HMOs embrace tiered benefits
The San Diego Union-Tribune
March 10, 2002
By Tony Fong
A handful of HMOs in California have begun offering plans that steer patients into selected hospitals where no co-payments are required. Patients who use nonpreferred hospitals are charged hefty co-payments, sometimes as much as hundreds of dollars a day.
And, starting next year, the PacifiCare HMO plans to divide medical groups and doctors into similar categories. Members who use "preferred" doctors will have lower co-payments and deductibles than members who don't.
The new plans are similar to other managed-care models such as preferred-provider organizations plans, or PPOs, and point-of-service plans, or POS, except that they are part of HMOs. In effect, the plans are creating networks within existing networks.
Such a tiering of benefits is designed to funnel more patients to those providers that charge the health plans less, while forcing patients who use the more expensive networks to pay more of the cost themselves.
Health-care analysts say that such plans are here to stay.
Dr. Sam Ho, corporate medical director for PacifiCare, said tiering is viable now because there are more effective ways of measuring the quality of care and consumers are seeking greater choice in their health care.
"Our hospital costs were rising dramatically, and we had several options: We could raise prices to the hospitals, cut hospitals from our networks or cut benefits," Epstein said (Tom Epstein, a spokesman for Blue Shield). "Or we could raise prices to our members."
Health-care economists say that shifting costs onto consumers, however, leads to an inequitable health system in which the sickest patients and low-wage earners are most adversely affected financially.
Thomas Rice, a professor at the UCLA School of Public Health, said health insurance has historically operated on the principle that the healthy population should subsidize coverage for the sicker population, making it possible for low-wage earners to get care.
Shifting costs to consumers undermines that, experts said.
Larry Levitt, an analyst at the Kaiser Family Foundation:
"The more you charge patients at the point of service, the more you move away from insurance. It's a matter of people getting different levels of care. You may get better care at the cheaper hospital than the more expensive one, but you don't know because it's based solely on costs."
<http://www.uniontrib.com/news/uniontrib/sun/business/news_1b10tiers.html>http://www.uniontrib.com/news/uniontrib/sun/business/news_1b10tiers.html
Comment: The prevailing rhetoric is that, in this age of consumerism, choice is being delegated to the patient-consumer who will control health care costs by becoming an empowered consumer. Let's look at how this works.
Let's begin with the first step, and that is choosing your health plan. What questions does the informed shopper need to ask?
What menu of health plans does my employer offer? Only one plan? So much for shopping!
But let's assume that there is a menu of plans. Now what questions need to be asked?
Is my physician contracted with the plan? How do I find out? Those lists are difficult to locate and are frequently outdated as contracts continually change.
If my physician is contracted, is he or she in the less expensive tier? If I can't even find out whether my physician is contracted, how can I find out which tier?
If not contracted in the right tier, are there other physicians in the less expensive tier that I can accept, even though it means leaving my current physician?
Which hospital does my physician use? Is it a contracted hospital? If so, which tier is it? But if we have only one hospital in our community and it is in the wrong tier, doesn't that mean that I really don't have any choice? Assuming there are a few hospitals, why do I have to go across town to that hospital with the bad reputation to qualify for the lower tier? But my physician isn't on the staff of that hospital anyway? Do I really have any choice here?
And my employer has just announced that they are changing the health insurance contract in January? I have to start all over again!?
And those that do not have access to coverage through their employers and are dependent on the private market in health plans? Premiums are 30% higher than those for the employers. And the plans are rapidly shifting more costs to the beneficiary. Is an unaffordable policy with inadequate coverage really a choice?
Informed shoppers? Choice? When looking at what should be the simple process of merely choosing a health plan, we see that consumers in reality have very little choice. And now the health plans are shifting more costs to the consumers when they "choose" the more expensive tier when they often had no other option.
The health plans are not only nailing the patient-beneficiaries, but they are also going after the providers. One of the successes of managed care was to ratchet down the rates of the providers. The effectiveness of this strategy was so great that it drove many physician groups into bankruptcy. That left fewer groups that were now able to negotiate rates which would assure solvency. This is one of the reasons that we are seeing large premium increases again. Now the health plans are back with their ratchets to extort agreements selectively within their own list of cooperating, contracted providers. Ratchets are designed to move in one direction only. We can anticipate that health plans will only expand application of these policies that will further shift costs and risks to patients and their providers, making them useless as "insurers." The health plans have literally become cut-throat organizations.
