THE DIRECT APPROACH;AS CHAIRMAN OF A 24-MEMBER BUSINESS COALITION, FRED HAMACHER HAS BEEN INSTRUMENTAL IN MAKING THE MINNEAPOLIS/ST.PAUL (COVER)
HEALTHCARE MARKET ONE OF THE NATION'S MOST COMPETITIVE. BUT, EVEN THOUGH PRIVATE-SECTOR HEALTHCARTE COSTS IN MINNEAPOLIS HAVE RISEN AT ABOUT HALF THE RATE OF THE REST OF THE NATION, HAMACHER STILL THINKS THERE'S SLACK IN THE MARKET.
Beginning in 1997, the members of Hamacher's Business Health Care
Action Group will launch one of the most ambitious direct contracting programs in the nation, bypassing the mega-managed-care firms and dealing directly with providers.
"This is the best market in the country (for healthcare value), but we can still do better," Hamacher said.
Most employers would be happy with the results enjoyed by the BHCAG since its 1988 inception.
Last year the 24 firms in the group averaged a 3.6% growth rate in their healthcare costs, compared with a national average of more than 7%, according to HCFA. BHCAG members currently cover 250,000 beneficiaries, representing 10% of the Twin Cities market, which has an overall managed-care penetration rate of 80%.
The employers also have been instrumental in convincing large managed-care plans to develop some of the most sophisticated data and quality monitoring systems in the country.
While the companies have been successful in controlling costs, they hope to do even better. The group's target is to keep healthcare cost increases to the rate of general inflation through the year 1997.
And the way they intend to do that is by contracting for risk-sharing arrangements directly with groups of hospitals, physicians, clinics and other providers. The employers hope the provider groups will compete-and ultimately can be judged-based on the cost and quality of care they deliver.
But the move is not without its uncertainties. For one thing, it sets up a battle for control of the healthcare dollar between provider groups and insurers. And since the battle is being refereed by employers, who are the purchasers, it has the potential to be a real donnybrook.
Providers see the BHCAG plan as a way to regain control of healthcare delivery from the large managed-care companies. Not surprisingly, those firms are less enthusiastic about the change since it will significantly reduce their role in the market.
They also contend the model puts providers in the insurance business. At a recent meeting of the National Association of Insurance Commissioners in St. Louis, the Group Health Association of America called for strong regulation of providers that accept direct contracts with employers.
Others are concerned that provider groups will not have the capital or the infrastructure to be up and running by the BHCAG's proposed 1997 starting date.
None of those potential roadblocks is deterring the BHCAG. Not yet, anyway.
The next wave.The groups say their model is just another
step in the continuing evolution of healthcare markets. After doing their best to foster competition between managed-care companies as a way to lower costs, the companies in the BHCAG found that they were not really seeing true competition among the plans.
"Basically we have tried everything else and we still don't have the right incentives in the market," said Steve Wetzell, BHCAG executive director.
The problem, according to Wetzell, is that the largest three managed-care plans in the area-Allina Health System, Blue Cross and Blue Shield of Minnesota and HealthPartners-have as much as a 70% overlap of physicians.
Furthermore, the companies reimburse their employees the same amount no matter what plan they choose. And since that reimbursement covers the cost of any of the available plans, there are no incentives for the plans, or the employees, to seek out the most efficient methods.
"I don't believe we can ever get the competition we want at the (managed-care) plan level," Hamacher said. "Most physicians are in every plan, and they don't have any ownership in the plan; they are just in there for the customers."
The idea of direct contracting between employers and providers is not a completely new one. Some physician-hospital organizations have direct contracts with employers, though most are as subcontractors in larger health plans.
A recently released study by Ernst & Young, a national accounting firm, found that 14% of the contracts signed by PHOs surveyed were directly with employers, although the study did not indicate what level of services the PHOs had contracted (See chart, p. 29).
According to Ellen Pryga of the American Hospital Association, little data are available on how many PHOs or other provider groups are currently involved in direct contracting with employers.
"There is a great deal of heightened discussion about development of direct-contracting arrangements, but the reality is that people are getting ready for it but few are actually doing it," Pryga said.
HCFA also is getting into the act. It announced recently a pilot project it will start before the end of the year that will allow selected provider groups and PHOs to care for Medicare beneficiaries on a capitated payment basis. A HCFA spokesman said no decisions have been made on when bids on the project would be sought.
A larger scale. On thing is clear. No one has yet tried direct contracting on the scale envisioned by the BHCAG. But if the experiment works, all that may change.
"This has the potential to completely change the way healthcare is delivered in Minneapolis and in any other area where there is a mature managed-care market," said Mark Skubic, vice president of public policy and government relations for HealthSystem Minnesota. Skubic testified recently before the National Association of Insurance Commissioners on direct contracting on behalf of the American Group Practice Association.
The BHCAG already has notified the health plans in the Minneapolis area that it intends to begin its new program in 1997. According to Wetzell, the group has been contacted by at least 15 different provider groups interested in participating. At two informational meetings conducted by the BHCAG for providers, more than 100 provider groups were represented.
Under the BHCAG model there would be a number of "discrete and competing" provider groups that the BHCAG refers to as "care systems."
"We definitely want distinct provider groups, at least at the primary-care level," Wetzell said. He acknowledged that while the BHCAG wants the care systems to be as separate as possible, the systems would have to subcontract for some types of hospital care and specialties, of which there are not sufficient supplies.
No single formula.The care systems would take many
shapes, according to Wetzell. For example, Greg Hart, president of the University of Minnesota Health System, was considering several options, including forming a care system and becoming a center of excellence for some procedures that would subcontract with a number of different care systems.
