"Managed Care is Changing. Are You Ready?"
Consumer-driven plans create new challenges for physicians.
Gil Weber, MBA
Adapted with permission from Ophthalmology Management
© Copyright, 2004. All rights reserved.
Today's TV, radio, and print media are filled with dire news about healthcare costs spiraling out of control. The traditional, alphabet-soup programs -- the HMOs, PPOs, EPOs and their ilk -- no longer seem able to reduce costs. In fact, most plans are now in their second or third years of double-digit premium increases.
This failure to effectively control costs is creating serious concerns for employers and employees. Both are facing tough decisions as to who will have healthcare benefits in the future and who will pay the costs. Clearly, something has to change, especially as increasing numbers of employers announce that they may not be able to subsidize some -- or perhaps provide any -- healthcare benefits in coming years. One concept that's catching on is the consumer-driven health plan. In this article, I'll discuss the pros and cons of consumer-driven plans, and how they're likely to affect the physician/patient relationship.
Spiraling Costs Drive Change
Patients demand services. Physicians provide them. Insurance companies pay the bills. Despite some nasty battles with physicians over compensation for services, it's clear that insurers are facing some enormous challenges holding down costs.
For example, all plans want to look good on Healthplan Employer Data and Information Set (HEDIS) scores. Yet, if a plan actively moves to get all of its diabetic patients identified and then checked by eye doctors, the effort will encourage utilization. That drives up costs in the short-term. Thus, we can have the two powerful forces of preventive medicine and cost control working in opposite directions.
Practice variation is a second factor that seems to drive healthcare costs perpetually in the wrong direction. Recent Example: Medicare data indicate per-capita healthcare spending in the Miami area is roughly two-and-a-half times what's spent in Minneapolis, even after the data is "massaged" to factor age, sex, and race. How can that be? How can practice patterns be so different across the country?
It's a problem that perplexes and clearly frustrates many health plan executives. Dwayne David, M.D., medical director of Geisinger Health Care in Danville, Pa., summed it up this way in the November 2003 issue of Managed Care: "Practice variation is one of the greatest problems we face in controlling costs."
And in the same article, William Fleming, Pharm.D., a Humana vice president, declared with perhaps a touch of chagrin: "We used to spend a lot of time and resources communicating with physicians about the standards of pharmaceutical care they were delivering. But we didn't see much change in behavior. So for the last 3 years, we've concentrated on influencing consumer behavior."
Consumer-Driven Plans Have Appeal
Today's "buzz" in healthcare cost containment is the consumer-driven health plan. It's offered up in some quarters as the magical pot of gold at the end of the rainbow. We're told that with patients in control of how, when, and where they spend those healthcare dollars, this new cost-containment variant is a cure for the system's ills. But why should such a system work?
The quick answer is that it puts financial responsibility squarely on the shoulders of the end-users -- the patients -- allowing choices of multiple co-payment, deductible, and co-insurance levels, with access to tiered networks. The basic concept calls for these individually owned, tax-preferred, high-deductible policies to be portable and offer significant flexibility to the patient.
And given greater control and critical information, such as access to cost guides for hospitals, physician charges, and prescription medications, patients are supposed to become smarter shoppers and more conscientious consumers of healthcare dollars. At least that's the hope, though a recent "healthcare literacy" survey indicated that patients have difficulty understanding the financial complexities of the healthcare system.
Many insurers are looking to consumer-driven plans with hope and big expectations, based on perceived demands in the marketplace.
Giving Managed Care a New Image
But so far, the public has been slow to embrace these plans, which are typically offered by employers as one of many health plan options. So employers are now taking a different approach. They're using a marketing twist that wraps "consumer-driven" in the aura of an enhanced benefit. The attempt to shift perception is designed to free the employee and his or her family from many negative image problems tied to traditional managed care.
Previously, managed-care programs such as HMOs and PPOs had been considered only in terms of a cost-savings strategy. But that strategy could only wring out so much from the system before it was clear that significant cost savings came with a wagonload full of unwieldy baggage. However, if patients can view these consumer-driven plans as an enhanced benefit of employment, it might create a quite different healthcare financial and administrative environment than existed in the 1980s and 1990s.
