By Thomas W. Reinke
Two emerging trends will shape managed care in 1997. One is the rapid expansion of risk contracts administered by health systems such as the University of Pennsylvania Health System, Crozer Keystone Health System and Allegheny University of the Health Sciences. The other event is the rapid conversion of the Medicare population to managed care. Informal estimates are that by the end of 1997, 30 percent of Medicare recipients will be in HMOs.
The significance of health systems administering risk contracts lies in their neophyte status as risk takers and managers of care. Hospitals and provider organizations are on a steep learning curve for controlling utilization, improving quality, allocating premiums and managing expenditures, plus another overlooked area: capturing and managing the information required to be successful in risk contracting.
The significance of the conversion of the Medicare population to HMOs lies in the dramatic changes in referral patterns and inpatient utilization that will occur. The Medicare population will fall under greater purview of primary care gatekeepers who are members of hospital aligned primary care networks. Referrals within networks will increase while outside referrals will decrease. Inpatient utilization will drop because the HMOs will attempt to drive their profits from decreased inpatient expenses.
From a specialist’s perspective, hospital risk contracting and the elderly joining HMOs are significant events which are simultaneously fortunate and unfortunate. The initial reaction to these events is to focus on their financial implications. Specialists and non-aligned primary physicians justifiably feel they are at financial risk. Indeed they are; however, a closer examination highlights a broader set of risks.
From one perspective, the most significant risk faced by specialist is information risk. To be effective and successful providers in a managed care environment, specialists need a wide range of information about the patients they serve, the utilization of services, expenditure and referral patterns. Since many primary physicians have joined hospital systems, (which have elaborate information systems) both hospitals and primaries have easier access to information than do specialists. Furthermore, primary care networks and hospital systems have the staff to analyze this information. Specialists face two problems: not only do they not have the information, they do not have the staff to analyze it.
To the extent that sophisticated information systems can provide information on what is happening and how the delivery of medical services is changing, information becomes the key to alleviating much of the risk of managed care. As specialists go forward, one of the most important topics on their agenda in the negotiations with hospitals and payors should be to have access to information. The information should at the level and scope that the hospital systems and primary care networks are gaining this information.
Market Share Risk
The second significant risk that the specialists face is a loss of market share. Loss of market share has financial obvious implications, but they are secondary to implications for the long term success of a practice. Its one thing to lose revenue, but the loss of a practice’s patient base is more important.
As the Medicare population moves into HMOs, they give up some opportunity for self-referral to specialists. Primary care physicians will control more of the flow to specialists and, with those primaries in networks, the nature of the game will change dramatically. Network primaries are increasingly likely to refer to specialists who practice primarily at their institutions. Specialists with privileges at several hospitals may see significant erosion of referrals from the institutions from where they are less active.
The strategy for responding to this situation is for the specialists to understand what primaries are facing and to adopt new approaches in their relationships with the primaries. In advanced managed care environments, one significant pressure facing primaries is the need for greater “thru-put”—the need to accept large panels of capitated patients and then effectively manage an increased demand for both primary care and specialty referrals. These primaries are looking for two things:
• The availability of specialists for curb-side consults.
• The willingness of specialists to take an expanded role to seeing patients.
Specialists can take some of the load off primary physicians, and thus increase their thru-put by becoming involved earlier and also providing more follow-up services.
An interesting phenomenon in this arena is that internists and general practitioners tend to be willing to make referrals to specialists, while family practitioners tend to keep more things in their practices. Specialists need to analyze the referral patterns of the primaries they deal with and respond to their style of practice.
Another aspect of market share risk relates to changes in utilization that will occur with the Medicare population. From 1972 to 1994, the number of days of inpatient care per 1000 Medicare enrollees has declined from 3656 to 2538, a decrease of 31 percent. In 1972, the discharges per 1000 was 302, and in 1994 it was 341, a minor increase. The decrease in Medicare inpatient days per 1000 has come from a decreased length of stay, from 12.1 days in 1972 to 7.5 in 1994.
The decrease in the length of stay means that the specialist physicians have become more efficient in treating patients. The next wave of change, fueled by the HMOs’ drive for profits from the Medicare population, will be a decrease in admission rates.
In advanced managed care environments, a hospital admission is considered to be a failure of the primary care physician. Specialists can take advantage of this by providing an expanded set of services and procedures, and certain procedures on an outpatient basis. The watchword for specialists is to provide specialty service in the lowest cost environment. An attention to providing specialty services in a low cost environment will be one of the perspectives to ensure the future success of specialists. Specialists are presented with a new practice opportunity to deliver more of their care in creative new outpatient programs.
Another way of dealing with the market share risk is for specialist physicians to properly focus and position their practices. There are numerous successful models that show when specialists carve out a niche for themselves by focusing on a specific disease, condition or procedure they can dramatically expand their practice by attracting patients on a regional basis, beyond their traditional primary market or referral base. The reason that such programs are successful is that a sufficient number of patients will opt out of their network, if there is a service that is head and shoulders different.
The experience in this country and many others is that a significant number of patients will opt out of their network or plan to receive care that is important to them. Many new HMO plans contain an opt-out clause because patients want it, and this trend seems to be expanding, not decreasing.
The third risk that specialists face is financial risk. The financial risks come from three different areas.
• Decrease in the volume of patients.
• Decrease in reimbursement level for procedures.
• Lack of opportunity to participate in incentive and bonus pools, at a level consistent with their role in managing care.
While all three of these factors can have a significant impact on practice revenues, there are very concrete steps specialists can take to minimize their impact. A practice development strategy for dealing with decreased volume of patients has been discussed above.
An approach to dealing with decreased reimbursement levels is to focus on revenue per visit. This is a calculation of the actual reimbursement for each category of service. The advantage of this focus is that it forces attention to be focused on ways of to increase the reimbursement per service. That leads to an analysis of the scope of services and the mix of services provided in the practice. Many of the expenses in a medical practice are fixed and will continue to increase. The successful financial management of a practice dictates ways to optimize what services are provided and how they are provided. This perspective can result in a fine tuning of the practice with an emphasis on the niche or services that are profitable, professionally rewarding and in demand.
In many cases, specialists have been left out of the incentive programs and bonus pools of HMO contracts. This is unfortunate because both primary physicians and specialists share a role in managing care. For a hospital system to dramatically decrease utilization, it must provide the proper incentives for both the primary care physicians and the specialist. It is the responsibility of the primary care physicians to prevent admissions. It is the responsibility of specialists to decrease inpatient utilization and to offer alternatives to inpatient care, i.e., expanded outpatient services.
Since specialists have such an important role, it is only reasonable that they participate in bonus and incentive arrangements. There is a two step process for specialists to gain greater participation in the upside of risk contracts. First, they need to develop creative, less costly service delivery strategies for outpatient and inpatient specialty care. Second, they need to take a more sophisticated approach to negotiating their arrangements, participation status and role in risk contracts.
Managed care presents unique challenges for specialists, but the risks they face are not insurmountable. Today’s doctors would not have become physicians if they did not have drive and determination. The absolute risk faced by the physician is the risk of inertia. Doing nothing will ensure their failure. A clear-cut goal with the related drive and determination will ensure their success while there is still time to be successful.
Thomas W. Reinke is with the Health Care Consulting Department of Miller, Glusman, Footer & Magarick, P.C. in Philadelphia.