How should managed care physicians be paid?

When paying a physician for medical or surgical services, most patients expect the traditional bill or charge for that encounter or visit. While most people also pay health insurance premiums, few patients expect to prepay for their health care. But that is the foundation of most managed health care systems-prepaid medicine. PPOs, IPAs, and HMOs are typically health care providers linked together to provide services to a set population for a specific prepaid fee or "capitation" payment. Other providers contract with these managed care insurers to receive a predetermined and often "discounted" professional fee for services. These managed care organizations have already gone through a number of stages in determining how physicians are to be compensated for their services, and further changes loom on the horizon.     

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.     

Twenty steps to survive managed care.

The health care industry is in the midst of discounted, price-driven, managed care. Many older physicians, not wanting to practice in this environment, are opting for early retirement. Others sell their clinical practices to management companies or hospitals to avoid the economic reality of day-to-day financial management. Most of these private practices are losing money every year. However, there still are a large number of physicians who have not sold their practice. As capitation continues to grow, these physicians will experience severe cash flow problems unless their financial plight is addressed rapidly. If it is not, the resultant cash flow problems will cause accounts payable to grow. Twenty steps are outlined that a physician or group should take right away to maintain a healthy cash flow. These include: Instituting a nurse triage system, setting up an after-hours clinic, getting the co-pay at the time of service, implementing a patient satisfaction questionnaire, monitoring the capitation reports, and checking capitation lists.     

Surfing Stark II: prohibition against self-referrals

In 1989, the Chairman of the House Ways and Means Subcommittee on Health, Fortney (Pete) Stark (D.-Calif.), turned the health care industry on its ear by introducing the "Ethics in Patient Referrals Act" to Congress. The bill, commonly known as "Stark I," prohibited physician referrals to entities in which they held a financial interest. As Stark's bill made its way through Congress, its substance was dramatically reduced by the legislative process. Ultimately, the law was incorporated as part of the Omnibus Budget Reconciliation Act of 1990. Stark I's main thrust is that it bars physicians from referring Medicare patients to clinical laboratories with which they have a financial relationship. Furthermore, laboratories providing those services must report information concerning any ownership arrangements between the referring physician and the laboratory. Now, to complicate the picture, providers must contend with amendments to the original law that extend the reach of its prohibitions. Called "Stark II," these amendments took effect on January 1, 1995. In this article, guidelines for dealing successfully with the requirements of the law are outlined.     

The new health care civilization: integration of physician land and manageria

Changes occurring in health care demand that physicians expand their professional knowledge and skills beyond the medical and behavioral sciences. Subjects absent from traditional medical education curricula, such as the economics and politics of health care, practice management, and leadership of professional organizations, will become important competencies, particularly for physicians who serve in management roles. Because physicians occupy a central role in planning and allocating medical care services and other health care resources, they must be better prepared to work with other health care professionals to create a new civilization, even if this means leaving the cloistered domain of "physician land" to serve as interface professionals between the delivery of medical services and the management of health care. Our research findings and conclusions strongly suggest that economic, management, and leadership competencies need to be incorporated into the professional development of physicians, especially in postgraduate and continuing education curricula.     

Diagnosis-related group system. Can we still earn a living caring for sick people?

Medicare and Medicaid patients are starting to enroll in managed care organizations, as government tries to lower costs of caring for the elderly, disabled, and poor. Because they are the most likely to be sick, taking care of them imposes serious risks on hospitals and medical groups. The federal government uses the diagnosis-related group (DRG) system to reimburse hospitals. The system depends on physicians documenting diagnoses and complications. Physicians see illness as unpredictable, and so feel that detailed documentation of severity is futile. The government and health plans nevertheless follow case mix index and create hospital and physician profiles, relying on the existing imperfect system. For providers to be recognized for the value they add to the care of the sick, physicians must learn to use the DRG system to best advantage, or risk being driven out of business.     

If patients are now "customers," what does that make physicians?

As patients become "members" and "customers," as physicians become "practitioners" and "providers," the practice of medicine becomes more complex and more demanding. The changes that have affected the daily lives of physicians across America will continue and will likely become even more dramatic in the future. There is much to mourn in the passing of the medical practice of the recent past, but there is every reason to celebrate the ongoing triumphs of medicine and its successes in improving the human condition. The job of being a physician is not becoming any less important. The job has just gotten tougher. Successful physicians will cope with the multitude of changes in which the health care field is engaged and make themselves effective agents of change within their organizations.     

