After years of asking providers and patients to bear the burden of cost control, HMOs now are faced with taking their own medicine.
Their strategy of holding down their medical costs by squeezing providers and limiting consumer choice has run out of gas. Thin profit margins and rising operating expenses mean HMOs either have to raise premiums or cut covered services.
But believers in organized patterns of care, which is what managed care is, say there is an alternative to raising prices or cutting services: HMOs finally could commit significant resources to delivering clinical care systematically.
The strategy is eerily similar to the "total quality management" craze that swept through the hospital industry in the early 1990s. When cutting their work forces and trying to improve productivity failed to control costs, hospitals tried doing things right the first time to save money.
The managed-care industry is just starting to learn that lesson. For example:
* To find its way back to financial health after posting its first-ever loss last year, Kaiser Permanente will focus on "continued development and dissemination of care innovations designed to improve health outcomes and thus reduce the cost of care delivery," says David Lawrence, M.D., Kaiser's chairman and chief executive officer.
In several months, Kaiser physicians' new business unit, called Permanente Co., will join forces with a partner savvy in data management to disseminate successful Kaiser disease management technology throughout the HMO and then sell it on the open market (March 9, p. 6).
* United HealthCare Corp., with data captured by a subsidiary called Applied HealthCare Informatics, has begun to profile physicians, sending them reports on which of their patients didn't get basic, cost-effective medication, such as beta blockers after heart attacks.
Minneapolis-based United is a managed-care company with more than 13 million enrollees and 262,000 contracting physicians.
Its profiling is different from many companies' because it delivers clinical information exclusively -- without any cost or financial incentive attached, says Bruce Wall, M.D., medical director for United's Ohio plan.
* Cigna Health Plans is moving aggressively to implement its care management program nationwide.
Bloomfield, Conn.-based Cigna, the healthcare unit of Philadelphia-based Cigna Corp., has 11.8 million enrollees in its medical plans.
Cigna's care management program is up and running in six locations that are focusing on two of the more costly conditions: back pain and asthma.
Care management a la Cigna means giving doctors simple dos and don'ts on how to treat certain conditions, based on widely accepted guidelines. Cigna gives doctors one page of guidance, distilled from 50 or more pages of clinical data.
But not all managed-care companies are hopping on the care-management bandwagon without trying a few traditional cost-cutting moves.
To reduce its post-merger operating costs, Blue Bell, Pa.-based Aetna U.S. Healthcare laid off too many of its experienced claims processors. Claims piled up, and Aetna had to take a special charge, which drove its third-quarter 1997 profits down 96%.
In early January, Aetna announced it would no longer cover advanced reproductive services such as in vitro fertilization as part of its basic benefits package. After more than a week of bad publicity and protests from doctors and patient advocacy groups, Aetna issued a statement "clarifying its position." Aetna said it will continue to cover in vitro fertilization for employers who want to offer it as an option and pay a higher premium.
In Denver, Kaiser Permanente is requiring a $25 copay if an enrollee wants to ride in an ambulance. The copay isn't going to keep costs down on an ambulance trip that costs an employer $800, says R. Michael Alexander, vice president and executive director of Kaiser Permanente in Denver, where the HMO has 346,000 enrollees.
"We're trying to get people to think about the services they want," he says. Enrollees often use the ambulance more for convenience than for necessity, he says.
And last week, Oxford Health Plans, which posted its first loss last year and has had trouble tracking claims, asked the New York insurance department to OK premium hikes for enrollees covered by individual or nongroup policies, a spokeswoman for the Norwalk, Conn.-based insurer says. Those 55,000 enrollees would get premium hikes ranging from 50.2% to 69.3%, depending on where they live and what type of plan they're enrolled in.
While plans try to hold down costs by managing care, in the short term they'll be asking for rate increases to cope with rising costs. Employers already are preparing for premium hikes.
According to a recent William M. Mercer survey of nearly 4,000 employers, more than two-thirds of employers expect higher health benefit costs this year and are budgeting for an average premium increase of 7%, after an average rise of only 0.9% last year.
In the face of premium increases, consultants are urging employers to buy managed care and not just the lowest-cost plan.
"It's critical for employers to look at what activities in the health plan have a clinical focus and deliver better care," says Paul Berger, M.D., national practice leader for Mercer's provider consulting practice.