more experienced providers exist for the illness.the illness.

Cover prescription drugs not on the Cover prescription drugs not on the plan’s approval list if the patient can plan’s approval list if the patient can show a need for the drug.show a need for the drug.

Permit members to enroll in clinical Permit members to enroll in clinical trials for new drugs and therapies. trials for new drugs and therapies.

Patients’ Bill of RightsPatients’ Bill of RightsIncentivesIncentives

Prohibit managed care plans from paying Prohibit managed care plans from paying bonuses to doctors who delay or withhold bonuses to doctors who delay or withhold treatment for patients.treatment for patients.

Prohibit capitation payments to family Prohibit capitation payments to family physicians and internists.physicians and internists.

If a health plan cancels or refuse to sign a If a health plan cancels or refuse to sign a contract with a doctor, require the plan to contract with a doctor, require the plan to explain its reasons. Permit the doctor to explain its reasons. Permit the doctor to appeal and request a hearing. a appeal and request a hearing. a

Patients’ Bill of RightsPatients’ Bill of RightsGrievancesGrievances

Establish independent boards to review decisions Establish independent boards to review decisions to deny coverage for specific procedures.to deny coverage for specific procedures.

Require plans to respond within three hours to a Require plans to respond within three hours to a doctor’s request to extend a patient’s hospital doctor’s request to extend a patient’s hospital stay.stay.

Plans must rule on patient request for services Plans must rule on patient request for services within 14 days or 72 hours in urgent cases. They within 14 days or 72 hours in urgent cases. They must respond to an appeal within 30 days or 72 must respond to an appeal within 30 days or 72 hours in urgent cases. hours in urgent cases.

Allow patients to sue their managed care plan Allow patients to sue their managed care plan when medical benefits are improperly denied.when medical benefits are improperly denied.

The Changing Face of Managed The Changing Face of Managed CareCare

Broader and more inclusive provider Broader and more inclusive provider networksnetworks

Elimination or modification of GatekeepersElimination or modification of Gatekeepers Reintroduction of prior authorization Reintroduction of prior authorization

requirements for selected servicesrequirements for selected services Expanded investment in disease and case Expanded investment in disease and case

managementmanagement Increased consumer cost-sharing and Increased consumer cost-sharing and

introduction of consumer-directed plansintroduction of consumer-directed plans Capitated payment arrangement with Capitated payment arrangement with

providers scaled back or eliminatedproviders scaled back or eliminated

QuestionsQuestions

How much control over access to specialized care How much control over access to specialized care and clinical decisions should the managers of and clinical decisions should the managers of managed care be able to exercise?managed care be able to exercise?

How much autonomy should physicians have in:How much autonomy should physicians have in:Setting fees?Setting fees?Ordering diagnostic procedures?Ordering diagnostic procedures?Referral of patients to specialists?Referral of patients to specialists?Ordering hospitalization? Ordering hospitalization?

Enrolling patients in experimental Enrolling patients in experimental therapies?therapies?

QuestionsQuestions

What is the quality of care delivered What is the quality of care delivered by NPs and PAs compared to care by NPs and PAs compared to care delivered by MDs?delivered by MDs?

Does the substitution of lesser Does the substitution of lesser trained personnel for RNs adversely trained personnel for RNs adversely affect the quality of care?affect the quality of care?

Heart Attack Death Rate Higher In Heart Attack Death Rate Higher In HMOsHMOs

Health Maintenance Organization Health Maintenance Organization (HMO) enrollees with cardiac disease (HMO) enrollees with cardiac disease are twice as likely to die after a heart are twice as likely to die after a heart attack as those with traditional fee-attack as those with traditional fee-for-service coverage, says for-service coverage, says cardiologist Paul Casale in a report to cardiologist Paul Casale in a report to the American Heart Association.the American Heart Association.

Heart Attack Death Rate Higher In Heart Attack Death Rate Higher In HMOsHMOs

Casale studied 4,000 heart attack patients Casale studied 4,000 heart attack patients admitted to Pennsylvania hospitals in 1993. admitted to Pennsylvania hospitals in 1993.

He found HMO patients are less likely to receive He found HMO patients are less likely to receive two surgical procedures common after heart two surgical procedures common after heart attacks -- heart catheterization and angioplasty. attacks -- heart catheterization and angioplasty.

However, Casale's study did not have data on However, Casale's study did not have data on how long patients waited to get care -- considered how long patients waited to get care -- considered the best predictor of heart attack survival rates. the best predictor of heart attack survival rates.

But Casale notes that HMO policies discouraging But Casale notes that HMO policies discouraging emergency room use could have delayed patients emergency room use could have delayed patients seeking treatment.seeking treatment.