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Physician-insurer relations evolve

PMS President Mark Piasio, M.D.
PMS President Mark Piasio, M.D.

By Miriam Reisman


A shift in the historically stormy relations between physicians and health insurance companies appears to be occurring. Although still defined partly by acrimonious confrontation over take-it-or-leave-it fee schedules, onerous provider contract provisions, and reimbursement delays, downcoding and denials, the relationship has seemingly taken on a more cooperative style, as illustrated by several recent developments affecting Pennsylvania and New Jersey physicians.

First, and most notably, insurers have begun to settle large class-action cases brought by physicians over bill coding and reimbursement practices, including a recent national settlement by the majority of Blue Cross Blue Shield health plans. Secondly, as the quality and transparency movement continues to engage the health care marketplace, insurers are supporting physicians with offers of electronic prescribing and medical record systems, as well as various incentive and reward systems based on valid, reliable and transparent performance. Thirdly, though much less noticed, physicians seem to have withdrawn themselves from the fight for more market power, for example, voicing little objection to the proposed merger between Pa.’s biggest health insurers, Independence Blue Cross and Highmark – an indication that they have perhaps accepted their limited bargaining leverage with insurers and are instead focusing on new avenues for cooperation.

Reduced physician payment and utilization review and control, strategies often used by health plans to keep costs down, have historically been two key areas of contention for physicians and highlight the enduring conflict of interest between them: insurers profit from paying for less medical care, and physicians profit from providing more care. But despite this marketplace-driven conflict of interest, the string of settlements by insurers over recent years seems to have at least addressed, and possibly begun to rectify, issues critical to physicians.

The national class-action lawsuit, Love et al v. Blue Cross Blue Shield Association, et al, which was settled this April, charged numerous Blues plans across the nation with defrauding doctors in violation of the federal Racketeer Influenced and Corrupt Organizations Act (RICO). The settlement agreement included a cash payment of over $128 million to the over 900,000 class members – which when divided across the total number of physicians affected, would amount to a little over a hundred dollars to the typical physician, for which he or she must file a claim by Oct. 19. Physicians wishing to opt-out of the settlement, which would give them freedom to pursue individual actions against the insurers, must do so by Sept. 14.

In addition, the settling plans – more than 90 percent of BC/BS plans in the country – have agreed to make key business practice changes, including:

· Implementing a definition of medical necessity that makes sure patients are entitled to receive medically necessary care as determined by a physician exercising clinically prudent judgment in accordance with generally accepted standards of medical practice.

· Using clinical guidelines that are based on credible scientific evidence published in peer-reviewed medical literature when making medical necessity determinations.

· Providing physicians with access to an independent medical necessity external review process.

· Establishing an independent external review board for resolving disputes with physicians concerning many common billing disputes.

· Paying for the cost of recommended vaccines and injectibles and for the administration of such vaccines and injectibles.

· Not automatically reducing the intensity coding of evaluation and management codes billed for covered services.

· Ensuring the payment of valid clean claims within 15 days for electronically-submitted claims and 30 days for paper claims.

· Providing fee schedules to physicians.

· Establishing and maintaining physician advisory committees.

· Providing 90 days’ notice of changes in practices and policies and annual changes to fee schedules.

· Establishing a compliance dispute mechanism to address disputes regarding the Blues’ compliance with the agreement.

The settlement affects insurers including Independence Blue Cross, Keystone Health Plan East, Blue Cross of Northeastern Pa.’s HMO, Horizon Blue Cross Blue Shield of New Jersey, and AmericHealth HMO.

The action follows similar settlements nationwide with Aetna, Cigna, HealthNet, Humana, WellPoint, Anthem, and virtually every other major health plan, with the exception of United Healthcare, which continues to fight physician lawsuits. In New Jersey last year, physicians reached a deal to settle their suit claiming Horizon Blue Cross Blue Shield routinely shortchanged thousands of physicians through late or improperly reduced payments. Horizon agreed to implement similar business practice improvements, including making fee schedules for commonly used procedures available to participating physicians by CD-ROM or electronically. In addition, the company agreed not to reduce fees for participating physicians, if at all, more than once a year and not to recover overpayments to physicians more than 18 months after the original payment.

Some health care experts see such developments as signs that both sides are beginning to recognize that the current system is not working and that both physicians and insurers would be better served sharing information about performance and working together to improve care than they would trying to settle their differences in an adversarial way. Many physicians are hopeful that the national class-action lawsuits will not only pressure insurers to change their fundamental practices in processing and paying medical claims but will also help improve the climate by creating more open communication between the two parties.

