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HSA 312 XT81/H01/01

MANAGED HEALTH CARE

SPRING 2020 L. EITEL

REVIEW OF THE MANAGED CARE BACKLASH (LATE 1990s – EARLY 2000’s): KEY POINTS

1. WHY WAS THERE A BACKLASH?

1. who was against managed care IN the 1990S?

Providers and Employees/Plan Members, interacting with negative media coverage of the most blatant failings of Managed Health Insurance Plans, placed increasing pressure on the health insurance plans and employers to change their strategy of massively implementing the most restrictive forms of Managed Care (HMOs, POS plans). Each of these groups had their own reasons, sometimes overlapping, for serious opposition to Managed Care as it had been implemented.

1. Provider Concerns:

Overall, the Providers reacted strongly to the massive and rapid implementation of Managed Health Insurance plans which, unlike traditional Indemnity and Service plans, presumed to challenge the primacy of physician and hospital medical decision-making, and the previously unchallenged status of those providers.

1. Payment Issues:

• Late payment;

• Low payment rates, not adequately increased over a number of years;

• The sense that payment rates were negotiated with little respect for individual, group, and institutional providers, and that the insurance plans used their sheer market power and threats of provider network exclusion to get those rates;

• Capitation payments for Primary Care Practitioners.

• In some plans, forcing Primary Care Practitioners to bear financial responsibility for Plan Member/Patient Hospital utilization, Specialty Physician consultations, Tests and Diagnostic Imaging, even if PCP control over such utilization had practical limits.

Many States passed laws (with associated financial penalties) setting common rules and regulations governing timely Insurance plan payment to Providers.

1. Limits on Provider Networks: Either real limits were imposed, or the providers considered the payment and other concessions that were the price of provider inclusion in insurance plan networks too high.

In some States the concern of Physicians that they would be left out of the networks contracted and used by Managed Health Insurance plans (specifically HMOs and PPOs) resulted in those States passing Any Willing Provider laws.

1. Limits on Provider Tests and Procedures, Hospital Admissions and Lengths of Stay, Ambulatory Care Services, and Specialty Care Physician Consultations:

HMOs and POS Managed Health Insurance plans used Utilization Management, Case Management, PCPs (as “gatekeepers,”) and other centralized health plan controls to reduce and stabilize inpatient admissions, inpatient lengths of stay, selected diagnostic tests and procedures, and Specialty Care Physician consultations.

• Some Specialty Care Physicians, especially, resented this limitation on their incomes.

• Affected providers generally opposed what they saw as an uninformed and insulting attack on their clinical skills and judgement, as well as their incomes.

• These limits affected Individual Physicians, Physician Groups, Hospitals, and other providers.

1. PCP Disenchantment: See the three previous bullet points.

1. employee/PLAN MEMBER Concerns:

Employees/Plan Members reacted strongly to the massive and rapid implementation of Managed Health Insurance plans. Although health insurance premium increases slowed, National Health Expenditure did the same, and patient cost-sharing was in some cases significantly reduced, for many Employees/Plan Members these positive benefits were either not visible, were too abstract, or seemed to be an inadequate payoff for what was perceived as massive and unwarranted health plan interference in access to providers, tests, and medical procedures.

1. Making Access Difficult: Routine Care:

Perhaps most important was the sense of Employees/Plan Members that they were being denied necessary care, even if that was not true. Central health plan interference, extensive use of PCPs as “gatekeepers,” and the various bureaucratic obstacles to getting certain tests and procedures, and to accessing Specialty Care Providers, all worked to frustrate Employees/Plan Members as well as Providers. For years Employees had been able to access Specialists as they wished, with interference from neither plans nor PCPs.

1. Making Access Difficult: Experimental Care and Life-Threatening Conditions:

There was a belief, supported by some high-profile cases, and encouraged by the mainstream U.S. media, that innovative and often life-preserving care was being denied because of Managed Health plan oversight, policies and procedures, and overall interference in the doctor/patient relationship.

1. Concern that HMOs and POS plans were not covering certain clinical services:

In the late 1990s, all States passed laws ensuring that HMOs and POS plans included certain services in the core benefits packages offered by those plans.

PPOs were usually not identified as problems in these situations, and were often not included in the State laws which were passed.

