HMOs Hike Pay to Providers, Ease Contract Rules
In an effort to moderate the pervasive instability racking health care in California and other states, managed-care companies have begun paying more to doctors and hospitals and eliminating some of the more onerous aspects of their contracts.
Many no longer are forcing doctors to pay the bills themselves when their patients go into the hospital, for example, or bear the full cost of prescription drugs. On Tuesday, Aetna Inc., the nation’s largest health insurer, said it would no longer require pre-approval for many surgical procedures and certain hospital stays and would no longer require doctors to take patients in its lowest-paying HMO plans as a condition of participating in other Aetna plans.
The idea is to eliminate some of the ill will that has poisoned the relationship between providers and health plans and restructure the payment system so that medical groups are not overburdened with the cost of providing care. For consumers, that could mean more stability among caregivers, as well as easier access to some specialists and hospitals.
But the system remains terribly insecure.
And leaders on both sides--at insurance companies as well as medical groups and hospitals--admit that the health plans’ efforts, while helpful, may be too little to stem the instability.
“Is this going to stabilize the system? I don’t think it’s going to be enough,” said Marie Kuffner, president of the California Medical Assn., which negotiated the changes announced by Aetna. “The whole system is crumbling.”
By easing up on physician groups, the health plans are trying to remedy damage wrought during a period when health maintenance plans were able to use their clout to force physician groups and hospitals to function more like insurance companies, accepting payments up front each month for every patient and then paying for all aspects of care--even hospitalization--out of that money.
The HMOs were able to set up the system that way because some states--particularly California--had a surplus of doctors and hospitals, and the HMOs had leverage, said Princeton University health economist Uwe Reinhardt.
“The HMOs exploited the situation by paying [the doctors] an amount that wasn’t enough to cover their costs,” Reinhardt said.
In California, where managed care was born and where 18 million people had joined HMOs by the late 1990s, these medical groups, functioning as quasi-insurance companies, formed the foundation of the entire managed-care system.
The result has been clear enough: Dozens of medical groups have gone bankrupt, merged or gone out of business over the last two years. Patients have been stranded as their doctors scrambled to find new groups to join--or left the managed-care system altogether.
And HMOs, suddenly, have found that they have to change in order to keep members.
“Ten years ago, many of the HMOs were set up to be essentially pass-through models--we collected the premiums and paid out a percentage to providers to handle virtually all aspects of care,” said Susan Blais, executive vice president of Maxicare Health Plans Inc. “Now, HMOs have to act more like traditional insurance companies.”
It became obvious, Blais and others said, that medical groups and hospitals had neither the money nor the expertise to manage risk like an insurance company.
Whereas a big insurer might have tens of millions or even hundreds of millions of dollars coming in each month to use to pay claims, and a staff of skilled actuaries to calculate how much might be needed and how deep the company’s reserves ought to be, medical groups and hospitals had none of that.
Plus, according to the hospitals and medical groups, even those organizations that did learn how to manage risk weren’t being paid enough in the form of monthly fees--known in the business as capitation payments--to make it work.
Over the last year, as medical groups, hospitals and medical equipment vendors have struggled or gone out of business, those that remain have demanded higher capitation payments--and pressured the plans to take on more risk.
Most have complied. Health Net, for example, which relied heavily on the old model, has curtailed its reliance on doctors to pay for prescription drugs and hospital stays for patients. Aetna also will stop passing the risk for prescription drugs to medical groups and will pay for expensive new technologies for at least the first year they are used.
The company also will pay a monthly fee to medical groups starting on the first day that a patient signs up, even if the patient doesn’t choose a doctor or seek treatment for months or years after that.
Aetna’s move Tuesday followed its announcement that it will cut 5,000 jobs and shed unprofitable businesses--and customers--in an effort to boost its bottom line. It also said it would aggressively raise rates for new business and renewals next year. Premiums could increase as much as 13% for some plans next year, Aetna said.
Blue Shield will help doctors pay for drugs that are injected in the doctor’s office, such as chemotherapy medication, which cost more than $10,000 per year, said Blue Shield Senior Vice President Alan Puzarne. The move is expected to cost the nonprofit HMO about $13 million.
But making such changes requires tremendous shifts in the culture and structure of an HMO. Santa Ana-based Pacificare Health Systems, where the marketplace forced its surprisingly rapid retreat from capitation, is facing millions of dollars in extra expenses each quarter because it did not have the resources in place to handle claims or manage patient care.
To avoid such pitfalls as the system continues to evolve, Maxicare has committed to spend $50 million over the next seven years for information systems designed to let the company handle more of the functions usually found at an insurance company. And the Los Angeles-based HMO has hired 50 people who are expert in paying claims and figuring out how much money the HMO will need to put aside to pay for care.
Providers welcome the changes, said John Wray, senior vice president for managed care at Catholic Healthcare West, which operates 43 hospitals and several physician groups in California.
“In the last six months there’s more of a constructive dialogue with the plans,” Wray said. “It’s helping, but there’s still a fair amount that needs to be done.”
