HMOs for Medicaid: the road to financial independence is often poorly paved.

During the 1980s both the federal government and the private sector articulated policies to encourage the development and participation of health maintenance organizations (HMOs) in the Medicaid program. However, the policies, intended to save costs, limited the ability of new HMOs to achieve financial independence. New plans that emphasize Medicaid participation have few, if any, options on benefit design or in setting capitation rates. Relative to fee-for-service Medicaid programs, their costs to provide services may be quite high, as they have neither the buying power not the ability to impose discounts. As a consequence, plans must focus their financial planning efforts on targeting and attaining a stable enrollment base and on controlling the amount of services provided, tasks that are difficult for all HMOs. Achieving a stable enrollment base is particularly hard because Medicaid eligibles have few incentives to enroll and once enrolled often lose their Medicaid eligibility. Traditional HMOs control the amount of services provided through physician selection, financial incentives on physicians, and monitoring and utilization review. Lack of information and the difficulty inherent in attracting sufficient provider participation limit the first two strategies, so new plans often adopt organization structures that rely heavily on monitoring activities. Unfortunately, management information systems for HMOs are often the weakest link. We discuss the tasks and present data on financial planning, on putting financial plans into operation, and on monitoring progress toward financial independence for a set of ten demonstration projects sponsored by the Robert Wood Johnson Foundation.     

Preferred provider organization liability for physician malpractice

The preferred provider organization (PPO) is a recent innovation in the health care industry, designed to reduce costs through selective contracting and utilization controls. This Note examines malpractice liability theories potentially applicable to PPOs. The Note compares PPOs to other health care institutions, including hospitals and HMOs, and concludes that PPOs are at minimal risk of incurring liability for physician negligence.     

The new structure of individual practice associations

There are two types of HMOs: prepaid group practices (PGPs) and individual practice associations (IPAs). Because of rapid change in the HMO industry, the academic literature, which is based primarily on data from the 1970s, is dated in several ways. The literature has focused on PGPs, but IPAs are growing three times faster than PGPs and are likely to dominate the HMO industry in the near future. The literature indicates that a small proportion of an IPA physician's practice is capitated, but such practices often are as much as one-third capitated. And while the literature indicates that IPA physicians are rarely given financial incentives to control cost, such incentives are now common. In this decade IPAs have cut their hospital days per thousand enrollees. Furthermore, IPAs in which individual physicians or medical groups bear some of the financial risk of hospital costs appear to have the same rate of hospital days as PGPs. Additional research is especially needed on cost and quality of care in modern IPAs.     

Medicare program; HCFA market research for providers and other partners--HCFA. General notice with comment period

This notice seeks public comments on information needs of Medicare risk contract health maintenance organizations (HMOs) and competitive medical plans (CMPs) and communication strategies that could improve the effectiveness and efficiency of the risk contract program. Under section 4002 of the Balanced Budget Act of 1997, and with the implementation of the Medicare + Choice program, all HMOs and CMPs will contract with HCFA under requirements of the Medicare + Choice program. The information sought in this notice will facilitate future changes in the contracting program, as well as improve information needs and communication strategies under the current risk program. Respondents should prioritize issues raised in the preliminary research and identify and additional areas of information needs and best communication strategies. This initiative is one component of our overall effort to develop a comprehensive communication strategy with Medicare providers and HMOs/CMPs and to develop innovative approaches that will assist all program participants to obtain and use information in the most accessible and effective manner. Preliminary research on the information needs of Medicare risk contract HMOs and CMPs and effective communication strategies has identified a number of areas in which we could provide additional information and potential strategies for communicating that information effectively.     

The impact of the adoption of gag laws on trust in the patient-physician relationship

Physician organizations, policy makers, and patient advocates have expressed concern that health plans have contractually limited the freedom of physicians to communicate with their patients. In response, many states have adopted gag laws that limit the ability of managed care contracts to restrict patient-physician communication. We examine the impact of these laws on patient trust in the physician. We analyzed patients' ratings of trust in their physicians in states before and after adoption of gag laws. Individuals in states that had such laws throughout the study period were used as the comparison group. The analysis is based on a nationally representative sample of adults obtained from the 1996-1997 and 1998-1999 Community Tracking Study Household Surveys. After adjustment for patient characteristics, it was estimated that the adoption of gag laws had no statistically significant impact on trust in the physician for the average patient. However, the adoption of gag laws is estimated to have increased trust in the physician by a modest amount (25 percent of a standard deviation) for health maintenance organization (HMO) enrollees who did not have a usual source of care. Gag laws may assure HMO enrollees without a usual source of care that their physicians are free to speak candidly about treatment options. This does not necessarily imply that physicians are prohibited from speaking freely in the absence of such laws, but gag laws indicate concerns (justified or not) that patients have about unrestricted communication with their health care providers.     