1. Limits on Provider Tests and Procedures, Hospital Admissions and Lengths of Stay, Ambulatory Care Services, and Specialty Care Physician Consultations:

Employees/Plan Members in many cases saw these limits as unnecessary interference in the care process – again, this was entirely different from the Indemnity and Service Health Insurance plan had been.

1. Limits on Provider Networks: This limited the kind of patient choice that Employees/Plan Members were used to under Indemnity and Service Plans, and could negatively impact Continuity of Care.

1. Belief that Health Plans were Not Acting in the Best Interest of Employees/Plan Members:

Many Employees/Plan Members felt that the restrictions on choice of provider, tests, and treatment were meant to generate profits for the Managed Health plans, not to improve the quality and affordability of personal health care goods and services.

1. Provider Negativity toward Managed Health Insurance Plans influenced Employee/Plan Member attitudes toward that kind of insurance.

1. PERSPECTIVES ON THE BACKLASH.

EXCERPTS: The Managed Care Roller Coaster:

THE HEALTH CARE BLOG: JULY 16, 2008

By MAGGIE MAHAR & NIKO KARVOUNIS

1. Paul Ellwood and the HMO Concept as Developed in the 1960’s – The Managed Care Backlash in Context.

To understand what is going on, it’s helpful to consider the history of HMOs in the U.S. As originally conceived by pediatric neurologist Paul Ellwood and the “Jackson Hole Group” in the 1960s, HMOs were all about managing care in the truest sense: actively regulating and coordinating medical services to ensure the best marriage of health outcomes and cost.

Here’s how Ellwood’s HMOs worked: patients enrolled in a plan that provided access to doctors and hospitals in a specific network of providers.  Providers receive a fixed payment, per patient served, per month, for a particular set of services (this is called capitation). Their goal: to keep these patients well. (This is why they were called “Health Maintenance Organizations,” or HMOs.)

In return, doctors have the security of knowing that they will always have customers. These referrals will come from the primary care physicians in the network, who serves as “gatekeepers,” recommending a visit to a specialist when a patient needs it.

The idea here is to build the high-quality/low-cost truism into the very machinery of health care plans.

First, because patients need referrals to see a specialist, and provider payments are fixed, much unnecessary spending can be curtailed. We know that “fee-for-service” payment provides perverse incentives to “do more.” By contrast, fixed payments encourage more efficient medicine because doctors are getting one lump sum, regardless of what they do, they are not encouraged to undertake unnecessary, labor-intensive, high-cost procedures. Instead, they are motivated to stop sickness before it starts. The emphasis is on preventive care — which in the long run, is less costly for everyone and less time-consuming for the health care provider.

Finally, while many patients object to going through a “gatekeeping” primary care doctor to get a referral to a specialist, this is all part of making sure that “the right patient gets the right care at the right time.” More than two decades of work by Dartmouth’s medical researchers have shown us that when patients see more specialists, outcomes are not better; often they are worse.

Last, but certainly not least, Ellwood envisioned HMOs as non-profit organizations subjected to strict quality reviews (with these reviews based on medical research). In Ellwood’s mind, plans would compete with each other on quality, not price. The cost-consciousness of managed care is balanced with an emphasis on outcomes.

Ellwood’s original model for HMOs is “managed care” in the sense that Paduda talks about. It tries to encourage smart, efficient, and financially sustainable medicine, all in the interest of patients.

Yet today, the phrase “managed care” has been besmirched. Conventional wisdom has it that HMOs are among the most heinous villains in the health care field. Yet in theory, HMOs are a perfect marriage of cost-consciousness and quality. So, what went wrong? One word: Profit.

1. Transformation of Managed Health Insurance Plans in the 1980’s and the 1990’s: Some Sources of the Managed Care Backlash.

Enter the Profit-Motive

As Ellwood lamented in an interview with Time magazine in 2001, ultimately HMO’s have focused on “competition on price alone,” instead of quality. The management of care has become a game of accounting, rather than an exercise in strategic medicine.

It wasn’t always this way. The first HMOs adhered closely to Ellwood’s vision. As George Anders notes in his 1996 book, Health Against Wealth: HMOs and the Breakdown of Medical Trust, almost all of the HMOs through the 1960s and 1970s were non-profit, and “they approached their goals of providing affordable medical care and promoting wellness with an almost missionary-like zeal.” The welfare of the patients came first, as “ninety percent of the premiums they collected — and often more — went for patient care.”

