Like it or not, managed care is taking root across the globe.
As more and more governments move to control costs and privatize wasteful healthcare delivery systems, and as a rising middle class becomes willing to pay for quality medical treatment, U.S. managed-care expertise is in demand around the world.
To be sure, managed care's spread is uneven and still in its very early stages. Most of the activity for U.S. companies so far has been limited to consulting and exploration rather than equity investments. Furthermore, cultural and logistic obstacles can make implementation of U.S.-style managed care complex and costly in other countries.
But a number of U.S. health maintenance organizations and executives are actively seeking out opportunities, and some already have set up or acquired significant insurance operations in other countries.
Aetna's international division recently bought a half-interest in a joint venture with Sul America, the largest insurance company in Brazil. Sul America Aetna has 1.6 million healthcare enrollees.
Cigna HealthCare's international unit manages health insurance for 2.5 million enrollees in Brazil through a joint venture formed this year with a large Brazilian bank.
United HealthCare Corp. has developed an HMO-like plan in South Africa that has more than 200,000 enrollees in its second year of operation.
John Dana Cuny, the former top executive of Acordia Benefits of Florida and Anthem Health Plan, now runs the largest HMO in Argentina. The plan's enrollment jumped to 155,000 from 59,000 during 1996.
Kaiser Permanente formed an international division last year to look at opportunities and consult in foreign markets. Since then it has had a "deluge of requests for help from around the world," says Jim Williams, the division's president.
In the United States, managed care arose because purchasers were trying to contain costs. Elsewhere, the draw of managed care varies widely by country and region.
Some countries need the cost containment managed care can provide, while others use some managed-care techniques, such as disease management, to improve quality. The form managed care takes differs according to the local health delivery system. Rarely is it a direct knockoff of a U.S.-style HMO.
For instance, in England, which has universal coverage through a publicly funded National Health Service, most people think private insurance is too expensive. British insurers have been working at managed care for 10 years without much impact on premiums. None of the leading players has even succeeded in marketing a preferred provider organization because Britons perceive PPOs as limiting choice, says Tim Baker, commercial director for healthcare at British insurer Norwich Union.
Nevertheless, certain managed-care techniques are finding their way into the British system. Kaiser Permanente International was a consultant to a consortium of U.K. companies on the design and operation of the New Royal Infirmary of Edinburgh, a new teaching hospital. Kaiser gave advice on how to use utilization review techniques to manage the sickest patients.
In less developed countries-India, for instance-utilization review techniques "will enhance quality right off," says Howard Kahn, who heads Aetna's global healthcare activities.
So far, income from international managed-care operations doesn't appear to be significant for most U.S. health insurers. Figures are hard to come by. Aetna International, a leader in bringing managed care overseas, says profits grew to $59.7 million in the six months ended June 30, 1997, from $51 million in the same period a year ago. Those figures, however, include income from life insurance and financial services, and Aetna didn't break out numbers for the health segment.
But consultants and entrepreneurs, many of whom talk up the possibilities of global managed care with a kind of Wild West enthusiasm, say the market is lucrative. At the least, everyone agrees it is growing.
Aetna, for one, is focusing its international activities more on emerging markets in Latin America and Asia than on the developed countries of Europe. And Aetna's biggest overseas investments are in Latin America.
U.S. flashback. The Latin American healthcare scene is "a snapshot of the U.S. 10 years ago," says Maria T. Currier, a partner in the Miami, Florida, law firm Steel Hector & Davis who recently moved to Caracas, Venezuela, to develop managed-care products in Latin America. U.S. insurers have been selling there for 10 years, but "the real action is about to begin," she says.
"Following Chile's early example, Colombia, Argentina, Mexico and Brazil all will be privatizing their social security and healthcare systems over the next few years," she says.
Furthermore, Latin Americans already had experience with a form of managed care, before the arrival of U.S. companies.
For example, private pre-paid plans, called isapres, were established as part of Chile's reforms in the early 1980s. The plans gave employees the choice to opt out of the public system and use payroll deductions to purchase private health coverage, Currier says.
Both Aetna and Cigna have purchased interests in isapres.
Of all the Latin American markets, "Brazil is probably the most exciting," Aetna's Kahn says.
Recent changes allow foreign investors to own 100% of Brazilian insurance companies. Brazil's healthcare system has been decentralized, purchasers of private health insurance coverage are increasing, and the public-sector delivery system is being reformed, Currier says.
In April Aetna acquired a half-interest in a joint venture with Sul America, the largest insurance company in Brazil, for about $300 million. Aetna may invest up to an additional $90 million in coming years based on the performance of the joint venture.
