Can Excellence Survive in Manged Care?
by Robert W. Cantrell, MD
Welcome to the 118th meeting of the American Laryngological Association.
As we are in an era of unprecedented upheaval in the delivery of health
care, the importance of venerable institutions such as the American Laryngological
Association, which is dedicated to excellence in education and research
designed to improve the health care of those we serve, assumes much greater
importance.
Before I address some of the sociopolitical and economic forces that
would diminish excellence in the care that we deliver, I want to pause
and thank several people who have labored so long to make this meeting
a success. First of all, our esteemed Secretary, Gerald Healy, who keeps
the organization moving, and his Secretary, Joanne Hutchinson, who is one
of the best-organized ladies that I know. Next, our Treasurer, Rick Pillsbury,
who pays the bills, and our Editor-Historian, Ernie Weymuller, who records
the proceedings and keeps track of all the papers submitted. I also want
to thank the members of the Council and the committee members who perform
the varied tasks necessary for the smooth functioning of the Association.
A special thanks goes to Dr Charles Gross, who chaired the Program Committee.
We had more than twice as many excellent papers submitted as we had room
on the program, so the committee had a difficult time in choosing and putting
together the program, but I think he has done an excellent job of that.
When I was considering what to discuss with the society, I thought that
perhaps we would focus on some of the issues that confront all of us in
organized medicine, and I chose as the topic for my address "Can Excellence
Survive in Managed Care?" The high cost of health care has sparked an upheaval
in the health sector that is unparalleled in history. The causes for the
high cost include increasingly complex surgical procedures; extremely high-priced
drugs; an expanding aged population that is demanding and receiving increasing
amounts of very expensive, sometimes long-term care; and an increasing
number of people delivering health care to include more and more of those
offering alternative nostrums.
At the base of many of these costs were governmental actions in the 1960s,
spearheaded by the Social Security Amendment of 1965, known popularly as
the Medicare Act. This was an act designed to provide medical insurance
for those over age 65 and indigent children, and the act had three parts.
Part A was insurance to cover hospitalization; part B was an optional plan
to partially cover physicians' fees; and Medicaid was a program for the
poor, mainly children, jointly funded by the federal and state governments.
Since politicians like to get re-elected and voters don't like tax increases,
a means to pay for such programs as this must be found. The growing Social
Security Trust Fund, never intended for this use, was a source of readily
available funds. At that time, the economy was sound, the ratio of those
over 65 compared to those working and paying into Social Security was low,
and people were not living as long as they do today. Many of the expensive
therapies available today were unknown. It was known from the start that
the program would cost more than planned, but since this is a common occurrence
in Washington, this was not questioned. Recall also that a very expensive
war in Vietnam was beginning, and no tax increase was enacted to pay for
that either. What was not anticipated was how very much both Medicare and
the Vietnam war would actually cost.
The seeds of Medicare's destruction were sown at the beginning by three
defects in the plan. First, the beneficiaries were not required to pay
an adequate portion of the cost, and periodic increases in the beneficiaries'
premiums were rare. Currently, for example, recipients pay $145 per month
for care that costs on average $393 per recipient per month. Any move by
the politicians to change this is greeted by a firestorm from the "Gray
Panthers," most of whom vote. Second, there was no means testing. A millionaire
is entitled to the same benefits for the same premium as a widow barely
subsisting on a meager income. This discrepancy exists in spite of those
over age 65 controlling more money than any other age group. Finally, the
government turned over administration of this program to "fiscal intermediaries," usually
the Blue Cross plans that were controlled by the providers, and the plan
allowed hospitals to bill for costs rather than negotiating rates of reimbursements.
This law was followed by a series of acts designed to increase the number
of health care professionals necessary to provide the increased amounts
of care required by this plan. The result was extraordinarily effective.
From 101 medical schools graduating 8,367 physicians in 1970, the number
rose to 16,369 graduates from 127 schools by 1984. These figures do not
include the 4,596 foreign medical graduates or the 2,570 US citizens who
graduated from medical schools outside of the United States who entered
first-year training in this country in 1984. By 1985, the number of graduates
from US schools rose to 17,500, where it has remained steady since, but
the influx of those receiving medical education outside the United States
has continued to rise, numbering 22,706 in fellowship or residency training
in 1993.
As remarkable as this 180% rise in physicians from 1970 to 1984 was,
there was a 400% increase of medical administrators in this same period,
fueled by the need for someone to interpret and complete the myriad paperwork
that Medicare and other insurance programs generated.
One could argue that this has raised significantly the level of the health
in the United States, and the facts support this. Certainly, the marked
increase in the entire health technology and delivery complex has provided
near-miraculous advances in therapeutics and surgery. From implants to
transplants, from pills to correct impotence to pills to prevent pregnancy,
and antibiotic and antiviral drugs to combat virulent organisms to mood-elevating
drugs to combat depression, the expenditures have purchased an improved
quality of life for many never before experienced on earth. Yet there continue
to be many critics of the system. The high cost is most frequently criticized,
followed closely by the valid complaint that not all citizens have access
to care.
