An Imbalance of Care

Edition: March 2002 - Vol 10 Number 03
Article#: 1175
Author: Robert Neil

Your customers may shun capitated contracts today, but that may change if the sickest patients are directed to non-capitated plans.

Managed care is under attack again, or perhaps it's just the same assault that began a decade ago when the restrictive insurance system took hold of the healthcare industry.

The latest offensive comes from a familiar source – physicians. And although doctors are the essential component of the healthcare system, it's not clear if they really have the power to change it. After all, physicians have been trying to reshape healthcare into something they say would be fairer and more affordable for years, but haven't made all that much progress. They seem more disgruntled than ever, and medical costs are at an all-time high.

Whether or not providers are best suited to produce a real change in healthcare is debatable, but they are pretty good at raising valid issues concerning managed care. For example, a recent report (''Competition in Health Insurance: A Comprehensive Study of U.S. Markets'') by the American Medical Association, Washington, DC, claims that health insurers have gained so much clout in certain markets that the payers aren't responsive to patient and provider concerns. These market forces, in turn, have compromised quality of care and made it difficult for physicians to do business, according to the report.

Acquisitions, mergers and endurance over the last five or six years have created dominant national players in certain regions, most notably Texas, Florida and California. In the Lone Star State, Aetna Inc. (Hartford, CT) is a leader in the Dallas and Houston areas. In Florida, Aetna, Humana Inc. (Louisville, KY) and UnitedHealthcare (Minneapolis, MN) have a strong presence, especially in the southern part of the state. In California, Health Net Inc. (Woodland Hills, CA), PacifiCare Health Systems (Santa Ana, CA) and WellPoint Health Networks Inc. (Thousand Oaks, CA) control large portions of several major metropolitan areas.

The AMA report doesn't mention any plans or regions by name, but notes that in 91 percent of the nation's most concentrated markets, at least one insurer has a market share in excess of 30 percent. Additionally, in 48 percent of the most concentrated markets, one payor accounts for more than 40 percent of the business, and in 24 percent of the most concentrated regions, a single insurer controls more than half of the area's membership.

Too Late to Complain
For years, physicians and hospitals have been complaining about insurers growing too powerful, but at this point, they may not be able to do much about it. Although the AMA has been vocal about mega-insurance-mergers from the beginning of the trend, the warnings now may be out of date. The consolidation boon that helped several HMOs gain huge shares of large markets has died down, and most of the big players have already been formed. The AMA is calling for tighter antitrust scrutiny on future deals, but the organization probably would rather step back in time and prevent some of the deals from having been struck in the first place.

That's not going to happen, of course, but the pressures of managed care may be causing physicians to take other actions that might be a little surprising, with some equally surprising – and unintended – results. For example, 40 percent of physicians surveyed in a recent study said they encouraged sicker patients, or patients with more complex illnesses, to avoid capitated health plans. Twenty-three percent said they advised healthier patients to join such plans. The findings come from a study by Matthew Wynia, M.D., director of the Institute for Ethics at the AMA, and were published in the January issue of the Journal of General Internal Medicine.

Capitation – the financial basis of managed care – sets up a system in which a physician receives a pre-negotiated monthly fee from an insurer based on the number of patients who have selected that physician as their primary-care physician. The physician receives the same amount of money from the payor regardless of how many times a patient is treated — if at all. Presumably, the system gives providers an incentive to keep patients healthy. Payers negotiate the same type of agreements with hospitals. Under these deals, providers assume some risk, because sicker patients can cost more to treat than healthy ones, who may rarely visit a doctor.

However, in his study, Wynia found that physicians are directing sicker patients into non-capitated plans not based on personal financial reasons, but rather, because of perceived quality-of-care issues. One-third of the 787 physicians surveyed believed that capitated health plans provide inferior care. Wynia fears that the ultimate result could be a health payment system where more and more sicker patients enroll in non-capitated plans, while the healthier population makes up the bulk of capitated plans.

Such a shift would have strong financial implications on the industry, because the non-capitated plans would eventually be forced to raise prices to keep up with the cost of caring for large numbers of members who access the system often. As is always the case, insurers' costs would be reflected in the deals struck with physicians and hospitals. Although non-capitated contracts are preferred by some providers now, that could change if the membership base becomes unbalanced, and the cost of treating those patients grows higher.

About the Author…..
Robert Neil
is 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: