President's Essay
danger signs ahead...
he trajectory of change for the health care system foretells
danger signs ahead. It is a course that may lead to poorer outcomes for consumers,
with prospects of higher costs, more barriers to care and missed opportunities
to improve quality. Six years ago, many leaders were enthusiastic about integrated
delivery systems that promised substantial cost savings and a more seamless experience
for patients whose care would be coordinated and managed according to the most
effective medical practices. Now, a powerful backlash against managed care-some
of it well founded-has led to consumer desire for broad provider choice. This,
in turn, is leading to a dismantling of many of the structures that were the source
of optimism.
The key that has reverberated throughout the health system is the retreat of managed
care over the last several years. For reasons that include lack of plan choice
on the part of consumers, physician unhappiness with loss of autonomy and low
fees, clumsy execution on the part of health plans and media attention to these
problems, a virulent backlash has developed against managed care:
- Fearful that their medical care will be compromised, consumers see broad choices among physicians and hospitals as their key protection.
- Employers that pressed employees to enroll in managed care plans have responded to the backlash by demanding that health plans make key changes.
- Plans have responded by including wider provider networks, products that offer direct access to specialists and benefits for out-of-network use, external appeals processes and fewer authorization requirements.
- Governments have directed similar changes through policies that regulate health maintenance organizations (HMOs).
- Higher Costs in 2001
- More Cost Sharing
- New Barriers to Access
- Increase in the Uninsured
- Concerns About Quality of Care
- No Vision Ahead
- References
Higher Costs in 2001
fter remaining under 4 percent from 1995 through 1998, health insurance premium
increases exceeded 8 percent in 2000 and are expected to be higher in 2001.1
A major determinant of health care cost trends over the last decade has been the
interplay between health costs and the economy’s performance. Employers started
their push to move employees into managed care plans when health benefit costs
were rising rapidly and loomed large compared with profits. A key sweetener for
employees was the fact that the typical managed care benefit structure offered
broader benefits (e.g., preventive services) and required much less cost sharing
than traditional coverage. Indeed, out-of-pocket spending on medical services
for those with insurance declined during the 1990s.2
Of particular note, pharmaceuticals became more affordable to consumers because
of lower cost sharing; in 1999, drugs accounted for 44 percent of the increase
in costs underlying private insurance.3
This was a double-edged sword for consumers. Along with less financial responsibility
for health care came more management of care. But when consumers encountered barriers
to care, or heard through friends or the media about restrictions faced by others,
they complained to their employers and lawmakers. With health care premium trends
decreasing, profits increasing and labor markets unusually tight, employers responded
to these complaints. They offered less restrictive plans with wide networks, direct
access to specialists and fewer restrictions. Many of these changes are leading
to higher costs now.
Another factor driving costs higher is increased provider leverage. More choice
has substantially weakened health plan bargaining power with providers. Hospitals
and some specialty physicians have received substantial rate increases from plans
as a result of consumer and employer demands that plans offer a broad choice of
providers. Indeed, showdowns between health plans and hospitals over contract
terms have occurred in many communities, often with substantial media attention.4 Employer pressure on health plans to minimize instability
of provider networks has further weakened plans’ bargaining position and has led
to higher rates.
|
Stuart Altman
Brandeis University |
“Managed care has been defanged, and the leverage providers
have gained will not be easily reversed. This should send a chill down
the backs of employers, public purchasers and consumers because we can
expect our premiums to surge.”
|
More Cost Sharing
he retreat from managed care is likely to lead to much more extensive cost-sharing
responsibilities for consumers. With premiums rising, corporate profits down and
labor markets loosening, employers are beginning to consider options to keep their
benefit outlays from growing rapidly. The backlash against managed care suggests
that patients will have to pay more at the point of service. A harbinger is the
recent action by the California Public Employees’ Retirement System (CalPERS)
to increase cost sharing in its HMO plans as a way to pare down a negotiated 13
percent premium increase to 6 percent.
Greater cost sharing is likely to take place for two reasons.
- First, with the shift to looser restrictions in managed care moving ahead at full steam, it is unlikely that employers will take a 180-degree turn back to tight restrictions.
- Second, with many restrictions dismantled, the typical managed care benefit structure is increasingly seen as providing inadequate financial incentives to control costs.
|
Karen Ignagni
American Association of Health Plans |
“Policy makers should know that we can’t have it both
ways: we can’t by law or regulation take away basic tools of managed care
or encumber plans, employers and doctors with more liability, and then
still expect the system to deliver on its promise.”
|
New Barriers to Access
isruptions to the health system caused by the retreat from managed care are also
posing barriers to access to care. For the first time in decades, hospital capacity
problems have emerged in a number of communities. Most visible are problems in
emergency departments, where ambulance diversions are occurring with increasing
frequency, resulting in patients being rerouted to other hospitals and delays
in care.5 Some of the reasons for crowding include
regulations limiting managed care restrictions on emergency room use, stepped-up
enforcement of the Emergency Medical Treatment and Labor Act and acute shortages
of nurses and other skilled personnel.
Overall hospital capacity has played a role as well. From 1994 to 1999, the number
of emergency departments declined by 8 percent. Patients who need intensive care
when beds are not available often must remain in the emergency department to get
the care they need. Over the same period, inpatient beds declined by 15 percent,
as intense pressure to cut costs coming from both low payment rates in managed
care contracts and reductions in the growth of Medicare payment rates under the
1997 Balanced Budget Act led to closure of capacity deemed not essential. With
hospitals vigorously adding facilities to provide the most prestigious and profitable
services, investing in emergency facilities, which tend to lose money, may be
losing out in the competition for scarce capital resources.