Perception vs. Reality
The success of selling consumer-driven healthcare coverage to patients ultimately will depend on managing the fine balance between perception and reality. Consumerism has been in ascendancy for at least two decades, and given the recent double-digit increases in healthcare premiums, anything to stem that trend should look like an improvement.
Some employers now offer their employees fixed amounts of money, sometimes called "flexible spending accounts," with which to purchase health insurance or, sometimes, individual healthcare services. This puts the patients in charge and forces them to think about health care just as they would any other purchase. It comes down to cost vs. benefits, something every consumer understands.
But Mercer Consulting reports that only about 2% of employers offered such plans in 2002, although the percentage is higher for very large employers. The promised significant cost-savings and anticipated benefits are still to be seen.
Some critics voice the concern that once patients are put "at risk" for their healthcare dollars, they'll tend to neglect getting care except when they can't put it off any longer. Such an unintended turn of events could lead to a generally less healthy population that depends more on interventional care and less on preventive care. Certainly, that result would cost the healthcare system more in the long term.
It's clear that health plans understand this dilemma. Arthur Southam, M.D., senior vice president of the Kaiser Foundation Health Plan, noted in the September 2003 issue of Managed Care: "Our physicians are concerned that some patients will find this (type of plan) to be a burden and that it might affect their ability to have the right visits and have the right tests and get the right medicines. Using cost-sharing to get people thinking about their own healthcare needs is probably a sound idea for someone who makes $200,000 a year. It is a challenging and complex proposition for someone with two children earning $10 an hour."
There's also a feeling among some plan managers, including physician-executives, that many practitioners aren't fully on-board with this notion that consumerism really is the best way to solve rising healthcare costs while also maintaining quality care.
John Wennberg, M.D., director, Center for Evaluative Clinical Sciences, Dartmouth Medical School, said in the November 2003 issue of Managed Care: "There's physician resistance to the idea of involving patients in decision-making. After all, they're trained to treat, not talk to patients."
Whether consumer-driven plans achieve wide acceptance is still unknown. But these plans will come to your town sooner or later, so you might as well be prepared.
Collecting the Cash
While patients will have greater flexibility to see the doctors of their choice (a good thing), and you'll be entitled to a larger portion of a generally higher fee upfront from the patient (also a good thing), there's considerable risk that if staff doesn't collect those monies on the date of service you'll have a harder time collecting all you're owed later.
Practices that don't do a superior job collecting at the front end could find that they're saddled with all sorts of bad debt not faced when insurance companies paid most of the bill. Clearly, you'll want to rethink how your practice asks for and collects patient-owed amounts. This means new rules for managing and minimizing accounts receivable. And it certainly means that those who work the checkout desk and are responsible for collecting amounts owed must have exceptional people skills.
You'll Have to Change
When patients can choose to go to any doctor, you'll suddenly find yourself placed into a much larger competitive pool than under traditional managed care plans. This means you'll have to do a different and more effective job promoting yourself and your practice.
This is especially true for ophthalmologists, because several key services are elective/cosmetic, driven by a patient's wishes and desires rather than by purely medical needs. This adds a kind of "retail" component to the ophthalmology practice, a niche that most of your colleagues in other specialties don't share.
But whether the care you provide is elective or absolutely necessary, patients in consumer-driven plans will have rather different expectations and demands than those you've experienced in the traditional managed care scenarios.
When patients are responsible for the allocation of their healthcare dollars, they'll want to know why they should come to you rather than go to Drs. X, Y or Z. What do you offer newer or better or different that should cause them to hand over their now-budgeted healthcare dollars? If you can't provide convincing answers, these patients are likely to go elsewhere.
Consumer-driven plans will incentivize patients to become better managers of their health. They'll have to learn how to take better care of themselves when spending time in the sun, or managing their diabetes or glaucoma. In theory, if patients become better educated about their own health conditions, they'll spend more wisely from their healthcare accounts. In the past, patients didn't have such clear incentives to become educated, and to ask questions of their doctors. Now, they'll be motivated, and you'll have to devote more time to educating increasingly demanding patients.