Whether or not New Jersey physicians will benefit substantially as a result of the agreement remains to be seen. While the cash payout from the settlement with Horizon amounts to a mere $130 per physician, the Medical Society of New Jersey has estimated that, in the long term, the suit will save doctors millions with increased reimbursements and less expensive haggling with the health plans over claims.

The national lawsuit has brought physicians’ problems with insurers to the forefront by representing a number of medical societies advocating for the plight of their members, while a number of insurers may have settled in large part because they were concerned about their relationship with physicians, according to health economist Stephen Foreman, Ph.D., J.D., MPA, Professor of Health Administration and Economics at Robert Morris University in Moon Township, Pa.

Even with their victory in court, however, New Jersey physicians remain deeply frustrated in their practices, says Richard J. Scott, M.D., president-elect of the Medical Society of New Jersey. He cites decreasing reimbursement rates, rising overhead and a lack of accounting for cost of living increases as major thorns in their relations with managed care companies. While he admits physicians have begun to see a slight improvement in insurers’ practices and policies as a result of the suit, they were not happy about having to slog out their grievances in court instead of at the negotiating table. “Physicians come from a moral and ethical frame of reference that tells them they shouldn’t have to file litigation,” says Scott. Nevertheless, he admits the experience has taught them some valuable lessons, crediting the intransigence of the insurance companies with energizing physicians to become more organized and work collaboratively.

“To some extent, it has taught physicians that when they speak with one voice, they can be heard,” says Scott, who is only cautiously optimistic about a long-lasting improvement. He speculates that insurance companies might only cooperate for the five-year time period defined in the lawsuit and then begin to either migrate back to their old practices or develop wholly new ones.

In what first seemed to be another legal victory for New Jersey doctors, but has since atrophied through disuse, a bill was passed in 2002 authorizing private physician practices in that state to join together to negotiate with health care companies. Under the joint negotiation law, which was also passed in Texas and Washington state, a group of physicians, three or more without a cap either by specialty or geographic area, is able to submit an application to the attorney general’s office detailing the issues that they would like to negotiate with a given health maintenance organization (HMO). After the application is reviewed and the issues approved, the HMO decides whether or not it wishes to enter into negotiations with the physician group.

Originally viewed with great fanfare as an opportunity to increase their bargaining power, NJ physicians are now showing much less faith in the bill’s potential impact on their situation. In fact, passed five years ago, the law has yet to produce a state-supervised negotiation between physicians and health plans.

“That law was fought for,” says Scott. “Physicians really believed it was going to help them negotiate with insurers.” While the bill does allows physicians to jointly negotiate over non-payment issues, it does not require plans to participate in these negotiations. Scott, and others, say this is one of the key flaws in the law. “At the end, they could just walk away,” says Scott. “Physicians felt like they got a promise from the legislature, but it was an empty one.”

Among other reasons he cites for the failure of the joint negotiation law to make an impact with physicians are the onerous requirements the bill places on the physician groups that would join together, including expensive filing fees. Under the rules in New Jersey, the joint negotiation representative must submit $10,000 with each application and an additional $5,000 with each proposed contract resulting from such negotiations.

HMO participation in negotiations is not mandatory or binding in any of the three states under the law, and others agree that it lacks the teeth to make it a meaningful development in physician-insurer relations and further highlights a key unresolved issue for physicians.

That the joint negotiation law has never been used is not a sign that the acrimony between them is gone, but rather that physicians still do not have bargaining power equal to that of insurance companies, says Eric D. Katz, Esq., who oversaw the Horizon settlement in New Jersey.

“Doctors continue to look at insurance companies with a very leery eye,” says Katz. “They see executive officers getting richer and richer, while most rank and file doctors are struggling to get their claims paid, and when they do get paid, getting paid a ridiculous amount of money for the services they render. It has not been a very good working relationship.”

Katz acknowledges that some insurance carriers have made a positive half step in that they have agreed to meet with physicians to discuss utilization and treatment issues, but not reimbursement concerns. And while still hopeful that the climate in New Jersey will improve by way of the Horizon lawsuit, Katz notes little change in Florida as a result of similar class-action settlements in that state in 2003, describing the current practices by insurance companies there as “business as usual.”

“Until physicians can really band together and negotiate collectively as do trades and other businesses, there will continue to be an unequal playing field,” says Katz.

Helen Oscislawski, Esq., another NJ health care attorney, says she is still seeing frustration from physicians over claims turnaround despite regulations in that state that are supposed to ensure prompt payment as long as the correct procedural steps by providers have been taken. “Settlement agreements have actually thrown a new twist into the mix because they are actually doing what the prompt pay laws, at least in New Jersey, have been unable to do or have not been successfully doing to this point.”

