Cost cutting gets creative: How managed care works in 2005

Health plans are tweaking details and offering small bonuses to enlist doctors in programs to cut expenses in the name of improving care.

By Robert Kazel — Posted Feb. 28, 2005

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For the managed care industry, a funny thing happened on the way to cost-control and quality-improvement initiatives: Insurers discovered they need to reach out to physicians -- in a big way, and in many ways.

While HMO efforts in the 1990s to trim medical costs might be symbolized by a clenched fist cautioning doctors to toe the line, a metaphor for cost-cutting strategies in 2005 would be a hand beckoning doctors to join, to participate, to innovate. Not surprisingly, physicians also are being asked to drop their view of managed care as synonymous with control, manipulation and interference.

Insurers this year will introduce, test or expand strategies that aim to cut medical spending in many ways, and most will rely on the enthusiasm and good will of doctors to realize their goals. Plans are rolling out these programs, including new disease-management initiatives, pay-for-performance incentives and redesigned insurance products, as a means of appeasing employers that refuse to take rising insurance costs in stride.

"Traditional managed care tactics have been exhausted," says Ed Kaplan, national practice leader for the Segal Co. in New York.

The following are some cost-reduction initiatives, to be stepped up by plans and payers, that many physicians will see taking shape this year.

Disease management reaches outward

Many doctors in the past have viewed disease-management programs with suspicion. They see them as imposed by health plans, sometimes with less-than-scientific research backing them up. Some doctors resent them because these programs typically have contacted plan subscribers directly, leaving doctors feeling left out. In some cases, paperwork has just been onerous.

Now, however, top disease-management companies are saying that initiatives for 2005 will appeal to medical practices to join them in a more central role. "The disease-management programs are finding that to be more successful, they need to partner much more effectively with the physicians," says Sandeep Wadhwa, MD, a vice president with San Francisco-based McKesson Corp., a national disease-management contractor.

Instead of solely using nurses working out of remote call centers, disease-management firms will increase the use of locally based representatives to visit practices to speak with the doctors or staffs about how to help patients and "what the key barriers to adherence [to disease-management standards] are," Dr. Wadhwa says.

Aside from pursuing their customary patient-education goals, he says, some disease-management programs in 2005 will begin to link more directly to quality-management programs that monitor physician performance, making use of disease-management data to award health plan bonuses.

To help get doctors' support, any new initiatives will seek to avoid being a burden on doctors' time and creating "a backlash against paper" that can occur when physicians feel overwhelmed by bureaucratic demands on their time, he says.

"We want more participation with doctors without new operational burdens," says Robert Stone, executive vice president and chief strategy officer of American Healthways, a Nashville, Tenn.-based disease-management company.

Doctors also can expect to see new disease-management programs this year in areas such as cancer, depression and obesity.

CIGNA Corp. in February said it planned to introduce a comprehensive disease-management program to fight obesity, which will use data mining to detect patients with hypertension, high cholesterol, unhealthy blood sugar levels and other problems associated with being overweight. The plan says the program will be offered to employers this year and rolled out in 2006.

Pay for performance: Eagerness or apathy

More health plans and employer coalitions this year will introduce pay-for-performance programs that attempt to gauge, and reward, physician quality or efficiency or both, industry experts say. But few such programs exist on a large scale, and many new programs making headlines in 2005 will be tests aimed at seeing how strongly physicians respond, says Dan Roble, a Boston health care attorney affiliated with the Leapfrog Group, a consortium of Fortune 500 companies and other health care purchasers.

Physicians who treat patients enrolled in Pittsburgh-based Highmark's PPO plans, for example, will be able to get incentive payments for the first time this year, whereas before, only doctors treating HMO members were eligible. As many as 6,000 Highmark network physicians are expected to volunteer for the pay-for-performance initiative by the end of next year.

Meanwhile, Medicare is planning to begin testing pay-for-performance at 10 large physician groups.

It's not clear how many doctors will decide that the bonus criteria selected by plans have nothing to do with "reducing care" and agree to opt in. Much uncertainty still exists, too, about whether the quality measurement tools employed by pay-for-performance programs can be meaningfully adapted to measure what doctors do, particularly at practices of modest size, says Peter Kongstvedt, MD, a Vienna, Va.-based health industry consultant and vice president of Capgemini Health.

"Pay for performance can be done reasonably well at the hospital level, and it's OK for large medical groups and big IPAs," he says. "It's almost impossible to do it at the level of individual physicians, because chance has more to do with [outcomes] than anything else."

Furthermore, although more initiatives are debuting, getting doctors to move toward pay-for-performance programs could take some coaxing in the next year. The potential bonuses for ideal performance are fairly small and might not seem worth the extra trouble and technological investment, says Uwe Reinhardt, PhD, a professor of economics and public affairs at Princeton University who specializes in health issues.

"The amount of pay differential in the U.S. between someone with high performance and low performance is a matter of 5% to 10%," he says. "American payers who talk about pay-for-performance are like drunk lovers at a bar -- big talk, little follow-through."

Consumer-driven challenges

More health insurers will roll out consumer-directed insurance plans this year, which count on patients to be more active in their care by being aware of treatment options and costs.

Some of these new plans will center around health savings accounts, or HSAs, which permit tax-advantaged funds to be set aside by an individual subscriber or employee for any medical expenses. Further coverage in the form of a standard PPO plan can be tapped once a high deductible, sometimes as much as $5,000, is reached. During the "bridge" period between the time that funds in the HSA are exhausted and the deductible is reached, the patient pays for health care expenses out of pocket -- although the practice might not realize this at the time of care.

This could complicate matters for physicians as they see more patients enroll in such plans. More billing and collection activity might be needed to cope with gradually mounting accounts receivable. These difficulties haven't been visible to many practices yet but could become more apparent in 2005, experts say.