Choice is a good thing when it means that you can choose your physician and your hospital. But as long as we leave control in the hands of the health plans, we will not have choice, and we will be subjected to the extorting, cut-throat business practices of this worthless industry of middleman leeches.
All efforts at reform today continue to build on this nefarious industry. Enough! Let's throw them out! Let's adopt an equitable, publicly-administered program of universal health insurance. Then patients will have true choice within an industry of health care providers that are motivated to please patients rather than health plan executives.
Kip Sullivan responds to Uwe Reinhardt's comments on Medicare HMOs, then Reinhardt responds to Sullivan, and then one more response by Sullivan:
Kip Sullivan:
Since we seem to agree on this question of whether managed care saved money for Medicare, let's dispose of that issue first. When I said Medicare HMOs have driven up Medicare's costs, I meant that Medicare HMOs are less efficient than the traditional Medicare program -- that a dollar invested in Medicare HMOs buys less health care than a dollar invested in classical FFS Medicare. Are we in agreement about that? Your first sentence suggests you agree with me, but your second sentence citing the additional coverage most Medicare HMOs provide suggests you disagree or are unsure.
Uwe Reinhardt:
It is known from studies by Mathematica, MedPAC and others, that during the 1990s the HMOs did benefit from a favorable risk selection-whether it was deliberate cherry picking or accidental matters not. The benefits of favorable risk selection helped fund extra benefits--such as vision care, prescription drugs or the elimination of the Part B premium--that was bestowed on Medicare beneficiaries. Add support for these benefits may have come from some utilization control and, in California, from fees sometimes at 90% or so of Medicare's own fee schedule. Aside from PacifiCare, most HMOs did not flow much added benefit to their bottom line. In general, having Medicare patients hurts an HMO's stock--now even PacifiCare.
That was then. At this time, the mounting cost of these added benefits has outstripped whatever benefits HMOs may receive from favorable risk selection. Furthermore, whatever economies or price discounts the HMOs may have reaped in the 1990s have been harvested. It is the reason why so many HMOs are pulling out of Medicare+Choice.
I agree though that, as we look to the future, the cost of serving a given set of elderly patients through Medicare, enhanced by a drug benefit, is likely to be lower than giving the same elderly the same benefits through Medicare+Choice. Why? Because Medicare can probably do this at a loss ratio of 97%-98%, while HMOs are lucky to make any profit at a loss ratio of 90%. They will burn an extra 8-10 cents per dollar just on their higher SG&A and the profits they need to offer investors.
Consequently, if the HMOs want to play in this market, they must be able to look society in the eye and say: yes, going with us will raise somewhat the total annual health care cost per risk-adjusted elderly, but we will be able to offer a superior health care experience to the elderly for it. I have challenged many HMO executives to tell me what those added quality dimensions might be. Sadly, many of them still run on the cliché that anything the private sector does is, ipso facto, more efficient than anything government does, and therefore have not thought beyond it to rationalize a move towards Breaux-Frist.
I have found it as frustrating as you probably find it unsurprising.
Kip Sullivan:
When I suggested we debate your assumption that managed care has saved money and maintained or improved health, I was thinking we'd exchange perhaps a half dozen emails on these complex issues. But Don tells me that that much discussion is more than many members on this list are going to want to read, and has asked me to limit my rejoinder to just this email. To do that in one email, I'm going to have to cite two articles I wrote and leave it to you and other readers either to accept my conclusions or dig up the articles. That was not my original intention, though.
Does managed care save Medicare money?
We agree that managed care plans (MCPs) have not saved Medicare any money, and, because they have overheads that are extremely high compared to FFS Medicare's, they are utterly incapable of ever saving Medicare any money. The only change I would make to your comments is that the overheads of MCPs probably average closer to 20 to 30 percent, not 10 percent.
Does managed care save the private sector money?
In your previous email, you based your claim that "managed care" saves money for the private sector solely on the lull in health care inflation that America enjoyed between 1992 and 1996. This strikes me as a very thin reed upon which to base the assertion that "managed care" saves money. If this is all you have to rely on, then I believe you should adopt my position, which is that the evidence on whether managed care saves money is inconclusive.
