Managed Care and Oncology – New Ways to Deliver Health Care
Since the 1950s there has been a profound shift in patterns of payment for health care. Before World War II, we simply paid for medical expenses out of pocket. Since “high-tech” and sophisticated tests and treatment did not yet exist, the cost of medical care was relatively predictable and thrifty. There were no intensive care units, CT or MRI scans, ultrasounds, fancy blood tests, or, for that matter, specialists. General practitioners were paid directly, sometimes in goods rather than money.
In 1933, surgeon Dr. Sidney Garfield set up a makeshift hospital in the Mojave Desert to treat workers building the Los Angeles Aqueduct, providing comprehensive care at a fixed price deducted from the workers’ paychecks—a nickel a day! That caught the eye of shipbuilder Henry Kaiser, one of the largest employers in the country. He set up a similar program for the workers building the Grand Coulee Dam in Washington state and for workers at shipyards in California, Oregon, and Washington. After World War II, Kaiser opened enrollment to the public, setting off a revolution in health care. Within a year, AFL and CIO members were joining at the rate of 2,000 per month.
Henry Kaiser set up an all-inclusive health care system for his employees, in which, for the first time, one plan owned and controlled the hospitals, employed the physicians and other health care personnel and providers, and managed the whole enterprise, including preventive medicine, under one roof. One monthly payment by the consumer took care of whatever medical problems occurred, at least as defined by the contract.
Kaiser’s system became the first and the largest health maintenance organization (HMO). This was the first example of “managed care,” which, broadly defined, is the application of business principles to the delivery of health care. More specifically, it is a system of health care delivery that provides effective utilization of services at a fair and reasonable price, and measures performance outcomes and quality of care. Today everyone involved with delivery of health care—physicians, hospitals, laboratories—needs to worry about efficiency, timeliness, satisfaction, accountability, and costs, as well as quality. Lately, the “gatekeeper,” usually a generalist physician, has primary responsibility to direct health care for each participant. There has been much recent public discussion and controversy, and legal action, regarding the role and responsibilities of health maintenance organizations. Some have not succeeded in matching the medical needs of their customers with their ability to maintain continuing financial solvency.
In the so-called staff model, there is a large multispecialty group of salaried physicians, and in the case of Kaiser Permanente, the plan owns the hospitals and outpatient facilities as well. Once the Kaiser model was successful, other HMOs began to appear. From 1960 to 1980, several health care systems existed side by side, with various combinations and variations, and consumers were able to choose between systems according to their preferences, tastes, and pocketbooks.
Traditional Health Care Payment Systems
• Direct payment In this system, the consumer pays for health care out of pocket. Even those with various insurance plans may need to pay some expenses themselves, such as deductibles, co-payments, or extra costs of special treatments, noncovered services, and investigational treatments. Even Medicare has a Part B deductible.
• Fee for Service/Indemnity Insurance This became the most common type of insurance plan during the 1960s, 1970s, and 1980s. Various health insurance companies issued policies (often in association with employers, but not always). These policies allowed the consumer to select his or her choice of physician (and indirectly the choice of hospital), and the physician/hospital would then bill the insurance company for services rendered. Through this process, a primitive form of “quality control” developed, chiefly related to the concept of “usual and customary fees,” which inhibited practitioners from charging (or at least being paid) excessive amounts. Competitive market forces began to standardize the costs of hospitalization, laboratory tests, and X-ray exams, as well as every other aspect of health care (for example, physical therapy, nursing homes, prescriptions), since consumers quickly learned to walk away from providers and services that were equivalent in quality but excessive in cost.
• Discounted Fee for Service Competitive market forces began to create discounts for physician services as well. Doctors agreed to accept, for example, a 10 or 20 percent discount in their usual fees. It was preferable, of course, for the doctor to be given an “exclusive” for patients of a particular health plan in return for such a discount. The physician’s overhead and costs continued regardless of how many or how few patients were seen, and his margin, the difference between gross income and cost of doing business, became lower unless he could obtain an adequate number of patients.