The aging population continues to grow, and they are no longer content
to suffer from defective joints as they did just a few years ago, now that
artificial joints are available, or suffer with a heart problem when cardiac
bypass surgery or even heart transplants are available, to mention just
two examples. The question is, at what age do we begin to cease offering
these expensive procedures? The US government, unlike Great Britain, is
unwilling to ration care, although this is the logical solution to the
dilemma.
Third party payors certainly should not make such important decisions;
most physicians are unwilling to decide; and leaving it to patients has
not solved the problem. Everyone wants to go to heaven, but no one wants
to die. Everyone wants the finest medical care available, and the finest
care available in the world is in the United States, but no one wants to
pay for it.
A poll conducted by USA Today recently asked how much the individual
should spend annually on health care. Fifty percent said they should spend
nothing; 26% said they should spend less than $200 annually; and 24% had
no opinion. This means that 76% of those polled thought they should spend
less than $200 annually for health care that is currently costing more
than $3,000 annually. It is this disparity between what health care costs
and what the individual is willing to pay for it that is a major part of
the problem.
Whatever the cause - governmental initiatives, an aging population, or
a medical -industrial complex without cost controls that had carte
blanche from the third party payors - the cost of care skyrocketed. Expenditures
for health care rose from 4.4% of the Gross Domestic Product in 1950
to
9.3% in 1980, to 12% in 1990, and 15.3% last year. In dollars, this
is $1.1 trillion.
Government and business, which pay a large portion of the health care
bill through their various health insurance programs, began demanding in
the 1980s that something be done to ameliorate the rising health care costs.
Diagnosis related groups (DRGs) were introduced. This grouped various similar
diagnostic codes together and paid the hospital a lump sum to manage a
given condition. If the hospital could manage the case for less than the
DRG payment, they made money. If the expenditures on the case exceeded
the DRG payment, the hospital lost money. This slowed the rise in hospital
costs.
Physicians continued to bill on a fee-for-service basis, and since physicians'
fees consumed only 19% of the health care dollar, there was not much interest
by the regulators in these charges initially. It became apparent, however,
that separating hospital charges from physician charges would not solve
the bigger problem of overall costs.
Group health plans, primarily prepaid, of which the Kaiser Permanente
Plan was the most well known, began to emerge in the 1930s, but they were
not popular until the high cost of the 1980s caused more and more people
to sign up with them. In these plans, the subscriber paid a fixed annual
amount, and all health care was delivered by a group of salaried physicians
employed for this purpose by the group. Major tertiary problems for which
the group was unprepared to deal were referred to hospitals and specialists
who were contracted for these referrals.
In 1970, Paul M. Elwood, Jr, MD, a Minneapolis physician
who directed the American Rehabilitation Foundation, proposed to government
leaders the concept of a "health maintenance organization" (HMO) which
was to be a reform of the health system that would reward keeping people
well rather than paying to return them to health after they became sick.
This was an alternative to fee-for-service or centralized governmental
financing. (1) The idea was not popular initially, but
by the late 1980s and early 1990s, the number of HMOs began to proliferate.
About this same time, the concept of "managed care" (some say "managed
cash") began to take hold, and especially in Congress and among some businessmen,
this seemed like a solution to the high cost of health care.
The principle behind this "managed care" was that a primary care physician
- either a family practitioner, a general internist, or a pediatrician
- would be the care manager (the "gatekeeper") who would be the entry point
to the health system for all patients. This physician would take care of
most medical problems, referring only the more difficult problems to the
specialists. This plan was supposed to save money, because the primary
care physicians presumably could treat patients at less cost than specialists.
There were no hard data to support this concept, but it sounded good. As
an additional incentive for the "gatekeepers" not to let too many patients
through the gate, elaborate incentive plans were established that essentially
rewarded the physicians if there was a surplus of the amount budgeted for
care at year's end.
It is interesting that the first definition of "manage" in the dictionary
is "to direct or control" and next "to exert control over; make submissive
to one's authority, discipline or persuasion." The first definition of "care" is "mental
distress and uncertainty." By these definitions, managed care is appropriately
named; the attempt to make both physicians and patients submissive to profit-seekers'
authority is causing both groups mental distress.
The emergence of managed care sparked a debate between medical ethicists,
unresolved to this date, about whether it was better for patients to be
under a fee-for-service model that encouraged more care, or a managed care
model that encouraged less care. What was not discussed as frequently,
and is still not resolved, is the quality of care delivered by a primary
care physician as compared to the same care delivered by a specialist.
Also not resolved is whether the overall cost for a given illness can
be reduced by early intervention by a specialist versus the prolonged care
sometimes rendered by the primary care physician prior to referral. More
outcome-based studies are needed to answer these important questions. There
is some anecdotal information now emerging that for many conditions, specialty
care is more cost-effective than the same care rendered by a primary care
physician.
