Doctors' Cost-Control Bonuses Shelved by HMO

Edition: August 2001 - Vol 9 Number 08
Article#: 1014
Author: Robert Neil

Every once in a while there appears a clear, unambiguous sign that things are changing.

In July, Blue Cross of California, one of the state's largest HMOs, announced that instead of offering bonuses to physicians based on how well they control costs, it will offer bonuses based on the quality of care they provide their patients. The company will begin monitoring patient satisfaction to determine how well physicians measure up to the HMO's standards.

The move takes the spotlight off cost controls and shifts it onto something that providers, patients, consumer groups and employers have been demanding for years – quality care. It comes just as Washington debates a ''patients' bill of rights,'' which could force insurers to make a number of changes in the way they operate, including the way physicians are rewarded.

Certainly, the Blue Cross decision has gotten a lot of people's attention, but those who have been watching closely knew that such a move was in the making for several years. Skyrocketing costs have made it harder and harder for physicians to satisfy cost-conscious HMO officials. Meanwhile, employers, who foot most of the bill for health insurance, have been looking for a better way to measure what they're getting for their money.

Quality is the New Battleground

When competition on price is no longer an option, businesses must demonstrate that their product is superior in quality. That is where the health care industry is today.

For several years, California HMOs tried to undercut competition by charging rates that left little or no room for profits. Some of the big players saw membership increase, but at a heavy cost. Formerly healthy companies such as Kaiser Permanente, (Oakland), Health Net Inc. (Woodland Hills) and PacifiCare Health Systems Inc. (Santa Ana) experienced financial bumps at the end of the 1990s.

Nor was the pattern confined to California. HMOs across the country followed the Golden State's membership recruitment trends and found themselves buried in losses. Blue Cross is simply pointing the way to the next trend in competition.

On the surface, at least, the quality-based system should have something to please just about everyone. Specifically, the company has changed the Quality Score Card it uses to rate physicians' performances and will instead use the following five categories to measure quality:

Primary care physician quality measurement and bonus systems. Score is based on the medical group's internal quality and clinical performance measurement system and its award disbursement system for individual physicians.

Member satisfaction survey. Score is based on member satisfaction with ease of getting care, doctor's communication skills, quality of care and overall satisfaction.

Preventive health. Score is based on percentage of members who receive preventive health care, including advice to quit smoking, screenings for breast and cervical cancer, and appropriate asthma therapy.

Transfers for quality. Score is based on the number of members who transfer from a physician group due to dissatisfaction with their care or poor service.

Grievances and appeals. Score is based on how often members disagree with medical decisions or complain about the medical care received.

Physicians Wary

Officials say more than half of a medical group's score will be based on patient health outcomes and patient satisfaction, which will be determined in large part on patient surveys. This is the type of thing practitioners have always said they needed. However, years of bickering with payers has led to distrust, and physicians are taking a wait-and-see attitude about Blue Cross's latest announcement.

The California Medical Association in San Francisco -- which is currently suing Blue Cross for allegedly defrauding physicians – is happy that HMOs are focusing on quality, but spokeswoman Karen Nikos says she's still waiting to see how the new procedure plays out. In a year from now, it should be easier to tell how well the quality scoring method reflects physicians' actual performances, and whether or not the change means more bonuses for physicians, she says.

What's likely to be a quicker and more noticeable change is how Blue Cross's announcement affects competitors, who will need to change the way they market their plans to employers. Every major health plan in California will now have to offer systems that emphasize quality measurements. Although some companies are likely to proclaim they've been using quality of care as a key indicator for years, the Blue Cross decision may truly be unique, as the company claims. Officials emphasize that quality is the main determining factor in physician bonuses, and that cost-savings do not figure in the scoring at all.

If managed care trends work as they have in the past, the emphasis on quality should spread east to the rest of the country and produce a competitive battle around who actually offers the best quality incentive systems. Whether the new battleground turns out to be good for the health care community or consumers will depend on how much substance there is to the debates. Marketing rhetoric can sometimes be used in place of real changes, and everyone who deals in the industry—including suppliers—needs to be able to separate fact from fiction.

From a business standpoint, the Blue Cross initiative is a smart move and gives the company the publicity to be considered a leader in pushing for quality. The HMO has done very well in the past, and its 5.6 million members (2.2 in HMO plans) rank as one of the top three managed care operations in California. The operation is a subsidiary of for-profit WellPoint Health Networks Inc., Thousand Oaks, CA, which is one of the few national insurers to avoid major financial problems in the last five years.

About the Author: Robert Neil is a an Orange County-based health care analyst and business writer who specializes in supply chain and managed care issues. He may be reached through his Web Site: