- The Washington Times - Monday, July 30, 2001

Managed care, the 30-year-old remedy for ever-higher medical costs, is sick. Specialists say even legislation won't cure it.
Indeed, managed care is the patient, and its symptoms are producing convulsions for doctors, hospitals, consumers, insurers and employers.
When or if enacted, patients' rights legislation may mollify managed care consumers and critics. But those who know say it's too late to save the $600 million system.
Even the announcement that health care plans in California and Massachusetts will begin rewarding doctors for administering quality care rather than for cutting costs is seen as helping little. The managed-care backlash has been too intense too long.
As managed care weakens, the need increases for a new way to assure that ordinary people can get medical care they can't otherwise afford. Yet financial consultants say any new system will cost more. They predict employers will be forced to alter their health plans, increasing employee contributions and co-payments for what will be less comprehensive coverage.
The overriding fear is that although many people may feel well served by the current health care system a fundamental prop of American life it is broken, and that will cause staggering cost increases.
"It's back to the future of the late '80s and early '90s, except this time around, purchasers don't have the promise of managed care to help keep costs in check," says Paul B. Ginsburg, president of the Center for Studying Health System Change.
The center is a D.C.-based nonpartisan research organization. Its literature states that it "provides objective and timely insights on changes in the nation's health care system to inform public and private policy makers."
Douglas B. Sherlock, an independent financial adviser to health plans, says health care coverage likely will be "fragmented." He says, for instance, that consumers probably will be able to buy medical coverage for heart-care treatment by itself. Or they might purchase coverage just for treatment in the event they develop cancer or have a catastrophic illness.
Mr. Sherlock says health plans probably will provide the option of choosing various "deductibles," meaning a health plan member might choose to pay the first $500, $1,000 or more of a medical bill before the health insurance kicks in. As in auto insurance, the higher the deductible, the cheaper the premium, or cost of insurance.
Says Mr. Sherlock:
"I don't know what mix will emerge, or how coverage will be fragmented for routine care. But costs and options will increase. Somehow, someway, the consumer will emerge with choices that employers took away when they adopted managed care plans. The plans now have the boss telling the employee who his or her doctor will be. Employers shouldn't be choosing your doctor or dentist."
Understanding what Mr. Sherlock means about "emerging with choices" requires explanation:

How the system works
Think of "managed care" as a catch-all phrase for an entire system of health insurance coverage. The system ostensibly was created to save people from backbreaking medical bills by providing health insurance or prepaid medical services at comparatively low cost.
Since most nonelderly people have for years been arranging for health insurance through their employer, the managed-care system has mainly operated through employee health plans. Currently, 161 million Americans purchase health coverage by contributing to the health care plan their employer has adopted. And employers mostly have offered coverage provided by selected doctors working in health maintenance organizations (HMOs).
As dismay with HMOs has grown, employers have begun offering HMO coverage as one choice among other options that may include preferred provider organizations (PPOs). PPO plans require patients who want to receive maximum coverage to choose their doctor or therapist from a list of providers who have agreed to accept the plan's cut-rate reimbursements. Otherwise, the patient can choose an "out-of-network" provider and pay more out of pocket.
Insurers say providers on the PPO lists were chosen because of the high-quality care they render, not because they will accept discounted payment. But that is a disputed point.
At any rate, insurers who own or run health plans like HMOs and who reimburse private practitioners and practitioner groups reduce costs by assuring that the pool of people they cover is composed mostly of healthy people. That way, if a few members of the plan need expensive care, the advance payments of healthy plan members will make up for losses the insurer might otherwise experience.
Additionally, the insurers require plan members to accept certain limitations.
Gary Claxton of Georgetown University's Institute for Health Care Research and Policy explains the limitations in a primer recently prepared for the Henry J. Kaiser Family Foundation. He writes:
"Under managed care, health coverage providers seek to influence the treatment decisions of health care providers through a variety of techniques, including financial incentives, development of treatment protocols, prior authorization of certain services, and dissemination of information on provider practice relative to norms or best practices."
By "health care providers," Mr. Claxton means doctors, psychologists and other therapists. "Treatment protocols" are the plans doctors or other therapists devise for an ill patient's care.
"Prior authorization" refers to a managed care company's use of "case reviewers" and other administrators to challenge doctors' decisions and decide if or when it is necessary for an ill person to see a specialist or be admitted to a hospital. These gatekeepers also determine how long treatment for an illness may continue. Their authorization denials commonly are based on interpretations of often obscure, fine-print exclusions written into insurance contracts.
Patients can disregard gatekeepers' decisions and seek "unauthorized" treatment. But that means there will be no reimbursement to the doctor. So the patient must pay all of the sometimes prohibitive costs.
When authorization is denied, doctors frequently become exasperated. That's because their medical knowledge and knowledge of the patient is rejected and by someone who has never seen the patient. Also, the denial may jeopardize the infuriated patient, who feels cheated of help he may be unable to afford and expected the insurer to pay for.
Dr. Linda Peeno of the University of Louisville, a former medical reviewer and medical director for three managed care organizations, explained dramatically what denying authorization can mean. She testified in 1996 before a subcommittee of the House Commerce Committee, starting this way:
"In the spring of 1987, as a physician, I caused the death of a man. No person or group has held me accountable for this — for this was a half-million-dollar savings to my employer. In fact, this act secured my reputation as a 'good' company doctor, and ensured my advancement in the health care industry — in little more than a year I went from making a few hundred dollars a week to an annual six-figure income.
"In all my work, I had one primary duty: to use my medical expertise for the financial benefit of the organization. According to the managed care industry, it is not an ethical issue to sacrifice a human being for a 'savings.' Since that day, I have lived with this act, and many others, eating into my heart and soul."

