Managed care is often viewed as an outside force that can be monitored, but not influenced. However, physicians and hospital administrators are realizing that managed care is driving the changes seen in reimbursement for their services. As increasing numbers of patients become insured under managed care health plans, recognizing the various stages of managed care is important.
When comparisons are made among medical communities that are at various stages of managed care penetration, four distinct stages of development can be identified. These similarities are distinct enough that the stages can be used as guidelines to predict the challenges communities face throughout the stages of managed care market penetration. Four stages of managed care development have been identified and each stage has distinct characteristics.
Stage One
In stage one, fee-for-service market penetration is dominant, while HMO enrollment is less than 5%. This scenario is the initial stage of managed care. Physicians are most likely to be solo practitioners, with some group practices and the majority of physicians are family practitioners. Typically, small rural hospitals have busy emergency rooms due to a small number of physicians in the community. The emergency rooms have a tendency to feed referrals to larger, more advanced metropolitan hospitals because these centers have the needed specialists.
The predominant type of health insurance offered in the community is indemnity insurance. The carriers who offer the most indemnity products are Blue Cross/Blue Shield (BCBS), Aetna, Cigna, Travelers and Prudential. Usually, patients do not need to worry about hospital bills and surgical fees charged by physicians because these health plans cover most of the expenses. The insurance company competes in the community by selling good customer service with minimal claim hassles.
The customer or patient is looking for good accessibility to physicians, ancillary providers and the hospital. If there are two or more hospitals, usually the patient will go to the one that has the latest technology, as well as the best reputation. This is why hospitals advertise new equipment and experienced physicians. You can rest assured that the hospital with the newest magnetic resonance imaging (MRI) technology, laboratory equipment, computerized tomography (CT) scanners, mammography, etc. will receive a higher influx of patients.
The impact on chiropractic.
Stage one is prevalent throughout the United States. This is the most favorable stage in which the chiropractic community can participate. Patients are abundant, indemnity insurance pays for chiropractic visits and patient visits are frequent. It is very favorable for a chiropractic physician to enter into practice during this stage because the physician does not have to participate or sign managed care contracts.
Stage Two
As managed care penetration reaches 10-25% of the general population, there are many managed care organizations available to provide patient care. Examples of areas at this level of penetration are Detroit, Denver, Chicago and Boston. The four types of managed care organizations entering the market typically include Staff Model health maintenance organizations (HMOs), Group Model HMOs, preferred provider organizations (PPOs) and independent physician’s associations (IPAs).
There is also the formation of provider networks, such as a physician hospital organization (PHO) that are starting to contract with managed care organizations. Hospital admissions start to decrease as provider networks begin implementing utilization review and length-of-stay requirements. The insurance health plan activates pre-certification rules that further limit the hospitals’ ability to keep a high bed-occupancy rate.
The pricing of medical services by providers is now dominated by discounted fees. In addition, withholding of services begins and hospitals face decreased per diem rates. Medical care is now described in the community as “encounters,” not as patients. Benchmark statistics hit hospitals, which includes length of stay, hospital admissions, hospital discharges, cost mix, ambulatory visits and users per 1,000 insurance members.
Stage two is the most difficult stage in managed care and can last for several years. The local employer groups are marketed by health plans showing a decrease in premium rates. These low premium rates will attract employer groups to make exclusive contractual arrangements to use an HMO or a PPO. The providers must become part of the HMO or PPO or they will find that patients will be steered away from them to competitors. As many as five to ten managed care organizations may be in a community. Families migrate to physicians and hospitals who participate with the insurance company and advertising by managed care companies takes hold. Health care consultants and brokers enter the community to explain what managed care entails to employer groups.
As in stage one, stage two now swings more towards good quality care instead of best available medical technology. Good quality care heavily involves customer service to employer groups, accessibility of care for the patients or members and timeliness. Primary care providers become the main focus in this stage because physicians are now seeing the entire family instead of just the adult members.
The impact on chiropractic.
Most chiropractors are now experiencing stage two of managed care. Chiropractors are finding that services rendered to patients are being denied because they are not approved providers and the availability of patient self-referral has diminished.
This is the stage where the chiropractic community reaches out and participates in business ideas that can offset the loss of patient revenue. The chiropractic community bands together and hires managed care consultants to develop chiropractic PPOs and IPAs so they can participate with the HMOs who are controlling an increasing amount of the business.
The problem with this approach is that most chiropractic organizations fail. The reason for failure are the costs. It will take at least $60,000-$100,000 and 12 to 24 months to launch a successful chiropractic PPO or IPA. After four to five months, the chiropractic community generally discovers that they can’t raise the money needed to develop the organization. Typically, the doomed chiropractic organization was only able to raise $10,000-$20,000. Inevitably, the PPOs and IPAs fire the managed care consultant because they ran out of money, continuing on the road to ruin and blame the consultant and health plans for their situation.