Other care systems might be physician-controlled. Most would resemble in many ways the integrated healthcare systems that are being formed across the country.
Each of the systems would be responsible for the entire package of benefits being offered by the employer. Those that could not provide a particular service directly would contract for that service.
After the BHCAG members determine what their benefit package will include, the provider-care systems then will bid on those services and the BHCAG will establish average reimbursement rates for its employees based on the bids.
The employers said they hope to one day pay the providers on a straight capitated basis. However, to avoid insurance regulations, the groups will begin by paying on a modified fee-for-service basis that will approximate a capitated system. Under the plan, providers would be given a utilization rate and would be rewarded or penalized for coming in above or below the target rate.
Providers believe they have the most to gain from direct contracting and are strongly supportive of the BHCAG's plan.
"There is enormous interest in returning control back to provider groups," said Tim Crimmins, M.D., an emergency room physician at Hennepin County (Minn.) Medical Center and chairman of the board of the Minnesota Medical Association. "It's also relatively easy to implement. It doesn't require a lot of government regulation. It's all at the private level and doesn't take a Clinton (administration) 1,300-page healthcare reform plan (to get it started)."
The Minnesota Medical Association already is developing a series of models that physicians can use to set up a care system that is capable of contracting directly with employers.
Hospital groups also have been supportive of direct contracting.
"This would give us access to populations that we have not had access to in the past," said the University of Minnesota's Hart.
"Providers look at this as a way to get the management of care back in the hands of clinicians," said the AHA's Pryga.
One group that's not likely to gain from the new system would be managed-care plans, which now control about 80% of the Minneapolis market.
The BHCAG envisions a limited role for managed-care firms. Such plans would have to "prove they can add value" to the care system through claims management, customer service or risk adjustment, Wetzell said.
In fact, one of the options being considered by the BHCAG, Hamacher said, is to create a separate claims processing and customer service center that would work with all of the care systems, taking away another portion of the market from the managed-care firms.
Others say that the provider-led care systems will still need the expertise of managed-care plans.
"Some perceive this as dispensing with the role of the insurer, but my belief is that they still need to be part of the process because of their risk management and actuarial skills," Hart said.
Susan Flygare, vice president of national and major accounts at the Minnesota Blues, said her plan, by virtue of its sophisticated information and data collection systems, will still have a major role in the market.
"We feel we are really well positioned to be a sought-after partner," Flygare said. "We are already doing to a great extent what the BHCAG is asking for. I would say there's a lot in sync between BHCAG's goals for quality and outcomes data and Blue Cross and Blue Shield's."
But even if the managed-care firms do find a niche in the market, their role still will be significantly changed by the BHCAG proposal, a prospect that could set up direct contracting as the final battleground between managed-care plans and provider groups.
"The (managed-care plans) don't want direct contracting because it creates competition for them," Wetzell said.
According to several sources, the Minnesota Blues already has asked the Minnesota insurance commissioner's office to review the BHCAG's plan. Blues officials wouldn't comment.
What the managed-care plans are seeking is strong regulation of provider groups that accept contracts with employers.
At the meeting of the National Association of Insurance Commissioners in St. Louis in May, the Group Health Association of America and the national Blue Cross and Blue Shield Association argued that if a group of providers agrees to be responsible for a given set of services for a given population, it is acting essentially as an insurance company and should be subject to the solvency, reporting, quality and other regulations insurers must follow.
"Essentially these groups are engaged in the unauthorized practice of insurance," said Garry Carneal, executive director of legal affairs at the GHAA. "Insurance regulators have grave concerns about any entity that is assuming risk and not complying with (insurance regulations)."
Hospitals argue that just because they are engaged in direct contracting they are not acting as insurance companies. Rather they say they are only providing a list of services that are set by the employer. They also argue that they are not pooling risk as an insurance company would do, and they don't sell a product or package of services.
The AHA acknowledges that in cases where provider plans are contracting directly with employers that are self-insured and therefore exempt from state insurance regulations, "it may be appropriate to impose similar requirements," but they say those requirements should be tailored specifically to provider networks.
"The best place to regulate this is at the employer level, not downstream at the provider level, especially in regard to self-insured employers," said Jim Matthews, an attorney with the Minneapolis law firm Lindquist & Vennum, who testified on behalf of the AHA at the NAIC hearing. "Self-insured employers are, in essence, acting as their own insurance company."
It appears from the minutes of the NAIC meeting that the insurance commissioners are struggling to determine when a provider crosses the line to become an insurer and are unsure what to do if it happens.
The course that seems least palatable to providers would be to subject all of them to insurance regulations.
In a letter sent last month to Colorado Insurance Commissioner Jack Ehnes, the AHA said that it may be "appropriate to apply some standards to provider-sponsored networks, but they should be specially designed," rather than using the current insurance standards.
Providers argue that if state insurance regulators come down too hard on providers they will drive them from the market and kill the move toward direct contracting.
"There is no doubt that at some point physicians have to have reserves to cover catastrophic cases, but if the regulations become too strict, it would be a real stretch (for physicians to cover it)," said Andrew J.K. Smith, M.D., president of the Minnesota Medical Association.
It's clear that the new framework of direct contracting being developed by the BHCAG represents a bold new phase in the evolution of healthcare markets.
But then again it was equally bold and innovative when the BHCAG moved to the managed-care format it now has and that it now seeks to abandon.
It remains to be seen whether direct contracting is just another phase in the evolution of healthcare markets or the most effective solution for controlling costs and boosting competition.