• Medicare and Medicaid In 1965, a major event in American history occurred with federal legislation creating the Medicare and Medicaid programs. Up until that time, health care expenditures were kept under control by prudent spending by both the physician and the consumer. But the federal spending on these new programs unleashed a new level of health care expenditures that had never been seen previously, and turned health care into a growth industry. Now the consumer had carte blanche for medical care, with the bills being paid through Uncle Sam. The impact of this increased spending led to a desire on the part of the providers to search for new ways to control costs, and they turned to managed care to find the answers.
In the late 1980s and early 1990s, the entire gradual and peaceful evolution of health care payment systems entered a steamroller era. Until then, the various systems existed side by side, and especially in smaller cities and rural areas, the older system of indemnity insurance persisted, in which submitted bills by health care providers were simply paid by the insurance companies. Then several things happened to radically change our health care payment systems:
• More and more, health care came to be delivered by legal contract, between the physician, or more commonly a group of physicians, and the insurance company (which came to be called the payer). A new doctor in town not only would announce his or her name, address, specialty, and training but would also, for the first time, need to indicate which insurance plans he or she accepted (which ones he or she had contracts with).
• For the first time, employers began to be the primary contractors as well as decision makers for health care. Later on, this created the problem of persons having chronic and/or preexisting conditions being unable to change jobs, for fear of losing their health insurance and being unable to replace it. On the other hand, a large employer might be able, nevertheless, to incorporate a person with a preexisting illness (e.g., a history of cancer), because of the “clout” of a large number of employees enrolled in a plan.
• The type of health care provider relationships changed dramatically. Physicians under certain contracts were more restricted in their referral abilities—for example, they could send patients only to physicians and consultants under contract with the same company or plan (unless consumers were willing to pay significantly increased costs for treatment with their own choice of physician). Each health plan contracted with a certain hospital or hospitals for guaranteed and often lower rates. This tended to promote increased efficiency in hospitals and tended to drive inefficient or poorly organized hospitals out of business.
• The contractual needs in relating physicians to health plans made solo or small practices undesirable. Such limited groups of physicians could not deliver services to large populations of potential patients (now called “covered lives”), nor could they offer the breadth of skills and specialties, and geographic availability, that came to be the standard requirements of contracting health care providers (the new term for physicians). Thus, just as hospitals merged, so did physicians. Small groups became large ones, and solo practitioners became rarities.
• Cost and control became dominant in the 1990s. Each segment of the health care system realized that their “piece of the pie” was in jeopardy and attempted strategies to increase their control. Hospitals either acquired the practices of generalist physicians and internists or joint-ventured with primary care physicians, and thereby “captured” the patients cared for and the income derived from their care (lately it has been recognized by both parties that this may not always be a good idea). Hospitals and physicians joined forces, so practicing medicine became a business as well as a profession. Of course, there were always bills and taxes to pay and records of expenses to keep, but the doctor mostly took care of patients and kept whatever was left over after expenses were paid. Now, his or her livelihood became directly determined by nonphysicians, who controlled which patient he or she would see, how many patients there would be, which consultants and hospitals could be used, and where laboratory tests and X-rays could be done, not to mention nursing homes, home care, and prescriptions.
In the old days, value was defined as “quality work done by the physician.” Now value has an additional, and different, definition, borrowed from business:
Value = Quality/Cost
That means that as quality increases, so does the value (we always knew this), but also, and especially nowadays, for equal quality, the one who provides services at lower cost provides the greater value.
Patterns of Health Care Delivery
At the present time, there are a number of different patterns of health care delivery under managed care. These are
• HMOs—health maintenance organizations,
• PPOs—preferred provider organizations,
• POS—point of service plans, and
• IPAs—independent practice associations.
