Lecture 11

Lecture 11 - 10/7/99

Must HMOs Go Bad? Part 1

Robert Kuttner

Socially Oriented HMOs

Emphasis on prevention and patient education
No monetary incentive to treat patients
Plans monitor their physicians

Market-Oriented HMOs

Require physicians to assume financial risks
Primary physicians serve as gatekeepers
Plans manage cost through patient selection
Imperative to cut services leads to across the board cutting of utilization

Socially Conscious Plans Linked to Ownership Status

Traditionally social conscious plans: Group Health of Puget Sound and Kaiser Permanente
Some NFPs are drifting away from original mission: Tufts; Harvard Pilgrim Health Care

Market-Oriented HMOs

Examples: U.S. Healthcare; Pacificare Health Systems; Oxford Health Plan; Health Partners (Minneapolis)

Shift from Staff-Type to Network-Type Models

MD organizing much harder under latter
Harder to implement clinical protocols

Comparisons of Medical Loss Ratios

NFPs spend more than 90 cents of premium dollar on health care
Commercial HMOs more likely to spend 80 cents, some even 70 cents

Must Good HMOs Go Bad? Part 2

Robert Kuttner

Ability to Choose Plans

Employers increasingly control costs by limiting choice of plans
Persons with most choice in Medicare, Medicaid, or public employees

Quality Movement

Group of large employers devised Health Plan Employer Data and Information Set (HEDIS)
Foundation of Accountability (Ellwood)
Both seek to give risk-adjusted comparisons among plans on outcomes
Critique of these efforts: too much emphasis on process, on overutilization, standards too low, etc.

Regulatory Responses

State consumer-protection measures
President’s Advisory Commission on Consumer Protection and Quality in the Health Care Industry
Federal patients’ bill of rights proposals

Failure of Private Regulation

Does not self-impose risk-adjusted measures of quality
Current movement to put MDs at financial risk mixed up “probability risk” with “financial risk”
Multiple and often overlapping sets of practice guidelines, utilization reviews, physician profiling, and at-risk incentive formulas

Competitive Race Among HMOs to the Bottom

Managed Care Plan Performance Since 1980

Robert H. Miller and Harold S. Luft

What is managed care?

Definition: Physician practice is what is "managed."
"Managed care plan: all types of plans that base themselves on networks of providers, including HMO, PPO, and POS plans

Types of Managed Care Plans (Table II-2)

Staff-Model HMO
Group-Model HMO
Network-Model HMO
Independent Practice Association (IPA) HMO
Preferred Provider Organization (PPO)
Exclusive Provider Organization (EPO)
Managed Indemnity Plan
Point-of-Service Plan (POS)

Types of Managed-Care Plans

Type of Plan	Definition
Staff-Model HMO	A plan that directly hires its physicians
Group-Model HMO	A plan that contracts with a single physician group, usually on an exclusive basis
Network-Model HMO	A plan that contracts with several physician groups, usually on a nonexclusive basis
Independent Practice Association (IPA) HMO	A plan that contracts with individual physicians or physician groups, usually on a nonexclusive basis
Preferred Provider Organization (PPO)	A plan that contracts with individual physicians for fee discounts, but which is usually not at risk
Exclusive Provider Organization (EPO)	A type of PPO in which enrollees are only covered for services of network providers
Managed Indemnity Plan	A plan that imposes some type of utilization review on the care delivered by any provider. Providers do not have contracts with the plan
Point-of-Service (POS) Plan	A managed-care product, sometimes called an open-ended HMO, in which the enrollee has the option of obtaining care from a nonnetwork provider at a higher out-of-pocket cost.

Comparison of HMOs and PPOs, 1994 (percentage of responding plans)

Plan Characteristic	HMOs	PPOs
Capitation as Predominant Payment Method for Primary Care Physicians	48	7
Capitation as Predominant Payment Methods for Specialists	24	0
Any Use of Profiling	82	52
Any Use of Practice Guidelines	76	28
Any Use of Quality Monitoring with Focused Studies	73	31
Any Use of Utilization Review	99	86
Extensive Plan Use of Medical Records	54	10
Extensive Management Structure for Quality Assurance	87	34
Plans Responding (number)	79	29

Patient and Physician Incentives: Various Payment Arrangements

MC to patient positive

--MD profit per visit >0 (A)

--MD profit per visit = 0 (C)

--MD profit per visit <0 (E)

MC to patient zero

--MD profit per visit >0 (B)

--MD profit per visit =0 (D)

--MD profit per visit <0 (F)

Cost and Use of Services

Specific Measures: Cost (reference group--indemnity plans)

Hospital Admission Rates: HMO typically lower--median study about 10% lower
Hospital Length of Stay: HMO typically lower--median study about 15% lower
Physician office visits: no difference
Use of expensive and discretionary services (scans, Cesarean sec., coronary artery bypass graft; echocardiograms, ICU use,etc.) HMOs up to 35 % lower

Does Managed Care Reduce Growth in Spending on Personal Health Services?

Yes, about 15% in terms of cost per enrollee relative to indemnity plans or perhaps a little less
May be one time saving
Constraints on growth of managed care plans and cost cutting by such plans: tax policy; medical liability; other