"Is the End of the Road Near?"
HMO enrollments are dropping. Is the end of managed care in sight?
by Gil Weber, MBA
Adapted with permission from Optometric Management
© Copyright, 2000. All rights reserved.
June 19, 2000, started off as any other day. I spoke with clients, answered e-mails, and surfed the Web, researching issues that make today's managed care and practice management environments increasingly difficult to navigate and also present frustrating challenges for healthcare providers.
I knew it!
Then I chanced upon confirmation of something that I knew in my gut was happening, but for which I had no substantiation. I read the following in a story by Bonnie Darves, a business writer on WebMD:
After years of steady enrollment increases, including a mid-1990s sustained spike well into double digits, health maintenance organizations (HMOs) have experienced their first industry-wide enrollment decline in more than two decades.
The latest HMO industry report from InterStudy Publications in Minneapolis shows that U.S. HMOs posted a net enrollment loss of 0.6%, losing 508,349 members between Jan. 1, 1999, and July 1, 1999.
It was really extraordinary news. Here was confirmation from InterStudy, a respected industry source, that despite widely held perceptions that HMOs were invulnerable, growth wasn't inevitable.
A few days later I received an e-mail from an optometrist in a city widely regarded by providers as "managed care hell."
"Was this news the beginning of the end for HMOs?" he asked. "Are my worries coming to an end?"
"No," I replied. "It isn't the end of HMOs, but for optometrists it may prove to be the start of one or more significant detours along managed care's evolutionary highway."
Flying higher, obliviously higher
For so many years it seemed as if HMO enrollment was a one way, unstoppable trend. National HMO enrollment grew each year, peaking at about 30.5% in 1998. Specific markets reached unbelievable penetration rates -- Sacramento 82%, San Francisco 72% (Medical Data International/ MDI Online, May 18, 2000).
To many, the HMO juggernaut seemed out of control, or certainly without appropriate and adequate controls. Nothing seemed to reduce the velocity at which HMOs ran over anyone or anything that got in the way.
Enrollment rose despite a highly publicized stream of horror stories, tales of care denied or unreasonably delayed and widespread provider dissatisfaction. None of that seemed to affect how HMOs did business. And patient satisfaction with HMOs remained generally high while enrollment continued upward.
It seemed as if the HMO industry was convinced that as long as politicians inside the D.C. Beltway postured without action, there was no need to respond to cries for change. Even generally poor financial performance over the past few years, including some financially ludicrous mergers and acquisitions, was brushed aside. Still, the public enrolled, and HMO membership grew.
What goes up must come down
Today, we may be seeing the start of some trends that HMOs ignore at their own peril. Not only are patients starting to vote with their feet; now employers and providers across the nation are indicating that they've had enough. In some cases, state insurance commissioners and regulators are jumping into the fray.
So we're seeing some employees opt-out of HMO-only offerings and opt-into Preferred Provider Organizations (PPO), Point of Service, Open Access plans, and other variants offering greater choice, even despite the employee having to pay a higher share of the cost. See "O.D. Patients Covered by Plan Type," below.
Companies have become more critical and have reduced the number of HMOs that are offered to employees.
Doctors, hospitals and other providers in local markets refuse to renew their provider agreements with health plans that won't pay enough to keep the doors open, let alone allow a provider to book a profit.
Regulators and insurance commissioners are starting to look into some of the less savory practices of HMOs, and begin the process of leveling a playing field tipped out of balance.
If in years past HMOs flew obliviously yet grew, those golden days may be over. The number of HMOs is shrinking.
Between January 1, and July 1, 1999, 30 of the nation's 643 HMOs exited the stage. Since July, that number has increased, particularly among the nation's Medicare HMOs.
Medicare HMOs flee in droves
As a consequence of the Balanced Budget Act of 1997 and its reductions to funding through HCFA, there's been almost wholesale abandonment of certain markets by Medicare HMOs. According to InterStudy, after 3 years of incredible growth, Medicare HMO enrollment dropped between July 1998 and July 1999 from 18.6% of all Medicare enrollees to just 4.0%.