Whereas the traditional fee for service, or indemnity insurance plan, reimburses health care providers (a new name for physicians and other health care professionals) based on billing for services provided, a health maintenance organization (HMO) integrates the entire health care program, including physicians, hospitals, outpatient services, and other health services such as prevention and rehabilitation, under one management system. Physicians are under contract, often on a full-time salaried basis, although the HMO may also contract with PPOs and IPAs to provide contracted physicians’ services at standard rates. Preferred provider organizations (PPOs) have a list of “approved” providers who agree to provide services at contracted rates. Hospitals usually are also contracted. A point of service (POS) plan, sometimes described as an “open-ended” HMO or PPO, allows enrollees to receive services from a noncontracted (out-of-network) provider, although the cost of those services is generally not covered to the same degree as in-network. An independent practice association (IPA) is a group of physicians that contracts with various payer organizations and insurance companies.
The Gatekeeper Concept One of the major concepts of HMOs is the dominance of the primary care physician (PCP), or generalist. Under this system, he or she has almost complete control of patient care. All members of an HMO managed care plan select, or are assigned to, a primary care physician. The PCP determines which doctors the patient will see. If a patient has a lump in her breast, the PCP will determine if she should see an oncologist and will usually direct the patient to an oncologist within the system. The primary care physician is usually referred to as the “gatekeeper” and the concept is known as the gatekeeper system.
From the patient’s point of view, there are lots of new pathways and patterns of care. The idea of the gatekeeper may seem strange. You may not be used to having to go to the same physician first, before you go to anyone else. In fact, some plans specify, for example, that you may see an eye doctor or a skin specialist, or another type of specialist defined by the plan, without asking your PCP, because we all know and agree that such care is appropriate, efficient, and cheaper. The expertise is well understood and accepted by all. The cancer specialist is likewise acknowledged as an expert in an area of medicine that not only requires special training but is an area that many physicians prefer to delegate.
While there are currently a number of different patterns of health care delivery, managed care is becoming the dominant force in the health care industry and is increasing its participation at a rapid rate, especially when it comes to Medicare. We are not sure what the eventual result will be. Today at least two-thirds of the U.S. population participate in some form of managed care—that is, some type of system in which the health care providers furnish care based on an integrated economic, contractual, business, and professional program, with mutual contracts between all participants, including management. Although the states of California, Florida, and Minnesota led the trend toward managed care, these new systems of health care delivery are now common throughout the country. Many smaller health organizations are merging, while some are no longer in business, having been unable to correctly estimate, project, and plan the necessary balance between premiums/revenues/expenses and control/allocation of medical care.
Not only is the trend of health care delivery moving toward managed care, but the financial risk for providing health care is being shifted from insurance companies and managed care organizations to the physician who delivers the care. Following are the major types of risk sharing:
Risk Pools Common in HMOs, there are several different versions. For example, the physician may be paid a salary or a modified salary based on his or her work time and patient allocation. Some of the earnings, however, are placed in a separate fund, to be divided at the end of each year according to a formula based on predefined factors such as productivity and/or saving money by avoiding inappropriate or unnecessary use of services like laboratory tests, X-ray examinations, or hospitalization.
Since allocation of medical care in HMOs is generally controlled by primary care physicians, quite often the set-aside fund is also used to pay specialists if a member needs to receive specialty care. There is thus an incentive to be thrifty of effort and expense.
The big question now being hotly debated nationally is whether care suffers by such methods of physician reimbursement. New federal legislation now requires physicians to disclose valid treatment options not covered by their health plan.
Capitation In this method, the health care provider is paid a fixed amount each month to take care of anyone in a plan that becomes ill and needs the specified services. There is no charge for any specific illness or event.
The provider contracts to take care of all of the “covered lives” for a certain price per member per month, to provide all required (contracted) care that might be needed in the provider’s specialty.
For example, an oncology group might contract on a capitated basis to take care of 100,000 covered lives, for a certain payment per member per month for professional fees. This means that a check for the entire amount would arrive each month for any and all care that is required for all those covered persons.