It is explained that at the four to five month time frame the group will probably want to quit because they will have a difficult time raising money and participation, but most have the attitude that, “This won’t happen to us.” The groups who decide to keep up with this developing their organization through this critical time are usually still in business today.
Stage Three
In stage three, a shake-out will occur between managed care organizations. Mergers will take place and the weak will fail. By now 25-50% of the population is enrolled in managed care plans. This stage is predominant in the Western states and areas of Florida. The predominant players are well-financed HMOs and PPOs. Hospitals will scramble to align themselves with the “correct players.”
This is a time when physician hospital organizations (PHOs) will begin to have a strong presence. PHOs are organizations formed and owned jointly by hospitals and physicians. Insurance plans now seek out PHOs because they control many health care providers in a community. Large hospitals form affiliations with smaller “feeder” community hospitals as another growth strategy of managed care obtains more covered lives. Small rural hospitals improve their image to attract patients and acquire/purchase primary care practices in an attempt to control referrals.
Preventative care (wellness) and primary care medicine are essential in stage three. Patient-focused care dominates and everyone in the community starts to distribute patient surveys in an effort to improve customer service. Talk of capitation now enters the discussions of networks. High profile multi-specialty or primary care group practices are extremely viable during this time. These practices are able to use economies of scale provided by a PHO or specific network and are able to compete. Cost-of-care is regulated and referral management is crucial. Practice buyouts are now common and networks are stressed.
The pricing of health care in the community is now based on pre-payment, capitation, per diems and global fees. Expenses for the managed care organizations are calculated in terms of per member, per month. Large employer groups dictate to health insurance companies what premium amounts they are willing to pay for medical services and employer groups lock in employees to specific health plans, all in an attempt to control cost and quality.
The basis of competition between health plans is described in just one word: price. The health plan with the lowest price will be awarded the contract. Chiropractors who are affiliated members of PHOs or approved HMO and PPO providers will likely sit back and relax because they are “approved.”
If a chiropractic physician is not an “approved” provider, the usual fallout is to send articles, case studies and efficiency data to the health plans to prove they are cost effective. No one tells these chiropractors that health plans usually don’t want this information and could care less. Remember, the health plan already has a defined network in place for employer groups.
At this point chiropractic advertising is gaining momentum and is everywhere. The chiropractic physician pits himself against the health plan and tries to gain business and increase their own patient base. Some chiropractic physicians are successful in this endeavor, yet others are not. Be careful that you are not exploited by chiropractic referral services during this time. Most are honest and credible, yet some others are not.
Subscribers’ (or members’) attitudes now change to match their employers’. The lowest cost premiums are the primary reason to switch health plans. Providers are pushed to redefine the envelope. As employers seek to lower costs, some of the more complex or expensive care is carved out to strict case management organizations. First carve-outs usually involve mental health, maternity, cardiology, cancer and organ transplants.
Now is the time Health Employer Data and Information Set (HEDIS) data collection is mandatory for managed care organizations. This data will help health plans promote their quality and insure improvement. HEDIS reporting is in response to employer groups asking hard questions about health care costs, utilization statistics and overall quality of the health plan and its providers.
Stage Four
Stage Four is a very mature managed care market. Managed care penetration reaches 60-70% of the total population, with fully integrated health care delivery systems. Most parts of the United States have not reached this stage, although some areas in California and Arizona have.
All health insurers and providers are dependent on delivering comprehensive health care. Provider networks are mature with contracts in place that are renewable each year. Some of these contracts can last two to five years. The providers in the community have existing relationships with health care plans and direct contracting starts to be made available to employer groups.
Most providers in this stage are salaried or fully capitated by the health plan, PHO or integrated delivery network. There is a strong incentive for providers to change how health care is delivered. Promotion of risk management emerges and prevention is the key word. Because risk is shared between providers, outcome measurements take over and clinical management of both the healthy and diseased becomes critical. Malpractice premiums decrease and quality improves.
Case management for those patients/members who have chronic or catastrophic disease becomes essential for the financial survival of the managed care organization, especially those involved in Medicare or Medicaid HMOs. Case management emphasizes cost containment, intervention and steerage to contracted network providers. During this stage, pricing is only measured by cost per covered life. Further cost reduction carve-outs include cutting health care aids, chiropractic, laboratory services, anesthesia, cardiology, hospice, home health and radiology. This is when the word “value” enters into health care. Value is the best price for the best product. HEDIS reporting is standard, clinical outcomes are required, utilization data is commonplace and the National Committee for Quality Assurance (NCQA) is now a cost of doing business.
The impact on chiropractic.
As a chiropractor, if you are not part of a health care system by the time your practice experiences stage four, I suggest you find another occupation.
As you can see, these four stages of managed care are quite complex. Throughout the country, communities are experiencing the various stages and realizing that they must prepared for each step of the way.