According to Oscislawski, many physicians have been benefiting in this way from the settlement agreements, and the Medical Society of New Jersey has been instrumental in assisting those who are entitled to receive payment from the Settlement Fund in filing the proper claims. She speculates that the class-action lawsuits in New Jersey and similar ones around the country, as costly and time-consuming as they are, may lead to insurers reevaluating certain issues, such as how to take a more cooperative approach to dealing with problems of delayed payments.

In addition, Oscislawski says she has heard about a trend of physicians dropping insurance plans that are not reimbursing them adequately for certain procedures and, in effect, not providing them with any financial benefit. “There has been a grassroots movement to encourage physicians to do an analysis within their own practices and put pressure on insurance companies to reevaluate the way they’re paying and what they’re paying,” she says, adding that while physicians may benefit to some extent from dropping contracts, patients are left in the lurch. However, some physicians feel that in order to “wake companies up to what is happening, the pressure is going to have to come from all ends,” says Oscislawski.

The Pennsylvania Medical Society (PMS) has no official position on the implications of the Love et al settlement, while its President, Mark A. Piasio, M.D., sees potential benefits and limitations for physicians. Eliminating automatic downcoding and making billing dispute review boards external rather than internal to insurers appear to be good things for physicians, he says, but the entire settlement expires in five years. “If this is the right thing to do, why are they limited to five years? What have we gained after that?” Piasio asks. Being locked into settlement provisions may limit opportunities for cooperative negotiations with insurers, while a lawsuit settlement changes the working relationship between physicians and insurers in its own right, Piasio believes. “We eschew the class action lawsuit approach, particularly one with a time limit,” Piasio says. “The strategy of suing insurance entities is not the correct way to secure a cooperative dialogue. It is expensive, and physicians probably end up bigger losers in the long run,” he adds.

At about the same time physicians and insurers began battling it out in this wave of class-action suits, they also started working more closely together in the so-called “transparency” movement, a collective effort to make health care information more easily available to both patients and providers. The challenges of achieving transparency as to the cost, quality and results of health care decisions has created new opportunities for physicians and insurers to collaborate, with scores of quality-based pay-for-performance programs being implemented or developed by health plans around the country. In another effort to support this movement, insurers are also providing physician practices with electronic prescribing devices and various other health information technologies to facilitate access to services and sharing of information among health professionals. While some physicians perceive performance reward programs and other incentives as simply another attempt to regulate and limit their practices, others see the initiatives as well-intentioned efforts aimed at helping them to deliver better quality care.

“We are not each other’s enemies. There is a close relationship between what insurers are doing, and what we’re doing, and I think we’re beginning to see that,” says Piasio, who believes that struggles over liability premiums, utilization rates and provider payments are driving physicians and insurers closer. And, as the movement for quality and value in health care continues to gain momentum, he says, it will become harder and harder to remain so dissociated. “Doing a good job at a good price – these are not bad concepts,” says Piasio. “We’ve struggled with them because they’ve never been worked out correctly, but both of us are beginning to see that cost cutting can be good health care as well. As time has gone on and we’ve seen how much these insurers have incorporated good medical science in their decision-making, we’ve gradually built up some trust.”

Increasing that level of trust has been critical, says Piasio, as Pa. physicians have been working more closely with health plans to develop quality measures, which has increased physician buy-in to these measures.

Despite Piasio’s optimistic outlook on physician-health insurer relations, there remain several unresolved issues. Key among them, he says, are take-it-or-leave-it contracts, certain utilization measures that can interfere with treatment and care (e.g., modality rules that restrict access to X-ray procedures), and added paperwork and expense for physician offices.

However, as far as class action litigation is concerned, Piasio says that the PMS had decided long ago that they would not pursue this tactic to resolve their grievances, opting instead for collegial, educated dialogue. Medical directors from various health plans meet regularly with Society members to discuss issues and concerns of physician practices and help them understand challenges facing insurers. Piasio predicts that this mutual respect will go a long way toward developing insurance products that work for both physicians and patients, and implementing initiatives such as the use of pay-for-performance incentives and rewards, which he believes, if done properly, are a win-win situation for patients, payors and providers.