Brad Engel, national health and welfare product leader for Mellon Bank, says the successful integration of physician practices, insurance databases and online payment systems associated with HSAs and other consumer-directed plans ideally will head off any "physician eruption" of discontent that might occur over a rise in collection hassles. He says 2005 will be "a real bellwether year" in establishing those connections.

One development that will begin to aid doctors and patients, experts say, will be the increasing introduction of debit cards tied to HSAs for instant payments to doctors and hospitals, Engel says. This month, the Chicago-based BlueCross and BlueShield Assn. approved the issuance of "Blue"-branded debit cards for HSA participants, as well as patients enrolled in flexible spending accounts and health reimbursement accounts.

For now, however, practices will need to be attentive to patients who have HSAs or similar accounts to be certain where their reimbursement will be coming from, says Mike Barrett, president of Health Systems Direct, a managed care consulting firm in Orlando, Fla. "I think it's perfectly legitimate for a doctor to say, 'Do you have an HSA, and if so, have you met your deductible -- and do I bill you or your insurance company?' " he says.

Consumer-directed plans haven't yet caught the attention of many doctors, according to Bradley Kupferberg, executive director of the Faculty Practice Plan at Chicago's Children's Memorial Hospital, a group of 280 specialists. But he is optimistic about HSAs and says his group would find the need for collections no more onerous than hounding private insurers or public agencies for payment, as it does now every day.

"It's easier to chase a person than it is to deal with insurance companies or the government, through Medicaid," he says. "It will be just a shifting of [collection] resources."

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And there's more ...

Managed care companies will look to these additional techniques this year to hold down long-term costs, health industry sources say:

  • Focused utilization management programs that will identify areas of great and growing expense, such as MRI and CT scans, gastric bypass surgeries and some elective surgeries.
  • Greater emphasis on drug cost management, from maximizing generic usage to promotion of mail-order pharmacy programs. Expanded use of the Internet to help patients compare drug prices.
  • Patient compliance programs that attempt to detect which patients aren't taking their prescribed drugs as they're supposed to.
  • Establishment of centers-of-excellence programs for certain diseases.
  • Continued attempts to promote automated medical records systems and electronic claims processing systems.
  • More retrospective audits of medical practices' claims to detect potential overpayments or reasons to reject claims already paid.
  • Development of chronic disease patient registries in physician practices that help coordinate care when patients see several doctors.

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So what about doctors?

Physicians may be excused for thinking that managed care's discovery of "reaching out" to doctors with one hand is merely a pretense to picking their pockets with the other. Organized medicine has closely examined health plans' proposals to see if that is the case.

The AMA's House of Delegates over the years has developed policies related to the ideas managed care is putting forth. The crux of most of the policies is: No managed-care arrangement should place restrictions on patient care, nor should physicians be forced to participate.

Here are some related policies:

Disease management

Disease-management programs can assist in educating patients, monitoring health status, and encouraging/prompting regular preventive health screenings. But some programs may attempt to employ proxy measures in order to capture savings, or circumvent the treating physician. The AMA Council on Scientific Affairs' report on the management of chronic disease is available online (link).

Pay for performance

Financial incentives should enhance the provision of high-quality, cost-effective medical care. Physicians should have the right to enter into any contractual arrangements they deem desirable and necessary, but they should be aware of the potential for some types of systems to create conflicts of interest.

AMA policy on financial incentives and the practice of medicine is available online (link). Policy on financial incentives used in the management of medical care is available on the AMA's Web site (link)

Also, in recent testimony to the House Ways and Means Subcommittee on Health, AMA House Speaker Nancy H. Nielsen, MD, PhD, testified that the Centers for Medicare & Medicaid Services should not institute a pay-for-performance plan until it changes the Medicare pay formula, which as it stands will send physician pay down 30% by 2012. She testified that pay-for-performance plans will penalize practices that can't afford to invest in the technology necessary to gather the information required. To that end, the AMA has policy stating that it supports the use of electronic medical records, but it does not support mandating their purchase by physicians.

Consumer-driven health plans

The AMA supports health savings accounts, believing they give patients greater control over health care decision-making, as well as a greater experience of the financial consequences of those decisions. Reports by the AMA's Council on Medical Services regarding consumer-driven health plans are available online (link)

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The outlook for health plan consolidation

Any mergers and acquisitions in managed care in 2005 are destined to look pale and scrawny compared with the monster deal of last year, the $16.5 billion takeover of WellPoint Health Networks by Anthem that produced WellPoint Inc., the largest for-profit health insurer in the country. But industry watchers say consolidation among health plans, though less visible and controversial, will continue as insurers seek to pull off cost-trimming through efficiency by expansion.

Some acquisitions are likely to be fueled by large health plans' quests to make further inroads into the consumer-directed health care field, according to Ed Kaplan, health care consultant for the Segal Co. These deals could follow the lead of UnitedHealth Group, which announced in November 2004 that it would pay $300 million to buy St. Louis Park, Minn.-based Definity Health Corp., a privately held insurer that markets high-deductible "personal care accounts" linked to PPO coverage.

Other acquisitions to expect: more takeovers of regional PPOs by national PPO networks.

A dwindling in the total number of players in the health insurance field is inevitable in the short term as small plans continue to sell out to larger competitors, says James C. Robinson, PhD, a professor of health economics at the University of California at Berkeley, in an article in the November/December 2004 issue of Health Affairs.

According to Robinson's calculations: BlueCross BlueShield plans, combined with the three largest non-Blues health insurance corporations, have roughly 60% of the market in 34 states and more than 70% in 23 states. That's consistent with numbers the AMA has released in its own surveys, which show that most metropolitan areas have only one or two major health plans, creating a situation in which doctors lose their negotiating leverage.

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