Many physicians dream of a world where there is no managed care -- a world where they don't have to fight HMOs for permission to perform procedures, rush through patient visits or wait months for claims to be paid.
Although it's just a dream for most, a few physicians have made the vision reality and actually are thriving in HMO-free practices.
An ophthalmologist and an internist in New York, for example, each operate exclusively fee-for-service practices. And in Seattle two internists started a unique, 100% insurance-free practice where patients pay a monthly out-of-pocket fee for unlimited office visits and consultations. They have no claims to process and don't have to deal with any insurance or managed-care companies.
These are extreme examples of physicians expressing their frustration with managed care. More common -- and perhaps more realistic -- are efforts by some physicians to find a middle ground.
Whatever their approach, a growing number of physicians are trying to decide whether it makes sense to walk away from managed-care contracts.
About 130 million Americans currently are under managed-care contracts, according to the American Association of Health Plans. And about 85% of physicians have at least one managed-care contract, according to the American Medical Association. So most physicians cannot afford to turn down managed care altogether -- or accept onerous contract terms.
In California, the answer for Coastal Counties Eye Care Medical Group was to cancel a managed-care contract that accounted for 50% of the independent practice association's business in one of the three counties it serves. Coastal is a 30-physician IPA with about 100,000 covered lives in Santa Barbara, San Luis Obispo and Ventura counties, and annual revenues of about $1.8 million.
When managed care first stormed into markets, physicians at Coastal and around the country signed every contract presented to them. Physicians -- particularly specialists -- worried that in order to maintain a high patient base, they needed to participate in almost every plan. Many physicians, ill-prepared to deal with contracting issues, often didn't even read the pacts they signed and quickly found themselves struggling under restrictive terms and low capitation rates.
Now, however, physicians are realizing they can't afford to be so careless or stay in certain managed-care contracts. Slapping the hands that feed them is not financially feasible for most physicians, but more and more doctors are learning when they can afford to say no to or walk away from managed care.
"We had to discuss whether we were going to limit access and take the contract. We decided we weren't going to compromise the quality of care, and because of the level they were paying us, we had to say no," says Stuart Winthrop, M.D., president of the Coastal IPA. "I think the insurers really count on the physicians not being sophisticated enough to know when to say no."
Dollars and sense
For many, canceling managed-care contracts is not about taking the moral highroad or making a public statement; it's simply a matter of dollars and cents. Before entering negotiations with Santa Ana, Calif.-based PacifiCare Health Systems, Coastal hired an independent actuary to study the IPA's expenses and calculate how much it needed in reimbursements from managed-care companies.
The actuary came up with a number close to what the IPA was asking from PacifiCare, according to Winthrop. When they sat down to negotiate, however, PacifiCare offered only about 60% of that amount.
Walking away from contracts becomes much easier, Winthrop says, "when you realize that essentially you're paying patients to come to you." He estimates the IPA was losing about $60,000 a month on the contract.
Cincinnati gynecologist Molly Katz, M.D., recently canceled her contract with Blue Bell, Pa.-based Aetna U.S. Healthcare, citing low reimbursement rates and a restrictive contract. The contract accounted for about 700 patients. Katz terminated her Aetna contract after she determined her practice actually was losing money each time a physician saw an Aetna patient.
"When a plan only reimburses you $2 for a test that costs you $3 to hand them, you can't keep doing it," she says.
When calculating the cost of care, though, Katz says providers should look beyond reimbursement rates. "If a company requires physicians to go to a hospital at which none of us has privileges, that won't work for us," she says. "Also, right now we send to three labs that we feel confident in. If this company insists that you use a lab that is in Kansas City and we're going to need to fill out completely new forms and arrange a courier pickup, that's a consideration."
Bruce Johnson, a consultant with the Englewood, Colo.-based Medical Group Management Association, agrees any group thinking of terminating a contract must first take a close look at its own books.
"Knowing the cost of delivering care is critical to evaluating any managed-care agreement and ultimately deciding if you're going to walk away from it," he says. "Obviously, at some point if you find out that it's going to cost you X amount to deliver a particular type of care or cluster of services, and you're getting paid Y amount, then you have to ask (whether it) makes any sense to stay in that contract."
Judy Capko, executive vice president of the Sage Group, a Newbury Park, Calif.-based healthcare consulting firm, says calculating expenses helps physicians anticipate the impact of canceled contracts.
