The Old Ways Are Fading : Other Options Force Doctors to Compete

For Richmond surgeon Ronald Davis, there is nothing more exhilarating than the feeling of completing an intricate operation, striding out of the operating room, snapping off his rubber gloves and informing family members of his latest success.

For his precision handiwork, Davis has been well rewarded. He drives a Mercedes-Benz, lives in one of the more prestigious sections of this central Virginia city and is a former president of the Richmond Academy of Medicine, the local county medical association.

By all outward appearances, Davis reflects the image of a doctor with an unlimited future. Yet these days, he and many other private physicians here are troubled, and he talks like a man whose very way of life is threatened.

In many ways, it has been. Since 1981, when the business community in this capital of the old Confederacy began to put out the word that it was seeking alternatives to the ever-escalating cost of health care, Richmond’s medical practitioners have been in turmoil.

“We don’t like to be patted on the head in a very patronizing way by business and be told when it’s time to come out and practice medicine,” Davis says of the business community’s efforts to lure alternative health-care systems to the area. “We’re going to have something to say about how medicine is practiced, both from the quality and the business aspect.”

But while doctors such as Davis talk about controlling their own destiny, in reality they know that the situation is changing.

Competition for patients--motivated by the assumption that costs can be controlled if medical consumers have more options for their care--has come to Richmond. Indeed, this city is now a textbook case of what can happen when the marketplace dictates changes in the delivery of health care.

That competition took so long to hit Richmond says something about the conservative nature of the medical community here. That it spread so quickly says something about the state of medicine today, both for those who practice it and those who pay for it.

For while doctors, aided by scientific and technological breakthroughs and wonder drugs, have been able to achieve incredible advances in caring for chronically ill patients, the healthy bulk of the American population, through their insurers, has been footing the bill. Clearly, for governments and private industry that underwrite the premiums of most American health consumers, cost has become the overriding issue.

Since the introduction of competition in Richmond, patients have been given a variety of options.

Flat Premiums, Discounts

There now are health maintainance organizations (HMOs) in which employers or patients pay a flat monthly premium in return for health care, and preferred provider organizations (PPOs) in which doctors and hospitals agree to provide participating businesses with health care services at a discounted rate.

Hospitals have opened small, free-standing medical units where a doctor, a nurse, a physician’s assistant, supported by equipment that can perform simple lab and X-ray procedures, provide routine and minor emergency care 12- to 24-hours-a-day for prices below those charged by local physicians or emergency rooms. Patient traffic at these medical units, derisively called “docs-in-the-box” by the medical community, is up while some Richmond physicians report a decrease in business for the first time in their careers.

By the middle of 1985, most observers here expect that this city of 500,000 will have at least six HMOs, 16 “doc-in-the-boxes,” possibly three physician-owned ambulatory surgical centers, and a great deal of scrambling by many of the area’s 1,500 physicians as they attempt to align themselves with one or more of the new health organizations.

All of this has not been lost on physicians in private practice, most of whom are now keeping their offices open longer and forgoing mid-week afternoons off as one approach to fighting back. Others have banded together to form their own health care-dispensing alternatives.

Can Do It Better

“Doctors are some of the most motivated people I know,” Davis says in a courtly, but combative tone. “Common sense would tell you that if a venture capitalist is going to come to town and set up an HMO and take (their profit) off the top and still provide medical care cheaper than it is being provided now, (local doctors) can do it better.

“If we don’t participate, we’ll be lost,” Davis continues. “We will lose our independence as physicians. We will work for some venture capitalists or hospital chain. If we put together our own HMO and gather a proportionate percentage of the market, we’ll still have clout.”

To some extent, Davis’ talk would be construed as unnecessarily alarmist in many parts of the country. For one thing, HMOs are not a new phenomenon. Organizations such as Kaiser-Permanente have been on the California medical scene since the late 1920s.

But in this part of the Southeast, where tradition dies very slowly, competition is being viewed as a powerful incentive to force family practitioners, pediatricians and gynecologists--typically independent-minded professionals who often like to see themselves the last of the rugged individualists--out of a “mom-and-pop store” era of solo practice and into group practices where the emphasis is on making the physician accessible any time of the day or night.

Remarkable Changes

While most health care and insurance analysts agree that it is too early to say definitely that competition reduces medical costs, early results show of that competition--or at least the threat of radically changing the way that physicians and hospitals are paid for health-care delivery--can bring about remarkable changes in the number of admissions to hospitals, the types of diagnostic tests prescribed and the length of hospital stays.

In Richmond’s case, the attempt to get a handle on costs became a battle between a well-entrenched medical community and an equally well-entrenched business community.

In 1981, with the aid of a $75,000 federal grant, the Metropolitan Chamber of Commerce of Richmond set up the Richmond Area Health Care Coalition. The goal of the group, composed of business executives, hospital administrators and doctors, was to find answers to why health-care costs continued to outpace the inflation rate and what could be done to hold them down.