The Department of Health and Human Services issues proposed regulations on physician incentive payments by hospitals

Hospitals tempted to operate their own physician incentive plans are reminded that, under OBRA 1986, they are precluded from paying physician incentives of any kind to reduce or limit Medicare or Medicaid covered services. In light of the proposed regulations and the guidance of the preamble, hospitals should review their incentive plans to determine whether physicians providing direct patient care are receiving prohibited payments. Further, supervising physicians who are receiving incentives for certain hospital departments may not influence direct care over patients served by those departments, even through other physicians. Some risk may also exist if incentives are based on a formula that considers patients of the supervising physician's medical group. Finally, it may be useful to develop a utilization and quality of care review program specifically designed to assure that patient undertreatment does not occur as a result of any supervising physician incentive program.     

Consumer beliefs and health plan performance: it's not whether you are in an HMO but whether you think you are

Surveys that rate how persons enrolled in HMOs and other types of health coverage feel about their health care are used to bolster claims that HMOs provide inferior quality care, providing justification for patient protection legislation. This research illustrates that the conventional wisdom regarding inferior care in HMOs may color how people assess their health care in surveys, resulting in survey findings biased toward showing HMOs provide inferior care and reinforcing existing stereotypes. Using merged data from the Community Tracking Study Household and Insurance Followback surveys, we identify privately insured persons who correctly and incorrectly know what kind of health plan they are covered by. Nearly a quarter misidentified their type of health coverage. Differences between responses by HMO and non-HMO enrollees to questions covering satisfaction with health care and physician choice, the quality of the last physician's visit, and patient trust in their physician shrink or disappear when we control for beliefs about what type of plan they are covered by. Results suggest that researchers and policy makers should be cautious about using consumer surveys to assess the relative quality of care provided under different types of health insurance.     

Aligning physician decision-making with the goals of health care organizations: are there any lessons from law firms?

In order to achieve efficiency in the delivery of health care services, it is essential to align more closely the behavior of physicians with the goals of the health care organization with which they are affiliated. Achieving alignment presents a number of challenges, including legal constraints, a long tradition of physician independence, a tendency for physicians to become involved in procurement decisions, and a scarcity of comparative effectiveness data that could serve as a basis for treatment protocols and purchasing decisions. The article discusses these challenges and suggests some partial solutions. In addition, it compares the incentives that affect physicians in health care organizations and partners in law firms and suggests that there may be some lessons that health care organizations can learn from the firms.     

The who, what, and why of risk adjustment: a technology on the cusp of adoption

Risk adjustment (RA) consists of a series of techniques that account for the health status of patients when predicting or explaining costs of health care for defined populations or for evaluating retrospectively the performance of providers who care for them. Although the federal government seems to have settled on an approach to RA for Medicare Advantage programs, adoption and implementation of RA techniques elsewhere have proceeded much more slowly than was anticipated. This article examines factors affecting the adoption and use of RA outside the Medicare program using case studies in six U.S. health care markets (Baltimore, Seattle, Denver, Cleveland, Phoenix, and Atlanta) as of 2001. We found that for purchasing decisions, RA was used exclusively by public agencies. In the private sector, use of risk adjustment was uncommon and scattered and assumed informal and unexpected forms. The most common private sector use of RA was by health plans, which occasionally employed RA in negotiations with purchasers or to allocate resources internally among providers. The article uses classic technology diffusion theory to explain the adoption and use of RA in these six markets and derives lessons for health policy generally and for the future of RA in particular. For health policy generally, the differing experiences of public and private actors with RA serve as markers of the divergent paths that public and private health care sectors are pursuing with respect to managed care and risk sharing. For the future of RA in particular, its history suggests the need for health service researchers to consider barriers to use adoption and new analytic technologies as they develop them.     