Capitation and informatics

When physicians, hospitals, and allied health professionals bill for services they render, their information processing requirements are relatively simple, at least compared to those of capitated organizations. When payers (insurers or employers) accept financial risk for the health care services of beneficiaries, they have usually invested in claims processing, membership tracking, and, under managed care, utilization review and provider profiling systems. But payers, for the most part, have not invested in electronic collection of clinical information about beneficiaries, nor have they tended to keep all claims they have processed in electronic form for study after accounts are settled and payments disbursed. In this article, we will explore why informatics is so important to capitated organizations and why payers that have traditionally taken financial risk for insuring the health care costs of populations are also learning about the importance of informatics.     

Ascendancy of primary care will create role intensification for physician executives

The need for physicians in management roles in the health care system has never been greater. And the years ahead will see that need broadened and intensified. To maintain their leadership role in medical affairs in hospitals and other types of health care delivery organizations, physician executives will have to envision provider organizations and systems that have not yet been conceived, let alone developed and implemented. They have to become totally open-minded and futuristic in their thinking. And they will have to help other physicians accommodate this new way of thinking if the medical profession is to continue in a leading role in health care matters. Although numerous factors will have to be anticipated and analyzed by these new physician leaders, the ascendancy of primary care in a managed health care world long dominated by the technical and technological superiority of hospital care will present a particular challenge to the physician executive.     

Dealing with the demands of change

If evidence of the changes occurring in and confronting the health care field were needed, it was provided in abundance at the College's Perspectives in Medical Management meeting in Chicago in May. The presentations and the discussions among members buttressed the feeling that the health care field is proceeding through a period of transformation. The evolving system will be anchored on managed care, with special emphasis on the word "managed." The accoutrements of managed care--case management, demand management, utilization management, clinical guidelines and protocols, capitation budgeting, and the like--dominated discussion. The "business" of health care is proceeding apace. Maintaining a balance between the financial and quality elements of health care delivery has never been more important. And the definition of that balance will be determined at the local and regional levels. Federal initiatives are temporarily in abeyance. The challenge for physician executives is to assume leadership in moving their organizations, and thus the health care system, toward a new design that corrects present deficiencies and positions both to respond more effectively to the health care market. While it is not possible to cover all of the more than 60 speakers who addressed the meeting, this report, through presentation of the ideas of some key presenters, is aimed at measuring at least the boundaries of the challenges that lie ahead.     

The evolving role of the primary care physician

In today's climate of health care reform, the title of this article might more appropriately be "Is the Role of the Primary Care Physician Evolving or Going the Way of the Dinosaur?" According to Koop, primary care is in trouble. Whereas only 29 percent of U.S. physicians are primary care physicians, in Great Britain, 72 percent of physicians are primary care physicians and in Europe and Canada the average is 50 percent. Many U.S. primary care physicians are in the later stages of their careers and nearing retirement age. Unless the supply increases, this number will dwindle further. However, in 1992, only 14 percent of U.S. medical school graduates were headed for primary care careers. Even if the supply of primary care graduates were increased to 50 percent of the graduating medical school class, it would be well into the next century before the ratio of primary care physicians to specialists would be equal. Primary care is at a critical juncture and the next few years will decide the fate of the primary care physician. Given the state of primary care today, I believe that a fundamental look at the assumptions regarding the role of primary care physicians is in order. The current health reform movement has placed a major responsibility on primary care to solve many of the problems in health care delivery today, such as cost, utilization, and prevention. Many health care organizations are planning strategies involving primary care providers, and physician executives can play a key role in these decisions.     

Managed care information needs: a summary perspective

The key to survival in managed care is management of financial risk. You need to know what is in your contract and what you are obligated to do for which population during which period. Information systems can be an enormous help in managing managed care contracts and the financial risks they entail, but poorly selected and configured information systems will do little good for the organization that licenses them. The most important activity of a physician executive who is moving his or her organization into managed care contracting is to lead the process to define the functional requirements for information the organization will need to manage managed care contracts successfully.     

