Strategic positioning. Part 1: The sources of value under managed care

Part 1 of this series organizes and discusses the sources of value against a background of an evolving managed care market. Part 2 will present, in more detail, the marketing and financial challenges to organizational positioning and performance across the four stages of managed care. What are the basic principles or tenets of value and how do they apply to the health care industry? Why is strategic positioning so important to health care organizations struggling in a managed care environment and what are the sources of value? Service motivated employees and the systems that educate them represent a stronger competitive advantage than having assets and technology that are available to anyone. As the health care marketplace evolves, organizations must develop a strategic position that will provide such value and for which the customer will be willing to pay.     

Transition to capitation. Core competencies for physician practice success

The growth of managed care--with the resulting consolidation, cost control, and profit-oriented players entering the market--is a major source of concern. Largely due to this market evolution, physicians find themselves in the position of working within a single management paradigm and attempting to apply it in two different contexts: capitated payment systems and traditional fee-for-service medicine. This article identifies, compares, and contrasts the competencies necessary for successful practice in a managed care, as opposed to a fee-for-service, environment.     

Success in managed care: improving clinical quality

What are the economic elements for success in managed care? Although they are quite simple, achieving them can be difficult. The criteria for success in the fee-for-service medical delivery system, generally characterized as "see more--do more--get more," are no longer valid for delivering care in a managed care system. This article identifies the economic elements for success in managed care, and offers a disciplined approach to achieving them, combining both actuarial and clinical expertise.     

The new production theory for health care through clinical reengineering: a study of clinical guidelines--Part II

In Part I of this two-part article, in the December 1994 issue of the journal, the author discussed the manufacturing theories of Peter Drucker in terms of their applicability for the health care field. He concluded that Drucker's four principles and practices of manufacturing--statistical quality control, manufacturing accounting, modular organization, and systems approach--do have application to the health care system. Clinical guidelines, a variation on the Drucker theory, are a specific example of the manufacturing process in health. The performance to date of some guidelines and their implications for the health care reform debate are discussed in Part II of the article.     

Self-directed health plans: alternatives to managed care enabled by new technologies

Few people believed the Internet would have much impact on the delivery of health care services. However, combined with technological advances in how computer systems are structured and implemented and knowing what doesn't work in managed care from bitter experience, the Internet is being used to create a new paradigm of alternative health insurance products. These products hold the potential to change for the better the face of health care as we know it. Self-directed health plans will be less expensive than managed care programs and offer greater predictability in health care spending. For health care providers, SDHPs' reliance upon episode allowances will create a new market for packaged or bundled services. Providers will be paid to provide solutions, not just treatment. This could represent a new model in which physicians accept a risk-adjusted payment and provide a warranty that they will do whatever necessary until the patient has reached the reasonably expected health status. This is a radical departure from the fee-for-service or capitation system.     

Quality management remains top medical manager responsibility

Earlier this year, the Physician Executive Management Center conducted a survey of physician executives in management positions in hospitals, group practices, managed care organizations, and industry. Information was obtained for physician executives in both full-time and part-time roles. In addition to gathering compensation information, the survey sought to define the scope and intensity of the responsibilities of physician CEOs and senior medical managers (medical directors or the equivalent) in these organizations. In this article, the authors summarize the findings on responsibilities for senior medical managers in hospitals, group practices, and managed care organizations.     

The new production theory for health care through clinical reengineering: a study of clinical guidelines--Part I

Drucker writes that the emerging theory of manufacturing includes four principles and practices: statistical quality control, manufacturing accounting, modular organization, and systems approach. SQC is a rigorous, scientific method of identifying variation in the quality and productivity of a given production process, with an emphasis on improvement. The new manufacturing economics intends to integrate the production strategy with the business strategy in order to account for the biggest portions of costs that the old methods did not assess: time and automation. Production operations that are both standardized and flexible will allow the organization to keep up with changes in design, technology, and the market. The return on innovation in this environment is predicated on a modular arrangement of flexible steps in the process. Finally, the systems approach sees the entire process as being integrated in converting goods or services into economic satisfaction. There is now a major restructuring of the U.S. health care industry, and the incorporation of these four theories into health care reform would appear to be essential. This two-part article will address two problems: Will Drucker's theories relate to health care (Part I)? Will the "new manufacturing" in health care (practice guidelines) demonstrate cost, quality, and access changes that reform demands (Part II)?     