Anne Weiss, MPP, Senior Program Officer at the Robert Wood Johnson Foundation in New Jersey and Leader of the Foundation’s Quality/Equality Health Care Team, agrees that the transparency movement is critical, and says that a growing emphasis on transparency methods and positive incentives is a principal reason for the evolving relationship among, not only providers and payors, but all of the stakeholders involved in the delivery of care. “I think there is growing recognition that, instead of all the different parties getting in the ring and fighting it out, a better approach might be to align their interests and share information and make that information public.”

Issues around quality are complicated, says Weiss, and raise important questions: How do you fairly and accurately measure clinical quality versus patient satisfaction versus cost? Whose definition of good quality should you accept when different specialty groups do not always agree? “Physician groups are no longer against the notion of transparency,” she says, “but they want to make sure it is done fairly and well.”

Through efforts such as Aligning Forces for Quality, a grassroots-level program that identifies the various factors that drive quality, the Foundation brings together health plans, physicians, employers and consumer groups to develop ways of measuring care, to share information about how well physicians perform in the community, and to work together to help them improve their ability to deliver quality care.

“We’re watching this dynamic play out in a lot of markets and play out very differently,” notes Weiss, who says the program has been implemented in 14 sites across the country. “Not everyone’s equally comfortable with making this kind of information public. Insurers try to steer patients toward high-performing doctors, and doctors who are not high-performing obviously are not as comfortable with it.”

While there is still a lot work to do in the area of transparency, Weiss believes it has already opened many doors of opportunity for physicians and insurers to work together to improve health care delivery. With an increased level of awareness and visibility of the variation in care, she says, physicians can better identify their areas of need, such as financing electronic record systems, and allow insurers to reward those who are doing the best job.

I. Steven Udvarhelyi, M.D., senior vice president and chief medical officer of Independence Blue Cross (IBC), says his company has experienced both successes and challenges as it strives to work more efficiently, effectively and openly with physicians.

IBC has a strong commitment to disclose to physicians and make as transparent as possible its business practices, says Udvarhelyi. The company has tried to adopt easier to understand claims adjudication rules and disclose them to physicians, as well as make their medical policies (over 400 of them) easily available on the IBC website. In addition, IBC is working with the physician community to help make transparent to the public how the health care system is performing and to better understand the appropriate measures for assessing the quality, efficiency and cost of care at the practice level.

“It’s a dynamic relationship and one that is focused on moving us forward,” he says, emphasizing the importance of a two-way exchange of ideas and information and the involvement of physicians in dialogue on important issues of care.

Crediting a strong history of community involvement, Udvarhelyi says he has seen a definite shift over the last few years, not only for IBC but for many Blue Cross/Blue Shield plans around the country, as well. According to Udvarhelyi, IBC’s relationship with physicians has changed for a number of reasons, including the company’s effort to become a better listener as to what it can do to help improve the way business is conducted with physicians. For example, several years ago, in an effort to ease physicians’ administrative burdens, IBC provided them with NaviNet, an electronic portal that offers access to real-time information about patients’ eligibility, benefits, claim status and other transactions. According to Udvarhelyi, over 90 percent of physicians and hospitals currently use this tool.

In addition, in the last four or five years, IBC has made almost a 30 percent aggregate increase in reimbursements to physicians, says Udvarhelyi. In the last two years alone, the company has increased payments by over $100 million. Its strategy was not to make increases across the board, but rather to target those increases toward areas where physicians had expressed their greatest levels of concern. For example, this past year, IBC put most of those increases towards areas such as payments for office visits.

Other health plans also seem optimistic about the progress that has been made to improve communication with their physicians. At Aetna, relations with physicians have shown marked improvement over the last five years, according to Donald Liss, M.D., regional medical director, who describes the company’s current relationship with providers as more formal and business-like, with a focus on reducing the administrative burden on practices. “Physicians seem pleased with the improvements Aetna has made in certain administrative functions, such as quicker turnaround times for claims payment and better online functions for checking eligibility, submitting claims and getting information about the company’s policies,” he says.

Aetna has also made several changes in service functions, such as significantly reducing the number of services for which prior authorization is required, says Liss. In addition, the company is looking at ways to make the payment system more rational. For instance, Aetna is working to develop approaches to compensate physicians for taking the time necessary to organize and coordinate care and to avoid creating financial incentives for surgical procedures and high-tech imaging.

A key issue that remains unresolved is balancing the need to control rising health care costs with the need to eliminate administrative activities that add overhead for both doctors and health plans, says Liss. “While doctors appreciate the need to control increases in health care costs, they sometimes express frustration over pharmacy formularies and pre-certification for procedures such as MRIs.

Despite positive feedback from the PMS and new efforts by IBC, Aetna and other insurers to win the good will of physicians, the market power imbalance between physicians and insurers remains a sticking point.