Physicians' decisions to limit Medicaid participation: determinants and policy implications

Although most primary care physicians participate in state Medicaid programs, they may accept all Medicaid patients, or they may choose to limit their participation. This decision allows physicians to adjust their Medicaid caseloads to a desired level, and it has important implications for the access of low-income patients to health care. Surveys of pediatricians in 1978 and 1983 indicate that the proportion of pediatricians limiting their Medicaid participation increased significantly from 26 percent to 35 percent (p less than .001). In addition, in both 1978 and 1983, limited participants saw significantly fewer Medicaid patients than full participants. This paper describes a number of strategies available to federal and state policymakers for fostering full Medicaid participation. Multivariate analyses indicate that increasing reimbursement levels is an important strategy for encouraging full Medicaid participation. In addition, full participants will increase their Medicaid caseloads in response to a variety of Medicaid policy incentives, while limited participants are found to respond to fewer policy incentives. The authors conclude that caution will be needed to ensure that health care cost-containment strategies such as capitation or selective contracting do not inadvertently discourage participation among both full and limited Medicaid participants.     

The political management of managed care: explaining variations in state health maintenance organization regulations

In the 1990s, strong incentives for managed care organizations to control costs, once regarded as a fortuitous confluence of interests, came to be seen as antithetical to consumers' interests in quality of care. In response to this change in political climate, many states have greatly increased their regulatory control of managed care organizations since the mid-1990s. This activity is surprising in an era when public policy on health care issues is usually described as frozen, gridlocked, and/or stalemated as a result of intense activity on the part of organized interests. We take advantage of the variation in state regulations of health maintenance organizations (HMOs) to discover why some governments are able to address policy problems that are often perceived as intractable in a political if not in a true policy sense. From the history of HMOs, the backlash against managed care, and state responses to that backlash, we first extract a number of hypotheses about state regulatory activity. We then test these hypotheses with data on regulatory adoptions by states during the late 1990s and the early 2000s. Last, we discuss the findings with special attention to the role of politics in health care.     

Medical liability and health care reform

We examine the impact of the Affordable Care Act (ACA) on medical liability and the controversy over whether federal medical reform including a damages cap could make a useful contribution to health care reform. By providing guaranteed access to health care insurance at community rates, the ACA could reduce the problem of under-compensation resulting from damages caps. However, it may also exacerbate the problem of under-claiming in the malpractice system, thereby reducing incentives to invest in loss prevention activities. Shifting losses from liability insurers to health insurers could further undermine the already weak deterrent effect of the medical liability system. Republicans in Congress and physician groups both pushed for the adoption of a federal damages cap as part of health care reform. Physician support for damages caps could be explained by concerns about the insurance cycle and the consequent instability of the market. Our own study presented here suggests that there is greater insurance market stability in states with caps on non-economic damages. Republicans in Congress argued that the enactment of damages caps would reduce aggregate health care costs. The Congressional Budget Office included savings from reduced health care utilization in its estimates of cost savings that would result from the enactment of a federal damages cap. But notwithstanding recent opinions offered by the CBO, it is not clear that caps will significantly reduce health care costs or that any savings will be passed on to consumers. The ACA included funding for state level demonstration projects for promising reforms such as offer and disclosure and health courts, but at this time the benefits of these reforms are also uncertain. There is a need for further studies on these issues.     

Decisions without consequences: cost control and access in state Medicaid programs.

States have implemented a number of strategies to provide services, pay providers, and control Medicaid spending. We test the effects of some differences in state Medicaid policies on program enrollees' access to and use of health care services. Logistic and OLS regression analyses of cross-sectional data indicate that these policies exert significant influences on enrollees' access to health services but have a weaker direct effect on their use of them. However, we find evidence that utilization is affected indirectly (through increased access) by state policy decisions. Somewhat surprisingly, Medicaid policies designed to contain costs by limiting utilization appear to affect neither access nor utilization. Medicaid enrollees have greater access to a private physician in states with higher physician reimbursement and additional Medicare insurance for their enrollees. Other nonpolicy variables with pronounced impacts on access to private office physicians include race and the availability of private insurance.     

Physicians' conflicts of interest in Japan and the United States: lessons for the United States

Japanese health policy shows that even with physician ownership and the absence of for-profit, investor-owned health care, physicians' conflicts of interest thrive. Physician dispensing of drugs and ownership of hospitals and clinics were justified in Japan as ways to avoid commercialization of medicine. Instead, they create physicians' conflicts and fuel patient overuse of services. Japan's Ministry of Health and Welfare (MHW) has responded by introducing per-diem payment, thereby creating incentives to decrease services in ways similar to those of American managed care organizations, but with none of their benefits, such as coordination of care, oversight of physicians practices, and quality assurance. Although the United States and Japanese health care systems are organized and financed differently there is convergence in the source of their physicians' conflicts and the way they are addressed. The United States is starting to integrate institutional and physician payment and align their incentives, in a traditional Japanese way. In so doing, the United States creates new physicians' conflicts and reduces the role of countervailing incentives and power, an advantage of previous policy. Japan, in turn, has combined incentives to increase and decrease services, thus moving closer to the U.S. policy.     