Patients Will Judge You
Patients will want to know more about you: your clinical education, your special skills. And they'll want to know more about your staff, your facility and your equipment.
Patients will be less tolerant of what they perceive to be disinterested or rude staff, or poor customer service on billing and scheduling issues. You'll want to evaluate your practice and determine if your level of customer service compares favorably or unfavorably with your peers.
Finally, don't be surprised if the health plans start asking you for more data than ever before. Patients will be looking for information on which to base their physician-selection decisions, so the plans likely will be looking to supply some sort of comparative data to those patients.
Rethinking Your Fees
In the past when you agreed to accept discounted fees from an HMO or PPO, it was on the assumption that you were trading off discounted fees for certain expected increases in patient volume driven by the health plan. With consumer-driven health care, the plans should no longer have dictatorial control over what you have to accept as payment.
You won't be part of a traditional, closed panel, and so the idea of "steerage" essentially goes out the door. Instead, increased volume will come through your own efforts, not through actions or efforts of the payer. You may want to rethink your fee schedule and the amounts you'll accept from payers and patients.
Many practices will raise their fees, finally freed of the crushing reductions forced upon them by third-party payers. But will patients pay these amounts after years of getting everything essentially for "free?"
It's reasonable to believe that, at least for these consumer-driven plans, you can raise fees from the levels offered by traditional managed care. Clearly, each practice will have to convince patients that the quality of services it offers justifies the price. You'll have to be in the ballpark, and to do this you'll need to conduct research to know how your fees compare with those offered elsewhere in the community.
On the other hand, ophthalmologists could find themselves in an even more cutthroat pricing environment if everyone in town starts playing the pricing game as a misguided means of attracting patients from these new plans. It's a worrisome possibility, especially given the absurd price wars we've seen with LASIK in recent years.
Win Patients Over
Present your practice, your staff, and yourself in a way that demonstrates clearly superior patient care and customer service. Whether you do that face-to-face, on the telephone, on your practice Web site, in a newsletter, or in office handouts, say it loud and say it proud, and believe in yourself. That's how you need to approach this new era of consumer-driven healthcare.
A Two-Tiered Society for Health Insurance?
While Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs) seem to offer promise as pivotal new options for both group and individual health insurance purchasing, with HSAs established by employers and MSAs "built" by the individual insured, there's plenty of disagreement as to their long-term effects.
Proponents, including Donald J. Palmisano, M.D., president of the American Medical Association, cheer them: "Health savings accounts, which empower patients to have greater control over their healthcare decision-making, will become a more attractive option for covering healthcare needs," he asserts.
But some worry that these plans will end up creating more problems for an already troubled system. Gail Shearer, Consumers Union director of Health Policy Analysis, points to a darker side. "Supporters of HSAs are always coming up with new wrinkles. This is just another stage in the erosion of employer-based coverage," Shearer told American Medical News recently.
Critics contend that consumer-driven health plans will create a two-tiered system of health care in this county -- a less expensive one benefiting the healthy and wealthy, and a more expensive tier for those who aren't as well off. They claim that employers would quickly find their employees split into two dissimilar risk groups.
The first would include younger and healthier employees and families who would opt for high-deductible plans, and wouldn't mind playing off lower initial costs against the less likely chance that they'd need expensive care and incur large out-of-pocket expenses. The other tier would include older, less-healthy employees opting for a low-deductible plan. These, who couldn't afford to play the same cost/benefit risk game as their younger counterparts, would be forced to purchase more expensive plans to avoid the more likely chance that they would incur significant medical costs down the road.
None of this should surprise anyone, of course. But the problem, say critics, is that the premium disparities in consumer-driven plans would grow very quickly and make health insurance unaffordable for many. And the premium cost and benefits payout imbalances soon would destabilize the market.
Clearly, consumer-driven health care is still very much a work in progress.
How Consumer-Driven Plans Work
Numerous types of consumer-driven health plans are on the market today, and it's certain that we'll see other plan variants in the future. The names by which these plans are known are as varied as their designs: health savings accounts, medical savings accounts, flexible spending accounts, medical spending accounts, healthcare spending accounts, defined contribution plans, and so on.