What the coalition discovered startled many, said Wickcliffe (Wick) Lyne, administrator for the 292-bed Johnston-Willis Hospital, a for-profit hospital.

“They found that the tax structure of this country encourages over-utilization of medical services,” Lyne says. “They found that self-interest has been served on the part of providers as well as insurers--the more insurance that is sold, the more profits there are. They found that historically, labor had very definitely preferred to have benefits over wages and that mangements like that as well because there are tax write-off advantages to health benefits.”

HMO Enters Market

Committee members became determined to establish some type of alternative health insurance program in Richmond. But before it could take any action, PruCare, an HMO division of the Prudential Life Insurance Co. announced that it was going to enter the Richmond market.

“We knew that Richmond would be a good place to start a plan after we did a feasibility study which found a very sophisticated business community which had already banded together, begun to focus on the problems,” says James W. Brittain, a PruCare vice president who heads the Richmond division. “Once you have gotten (business leaders) to that point, it is easy to introduce partial solutions to the problems. That, more than anything else attracted us to Richmond.”

Word that an HMO was about to enter the Richmond area spread through the health-care community like wildfire, but most doctors and hospital administrators shrugged the idea off as a fad. They believed Richmond was too conservative and the fee-for-service concept too entrenched for any alternative health care system to take hold.

“We grew rather slowly until about April (1984) when adjacent Henrico County joined,” Brittain says. “In the very beginning, we got about 25% of their (5,500) employees. Then in July, the state of Virginia, the largest employer in Richmond, enrolled. Our membership suddenly shot up from about 5,000 to close to 10,000.”

Enrollment in PruCare today is about 13,000.

Rival Fights Back

PruCare’s success also gained the attention of Blue Cross/Blue Shield, which was seeing its dominant market threatened. It came up with its own plan--KeyCare--a group that would in a few months have all but two Richmond hospitals and about 1,100 Richmond physicians promising to provide medical service at a discount to members.

“The impetus (for starting KeyCare) was an atmosphere of panic,” says Edward C. Peple, Jr., director of the program. “We believe that a PPO is a good mid-point between traditional full-service programs and the HMO program, which is fairly narrowly defined between benefits and providers. We will continue to sell and service traditional benefits and we have also announced our intentions to start an HMO.”

So far, KeyCare trails far behind PruCare. About 8,000 people from 17 Richmond companies have signed on with the Blue Cross plan.

Medical care competition such as the situation in Richmond has given rise to a national debate within the medical community. If private physicians must battle for the medical dollar, some ask, aren’t they more likely to go after the patient who is covered by a medical plan and turn away from helping the poor? And wouldn’t this result in a two-tier system of medicine--one for the “working well,” those covered by private medical insurance, and a lesser quality of medical care for those who have no medical insurance?

Sharper Division

“There has been a two-tier system of medical care in this country for some time and it is growing with the aggressive cutbacks in federal funds, cutbacks in state medical funding programs, and with hospitals cutting back on charitable service,” said Paul Starr, a Harvard sociology professor whose book “The Social Transformation of American Medicine,” won the 1984 Pulitzer Prize for nonfiction. “What will happen is that this division in the quality of care will become clearer to the public.

“The haves and the have-nots in the medical-care arena will be sharply divided,” Starr continued. “And competition will not foster an atmosphere in which doctors will want to service a community which can not pay for medical care. The only period of time when it was profitable for a doctor to serve the poor was at the height of the Great Society in the late 1960s and early 1970s. Competition will turn the clock back to an era of the rich staying well or receiving the benefits of the miracles of medical science and the poor being left behind.”

Ethical questions centering on responsibility, malpractice and even antitrust, are also being raised in this competitively charged medical atmosphere.

Who, ask physicians, is responsible for a patient who is mandated--because of diagnostic prepayment systems--to leave the hospital before the personal physician believes it is time for that patient to leave? If a physician does not run an exotic blood test because the patient’s medical insurance does not pay for it and the Diagnostic Review Group deems the test unnecessary and that patient dies, is the doctor liable for malpractice?

Could Ban Doctors

And what if a group of businesses refuses to include a hospital or a physician on their PPO list or in their HMO group because the medical practitioner has a reputation for keeping patients in the hospital longer than the local average? Would such a move be construed as being anti-competitive?

“In the past, the medical profession has called all the shots on service, but the situation is changing,” says Robert Gertz, a Los Angeles attorney with Weisburg & Aronson, a firm that specializes in health-care issues. “With more parties having an input on how to treat the patient, the potential for malpractice liability to be passed on to the third party such as the state, the insurer or the corporation which imposed the the length of the hospital stay or imposed other restrictions increases. There are already a few such cases being tested, but a body of legal thought has yet to be developed.”