Doctors start 2 Medicare health plans

Washington -- Convinced that they can manage Medicare patients better than HMOs, physicians in two communities have launched their own health plans.

The new Medicare provider-sponsored organizations opened for business in January after receiving final approval from the Centers for Medicare & Medicaid Services. The founders are optimistic that they will succeed despite the dearth of such plans in Medicare managed care and past problems with these types of products in the private market.

Touchstone Health Partnership, in Staten Island, N.Y., and DoctorCare, in Coral Gables, Fla., essentially will operate as HMOs with a major difference -- the doctors themselves are running the show.

"We wanted to get a little bit of control back over our destinies," said Raul Tano, MD, a family physician in Miami and chair of DoctorCare's board of directors.

For a group to participate in Medicare as a PSO, at least 51% of the company must be owned by the physicians or hospitals that make up the plan network. These investors typically also must provide at least 70% of the care that enrollees receive. DoctorCare currently does not have hospital investors. Touchstone does, but doctors hold majority ownership.

By eliminating the need for insurers, the physician investors think they can create operational efficiencies that drive money back into the provision of high-quality care, rather than into the pocketbooks of HMO executives. The model aims to cut down on the pressure to maximize profits above all else, said David Pfaff, MD, an internist in New York City and a member of Touchstone's board.

"Now we don't have the middleman over our heads anymore. It's just us," he said. "Because there's nobody else taking a profit, it's being turned right back to the patient."

In addition, having groups of physicians deciding how to approve and reimburse for care reduces the chances that there will be costly scuffles over denied coverage, said Esther Surujon, president and CEO of DoctorCare. Because it doesn't require prior authorization for any medical services, for instance, the Miami-area PSO intends to get by with just a bare-bones appeals and grievance department, she said.

Moreover, some of the hundreds of doctors who have decided to join Touchstone and DoctorCare are hoping to shed many of the bureaucratic burdens they perceive as the constant companions of traditional managed care firms. By populating the board room with doctors and obtaining financial partners to complement the physician investment, the architects of the plans say they have no need to implement some of the more oppressive tools insurers use to cut costs.

A promise unfulfilled

Despite such attractions to doctors and patients, PSOs have not made significant inroads into Medicare managed care, known as Medicare Advantage, since Congress laid the legislative groundwork in 1997.

At the time, federal officials predicted that scores of physician-run plans would emerge throughout the country, but the arrival of the two new groups at the start of this year brought the nationwide total to only five. Unlike Medicare HMOs, which numbered more than 150 and claimed nearly 5 million beneficiaries at the beginning of last month, Medicare PSOs served only a little more than 30,000 seniors and people with disabilities.

"Medicare had grand hopes for these plans, but they just never materialized," said Mark Stadler, a health care lawyer with Cohen & Grigsby in Pittsburgh. "They never really were going to work except in certain particular locations or under perfect insurance market circumstances."

Part of the reason is that the initial time and dollar investment of such an undertaking can be prohibitive. For instance, DoctorCare spent 18 months and committed $5 million just to take the organization through the initial state and federal application processes. For a Medicare PSO to gain approval, physicians must demonstrate that the net worth of their investment is high enough to undertake the risk of insuring beneficiaries.

"CMS has to be very careful about giving this opportunity out, because they are entrusting the care of their Medicare beneficiaries to physicians, and they have to be very careful to make sure that those physicians have the financial wherewithal to take that risk," Surujon said.

In recent years, several Medicare PSOs were launched with high hopes but soon faltered, in some cases being swallowed up by a larger HMO or health system when they couldn't recover from the hefty start-up costs.

Although Medicare PSOs have existed for fewer than 10 years, variations have been in the private sector for decades and have demonstrated the pitfalls of pursuing more control over patient care by shouldering more risk. Physician-hospital organizations were popular in the mid-1990s, for instance, but began falling apart when the two entities clashed over care utilization levels, Stadler said.

In addition, some doctors soon found that running an insurance product while trying to avoid some of the less desirable tools of managed care was not as straightforward as they thought. This is still true today. Just a few months into the launch of Touchstone's new product, for example, some physician investors expressed disappointment that the plan still requires referrals to specialists and suggested that the level of administrative overhead would not be much different than if they were affiliated with an HMO, Dr. Pfaff said.

But both Drs. Pfaff and Tano are confident that their respective groups will thrive and remain viable Medicare Advantage alternatives for both physicians and beneficiaries. The ability to turn a tight-knit community of doctors with a robust patient base into a well-oiled medical management machine will allow the plans to succeed where others have failed, they said.

"You need a dedicated group of doctors who understand the market, who understand that they own the insurance company, who understand that they must follow very strict guidelines when it comes to medical management," Dr. Tano said. "Everybody has to be on the same wavelength as far as the definition of cost-effective, quality medicine."