Certainly, there is a role for both the generalist and the specialist
in the delivery of care. What has not been decided is where lies the dividing
line. As medical futurist Jeff Goldsmith put it, "It is ironic that America
has spent billions of dollars creating the knowledge framework of subspecialty
competence, and now is spending billions more to prevent physicians from
using their knowledge. What is missing is an appropriate and agreed-upon
division of labor between primary care and specialty care for given medical
problems."
Sometimes overlooked in this debate between fee-for-service versus managed
care is the role the for-profit companies play in this and the impact they
have on the cost of care. There is very compelling evidence that managed
care as now practiced reduces the cost of the actual care delivered. In
fact, the cost of delivering medical care at all levels had already begun
to level off before the advent of managed care. The for-profit managed
care companies and HMOs have ratcheted down the reimbursements to both
hospitals and physicians, and in many cases, reduced these payments to
dangerously low levels from a financial point of view.
What these companies have not done is reduce the cost of the insurance
product to the businesses that are purchasing the insurance, and they avoid
enrolling the elderly and the indigent who consume so much care. Many of
these companies are reaping huge profits, and approximately 25% of the
money paid for health plans today goes for administrative costs and profits.
In California, it reaches 31% in some cases.
Taking the lower figure, 25% of the $1.1 trillion dollars spent on health
care annually amounts to more than $250 billion, which could purchase a
great deal of care were it used to provide care and not just reward stockholders
in these for-profit companies who pay their CEOs more than $1 million annually,
the highest salaries of any business sector CEOs. The entire prospect of
selling stock in companies which make money from those unfortunate enough
to become ill is something the medical ethicists need to examine carefully.
Certainly, it is not necessary for these companies to spend 25% on administrative
costs. The managed care company owned by the University of Virginia Health
Sciences Center performs exceptionally well spending 10% on administration.
Administrative costs are one area in which much savings could be realized.
Forcing all insurance companies to adopt a uniform claim form would save
millions of dollars. Likewise, forcing all insurance carriers to have uniform
requirements to be met in order to approve the ordering of laboratory tests,
imaging studies, surgical procedures, or hospital admissions would likewise
save millions of dollars of administrative costs. Doing away altogether
with insinuating the insurers between the physicians and the patients would
save even more, and result in happier patients and less harried physicians.
Answering the question posed by the title of this paper, the answer is
yes, excellence can survive in a managed care environment (assuming managed
care survives), if several important reforms are instituted. First, there
must be clear guidelines on whom the primary care physician should or should
not refer and when. Next, outcome studies are needed to determine what
forms of therapies are effective, and whether or not the specialty of the
physician delivering the care impacts on the outcome and cost. There must
be governmentally mandated reform of the insurance companies and for-profit
HMOs forcing uniformity and perhaps reduction of the multiplicity of forms
required to process claims.
Likewise, it should be forbidden for the insurance companies to insinuate
themselves between the patients and the physicians. Should a company have
computer evidence of a physician ordering unnecessary or excessive tests
or admitting patients unnecessarily, the companies could redirect the money
they now spend on authorizing the procedures or admissions to investigating
the physician, and if the evidence warrants, drop the physician as a participant
in their plan.
Better still, use a mechanism like that used by QualChoice of Virginia,
in which panels of primary care physicians and their patients are assigned
an actuarially determined budget. Reasonable fees are paid, but 15% is
withheld until the end of the year. Those panels that stay within their
budget receive the withheld amount back plus interest. Those who exceed
their budget lose their withheld amount, but not to the company. The lost
withheld amount plus interest is divided among those physicians staying
within their budget as an incentive bonus. No physician is required to
check with the company for any test, procedure, or admission. The physicians
make the determination of what is necessary and bear the financial risk
of those decisions. Close communication between the primary care physician
and the specialist is required. Initially, the results show that those
panels which refer more often to specialists spend less money than the
panels that hold on to their patients and refer later or not at all. Patients
and physicians both are very satisfied with this program.
The delivery of health care is undergoing revolutionary changes. Whether
the excellence in the delivery of care that has emerged in the past three
decades as the finest ever before delivered survives into the future is
in question. Perhaps we can no longer afford "the finest care." Before
the politicians or the businessmen decide that, however, perhaps it should
be put to a vote of the citizens. When the for-profit companies have squeezed
the profits from the system or if they are forced to care for the indigent
and aged patients that they now so assiduously avoid, and their profits
decrease, they will move on to more fertile financial ground. The health
care professionals will be left, along with the sick and needy, to face
the prospect of delivering expensive care for which few are willing or
able to pay. Whereas now we have a battle between those who are the managers
and those who are managed, then, we will have a proliferation of physician-directed
enterprises that will manage the financial risks associated with taking
care of these patients without stockholders and major administrative costs.
It will be a difficult challenge.
1. Starr P. The social transformation of American
medicine. New York, NY: Basic Books, 1982:395. Return |