Barriers to achieving a cost-effective workforce mix: lessons from anesthesiology

As pressures to control health care costs increase, competition among physicians, advanced practice nurses, and other allied health providers has also intensified. Anesthesia care is one of the most highly contested terrains, where the growth in anesthesiologist supply has far outstripped total demand. This article explains why the supply has grown so fast despite evidence that nurse anesthetists provide equally good care at a fraction of the cost. Emphasis is given to payment incentives in the private sector and Medicare. Laudable attempts by the government to make Medicare payments more efficient and equitable by lowering the economic return to physicians specializing in anesthesia have created a hostile work environment. Nurse anesthetists are being dismissed from hospitals in favor of anesthesiologists who do not appear "on the payroll" but cost society more, nonetheless. Claims of antitrust violations by nurse anesthetists against anesthesiologists have not found much support in the courts for several reasons outlined in this essay. HMO penetration and other market forces have begun signaling new domestic physician graduates to eschew anesthesia, but, again, Medicare payment incentives encourage teaching hospitals to recruit international medical graduates to maintain graduate medical education payments. After suggesting desirable but likely ineffective reforms involving licensure laws and hospital organizational restructuring, the article discusses several alternative payment methods that would encourage hospitals and medical staffs to adopt a more cost-effective anesthesia workforce mix. Lessons for other nonphysician personnel conclude the article.     

Competition versus regulation: some empirical evidence

In response to dramatic rises in health care costs, policymakers have been debating the relative merits of regulatory and competitive strategies as a means of containing costs. One major activity espoused by proponents of competition is the growth of health maintenance organizations (HMOs) which, in their opinion, will result in the market better determining efficient levels of utilization and costs. Extending this argument, the larger the percent of the population in a market area who enroll in HMOs, the greater the market-forcing effect of HMOs in reducing overall hospital expenditures; that is, if HMOs are providing lower-cost care, then the fee-for-service system will be forced to reduce costs in order to be competitive. The authors studied the 25 largest SMSAs from 1971-1981, and controlling for environmental conditions in each market, they examined the impact of both HMO growth and regulatory activity on costs and utilization. They conclude that neither competition nor regulation had a significant impact in reducing overall hospital costs. While there may have been some impact in specific communities, no generalizable effect could be observed. However, the authors did find that increases in costs and utilization were essentially driven by supply factors such as the number of hospital beds or medical specialists in a given community.     

What is the HMO Act and what is its impact on employers?

The explosion in health care costs has spurred the development of Health Maintenance Organizations (HMOS). It is predicted that $180 billion will be spent on health care this year. The search for more economical alternatives to the traditional fee-for-service type of care has naturally focused attention on HMOs. Evidence indicates that the cost of HMO services can be one-fourth to one-third less than the cost of traditional care. Such figures make HMOs one of the most important, and least understood, topics confronting employers today.     

Special report on health care delivery systems. Hospitals should consider taking an active role in initiating the formation of medical groups for managed care contracting

Hospital promotion of physician organizations as described in this article is a relatively new phenomenon. Approaches that have worked at one institution and time might not be appropriate elsewhere, and in any case will be unlikely to work every time. Nevertheless, the rapid pace of change in the health care industry demands a fresh look at existing modes of operation. Hospitals in immediate need of incremental revenue cannot afford to sit idly by, hoping their physicians will organize themselves sufficiently to bring additional payor contracts and patients to the institution. Taking an active role in helping physicians to develop contracting organizations that also benefit the hospital may well be worth the time and expense involved.     

The medical review officer: a potential role for the medical examiner

Drug use in the workplace is a problem, both in terms of public health and expense. Workplace drug testing programs serve as deterrents to drug use. Model programs, such as that of the Department of Transportation, use urine screening and are federally regulated or follow federal standards. An essential participant in this process is the medical review officer (MRO), a licensed physician who interprets the laboratory results generated from a workplace drug testing program. As a result of their training and experience with toxicology, collection of evidence, testimony, and recognition of the physical signs of drug abuse, medical examiners and forensic pathologists are well suited to serve as MROs. Recent regulations require the completion of training courses and MRO certification as prerequisites for participation in federal drug testing programs. Several courses are available to train physicians to participate as MROs.