The problem of incentives
Dr. Peeno testified that when she became convinced many managed care organizations were acting unethically, she quit. Subsequently, she has revealed many of what she and others call questionable cost-cutting managed care measures, some of which involve the "financial incentives" Mr. Claxton mentions in his primer.
Financial incentives figure in the way doctors are reimbursed, or paid, and the way payment is manipulated to control doctors' working methods. The methods can be complex, and although there is wide agreement patients should know how doctors are paid, few do.
In general, physicians employed by HMOs and in some group practices are paid flat salaries. Doctors in private practice or in one of the many varieties of group practice receive payment on a "fee-for-service" basis.
Typically the fee-for-service arrangements are with managed care companies that reimburse providers a set fee for the kind of service provided. Company officials examine the doctors' claims to make sure they aren't prescribing costly tests or procedures or more treatment than the administrators consider normal for the kind of cases involved.
One of the most widespread and controversial forms of reimbursement is called "capitation." Under the system, providers are paid a set amount each month to see a stipulated number of patients. It's a quota system of sorts. The doctors lose money by seeing too many or too few patients.
Inherent in the system is the need for the doctor to spend a limited amount of time with each patient and also to recommend a limited number of tests and procedures. Very sick patients or those with puzzling symptoms those in greatest need can be a drag. They slow "production." In fact, if the practitioner meets the quota but finds the need to administer more tests or treatments than the preset fees cover, the doctor or the practice must make up the loss.
Incentives enter in because managed care companies sweeten the process. They offer monetary rewards to those physicians who successfully limit the number of tests they prescribe and who slash expenses in any number of ways the plan might suggest.
In group practices run on managed care principles, the group's administrators may set aside or withhold a portion of the insurance reimbursements to cover possible overruns caused by seeing too few patients or, more likely, by caring for too many gravely ill ones. That way the practice guards against losses.
If all goes well, the withheld money is split equally among the participating doctors at the end of the year. Frequently though, doctors who consistently met cost-saving goals, or, perhaps, saw fewer seriously sick patients who needed extensive care, might be rewarded with a bigger share of the withhold. That too has been a source of physician consternation.
Paul Cleary, a professor of health care policy at Harvard Medical School, has found that when people learn about such practices they become concerned. Partially supported by funds from the Prudential Center for Health Care Research, he surveyed 2,086 patients in Atlanta, Orlando, Fla., and the Baltimore-Washington area, and in a report published this spring in the Journal of General Internal Medicine, he wrote:
"Many patients (76 percent) thought a bonus paid for ordering fewer than the average number of tests would adversely affect the quality of their care. About half the patients (53 percent) thought a particular type of withhold would adversely affect the quality of their care."
As some managed care companies are trying to demonstrate, incentives and withholds can be used to reward physicians who emphasize preventive medicine by, for instance, insisting on breast and cervical cancer screenings and assuring young patients are vaccinated.
Nonetheless, researchers for the Center for Studying Health System Change report doctors increasingly are refusing to accept the terms managed care health plans are offering and are refusing to participate in HMOs. Hospitals have been merging, gaining clout and demanding higher reimbursements from health care plans. And patients are succeeding in attempts to gain unfettered access to doctors of their choice.
In a report of their findings, the center's analysts summarize the situation:
"Managed care is losing power. The U.S. health system is at a critical turning point and policy makers will again confront a dilemma."

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