Health care futures. Part 2: The future of physician executives? Panel discussion

What is the future of health care in America? This is Part 2 of The Physician Executive panel discussion that explores the future of health care in America. To narrow this ambitious focus somewhat, the future is defined as five to 10 years hence. In Part 1, which was published in the May/June issue, Russell C. Coile, Jr., Barbara LeTourneau, MD, MBA, FACPE, James Reinertsen, MD, Uwe Reinhardt, PhD, Marshall Ruffin, MD, MPH, MBA, FACPE, and David Vogel, MS, shared their opinions about what the future holds in managed care, information technology, and biotechnology. In Part 2, Susan Cejka, Barbara LeTourneau, MD, MBA, FACPE, John Henry Pfifferling, PhD, Uwe Reinhardt, PhD, and James Todd, MD, share their views on the future of medical education and physician executives.     

Global theory and the nature of risk, Part I. How orthodox managed care stifles innovation.

The growing awareness that managed care is rapidly unraveling has not only produced a good deal of alarm, but also a call for prognostications regarding the future. Unfortunately, old habits die hard, and wedded ideologies die even harder. Instead of paving the way for innovation, most managed care pundits refuse to read the tea leaves properly and acknowledge that the orthodox regime is irretrievably comatose. Not understanding the fundamental flaws inherent in the old model, many persevere with rehashed predictions that only echo the very non-starters that got us in the present jam in the first place. Managed care has so far focused its energies on integrating the wrong objects, insurance and care, with all the predictably bad effects. Part 2 of this article will explore what this means and introduce the global theory of managed care as an alternative vision. Global theory lays a new foundation based on a more sound microeconomic model of risk, bifurcated markets, global fees for integrated episodes of care, and most important of all, patient/physician sovereignty.     

Legal implications of managed care arrangements

Prior to the 1980s, managed care was virtually nonexistent as a force in health care. Presently, 64 percent of employees in America are covered by managed care plans, including health maintenance organizations (20 percent) and preferred provider organizations (44 percent). In contrast, only 29 percent of employees were enrolled in managed care plans in 1988 and only 47 percent in 1991. To date, the primary reason for this incredible growth in managed care has been economic-market pressure to reduce health care costs. For the foreseeable future, political pressures are likely to fuel this growth, as managed care is at the center of President Clinton's national health care plan. Although there are numerous legal issues surrounding managed care, this article focuses primarily on antitrust implications when forming managed care entities. In addition, the corporate practice of medicine doctrine, certain tax issues, and the fraud and abuse laws are discussed.     

Newspapers foretell health care's future.

This article is based on a two-months snapshot (November 1998 to January 1999) of newspaper articles addressing various health care issues. Newspaper contents reflect the changing market share of competing societal concerns. Health care issues, particularly cost and choice, now preoccupy the American people. Health care trends percolate bottom-up through the pages of newspapers, not top-down from Washington, D.C, policymakers, or health care executives. By reviewing these articles, the author provides a big picture view of the prevailing and emerging health care trends. From the new thrust of consumerism and the public backlash against managed care organizations to the demise of HMOs and PPMCs, these observations signify not only the concerns that are bubbling to the surface but also the direction that health care is headed. Consumers are in the driver's seat and physician executives need to provide them with evidence of the value they desire--and understand what they perceive as value.     

Managing the mixed physician practice.

In general, utilization of health care resources translates into physician income. In both a capitated and a fee-for-service environment, the physician is reimbursed for patient care. The reimbursement structures of these two systems is quite different, however, and this difference creates a perplexing reward system for the physician. This article has two goals: To focus on the decision-making process of physicians in a mixed fee-for-service/HMO environment and the potential for cognitive dissonance in this system. To propose an approach for physician leaders in this setting to not only manage and minimize cognitive dissonance, but also strategically position their group for a successful future.     

MedDigital trends and tactics to lead into the future

Physician executives need to harness appropriate digital technology by understanding key trends and implementing best tactics. Being and doing MedDigital means taking back control and improving care--and, at the same time, improving efficiencies and the bottom line. This article presents seven e-trends that are shaping health care: (1) Consumers and patients are pushing doctors to go digital; (2) from Web health information to MedDigital decision support; (3) beyond managed care to custom health; (4) wireless is the way of the new world; (5) Passive web portals yield to digital destinations; (6) e-commerce means lower transaction cost; and (7) develop e-health care ROI methodologies and track results. The authors provide myriad examples of new technology that will revolutionize health care and provide both physicians and consumers with valuable interactive tools to enhance health, treatment, and decision-making.     