Yet the industry is incredibly resilient. Even now, given that much of the reduced enrollment can be attributed to a shrinking premium difference between HMOs and less restrictive PPOs, this is one industry that isn't dead. The players and rules will change. However HMOs, even if cloaked with a new, less irksome name, are here to stay.
So, unless your practice is highly atypical, you'll need to participate to some extent to supplement your private pay patient base and fill out the appointment schedule.
Some of your patients will move into other health plans governed by somewhat different rules and providing different benefits. Hopefully, we'll find that in the coming years managed care plans, particularly HMOs, voluntarily respond to the demands of patients, employers and providers. If they don't respond, then certainly state legislators, regulatory agencies and insurance commissioners have shown that they'll effect change.
We're seeing that already with some very heavy fines in states with prompt pay laws, and in prohibitions against wholesale downcoding.
HMO benefit packages for ophthalmic care are likely to undergo some changes. We'll see re-thinking of how routine vision exams and eyewear are covered and delivered. And, we'll also see changes in some aspects of medical/surgical eyecare that impact on optometry. Here's what I anticipate over the next few years from HMOs in response to economic and employer market forces, public and provider demand and government pressure.
Routine vision care
We're already seeing some small changes to HMO and vision plan eyewear benefit designs. For so many years optical benefits have been stuck in something of a rut, mostly "white bread" programs covering basic single vision lenses or limited styles of multifocals. However, they haven't covered many of the newer technologies, such as progressive, high-index or polycarbonate lenses.
Some benefit plans now cover premium lenses, or at least provide a significant allowance toward the cost, thereby encouraging patients to upgrade.
As competition to sign contracts with HMOs increases, and to the extent that premium cost can be held down, third-party vision plans will have to offer more customized benefits packages to stand out from their competition.
Assuming that you're then paid appropriately for dispensing premium lenses (more than a $15 dispensing fee), this trend should benefit your practice.
I believe a more significant trend we're likely to see is change in the relative mix of persons with funded and discount vision plans. Employers are desperately struggling to attract and retain good workers. They're addressing that, in part, by offering attractive healthcare benefits packages. At the same time, healthcare costs are rising and HMOs are asking for double-digit premium increases.
These huge cost increases are causing some employers and the federal government to re-evaluate just how rich a healthcare package they can afford to provide, and whether they can afford benefits such as vision care at all. This is an interesting dichotomy in a time when patients are demanding more choice and better optical benefits.
In some cases, it's meant dropping or reducing funded benefits, or increasing co-payments or other patient funding. In other cases, it's meant that certain funded vision programs have converted to discount programs in an effort to provide valuable employees with some semblance of vision benefits, but without the costs for employers.
In any event, it seems unlikely that any current, significant growth rate claimed for those with new managed vision care benefits can be sustained over the long-term. We're already seeing some indications that the growth rate for persons with vision benefits is flattening. Also, there's evidence that the bigger, national vision plans are cannibalizing each other and their smaller, regional and local competitors for a limited pool of potential patients. Much of the ballyhooed growth for certain big name players has come about from mergers and acquisitions, not as the result of successful new sales.
Is it a bad thing?
Unlike the 1970s and 1980s, when certain groups could flex their muscles and demand ancillary benefits such as vision care, in some cases that power may wane over the next few years. It's clear that certain populations that had and consistently utilized funded vision care benefits are losing those benefits and may not regain them.
Medicare HMOs offered free vision exams, and often, free eyeglasses as an inducement to get senior citizens to join. Today that has mostly ended -- certainly for eyewear -- as some Medicare HMOs cut perk benefits and others simply close the doors and leave the HMO marketplace.