As you recall, I wrote an article for Health Affairs in which I reviewed the literature on whether managed care saves money (the literature doesn't support that conclusion, not even for HMOs as opposed to PPOs), and then I presented an explanation for the 1992-96 inflation lull that did not rely on the never-documented assumption that managed care saves money ("On the 'efficiency' of managed care plans," Health Affairs 2000; 19(4):139-148). I presented evidence that the inflation lull was caused by three factors: (1) a huge, record-breaking decline in the general inflation rate that began in 1991; (2) the predictable downturn in the three-year underwriting cycle that began in 1992; (3) merger fever that began late in 1992, triggered by a rush of endorsements of managed competition by state and federal politicians between the fall of 1992 and the spring of 1993, and the resulting low-balling of prices by players throughout the health-care industry; and (4) the delayed effects of the 1990-91 recession.
The rapid return of torrid premium and total-expenditure inflation in the late 1990s, despite the persistence of a low underlying inflation rate, adds weight to my conclusion that managed care had little or nothing to do with the mid-90s inflation lull. I predict we will see a slight reduction in the inflation rate in the next year or so, but this reduction will not be anything like the unusually long 1992-96 lull (precisely because three of the four factors I listed above will not be operative), and this decline will be temporary because it will merely reflect one of the four causes I listed above -- a downturn in the underwriting cycle.
Does managed care improve quality of care?
Your claim that managed care improved the quality of health care in America (you made that statement to this list a year ago, and your recent emails imply you still adhere to) is not supported by any of the three big categories of evidence -- anecdotal, polling and focus group data, and good research. Here I'll just focus on the last category.
In 1994 and 1997, Robert Miller and Harold Luft published literature reviews claiming to find that medical care offered by FFS and MCP docs was equivalent. The 1997 Miller-Luft literature review was financed by the American Association of Health Plans, no less, and still Miller and Luft couldn't bring themselves to conclude that quality of MCP care was superior, as you have argued. These reviews were, as of 2000, the most thorough literature reviews ever done on this question. (I haven't been doing my homework as assiduously as I should have over the last 18 months, so I would appreciate being notified of any reviews published recently that members of this list believe are thorough and well done.)
I located and read every one of the 44 studies Miller-Luft cited in their two reviews to see for myself if I thought the studies used reasonable methodologies. To my surprise, I discovered that the great majority of these studies failed to control for differences in coverage between FFS and MCP patients. In all the studies, MCP patients had coverage for the type of treatment under consideration, but in many studies some or all of the FFS patients had inferior coverage (e.g., coverage for doctor visits but no drug coverage) or lacked any insurance at all.
Can you imagine my astonishment? How the heck does one draw any conclusions about the quality of care given to arthritis patients, for example, by HMO and FFS doctors if the FFS doctors are seeing large numbers of patients with no prescription drug coverage and $250 deductibles while the HMO docs are seeing patients with no copays for office visits and no drug coverage? But that's what one of the studies cited by Miller-Luft did.
So, I weeded out all studies cited by Miller-Luft that failed to control for coverage differences (in doing this, I used a criterion favorable to MCPs). This reduced the number of comparisons from 57 to 44 (and the number of studies from 44 to 34). The outcomes of these 44 comparisons are shown below: __________________________________ MCP care was better than FFS care 4 MCP and FFS care were equivalent 19 MCP care was worse than FFS care 21 Total number of comparisons 44
Source: Kip Sullivan, "Managed care plan performance since 1980: Another look at two literature reviews," American Journal of Public Health 1999;89:1003-1008. ____________________________________
You can see that MCP care was rarely superior to FFS care and often inferior to FFS care. I concluded, "the quality of care provided by MCPs tends to be equal or inferior to that provided by FFS plans."
I sent Miller and Luft a copy of my article before I submitted it and asked for their thoughts. They never replied. But after my article was published, they asked the Am J Pub Health to publish an incoherent, rambling rejoinder, filled with euphemisms and cryptic phrases (e.g., "prototypical choices," and "inherent aspect of the [FFS] 'package'"), in which they defended studies that compared uninsured FFS patients with insured MCP patients. I tore their funny little letter to shreds with language my editor described as "caustic" (Miller and Luft, "A reply to Sullivan's reanalysis of managed care plan performance since 1980;" Sullivan, "Sullivan responds," Am J Pub Health 2000;90:984-986).
