![]() ![]() |
![]() ![]() Back To The Future? New Cost and Access Challenges EmergeInitial Findings from HSC's Recent Site VisitsIssue Brief No. 35
Changing Market Dynamics
For consumers, these trends have resulted in rising costs, fewer choices for coverage for many and, in some cases, considerable turmoil. Managed Care Loses Its Bite![]() In a number of communities, plans are introducing direct access HMOs that do not require a gatekeeper and have broad provider networks that leave them virtually indistinguishable from PPO products. One of the leading plans in Seattle, for example, now uses the same utilization management processes across both its HMO and PPO products. Meanwhile, costs have increased more quickly under HMOs, eroding the price gap between the two products. At the same time, health plans have shifted their emphasis from gaining market share to restoring profitability, reflecting the turn in the underwriting cycle. As a result, plans are no longer holding prices down to increase market share and are eliminating less profitable business, which for many now means exiting Medicaid and Medicare. These trends foreshadow premium increases that potentially will exceed already higher increases in underlying costs and threaten the viability of public sector managed care programs. Providers Gain Clout
With more consolidated market power, hospitals are aggressively pushing back on health plans attempts to control costs through reduced provider payment and utilization controls. The changing balance of power between plans and hospitals has led to instances in many communities where hospitals or physician organizations could not come to terms with health plans and, as a result, left the plans networks. Network instability often has significant effects on consumers. Indeed, in Seattle, some large employers are pressuring plans to ensure network stability; this, in turn, has given providers added leverage with health plans. Increased bargaining power comes at a critical time for hospitals, which have endured significant cuts in Medicare revenues from the 1997 Balanced Budget Act (BBA) and several years of intense pressure from health plans for discounts. Hospitals have responded by reducing operating costs and have successfully held down inpatient costs in recent years. However, unintended consequences of these efforts are beginning to surface, as hospitals in several communities are now struggling with inpatient capacity constraints. In Seattle, for example, the three major hospital systems have had to close admissions periodically for lack of beds. In other communities, hospitals have implemented diversion programs to accommodate overflow in the emergency room. Many attribute the current capacity problem not only to hospitals cost-cutting strategies, but also to growing demand for inpatient services and a severe nursing shortage that has limited hospitals ability to staff existing beds. Escalating Physician-Hospital Tensions
In other communities, physician-hospital organizations formed to foster managed care contracting continue to decline in importance. Instead, physicians are focusing on independent strategies that emphasize opportunities for enhancing revenue rather than building capacity to engage in risk contracting. This is seen most strikingly in Phoenix, where specialists are cutting back on affiliations with local hospitals and devoting more time to ambulatory surgery centers or specialty hospitals in which they have an equity interest. This trend threatens traditional hospitals with the loss of some of their most lucrative services and their ability to cross-subsidize less profitable services such as emergency care. At the same time, there are concerns that the proliferation of physician-owned facilities will induce greater utilization, particularly at a time when health plans efforts to constrain utilization are weakening. For this reason, some observers suggest that this trend will lead to higher underlying health care costs. Providers Shun Risk Contracting
Early findings indicate a strong trend among hospitals to revert to per-diem or diagnosis-related group (DRG) payments, while physicians appear to be returning to fee-for-service payment. There is some experimentation with hybrid payment arrangements, such as withholds and utilization-adjusted fee schedules, but these developments are not widespread. Although risk contracting was seen by some as a potential boon for providers- allowing them to share in the benefits of managing care-most providers now view risk arrangements as automatically leading to losses. Indeed, many observers point to risk-bearing contracts as a key contributor to the failure of independent physician organizations, a phenomenon that was observed two years ago and continues today. For example, in Seattle, the two largest independent practice associations recently folded after struggling financially under their health plan contracts and failing to achieve the administrative and clinical integration necessary to offset overhead costs. The failure of these organizations has contributed to providers reluctance to accept risk and has left health plans with fewer opportunities to transfer risk downstream. Yet, in the absence of risk arrangements, there are concerns that providers will not have incentives to manage utilization, setting the stage for higher costs and limited provider accountability. Employers: No Clear Vision
