Blue Cross Plan Cuts Payments to Specialists

Citing the spiraling costs of specialized health care, Blue Cross of California has taken the unprecedented step of slashing payments by 5% to 6% to specialist doctors in a health plan that serves 1.8 million customers in the state.

The action by Blue Cross’ Prudent Buyer Plan--the biggest so-called preferred provider organization in California--is designed to reduce doctors’ financial incentive to perform expensive procedures when less costly ones would do.

But critics said Wednesday that it justified concerns they voiced when nonprofit Blue Cross spun off the giant plan earlier this year into a for-profit operation. Some physicians expressed doubts that Blue Cross would accomplish its goal of discouraging use of specialists.

It is the first time that so large a private health network has cut payments across the board to a broad class of physicians. The doctors most affected are hospital-based specialists in pathology, radiology, anesthesiology and surgery, including obstetrics. Blue Cross said that about 40% of the 34,400 doctors in the health plan would be affected.

Blue Cross’ move is part of a broader trend pushing patients toward general practitioners--also known as primary-care physicians--and away from more expensive specialists. Some observers said it might also be a harbinger of wide-scale cost-cutting that could come with national “managed care” health reforms.

“Our message is that a greater portion of care can and should be delivered in a primary-care setting,” Dr. David Chernof, Blue Cross medical director, said.

Blue Cross was responding, he said Wednesday, to a spurt in costs that began about 15 months ago, caused by heavier patient use of both primary and specialized care. After a period of moderate increases--in the 5% range on an annual basis--the growth in cost of care suddenly quadrupled to nearly 20% a year, Chernof said.

In addition to the payment cuts, Blue Cross has raised premium costs 6% for individual members of the Prudent Buyer Plan.

The Prudent Buyer Plan, like other preferred provider organizations, controls costs by negotiating the rates it pays member doctors for various services. But unlike health-maintenance organizations, so-called PPOs do not use primary-care doctors as gatekeepers controlling patient access to care.

Critics on Wednesday said cost-squeezing like that undertaken by Blue Cross--if done arbitrarily or too quickly--would drive some physicians out of business and result in lower-quality care.

“This is no surprise, the way things have been going,” said Laguna Hills dermatologist Terence Maloy, president of the Orange County Medical Assn. “We’re going to see a lot of early retirements and no financial incentive to bring people into the specialties.”

Maloy and other physicians said they expected other large PPO networks to follow Blue Cross’ lead and begin chopping doctors’ fees.

“There is a feeding frenzy going on, and it’s aimed at doctors,” said Dr. Terence Oheany, a Fountain Valley gynecologist. “It’s an open invitation for other companies to do the same thing.”

Representatives of several other large California PPO networks said they would be watching closely but would not immediately reduce their payments.

“We feel our rates are very competitive,” said F. X. McLellan, chief executive of Aetna Health Plans of California, which has 300,000 PPO customers in California. “If you really dictate to providers and end up in an adversarial relationship, it doesn’t save money in the long run.”

The California Medical Assn. challenged Blue Cross’ contention that its payment-cutting measure was due to rising medical costs.

CMA President David Holley noted Wednesday that the new Blue Cross for-profit subsidiary that runs the Prudent Buyer Plan recently disclosed a doubling of operating profits and a decline in its cost of health care services.

The unit, WellPoint Health Networks, said in a filing with the Securities and Exchange Commission that its medical-loss ratio, or cost of health care services, had declined to 72.2% of revenues in 1992 from 76.4% in 1990. Over the same period, operating income rose to 13.4% of revenues from 6.3%.

The CMA has been critical of the way that Blue Cross created WellPoint. In a highly successful stock offering in January, Blue Cross sold 17.5% of the unit to public shareholders, raising $476 million. By keeping a majority stake, Blue Cross avoided state laws requiring nonprofit organizations to make large charitable contributions when they convert to for-profit status.

“We suspect that our concerns over how a for-profit health care corporation acts differently in the marketplace versus a nonprofit corporation have rung true again,” Holley wrote.

A Blue Cross spokesman said: “There is no connection between these fees and the restructuring.”

Dr. Arthur Wisot, a Torrance obstetrician, said he doubted that the payment reduction would accomplish Blue Cross’ stated purpose of increasing use of primary care. Wisot suggested that the simplest and most effective means of doing that would be to reward consumers directly by cutting their deductibles or co-payments for primary-care visits.

Dr. Jud Schoendorf, an allergist who is chief executive of Harriman Jones Medical Group, a large, multi-specialty clinic in Long Beach, said the Blue Cross action was part of a long-term trend that will be “fairly wrenching,” not only for physicians but for patients as well.

For years, government and private systems included warped incentives that promoted overuse of medicines, machines and surgical procedures, Schoendorf said. And while the incentives should be changed, he added, “we are not able to adapt on a dime.”