I believe the two Miller-Luft articles and my review of them constitute the most thorough reviews of the scientific literature on the question of quality of MCP and FFS care as of 2000. If you or anyone on this list would like to suggest literature reviews that you think were more thorough than the Miller-Luft reviews, and used more rigorous criteria than I did, I'd love to know about them.
You may wish to argue that 44 studies is not a lot to go on, and I would agree with you. But that's not the issue before us. The issue is whether you or anyone else is justified in claiming that evidence indicates MCP care is superior. That evidence, slim though it is, supports the opposite conclusion.
Conclusions
So that's my case in a nut shell. You claim Americans "trashed managed care." I say, Bravo, they had every reason to trash managed care. Managed care has not demonstrated an ability to save money, and it has demonstrated an ability to damage quality of care and destroy patient privacy. If I had more time, I would argue that common sense tells us all three of these bad outcomes had to happen. But I'll save that line of argument for your next email praising managed care.
Uwe Reinhardt responds to the comments of Theodore Marmor:
(The original comments of Dr. Marmor are reproduced, with the comments of Dr. Reinhardt added.)
Dr. Marmor:
Uwe--your arithmetic was helpful to see what is at work with projections of future national income and what one scenario forecasts for health expenditures as a proportion of that national income. But arithmetic neither produces plausible predictions (as against conditional forecasts) and, more important, does not provide the grounds for analysis of that future. (Were CBO forecasts in 1993 l8% of GNP for health by 2000? That was their forecast!)
Dr. Reinhardt:
It was projected to be 19.7%, Ted (October, 1993--I still have the paper). How could you err by so much!
Dr. Marmor:
I particularly want to contest your claim (repeated often by you) that "Americans have signaled that they don't want any cost control at all...." Kip challenges your claims about the effects of what is called managed care.
Dr. Reinhardt:
I attach a chart on real health spending per capita (not included in this message). Either you or Kip must explain to us all what caused the trend line to bend. We know it was not Medicare, because that kept right on its growth path until the BBA '97. So I shall temporarily concede--against superior authority--that managed care had nothing to do with it and await yours or Kip's explanation.
Dr. Marmor:
I want to challenge your interpretation of the connection between what mass American wants and both public and private policy. It is decades too late to continue to repeat the fallacy of revealed preference in politics. It does not follow that because outcome A takes place, the citizens of that jurisdiction 'wanted' A. It might be, but the use of the effect to specify the cause is a logical fallacy. Until and unless you can find reason to believe mass opinion shaped events decisively, stop blaming the victim.
Dr. Reinhardt:
Again, I must defer here to superior authority. I am not a political scientist. What I await from you, Ted--perhaps all of us do--is a concise, short explanation of how democracy works in America. As an example, explain to me why the election of 1994 had nothing to do with voter preferences--among others about government's role in health care. Throw in a convincing--but concise--explanation of why the referendum in California on a single-payer plan did not work. Always eager to learn.
Dr. Marmor:
I don't for a moment believe the American mass public has any clear idea about the extent to which cost control arguments are true, false, or misleading.
Dr. Reinhardt:
And how do you know that?
Dr. Marmor:
Our political system is far too structured against mass majority rule to explain health policy outcomes as the result of their 'wishes.' Sure, a different distribution of wants and attitudes might make some policies more likely, but the locomotive conception you use is genuinely misleading and unsupported, as I have mentioned before, by the public opinion literature.
Dr. Reinhardt:
Too vague, Ted. Too vague. This is you in your old mode. As you know, I don't groove on it. For example, I could simply assert that your statement here is genuinely misleading and unsupported, and leave it at that.
No, Ted, I would like you to explain to me why voters' attitudes about the role of government in health care has nothing to do with the demise of the Clinton plan and the ascendancy of Republican rule in the House.
Finally, Ted, since you infer that you may know, please tell me once and for all what the American people really want in health care. I suggest a concise list. In return I shall compose what I think they want.