But in one way or another, each moves away from traditional managed care by putting more decision-making control in the hands of consumers/patients.
Consumer-driven health plan designs hinge on many factors, starting with whether the program is sponsored by an employer or is created for the individual. And the terms of the plans can be significantly different, for example, whether unspent credits in the account can be rolled over into the next year.
Example #1 - Healthcare Spending Account
Jane is healthy, single, 24 years old, and employed by a financial institution. Her company's plan allows her to set aside up to $5,000 annually, taken from pre-tax earnings. These dollars represent "credits" in her healthcare spending account, amounts she can use to pay for healthcare services that may not be covered by other insurance.
Because these accounts are funded with pre-tax dollars, each dollar invested actually costs the typical employee only about 60 cents (based on 27% federal and 5% state income tax rates). Jane decides to fund the account with $3,000.
During the year, Jane must "spend down" her account $150 for dental services because her employer provides no dental coverage. She also elects to spend $2,400 for LASIK from her ophthalmologist. In both instances, she uses a doctor of her choice. She isn't limited to an insurance plan provider list.
Throughout the year, Jane has no other uncovered healthcare expenses, so the balance remaining in the account at year's end is $450. Unfortunately, under Jane's plan, unspent credits can't be rolled-over into the next year, so she loses that remaining $450.
And therein lies one of the major concerns with this type of plan. The annual funding is critical since it can't be changed mid-year. If one overestimates, the unspent amount is lost. If one underestimates, the employee loses out, in part, on the maximum utility of a pre-tax dollar plan. It's all part of the gamble when one's healthcare expenses are less predictable.
And because of this uncertainty, as the end of the year approaches, it's very common to see newspaper advertisements from various healthcare entities proclaiming "use it or lose it" sales. For example, retail optical chains will run promotions suggesting that everyone with these plans come in for eye exams and new glasses "before it's too late."
On the other hand, someone with a chronic disease such as HIV or diabetes, with predictable, monthly expenses for medications and a set medical routine, should be able to more accurately predict annual expenses and fund the account for maximum effect.
Example #2 - Defined Contribution Plan
George is 46 years old, married with three children, and working for one of the major automakers. He elects his company's offering of a defined contribution plan.
Under the terms of the plan, his employer funds his account with a fixed number of dollars (credits) each year, and George can spend these in any way he chooses. He can shop for prescription medications and buy them wherever he finds the best prices. He can get glasses for his son at the local optical shop, or conductive keratoplasty for himself from a doctor in town or one on the other side of the country. It's his choice.
As George and his family incur medical expenses, the costs are paid from his account until the account is exhausted. Let's assume that the plan funds the first $2,000. Upon reaching that $2,000 trigger point, George is responsible for the family's healthcare costs until his out-of-pocket expenses combined with the employer's reach a second trigger point, let's say $4,000. From there on, the employer again pays the costs of George's medical care, or there might be some sort of cost-sharing arrangement between employer and employee.
An important element of this type of plan is that unused dollars can be rolled over into the next year, so there's less, or perhaps more accurately, a different measure of concern about the predictability of healthcare expenses.
George's out-of-pocket costs and monthly premiums will depend on the thresholds (trigger points), the deductibles, and co-payments scheduled for the plan. If George is willing to bear more of the risk by accepting a lower initial trigger point on the assumption that his family won't need much in the way of healthcare services, then his premiums will be lower. On the other hand, if George expects that his family will incur more significant costs throughout the year, he'll likely opt for an initial, higher, trigger threshold that delays the point at which all costs will shift to him.
Many employers have established programs that allow employees to shop for the best prices on various healthcare services. In this way, the consumer can compare costs for hospitals, drugs and physician services. But does that information make for the best-informed buyer, or does it leave the consumer with only the cost element but nothing vis-à-vis comparative quality or value for dollars spent?
Gil Weber, Ophthalmology Management's Consulting Editor, is a nationally recognized author, lecturer and practice management consultant to physicians and the managed care industry, and has served as Director of Managed Care for the American Academy of Ophthalmology.