So, is some or all of that bad for optometry? Everything else being equal, it's probably not disastrous if your local HMO stops funding routine vision care services or significantly cuts back on covered benefits. After all, unless those patients change to another HMO, which perhaps isn't an option with Medicare-Choice products no longer available in some markets, they'll revert back into the private pay pool for vision care. Your usual and customary fees apply at that point rather than at the deeply discounted fees paid by the HMO or imposed as part of participation in a discount program.
Keeping your patients
The challenge is to get the patients back into your office when a third party no longer pays the bill or directs patients to a defined provider panel. Hopefully, you've done a good job and provided quality care to generate some measure of patient loyalty so those folks will keep coming back despite the price inducements of the super discounters.
Your bottom-line issue for prospering in an ever-more chaotic managed care world is to cultivate a healthy, private-pay patient base. It's no secret that year after year you work harder for less return on HMO patients.
Research tells us that managed care represents a huge slice of the typical O.D.'s daily patient volume. However, those appointments return a disproportionately small slice of total revenues, and a still smaller slice of profits. This is partly because so many optometrists participate in so many financially terrible third-party plans. See "Managed Care Patient Volumes and Income," below.
A few ideas
You'll certainly want to craft a carefully worded letter targeting your patients who leave their HMOs, or whose health plans make significant changes in their vision benefits.
That letter should emphasize the importance of periodic professional care, express your thanks that the patient chose you as his provider under the HMO vision plan and indicate your desire to continue as the patient's eye doctor.
As with all communications to HMO patients, you should have this letter reviewed by a qualified managed care attorney to be certain that nothing in the letter violates any provision in your provider agreement.
I'd also suggest that in these times of change, specifically premium increases and benefit reductions, you become super-selective in your decisions to join or continue with any vision plan. It seems obvious that only those plans that can demonstrate significant opportunity to put new and profitable business in your practice are worth a thought.
Otherwise, why pay an application and credentialing fee to be part of an exclusive plan mandating 20% to 30%, or larger, discounts?
If the plan can't demonstrate convincingly that there's opportunity for a meaningful and profitable increase in your patient flow, or capture ratio, or other key bottom-line determinants, you don't need it.
You could just as well put up a sign in your front window, offer the same discount, hope that patients might come in, and save yourself the panel fees and administrative hassle of dealing with yet another third-party plan.
In part two of this article, which we'll publish in December, I'll explore another trend affecting today's vision care benefits. This trend finds some prominent vision plans breaking out of traditional exam and eyewear benefit management roles to team with corporate laser in situ keratomileusis (LASIK) vendors, and provide refractive surgery in a managed care environment.
It's a trend of significant importance to those of you who co-manage or would like to co-manage. At first glance, it seems as if this trend should mean lots of good things for the profession. We'll look and see in the next issue if that's panning out.
O.D. Patients Covered by Plan Type
The following information was provided from the "2000 Third Party/Managed Care Survey" by the American Optometric Association (AOA). Most responding optometrists (93%) designated themselves as self-employed. The majority of these O.D.s (88%) were in solo, two-member partnerships or groups, three- to five-member partnerships or groups and six or more member partnerships or groups.
The statistics below show the percentage of O.D. patients covered by the different third-party and managed care sources. VSP is a substantial revenue source in the Pacific and Mountain regions, while revenues from government programs -- especially Medicare -- are more important for O.D.s in the West North Central and East South Central regions. HMOs are a significant revenue source for optometrists in the New England states.
Responses are for calendar year 1999. A stratified sample consisting of 4,000 members, drawn in equal proportion from each state, was sent the survey. The response rate was 29.9% (n=1034).
Managed Care Patient Volumes and Income
Of the O.D.s in the nine regions, 60% reported that managed care has increased their patient volumes. However, far fewer optometrists in each region reported improvements in gross and net incomes due to managed care. Participation in prepaid capitation programs also varied widely by region.
Source: AOA's "2000 Third Party/Managed Care Survey."
Gil Weber is an author, lecturer and practice management consultant to the managed care and ophthalmic industries. He has served as Managed Care Director for the American Academy of Ophthalmology.