"You need to know the number of patients that come through the office and how much money is generated," she says. "Then figure out how much it costs you to run the practice, and then take that down to a per-encounter. Then see if there's anything left.
"If you take something that now provides 30% of your income and cut that, you're not going to be prepared to deal with that sudden loss of income. If it's 10% or under, you can probably strategically resolve the differential through some careful, calculated moves. But if it gets over 10% and it's going to be sudden, you'll need to look at the impact on staffing and everything else in your office."
Ann James, a health law attorney in the Houston office of Jenkens & Gilchrist, says the breaking point varies by group. "Physicians have to look at their own financial situation," she says. "For some individuals, 10% is bearable; for others, 10% would put them perilously close to bankruptcy."
For Winthrop, 20% was bearable. "You have to be very careful to know the percentage of business you have in managed or capitated care," he says. "At 20%, I was willing to walk away."
Walking away is much easier, he adds, if you are a member of an IPA or larger physician group. Solo practitioners and small groups simply don't have much negotiating clout, he says. Coastal canceled its contract with PacifiCare in Santa Barbara County, but it successfully negotiated contracts for San Luis Obispo and Ventura counties that were worth 30% to 40% more than what the groups were offered individually.
"The insurance companies are very smart. They just really go out and pick on physicians and say, 'This is the contract, and this is what we're paying.' It's very difficult to have the sophistication necessary to understand what they're paying you," he says. "Every time we've negotiated as a group we've done better than as individuals."
Size definitely matters, agrees Jill Hummel, an attorney in the St. Louis office of Greensfelder, Hemker & Gale. "The smaller groups clearly don't have the leverage that large, truly integrated groups have because they don't have the number of patients that's going to make them indispensable," she says. "Where a health plan may draw a line in the sand for a small provider, the same health plan may exhibit flexibility with another provider."
Katz's four-physician group didn't have measurable negotiating clout with insurance giant Aetna and figured it was better off dropping out. The practice contracts with about 30 other insurers.
The very next thing the group did was send a letter to all its Aetna patients explaining why it was dropping out. Katz says the small group has not yet felt the pinch of the lost contract because many of those patients continue to see the four doctors.
"Many patients just pay for their visit when they come in," she says. "They say they pay for their hairdresser and other services they receive, and this is worth it for them." And others, she adds, choose another health plan during open enrollment. "Most people are either paying cash, paying as a private pay (out of network) or are in the process of changing their insurance."
Winthrop's group also sent a mailing to its PacifiCare patients in Santa Barbara, but "you can't count on patient loyalty," he warns. "I think that era is over. Nowadays, patients look in their little book. If you're listed, they'll go. If there's a difference of even $5, they'll think about it. Most people would pay the $5, but most patients aren't sophisticated enough to understand the (PPO) program."
Other healthcare consultants agree physicians shouldn't count on patient loyalty when trying to decide whether to terminate a contract.
"Patient loyalty is going to remain at least for a period of time -- at least until the hurt is too great for the patients," says Johnson of the MGMA. "If you look at the typical white-collar worker or blue-collar worker who receives their benefits through their employer and doesn't have a whole lot of disposable income, my sense is that at some point the loyalty just goes by the wayside. It's simply too great.
"There certainly is a population of patients that can afford to buy their loyalty to their physicians, but I don't think there's a large enough volume out there to allow it to occur with everybody," he adds.
Attorney James advises physicians to believe in patient loyalty, hope for it and "calculate as if it isn't going to happen. People are not nearly so loyal as you would believe they are, or as you've always thought they are."
According to James, some studies show a mere $12 monthly increase in out-of-pocket costs is enough to send patients to someone else.
Winthrop says his IPA is making up business by picking up new contracts in the area, and Johnson says some groups could pick up business by taking on such low-cost products as workers' compensation.
Both James and Hummel say terminating contracts should only be done if the provider group feels it has no other options.
"Very, very rarely do I tell physicians not to sign contracts," Hummel says, adding most health plans are willing to negotiate with an educated provider who has good legal counsel.
Similarly, Capko advises physicians to request a meeting with a health plan representative before canceling anything. "See if there's someone you can meet with at the plan. There are a lot of reasons to work on saving the relationships," she says. But just as important, she adds, is knowing what your bottom line is and being willing to walk away. "But do it with a plan that can offset the loss."