“There is a general consensus that physicians feel beaten down because of their lack of market power,” says Piasio. “We can’t sit down with any insurer and try to negotiate a delivery product. It’s take it or leave it.”

The relationship between physicians and insurers has been strained as health plans struggle to reduce operating expenses and improve profitability, while physicians feel increasingly powerless. The emergence of HMOs in the 1980s as the main alternative to traditional, fee-for-service health insurance arrangements acted as a key catalyst for pushing physicians and insurers apart, notes Foreman. Enrollments in HMOs peaked in the mid-90s as employers looked for ways to slow the rise in health care costs. Then, in 1998, IBC unilaterally reduced physician payment. “That was a watershed event, leaving many physicians very upset,” says Foreman. Since then, there have been signs that insurance companies want to increase physician payment, says Foreman, and insurers are trying to improve relations on a number of fronts but have been met with skepticism and resistance by physicians.

“It’s a complex issue,” he says, citing insurers’ pay-for-performance initiatives and offerings of electronic billing and electronic medical records as examples of the inherent conflict between health plans and providers: While some physicians have viewed these initiatives as an effort to improve payment, others have perceived them as increases to the already heavy regulatory burdens placed on them. Similarly, says Foreman, physicians have felt restricted by other health plan initiatives, including pre-certification requirements, drug formularies and HMO-mandated hospitalist programs, which some physicians have regarded as a threat to their personal freedom and to their reimbursement payments.

Insurance companies have also been much more active in mergers, and in many markets their negotiating power has only increased, resulting in a feeling of helplessness among many physicians. The announcement earlier this year of a proposed merger between Pennsylvania’s two largest Blues plans, which are expected to control over 50 percent of the state’s insurance market, seemed to elicit few concerns from physicians. According to Piasio, PMS initially registered a “soft objection” to the merger because it was unclear to them what ultimate impact it would have on the geographic and product markets, as well as on patients and health care providers. However, they did recommend vigorous inquiry by the Federal Trade Commission and the Department of Justice to provide greater insight into the issue of insurer market power. “I think that the physician community’s response to the merger is probably more measured than it would have been in the past because of experience,” says Foreman, describing it as a more educated, scholarly approach than the ones they have taken in the past. “A decade ago, the Society opposed the merger of Pennsylvania Blue Shield and Blue Cross of Western Pa. and filed a lawsuit over it, spent a lot of money and got nowhere. I think that substantively, from a strict look at the antitrust laws, that there wasn’t any reason from a legal standpoint or much of a basis to attack that merger.”

Philip H. Lebowitz, Esq., a health care attorney in Pennsylvania, agrees that there is still a huge struggle over the amount of reimbursement that commercial, for-profit entities want to pay and that physicians and hospitals want or need to receive to continue to operate. The relative silence on the part of physicians over such issues as the IBC merger, he says, may have to do with the general feeling among them that, especially with the many obstacles that antitrust laws still pose, they have more or less done all that they can do in terms of increasing bargaining power. There has been a gradual trend toward larger physician groups and hospital arrangements and other structural changes designed to give providers more leverage in the battle with insurance companies, says Lebowitz, who believes that will continue at a steady pace. “But I don’t think that anybody thinks there are any new and great ideas out there for addressing that antitrust problem.” In the meantime, he says, the apparent gradual movement toward cooperation, which he suggests may be more accurately termed “an uneasy truce,” may be a way for all parties to find workable solutions to their problems in an effort to move forward.

Such a shift is certainly sensible on both sides, says Foreman. “If physicians and insurers continue to be combative, it’s energy consuming, it’s expensive, and it puts their problems right at the forefront of the public’s and the patient’s consciousness. It would be rational for insurance companies to treat physicians substantially better than they have recently in order for both of them to cooperate in solving some of the industry’s larger problems.”

Foreman describes what is now happening as a “prisoner’s dilemma,” a game theory that lies at the heart of many problems in economics and social sciences. “If both players choose to cooperate, they can both win; if they’re combative, they both lose.” In this case, says Foreman, physicians are afraid to cooperate because they think that insurers are not cooperative, so they both become combative. “If they can find their way back to cooperation, they can probably both do better.”

The physician leader of 10 or 20 years ago had been educated in an environment where he was “captain of a ship” and unaccustomed to being challenged or directed, explains Foreman. Today’s physician leader, he says, is much more sophisticated, has worked in groups and understands the value of cooperation. “Confrontation doesn’t get you much, and I think today’s physician leader understands that. My guess is that maybe the leadership of the health insurers may understand that as well.”

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