By the 1980s, Ellwood’s managed care model had gained a lot of momentum. One 1986 Health Affairs article noted that between 1980 and 1984, the percent of insured households enrolled in an HMO increased by one-third. The percentage of corporate employers offering health plans where at least 10 percent of their employees had joined HMOs almost doubled over this period, from 26 percent and 45 percent.

Yet as the HMO industry grew, Ellwood’s vision of patient-centered, cost-effective care receded into the background. Quality in health care is hard to measure (so hard, in fact, that a frustrated Ellwood eventually founded a non-profit to push for more clarity and accountability in health outcomes). Sadly, as the market expanded, size — not quality — became the major metric for success. Bigger HMOs could offer a wider network of providers — and consumers like having a broad choice of doctors and hospitals.

Meanwhile, nonprofit HMOs were hitting a ceiling in terms of expansion. They couldn’t amass the capital necessary to become huge, because, as Anders notes, the plans “couldn’t issue stock and sometimes had trouble arranging bank loans.” Their solution? Become for-profit corporations and make stock available to the public to create and expandable base of shareholders.

President Reagan also had a hand in the shift to for-profit HMOs in the early 1980s. The HMO Act of 1973 had made federal grants and loans widely available to non-profit operations. This is one reason why, in 1981, 88 percent of all HMOs were non-profits. But in the early 1980s, Washington cut off the stream of federal funding — and eliminated a major incentive for nonprofit status.

Thus, for-profit insurers took over the HMO industry. In the 1970s, notes Anders, there were “30-odd HMOs, almost all not-for-profit.” By 1997, there were “well over 600, more than three-quarters of them investor-owned.” HMOs became big business.

With the advent of share-holder HMOs came a change in priorities. As Anders puts it, “once managed-care companies started entering the for-profit arena, the financial world’s values started seeping in.” Securities analysts and big investors refused to support plans that spent “too much” on members, leaving “too little” for shareholders. “Before long,” says Anders, “HMO bosses regarded boosting stock prices as a major priority.” And that meant maximizing financial gains to ensure a sound investment.

Unfortunately, Wall Street isn’t savvy when it comes to medicine. The delivery of care that Ellwood labored so intensively to coordinate was reduced to a line item in a budget and a sunk cost. Increasingly, patient care was viewed as the least desirable of expenses, because it never found its way back to the company. HMOs shifted expenditures away from patients and toward business operations like marketing, administrative overhead, and salaries—expenses that are understood by Wall Street as a cost of doing business.

In an indication of how the profit-driven mindset took over managed care, the percent of premiums that insurers actually paid out for patient care was re-christened the “medical-loss ratio.” Reimbursements for medical care were regarded as an undesirable financial loss, regardless of whether the care was necessary or unnecessary, life-saving or totally ineffective. Insurers were not getting smart about health care delivery.

According to Anders, in the late 1970s leading nonprofit HMOs spent about 94 percent of premiums on members’ medical treatments; by the late 1990s, leading HMO companies were spending less than 70 percent of their earnings on patients. Plans began rolling back coverage based solely on cost — as opposed to cost-effectiveness — and refused to cover expensive procedures like certain cancer treatments.

Preserving the bottom line became a mission divorced from any interest in medical necessity: in one blog post, Paduda notes that insurance giant WellPoint actively canceled coverage for seriously ill people if they actually sought care, and the company HealthNet “paid bonuses based on executive’s success in canceling individual policies” for people with high claims.

The clumsy stinginess of private insurers has not escaped the public eye—and it’s helped to fuel the belief that “managing care” equals refusing people treatments they need. As recently as 2004, 61 percent of Americans were worried that their health plan was more concerned with saving money than providing the best treatment.

As a result of the backlash, HMOs have moved away from Ellwood’s capitated model. Too many people worried that when doctors were paid a lump sum to keep a patient well, they might skimp on care.

And in fact, some for-profit HMOs did encourage doctors to “do less.” But at the same time, many doctors realized that it was in their long-term interest to do everything necessary to keep the patient well, both because they wanted the best for their patients, and because they realized that, if the patient became sick, this would mean more work without additional pay.

Nevertheless, patients suspected that if a doctor wasn’t paid fee-for-service, they would be short-changed. “Capitated care” began to disappear. People said it “just didn’t work.” Here the last of Ellwood’s bulwarks against high-cost, low-quality care crumbled. Now too many HMOs offer the worst of both worlds, focused on reducing care even as they adhere to a payment system that encourages high-volume, wasteful treatments.

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