The next makeover

Elliot Health System President and CEO Doug Dean doesn't tell a happy story about his hospital's foray into the world of managed care some 15 years ago.

In 1994, the Manchester, N.H.-based facility merged with the only other area hospital, Catholic Medical Center, to form the now-defunct provider organization Optima Healthcare. In 1997, St. Joseph Hospital in Nashua, N.H., also joined the provider system, but by 1999 the partnership was dissolving and all three hospitals were suffering millions of dollars in losses thanks in large part to a payer agreement that barely covered patient-care costs, Dean says.

“We were knee-deep in a capitation agreement” with Healthsource, Cigna Corp.'s predecessor, Dean says. Under the agreement, Optima was paid a set amount annually per HMO enrollee, and the provider was expected to supply appropriate care regardless of the actual costs. The arrangement, Dean says, was fraught with inadequacies. “We were massively underreimbursed. We barely had enough to pay for physicians let alone hospitalizations. We found ourselves in litigation with Healthsource over that reimbursement.”

In the years since Optima's failure, payers' managed-care policies have only broadened to include tactics like the use of insurance administrators and medical advisers to approve or direct patient-care decisions. Such practices are supposed to help rein in skyrocketing costs while ensuring access to appropriate, high-quality care. Instead, many providers and patients say that under current practice, managed care has become nothing more than a means for insurers to maximize their profits by shifting the cost of care to providers or denying patients access to medically necessary treatments.

Vexed by such underpayments and claims denials, a growing chorus of providers is saying healthcare policymakers must address current problems with managed care as a part of healthcare reform. “We've been pushing our membership at local, state and federal levels to get involved and get relief,” says Dan Sisto, president of the Healthcare Association of New York State, a provider advocacy group.

Among the activities that his group has undertaken is the formation of an 11-member coalition of state hospital associations that are sharing information and strategies for changing managed-care payment policies in their regions. The coalition—which in addition to New York includes hospital associations in Connecticut, Georgia, Florida, Pennsylvania, Rhode Island, Massachusetts, New Hampshire, New Jersey, Maine and Tennessee—is exploring negotiating tactics as well as state legislative changes as a means for addressing their beefs with payers.

In Rhode Island, for example, providers have worked with Blue Cross and Blue Shield—the dominant payer in the market—to address some of the reimbursement rates and policies that have been bones of contention, says Ed Quinlan, president of the Hospital Association of Rhode Island. In New York, Gov. David Paterson signed a law this past July requiring insurers to change some of their payment policies. “What we've done is win the right for providers to have outside appeals” of claims denials, Sisto says. “What we're finding is that providers are winning a lot of those cases.”

Robert Zirkelbach, spokesman for the lobby group America's Health Insurance Plans, says his membership is working to address many of the concerns providers and other groups have over managed-care reimbursement practices. “There is a lot of collaboration being done between healthcare plans and the physician community to develop uniform quality measures and payment structures, so it's not just payers imposing a rate on providers,” he says.

Still, it's not enough, according to many providers. “There is more managed care out there under the format of denial than under the model of improved care,” says Ted Epperly, immediate past president of the American Academy of Family Physicians. “We recognize that for better healthcare to happen in this country we must have a focus on primary care and patient care.” Epperly and other stakeholders argue that payers have been too slow to make changes and that instead of focusing on improved patient outcomes as a means of lowering cost, many have a policy of simply avoiding claims payments.

As a result, many of the same provider groups that in the early '90s resisted the Clinton administration's attempt to restructure managed care into a viable delivery and payment system are now encouraging such activities.

According to Sisto, instead of eliminating such payment practices, the intervening years between healthcare reform efforts have simply afforded payers leeway to continue instituting managed-care policies that have no checks and balances. “We had an issue here last year where a patient picked an out-of-network physician who worked at an in-network hospital, but since the doctor was out-of-network the payer treated the entire treatment episode like it was out of network.” That, Sisto says, left the hospital to pursue collection on a claim that typically would have been covered by the payer.

Many providers now believe that federal healthcare reform will have to address managed-care payment policies if they are going to feel significant relief from the practices.

On the federal level, Sisto says he sees healthcare-reform legislators making efforts to improve managed-care policies by creating laws that would ban insurers from denying patients' claims based on pre-existing conditions and require them to provide a minimum standard of coverage.

To be certain, some stakeholders would like nothing more than to do away with managed care. Most, however, acknowledge that with phrases like “medical homes” and “bundled payments” being bandied about in lawmakers' current discussion of healthcare reform, it's clear some model of managed care is likely to be implemented to help overhaul the U.S. healthcare system. Whether that model can help to reduce costs, appropriately reimburse providers and improve the quality of patient care will largely depend on the provisions lawmakers build into the system, reform watchers say.

“We all think that fee-for-service is a miserable system,” acknowledges Stephen Weiner, a lawyer with the healthcare practice division of Mintz Levin Cohn Ferris Glovsky and Popeo. “The question is: What do we replace it with?”

There are some private payers and state legislators who are attempting to answer that question. Many are focused on policies that use information technology such as electronic health records and claims data along with evidence-based medicine as a means to lower healthcare costs and improve patient outcomes.

“The one thing we learned is that 10% of the people in your healthcare system account for 70% of the costs, and they tend to be people with conditions like diabetes and asthma,” says Jack Friedman, CEO of Providence Health Plans. “We learned that you have to have a sophisticated claims-data system that will help you identify the high-risk patients and also stratify that risk across the healthcare system.”

Based in Beaverton, Ore., Providence Health Plans is the not-for-profit payer division of the provider system Providence Health & Services. The insurer covers roughly 285,000 beneficiaries in Oregon and Southwest Washington, and since many of those beneficiaries access care through Providence's provider system and hospitals, Friedman believes the company has learned a few valuable lessons about making managed care work for payers, providers and patients. For one thing, he says, payers need to get out of the business of directing patient care and into the business of putting in place systems that support providers in keeping patients healthy.

“What they should do is work with primary-care doctors to create things like asthma and diabetes-care programs,” Friedman says. “The key in this business is to find the 10% to 15% of patients who really need help and work to keep them out of the emergency room.”

Joe Kirkpatrick, senior vice president of healthcare finance for the Massachusetts Hospital Association, says one of the challenges federal lawmakers will have to meet in implementing any model of managed care is ensuring that cost risks don't fall heavily onto the shoulders of any particular stakeholder.

This past June, the state's Special Commission on the Health Care Payment System set out an ambitious five-year agenda for payment reform that includes doing away with fee-for-service payments. The committee's recommendations include adoption of a global payment model that would compensate providers based on an estimate of the amount and type of care they are likely to give a particular patient over a specified period of time. “The advisory committee recognized that socio-economics also play a role, and payers may need to provide more money to care for” high-risk, low-income patients, Kirkpatrick says.

According to the commission's report, global payments would be based on a patient's medical history and would be risk-adjusted to account for high-cost treatment episodes. The system would require providers to become members of accountable-care organizations, which would receive insurers' reimbursements and be responsible for paying individual providers.

Each beneficiary would be required to choose a primary-care physician and that person's insurer's global payment would be directed to that physician's accountable-care organization. Patients could be made to pay additional costs if they choose to see physicians or specialists outside of their organization.

While Kirkpatrick says Massachusetts providers are encouraged by the steps state policymakers are taking to overhaul the managed-care system, he acknowledges that hospitals and other providers are wary of the model's potential pitfalls. “Part of the things providers are worried about is going back to capitation,” which they would do under a global payment system, he says. “We agree that we need reform, but we want to make sure it's appropriate.”