Credentialing in managed care

Through the use of managed care techniques in recent years, the insurance industry has tried to bring the runaway costs of medical care under control. The result of this control effort is system access limitations, compared to the full choice indemnity plans of the past. This limited system access has now clearly moved HMOs and other managed care organizations into the category of "potentially liable health care entities," based on patient steerage, economic disincentives, and limited choices of the plan's participating providers and facilities. Just as hospitals have had to exercise rigorous care in the credentialing of members of their medical staffs, managed care organizations will have to ensure that the providers they use meet acceptable standards of competence.     

Power and new economic relationships

We are going through a transformation of our health services from a community and patient focus fueled by fee-for-service and cost-plus reimbursement. This transformation, called managed care, is shifting power away from professionals and communities into both new and old organizations financed by Wall Street. Even traditional community organizations are driven by Wall Street-dictated financial ratios that represent scoreboards to determine who gets capital for growth and development. Times are changing, organizations are changing, and still more change is ahead.     

Confronting the disruptive physician

Ignoring disruptive behavior is no longer an option in today's changing health care environment. Competition and managed care have caused more organizations to deal with the disruptive physician, rather than look the other way as many did in years past. But it's not an easy task, possibly the toughest of your management career. How should you confront a disruptive physician? By having clearly stated expectations for physician behavior and policies in place for dealing with problem physicians, organizations have a context from which to address the situation.     

Merger mania: physicians beware

Corporate consolidations, mergers, and acquisitions would seem to provide immense promise in furthering the development of health networking because they affect the governance of entire organizations, rather than simply establishing revised arrangements for specific services or patients. Yet, a limited number of empirical studies have been published to date that explore whether hospital mergers actually improve access, reduce cost, or improve quality of care; and, among the reports available, the conclusions are somewhat equivocal. Physicians should be cautious of these mergers, since they seem to focus either on eliminating a direct competitor or on forming a large horizontally and vertically diversified health network that then can become a major player in gaining exclusivity in managed care contracting. With either of these merger strategies, there are antitrust-type concerns that competition among physicians and other providers will be significantly curtailed, and that consumers will end up with fewer choices in obtaining cost effective, quality patient care.     

Primary care: the driver in health care reform

The changes occurring in the health care industry have resulted in a cost-quality competition that has not been present in the past. Because of this competition, managed care is a growing way of financing and providing health care to the people of the United States. Managed care depends heavily on competent primary care physicians. Because primary care physicians are in short supply, the status and financial rewards of primary care practice are increasing. The primary care physician will be the dominant force in medical practice in the immediate future. He or she is capable in a managed setting of resolving the perceived problems of the health care industry in responding to the drivers of health care reform. Costs are reduced while quality is maintained. Access to health care is improved, and fragmentation of health care is significantly lessened.     

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.     

Physician-centered management guidelines.

The "Fortune 500 Most Admired" companies fully understand the irreverent premise "the customer comes second" and that there is a direct correlation between a satisfied work force and productivity, service quality, and, ultimately, organizational success. If health care organizations hope to recruit and retain the quality workforce upon which their core competency depends, they must develop a vision strategic plan, organizational structure, and managerial style that acknowledges the vital and central role of physicians in the delivery of care. This article outlines a conceptual framework for effective physician management, a "critical pathway," that will enable health care organizations to add their name to the list of "most admired." The nine principles described in this article are based on a more respectful and solicitous treatment of physicians and their more central directing role in organizational change. They would permit the transformation of health care into a system that both preserves the virtues of the physician-patient relationship and meets the demand for quality and cost-effectiveness.     

The implications of practice guidelines for physician medical malpractice liability

Medical practice guidelines are increasingly coming into use, and as more and more physicians are presented with guidelines to follow in the delivery of health care, the question arises of whether these guidelines will become instruments for imposing greater medical malpractice liability on physicians. This column will briefly describe what guidelines are, how they are developed, and how they have been and may be used in litigation against physicians, hospitals, and other health care institutions. As hospitals and managed care organizations continue to implement guidelines, the role these guidelines play in malpractice cases can be expected to increase. It appears, however, that, although guidelines will contribute to the establishment of the standard of care by which a physician's actions will be measured, they are not likely to become the standard that all physician treatment decisions must meet.