In their haste to develop managed-care networks, California providers are potentially pushing managed competition farther into the future. Other states, watching these systems unfold, should proceed cautiously before adopting some of the same methods and models.
In the late 1980s, hospital systems became acutely aware of the fact that healthcare is basically a market-specific product. Costly lessons were learned when such systems as Humana and American Medical International developed what they thought were strategically positioned national insurance products. Major insurers watched in amazement as these and other healthcare providers tried unsuccessfully to become not only the providers of healthcare but the insurers as well.
Network development is a necessary and important aspect of managed care and managed competition. The development of the foundation model in California-under which a not-for-profit entity holds the assets of a provider network-was needed because the state doesn't allow the corporate practice of medicine. The rapid pace and the methodology of developing these foundations and networks cause one to pause and contemplate which models and formulas ultimately will be effective.
Community focus.Networks, if appropriately designed, should start within an individual community and spread outward. Many providers, however, are hastening to develop statewide networks before adequately establishing the local affiliations necessary to serve the needs of a community or region. They are doing this under the belief that only a handful of providers will survive, and the survivors will be those that collect the most capitated enrollees the fastest.
Physicians are seeking to join provider networks in increasing numbers. Decreases in reimbursement are making it difficult for them to remain financially viable. They are looking to hospitals as potential "deep pockets" that offer the long-term solution to their difficulties. They realize hospitals have a larger financial base and the capability to develop needed provider networks.
Many physicians are happy to sell their assets and/or patient bases to foundation models because they seem to be the only vehicles in which physicians' practices have presumed value. Physician-owned network models, such as the Mullikin Medical Group, are offering physicians an equity interest to become a provider-shareholder in the networks rather than paying cash for their practice assets, as is usually done by hospitals and healthcare systems. Physicians then sign long-term contracts to be providers for those who have acquired their assets. In doing so, physicians are looking for income stability, access to patients and relief from the increasing overhead costs of running practices.
It is this act of signing long-term contracts with physicians that tends to slow the movement of managed competition. Network developers are handpicking their physician providers and then offering them long-term relationships. This gives the physicians a sense of certainty in a future of unknowns while giving the network developers a group of loyal providers.
Managed competition in its true form, however, would let market forces decide who the physician providers will be. A foundation or network would obtain physician services by allowing physicians to bid to become providers. This model would tend to create cost-effective, efficient, quality providers more rapidly because physicians would bid periodically to affiliate.
It is true that healthcare will continue to be more primary-care driven in the future and that fewer specialists will be needed. But the importance of primary care may not develop to the degree now forecast. There always will be physicians who have an interest in specific areas of medicine and want to specialize. It is their salary expectations that will decrease. Patients will continue to demand treatment by the most qualified person available.
The current emphasis on primary care will tend to stabilize as the legal ramifications of primary physicians trying to assume knowledge in all areas of treatment begin to become more clear. Lawyers will have a heyday if primary-care physicians treat broader disease categories and run into problems or obtain less than optimal results.
A troubling scenario.The foundations and/or networks appear to be setting themselves up for confrontation with disgruntled physician employees. Once interest in the asset purchase has dimmed, several dynamics will emerge.
The asset buyers will begin to realize that there will probably be little or no return on their investment. They will find that physicians are willing to let them purchase and run the business aspects of their practices only because it was becoming financially difficult for the physicians to do so themselves and maintain their income levels.
As employees, physicians will be looking to the foundations and provider networks to help maintain their expected income levels and, at the same time, possibly decrease the number of hours worked. Physicians will want supplies, technology and information systems they were either unwilling or unable to buy when the cost was completely their own. Continued decreases in reimbursement will prevent provider groups from meeting physicians' expectations.
Contracted physicians will forget they were having difficulty managing the business aspects of their practices. They will say they knew all along that hospitals couldn't manage as effectively as they could. The ability of these new network developers to meet salary and work expectations will diminish, and employer/physician relationships will begin to decline.
Physicians who were not chosen by the networks will forever be unhappy because they didn't reap any of the acquisition dollars many of their counterparts enjoyed. They will, however, be free to contract directly with third-party payers and employers, probably at less cost, and they will do so. Managed competition will have come into its own, but at what cost?
If physicians, hospitals and healthcare systems take this route, it will once again take years to revamp and undo what was rushed into without adequate thought, question or design. Hospital and physician relationships will be strained for years to come.
This probable scenario need not take place if hospitals and systems show a willingness to include more physicians in the planning, implementation and participation of the new integrated networks. To do otherwise will assure chaos in healthcare for years to come.