We can estimate and calculate about how many people out of 100,000 would get cancer each month, how much it would cost to see them, what services would be required, and how many years of care would be needed, and thus what the total expense of providing care would be (these calculations are not simple!). Thus, if the estimate is close to being correct, the physician group might come out okay. If, for some reason, fewer people get cancer that month, there is money left over. If lots of people get cancer, particularly types of cancer that are expensive to treat, the physicians operate at a loss.
Thus, in a capitated plan, the health care provider takes all the risk. If 1 person, 10 people, 100, or 1,000, (or 10,000!) people show up for cancer care, the price is the same. There needs to be a minimum number of such persons covered to be sure that an unusual number of persons who happen to need expensive care will not overwhelm the technical and financial ability of the health care provider to provide the contracted care.
Physicians with capitated contracts usually protect themselves by obtaining “reinsurance” (“stop-loss” insurance) to cover the unusual patient or number of patients who may require very expensive care. Of course, the reinsurance company needs proof ahead of time that the care given is “standard, reasonable, efficient, and cost-effective,” to minimize the need to use the reinsurance.
A good analogy would be homeowners insurance or automobile insurance. The insurance company, for a monthly fee, agrees to take care of whatever losses the homeowner or car owner suffers. The insurance company knows that each month there will be home thefts, fires, and other losses and there will be car thefts and accidents. It knows that on the average there will be a certain number of such events, and it is willing to take the risk that the average number will continue. To make the risk safer, the insurance company needs to insure a lot of people.
Capitated medical plans are becoming more and more prevalent. Doctors are finding that they need to understand business principles as much as medical ones, and some physicians choose to concentrate on the business aspects. Some even go to business school to secure an MBA, as well as medical school.
Package-Price Plans (“Carve Outs”) In this system, there is a fixed price for a defined “episode” of care. There are already medical plans with a fixed price for certain events that are easy to define from start to finish, such as cataract surgery and coronary artery bypass grafts (and heart transplants, too, for that matter).
In a “carve out,” the physician and/or organization agrees to provide all the care required—whatever that is—for a certain illness, ailment, or procedure for a defined fixed price determined before care is begun. Thus, again the physician takes all the risk. If it costs less to deliver the care, he or she comes out ahead; if it costs more, he or she loses money.
In the cancer field, there has been difficulty in creating such plans. This is due to the complexity and expense of such care, rapid changes in technology and treatments, the length of time (years) when care and follow-up are required, and the fact that many different facilities and professionals are involved, not just the primary doctor (who is usually an oncologist). It requires a complex and coordinated effort to discover and predict accurate and reliable costs of all the components of care for many different kinds of cancer, as well as to place under contract (and under risk!) the many providers and health care facilities. The M. D. Anderson Cancer Center in Houston and the Memorial Sloan-Kettering Cancer Center in New York have in fact created and initiated such plans.
One area of uncertainty in the development of such plans is how to continue to pay for the vital clinical research trials that test promising new methods of treatment. These economics may not yet “make sense,” and insurance companies may not wish to pay for trials of new treatments, whose roles are not yet defined or proven. One current area of great discussion and controversy, and the subject of federal legislation, is the need to find a way to integrate into various insurance plans (for example, Medicare) a method to pay for “clinical trials” that represent the cutting edge of effective cancer treatment, though they are not yet “standard” treatment.
“Personal Care” or “Boutique” Practice Plans In the past few years, a few generalist physicians have changed their style of practice so that for a specified yearly fee, they have agreed to limit the total number of patients they serve, to thus be personally available “24/7” to care for this relatively small number of patients. Appointments can generally occur the same day as requested, and the face-to-face time available, between physician and patient, is not rushed or limited by the need to schedule a large number of patients, as may occur in a conventional medical practice. House calls are often provided as part of this service. This is an appealing practice pattern, from the point of view of the responsible physician as well as the patient, and it remains to be seen to what extent this new practice pattern will supplement or replace other practice plans. Certainly some adjustments and modifications will need to be made; for example, the physician will still have to provide coverage at times of illness or vacation. A partnership of two physicians thus seems appropriate. It does appear that this practice pattern resembles the epitome of the “good old days,” when a GP (general practitioner) physician assumed total responsibility for his or her patients, wherever and whenever they became ill and needed medical care.
Managed Care Issues
Until the development of managed care, each of the various places where health care was delivered and provided—different doctors’ offices, hospitals, pharmacies, outpatient care facilities—existed separately and there was no wish or need for anyone to coordinate the patterns of care or costs of these different locations.
There were, in fact, examples of repeated and excessive utilization of services, not by direct intention but inherent in the way the system developed. For example, different physicians might order the same blood tests or X-rays—which were in fact indicated and necessary, but perhaps the results were not available or shared among the different practices.
There was no standard care plan that defined which type of physician took care of certain types of problems. For example, a cancer patient could easily have been followed by four different physicians: a primary generalist or internist, the surgeon who performed the cancer surgery, a radiation oncologist who may have been called upon to administer radiation therapy, and the medical oncologist who became a “quarterback” for cancer care and also administered chemotherapy and called other consultants.
While there was certainly great patient satisfaction in having all these professionals watching over them, it did produce a major increase in cost of care, in repetition of tests, and in duplication of some services (not necessarily at the lowest cost). In addition, it was often unclear which professional was in charge of medical care decisions.
Now, under managed care guidelines, the gatekeeper concept has emerged, in which a single practitioner determines the location and types of care. While this is often a generalist for most areas of medicine, with referral to specialists as needed, in the cancer field, the medical oncologist usually becomes the case manager. The need for specialized knowledge is too great. But with managed care concerns regarding costs and efficiency, and avoidance of duplication of effort, the medical oncologist now has the same need for standardization of care, with concerns for cost factors as well as quality and efficiency.
Feedback Effective managed care requires several other factors besides care quality and cost. There must be feedback to all parties—physician provider, insurance carrier, and payer—regarding the quality of care, the efficiency of delivery, the results obtained, and the satisfaction of patients with the care they receive. Such information must be integrated into the daily care plan and package, often nowadays by computer/electronic models.
There is also a need for feedback among all the participants, so that inefficiencies and inappropriate or unnecessary care pathways can be discovered and improved. That is why the package-price plan, or “carve out,” would have such potential for improving our cancer care system. It would put all the treatment, care management, cost management, and communication into one package, to achieve the maximum value in quality and cost.
Total Health Care For the first time, we will need to look at the entire health care picture as a single activity. If a service is done better or more efficiently or is less costly out of a hospital (or, for that matter, in a hospital), compared with a physician’s office, that needs to be determined and mandated.
For the first time, physician preferences may not determine how things are done. Only certain hospitals will be permitted to perform certain procedures—for example, bone marrow transplants from allogeneic donors. A track record of success and safety would be a requirement. Laboratory tests will be done at a designated contracted laboratory, or will not be paid for or reimbursed. The same will apply for X-rays and other tests and procedures. Already in many managed care markets, the physician has limited choice in these matters and even now has a limited choice of consultants—those on the same plan or contract as the patient.
For the first time in the history of our health care system, the need for total cooperation exceeds the need for total autonomy or total control. Doctors, hospitals, and other health care suppliers and facilities will need to consider the roles of all the other “players” in the system.
Managed care will develop and reward those systems and plans that are able to look at the entire spectrum of providers and facilities and distill from the entire system an efficient health care package that provides a high-quality and cost-effective care plan. This goal requires total management of every aspect of care.
We are not there yet, but development of such care packages is taking place at breakneck speed—by the action of, and in response to, the providers, payers, and consumers of health care rather than by the government. We are not sure how it will look when the complete cancer care meal is finally served, but a hint can be taken from this post, and from the not-so-accidental fact that one author is a physician and the other is an accountant.