Sul America contributed to the venture its life and health insurance businesses, which generated $1.2 billion in revenues in 1996. Aetna is contributing its expertise in life and health insurance, including managed care. Sul America Aetna has 1.6 million healthcare enrollees.
"Aetna got in well before any of the other international players and did it with a major Brazilian player," Kahn says. Sul America was an indemnity insurer and "needed to move into managed healthcare types of coverage," Kahn says.
Aetna's partner is "a really strong player in the insurance market, not a fix-it," Kahn says.
Kahn's fix-it reference could have been aimed at Aetna's big U.S. competitor, Cigna.
This year Cigna invested $48 million and took over management of a financially troubled Brazilian insurer, Golden Cross, through a joint venture with Banco Excel Economico.
Excel Economico, a large Brazilian bank, and Golden Cross had been partners since July 1996 when they entered an alliance to develop, sell and administer health insurance policies.
The bank recently assumed management control of Golden Cross and is restructuring the company with the help of Cigna.
Golden Cross serves 2.5 million enrollees through a network of 14 hospitals and 35 medical centers owned by the insurer; 1,400 independent hospitals; 10,500 physicians; and 3,800 clinics.
In Argentina, meanwhile, prepaid plans known as prepagas have developed "in response to the growing middle class' demand for cost-effective, quality healthcare services," Currier says. But the cost of prepagas puts them out of most Argentines' reach.
Exxel, a large Argentinian investment banking group, merged and built up several prepagas into Galeno Life Tim, which is now the largest HMO in Argentina.
Early this year, GLT recruited John Dana Cuny, former president and chief executive officer of Acordia Benefits of Florida and former president and CEO of Anthem Health Plan in Indianapolis, Indiana, to run GLT. The plan's enrollment jumped to 155,000 from 59,000 during 1996, and it posted revenues for the year of $181 million.
"We're attempting to import the knowledge and expertise and information from the U.S., while attempting to avoid the pitfalls of the U.S. managed-care life cycle," Cuny says.
GLT's Kaiser-like HMO, which owns the four "premier" hospitals in Buenos Aires, contracts with some physician groups and employs 60 doctors, Cuny says. It has introduced gatekeepers in the past three months. A hospital administrator formerly with Kaiser in Los Angeles runs the hospitals.
In a unique distribution system, insurance products are sold through branch offices in the community, where "people go in and pay their premiums," Cuny says.
"It's a very lucrative market, very unusual," he says. Not only is the growing private healthcare market hungry for better, affordable care, but the obras sociales, or union-purchased plans, which make up 40% of the market, are expected to be deregulated and allowed to buy prepaid plans, he says.
"The real opportunity here for an investor-owned company is to develop tools in the prepagas market in anticipation of the obras sociales market," Cuny says.
"There are many North American healthcare companies evaluating the market. There's not a week that goes by I'm not entertaining someone from the states trying to enter the market," Cuny says.
Right now, he says, GLT is "exploring an equity relationship with a large U.S. managed-care company," which he declines to identify.
GLT also is evaluating opportunities in Brazil, Chile and Uruguay, he says.
Difficulty in Europe. Outside Latin America the going can be tougher.
Europe, in which most countries have state-run health systems, is difficult for insurers.
United HealthCare Global Consulting, a division of Minneapolis, Minnesota-based United HealthCare Corp., has several consulting projects in Germany.
"We're focused on implementing medical management programs to manage utilization and improve quality, hospital precertification and concurrent stay-review programs," says Sid Stolz, senior vice president of United's global division. United sells these services to large German insurance companies "looking for ways to better manage their exposure for healthcare," says Stolz, who is based in Minneapolis.
But the European market is difficult to crack, and United has to be selective in where it goes, Stolz says.
"Developing a health plan is very difficult outside (the U.S.)," Stolz says. "The timing of making that happen is much longer than what it would take here, so (many of our) operations around the world are on a consulting basis.
"We evaluate daily three or four potential opportunities and can't do all of them. Everyone wants us to come and talk to them, or come and visit us. We have to be smart about where we put our resources," he says. "Somebody is touting for every country in Europe."
In a sign of how difficult it is for private companies to crack the European health insurance market, a company called Zurich Switzerland, an arm of one of the world's largest insurers-Zurich Insurance Group-is focusing on workers' compensation rather than other health coverage.
Peter Eckert, CEO of Zurich Switzerland, says the Swiss company is "starting to adapt some of the managed-care techniques" employed by its sister firm, Zurich American. But because health insurance "is tightly controlled by the state . . . we're mainly trying now to see what we can use in the workers' comp area" in Switzerland and in other European countries.
The only health product Zurich writes in Switzerland is workers' compensation, where "it's not so much managed care in the sense of doctor bills and hospital stays, but more in the sense of recovery programs and getting people back to work. That's where we're using managed-care concepts and the know-how of Zurich American," he says.
"We certainly will do more. We're checking on networks of doctors and bringing expenses down by using electronic interchange of data," Eckert says. "But the doctors don't love it too much. They're leery of insurance companies."
Indeed, managed care's reputation could use some polishing.
"I always stay away from saying `managed care' in other environments because the term carries some baggage," says Aetna's Kahn. "I usually refer to our core capabilities in managing health.
"There was a fear in some countries when we started talking about (managed care) because some doctors have gone to the U.S. for training or continuing education, and they read the paper. They read about the challenges to managed care (in the U.S.), and the information is out of context" for the foreign physicians, Kahn says.
Michael Tremblay, a health insurance consultant based in the United Kingdom, moderated a recent conference in Washington on exporting managed care to Europe. He urged those at the conference, organized by International Business Communications, to "think big."
Rather than waiting for governments around the globe to privatize, Tremblay suggests that companies with managed-care expertise approach governments with their ideas on how to save money and improve quality. The key is understanding a government's "pain," Tremblay says. "Governments can be silos of opportunity."
Governments tend to go to academics for advice, he says, but businesses can help governments learn new ways of delivering healthcare efficiently. "It's a high-risk, high-reward business, and there's less competition" than for smaller projects, he says.
For example, Tremblay believes there are "opportunities galore" for companies with occupational health expertise since there are few programs in Europe for getting injured workers back to work quickly.
And as Europe becomes more unified, there will be growing opportunities for transborder health insurance claims processing and management, Tremblay says.
Kaiser has projects in Germany and the Netherlands, but, like Aetna, it has focused more on areas outside developed Western Europe. Kaiser has been consulting and sometimes providing management services and actual healthcare-through stints spent abroad by its U.S. doctors-in countries including Borneo, China, India, Japan, Malaysia, Poland, Russia, Singapore, Turkey and Vietnam.
Last year Kaiser announced a $4.5 million, three-year cooperative agreement with the U.S. Agency for International Development to assist the Russians in reforming their healthcare system. The project involved setting up three demonstration sites in Russia for several models of integrated healthcare delivery systems.
In October last year, 14 Russian doctors and administrators traveled to Kaiser's Oakland, California, headquarters for an intensive introduction to the concepts of managed care. Since then, more Russian doctors have visited Kaiser operations.
In Asian countries like Indonesia, Malaysia and Singapore, U.S. insurers have gained a presence by offering health insurance and doing consulting work such as physician training. These projects, Aetna's Kahn says, "provide a jumping-off point (into managed-care equity ventures) if the environment is right."
A Cigna International spokesman is more subdued: "Most of our business is indemnity around the world. It's not necessarily a springboard to managed care because you have to have the right market conditions. But we're doing a lot of investigation."
South Africa's inflation problem. The market conditions seem right for managed care in South Africa, which has been experiencing what Finance Week recently called an unsustainable medical inflation rate.
The South African publication reported in September that the cumulative total inflation for all healthcare sectors from 1992 to 1995 was 152%. The country is turning to managed-care companies to control costs.
United HealthCare has developed an HMO-like plan in Johannesburg. The plan, in its second year of operation, has more than 200,000 enrollees. United's partners there are two large local insurance carriers, Stolz says.
Meanwhile, Aetna's quality-measurement subsidiary, U.S. Quality Algorithms, has signed a three-year consulting agreement with Sanlam Health, South Africa's second-largest private insurer. USQA and Sanlam will co-develop and implement a measurement system to analyze physician performance and care delivered to Sanlam's enrollees.
"Quality is paramount in Sanlam's move to managed care," says Altus van der Merwe, managing director of Sanlam. "Fee-for-service medicine has become unaffordable, and quality-based managed healthcare can provide a more cost-effective solution."
About 20% of South Africa's population is covered by private insurance. Managed care is a developing concept in the country, with an incomplete set of tools to measure quality.
Finance Week reported that one year after Sanlam introduced managed-care techniques-including clinical guidelines for hospitals, advanced diagnostic procedures and case management-hospital admissions per 1,000 dropped 9%, inpatient days per 1,000 fell 14%, and the use of magnetic resonance imaging dropped 20%.
The publication reports there is a debate going on in South Africa about "whether the profit motives of managed care are compatible with the Hippocratic oath. It's a debate, no doubt, that will rage on for years."