In fact, it appears that large employers are not actively seeking to switch to lower-cost plans because of the resulting disruption to employees, and because there are few opportunities to do so, as plans have largely abandoned their previous strategy of underpricing to gain market share. In some instances, however, small employers have responded to steep premium increases by switching plans, dropping dependent coverage or dropping coverage altogether. With initial conceptions of managed care under siege, employers appear to be at a loss for a vision for the future. So far, the 2000-2001 site visits have not identified any innovative approaches to purchasing health benefits. Defined-contribution approaches are on the minds of consultants, but employers show little sign that this is something they are about to embrace. If premiums continue to rise or the labor market slackens, large employers may increase cost sharing for employees, but it is unlikely that they will lose coverage in the near term. For those employed in small firms, however, there is the potential for substantial erosion of employer-based coverage. Most Consumers Sheltered from Cost Increases-For Now
However, recent changes in the health care system have a downside for consumers, too. Network instability stemming from provider and health plan contract disputes is causing considerable disruption in some markets. As provider contracts lapse, people enrolled in closed-network HMOs are threatened with the immediate need to change providers, while those enrolled in open-network products are threatened with additional out-of-pocket costs to see providers who are no longer in their plans networks. Consumers covered under Medicare or Medicaid also are experiencing substantial turmoil. As Medicare and Medicaid products became unprofitable, health plans are exiting these markets in many communities, causing disruption for enrollees and leaving beneficiaries with fewer coverage choices. For example, Phoenix, a once-thriving Medicare managed care market that attracted more than 40 percent of beneficiaries to enroll in HMOs, is now experiencing plan exits and increased cost sharing and reduced benefits from the plans that remain. In Cleveland, where enrollment in Medicaid managed care is mandatory, several plans participated in the program two years ago, but now there are just four, two of which have struggled with poor financial performance. Numerous exits by commercial plans, in particular, threaten to thwart the goals of providing access to mainstream providers for Medicaid beneficiaries and broader benefits packages and lower cost sharing for Medicare beneficiaries. Despite turmoil in these programs, initial site visits indicate that the safety net is stable in most communities. In some cases, traditional providers of care for the uninsured have grown stronger in recent years. For example, the Maricopa County System, the public hospital system in Phoenix, has emerged from major financial difficulties under new management and reportedly is in good financial health. A stark exception is Cleveland, where the public hospital is reportedly in poor financial condition after having lost millions of dollars each month since December 1999, partly because of low reimbursement rates for Medicaid patients. Overall, however, concerns noted in earlier years that safety net providers would perish under financial pressures have largely not been borne out. While many providers reported that the BBA and Medicaid managed care have been major financial pressures, safety net providers in a number of sites have been bolstered by increased disproportionate share hospital (DSH) funds, the infusion of tobacco settlement funds and expanded coverage under the State Childrens Health Insurance Program. Some speculate that the increased consolidation of hospitals may help to boost charity care because of hospitals greater ability to finance uncompensated care and increased motivation to demonstrate their value to the community. A Turning Point Looms
Nevertheless, if and when the economy softens, employers likely will step up their efforts to control costs, and, with a weaker labor market, they may become less averse to dropping coverage or passing greater cost-sharing requirements on to their employees. An economic downturn is likely to have an impact on the safety net as well, as state funds for health care diminish and private providers adjust to more limited resources. Indeed, several states are already facing Medicaid budget shortfalls. As costs continue to rise, employers and policy makers will again confront the dilemma of how to provide broad access to care and promote quality improvement under tight budgets. At a time when backlash against managed care has become so intense, and providers have strengthened their positions to resist further change, serious challenges lie ahead. A Collaborative Effort
Health Plans
Providers
Purchasers and Consumers
Policy and Safety Net All of these individuals have contributed to the data collection and analysis captured in this Issue Brief. More detailed analyses on these and other trends are underway and will be released shortly after all 12 site visits are completed. Site Visit Update
Shortly after each site visit, HSC issues a Community Report describing the major changes in each community since the previous site visit. HSC is now conducting the third round of site visits and has published four Community Reports, detailing the changes in the Indianapolis, Ind.; Cleveland, Ohio; Seattle, Wash.; and Phoenix, Ariz., health care markets. This Issue Brief draws on the four completed third-round Community Reports and preliminary analysis of completed site visits in Syracuse, N.Y.; Lansing, Mich.; Greenville, S.C.; and Little Rock, Ark. Site visits and analysis of the Orange County, Calif.; Boston, Mass.; Miami, Fla.; and Northern New Jersey health care markets are also underway and will be completed in late 2001. All Community Reports are available on the HSC web site at www.hschange.org. ISSUE BRIEFS are published by Health System Change. President: Paul B. GinsburgDirector of Public Affairs: Ann C. Greiner Editor: The Stein Group |
||
![]() |
|||