Transition to capitation. Aligning incentives for success

Horror stories abound about providers that have failed to modify their incentive systems and have exhausted their annual capitation budget in the first six months of the plan year. Aligning the business strategy and financial incentives in advance is the best way to ensure that your integrated delivery system's transition to capitation is a success story. Rarely are physicians or hospitals with experience limited to the fee-for-service arena prepared to jump into a managed care or capitated compensation system. The transition can be eased by implementing a "shadow" capitation or similar arrangement that will test physician performance under a risk arrangement in advance. The information can be used to restructure the compensation system to ensure that the behaviors being encouraged will promote successful care and fiscal management.     

Revenue models in managed competition

As physicians and medical centers move into a changing reimbursement era, it is valuable for physician executives to have tools to help physicians understand the relationships among costs, revenues, and utilization. These relationships differ within the fee-for-service, prepaid, and managed fee-for-service revenue models. This article describes these different revenue models and highlights the benefits and issues associated with each model.     

Evaluating risk: global fees and episodic care

In 1999, two articles in The Physician Executive -- "Part I: Global Theory and the Nature of Risk (July-August)." and "Part II: Towards a Choice-Based Model of Managed Care (October-November)" -- outlined the flaws of orthodox managed care theory and highlighted the unique advantages of moving to a genuinely market-based model, which included the concept of direct contracting for integrated episodes of care. This follow-up focuses on comparing an episode contracting system to a traditional capitated program and outlines the features that make this approach much more attractive to physicians, payers, and most importantly patients.     

Managing competence acquisition and financial performance: An empirical study of how small firms use competence acquisition strategies

Past research has neglected how small firms manage competence acquisition. Based on transaction cost literature, this article identifies competence acquisition management strategies and their implications for performance. We explore this issue using survey data from 842 small, knowledge-intensive firms. The results outline four aspects of competence acquisition management: (1) competence absorbers, (2) social acquirers, (3) market acquirers, and (4) nonacquirers. Furthermore, we hypothesized and found that market acquirers score higher in terms of financial performance than firms following the other strategies. The market acquirer strategy proved particularly effective under conditions of high dynamism.     

Health care economics is changing--the law is sure to follow

Law is intimately related to economics. As the economic relationships in a market change, the legal landscape evolves accordingly. Even if no health care reform is enacted at the federal level, ever-increasing portions of today's managed indemnity sector will convert to plans constraining enrollee choice and seeking to deliver cost-effective care through risk-sharing relationships (both corporate and contractual) with providers. This is inevitable, given employer and federal government pricing demands, and it is changing the face of health care law. If federal reform is enacted and/or the systems adopted in Minnesota, Maryland, Washington, and Florida (to name a few) are replicated elsewhere, the legal concerns of physicians and other providers will shift even more dramatically. In this article, some of the legal fall-out from these economic developments is discussed.     

New market forces are special challenge to academic health centers

New market forces--insurer integration into the provider business, "mega-mergers, price and premium reductions, a scramble to create specialty carve-out networks, and the like--have emerged that are placing significant pressure on academic medical centers. All of these forces are accelerating the pace of managed care market maturation. In order to effectively compete in this new marketplace, academic health centers have substantial barriers to overcome. To do so will require the creation of a system to manage the health care of populations while minimizing system costs and maximizing quality. This will require the establishment of a unified medical center approach to markets and value management. Academic health centers will by necessity develop strategies to include strong primary care-based network affiliations in order to accomplish these tasks.     

Attracting qualified physicians to underserved areas. Part 2. Pay physicians more to practice in underserved areas.

With health networks searching for additional market share and with a projected 30.2 million to be enrolled in Medicaid HMOs by 2000, more health executives will be weighing various strategies of how to attract qualified physicians to practice in poor inner-city and rural areas. Most frequently cited as solutions are supplying more physicians, encouraging more medical school graduates to pursue primary care residencies, and modifying the number of international medical graduates entering U.S. residency programs. Part I of this article, which appeared in the November/December issue of The Physician Executive, reviewed the efficacy of these approaches. The second part explores a more pragmatic option: to simply improve the working conditions and pay substantially more to physicians who practice in "less desirable" locations. Although this idea is consistent with economic principles, drawbacks must be considered, such as: (1) the American taxpayers' reluctance to finance a more costly health care delivery system for the poor; (2) the inherent conceptual difficulties of a capitated Medicaid HMO serving as the linchpin for organizing, financing, and delivering care for the underserved; and, (3) many providers being expected to react in a fairly litigious manner to such an approach.