A different type of barrier to access seen over the past two years is network
instability. In many communities, important providers have declined to renew
contracts with health plans, largely because of disagreements over payment rates.
For example, in Orange County, Calif., St. Joseph Health System terminated the
largest of its managed care contracts, with PacifiCare, affecting 100,000 consumers.
Such terminations can be highly disruptive to consumers, who often face a choice
of changing providers—perhaps during a course of treatment—or paying substantially
more out of pocket.6, 7 Closures
of physician organizations, such as medical groups owned by failed physician practice
management companies, also contribute to network instability.
|
James Bentley
American Hospital Association |
“Many hospitals are experiencing emergency
room capacity problems and staff
shortages and expect things to get worse
before they get better. Looser managed
care has resulted in patient logjams, and
with premiums rising hospitals are likely to
treat growing numbers of uninsured who
have no place else to go.”
|
Increase in the Uninsured
s we enter a period in which the economy may not be as robust and insurance premiums
are increasing more rapidly again—in part due to the retreat from managed care—the
proportion of people who are uninsured is likely to increase. The literature suggests
a substantial sensitivity of health insurance coverage to premiums.8
Federal policy might offset this trend somewhat. Over the past year, diverse interest
groups have reached out to each other to work on legislation to reduce the number
of uninsured.9 Many envision a compromise consisting
of expansions of public programs providing coverage for the poor and tax credits
for individuals with somewhat higher incomes to purchase private insurance. Initially,
enactment of proposed federal legislation to expand public programs and offer
tax credits to purchase coverage would outweigh the erosion of coverage from higher
premiums. However, it is clear that rising health care costs will outstrip the
gains over time, making the goal of universal coverage more difficult to reach.
Another dynamic affecting insurance coverage is state and local policy for
the low-income uninsured. In recent site visits to 12 nationally representative
communities, HSC noticed increased support at the state and local level for
funding safety net providers, such as public hospitals and community health
centers. A number of states, for example, have devoted large portions of tobacco
settlement money to the safety net.
Although some analysts have raised the conceptual choice between policies promoting
expansion of coverage and those providing more services for the uninsured, HSC
has found that communities pursuing efforts in this area are doing more on both
counts. President Bush has put forward initiatives related to both care and coverage.
Discussions may lead to a consensus that some low-income individuals can best
be assisted by enabling them to obtain health insurance coverage while others
cannot be brought into the health insurance system and are best supported through
funding safety net providers.
|
John Rother
AARP |
“Shifting costs onto consumers—directly or through artfully
constructed defined-contribution schemes—is not the solution to rising
premiums. The end result may be higher barriers to needed services and,
ultimately, fewer working Americans with health insurance.”
|
Concerns About Quality of Care
ntegrated delivery had offered the hope of accountability for the quality
of care provided to an enrolled population. The movement away from integrated
delivery systems and capitated payment of provider organizations—aspects of
the retreat from managed care—is removing a potential platform for providers
to improve quality. Integrated delivery systems were seen as improving quality
through the use of evidence-based medicine applied to the needs of a defined
population.
Although longstanding integrated delivery systems, such as Kaiser Permanente,
are pursuing this vision vigorously, the expectation of creating many more such
systems has diminished. Some of this occurred because of the difficulty of getting
large organizations with different cultures to work together effectively, but
the retreat from managed care may have been a more significant blow.
The desire for broad provider choice has meant that the archetypical integrated
delivery insurance product— an HMO with the provider network comprising a single
hospital system and physicians associated with it—is not an attractive one.
HMOs today tend to offer enrollees access to most hospital systems in the area.
Furthermore, in many communities, interest in HMO products has declined.
In addition, global capitation— hospitals and physicians together assuming
all financial risk for health services— has not developed as expected. Both
providers and health plans have pulled away from this arrangement over the past
two years. In many cases, this retrenchment has been the result of unfavorable
experience—providers losing money or plans having to support providers in financial
difficulty. But the lack of growth in the market share of HMO products is an
important factor as well. Preferred provider organizations (PPOs) do not lend
themselves to capitated payment, and providers report important difficulties
in accepting risk in point-of-service (POS) products.
The absence of capitated payment undermines the business case for providers
to engage in quality improvement activities. For example, when hospitals are
paid on a per diem basis, programs to reduce length of stay detract from the
bottom line. When disease management programs have significant educational components
or require investment in information systems by physician practices paid under
fee-for-service arrangements, the practices receive lower payment for physician
services but are not paid for the services that are a substitute for seeing
the doctor. The potential exists for disease management and other such programs
to fall out of favor, leaving patients facing fractured, uncoordinated and,
potentially, poor-quality care. According to the recent Institute of Medicine
report, Crossing the Quality Chasm,10 the
lack of functioning systems and related incentives is at the heart of quality
problems plaguing health care in this country.
|
Janet Corrigan
Institute of Medicine |
“Quality of care is a concern across all sectors, in large
part because there is no system but rather an aggregation of many parts
with little coordination among them. It is unclear what kinds of organizations
will integrate care in the future, but they should include science-based
practice, well-designed care processes and programs to improve population
health.”
|
No Vision Ahead
any people perceive the retreat from managed care to be a positive development
and welcome less interference with delivery of care. But the retreat has set
in motion a number of negative trends for consumers.
- Cost trends will be higher and consumers will face more cost sharing.
- New barriers to access are appearing, such as capacity shortages in emergency departments and disruptions in physician-patient relationships because of network instability.
- Higher costs will lead to more people going without coverage, although public policy to expand coverage may postpone this development.
- The integrated deliver platform to improve quality has been stymied by consumer demands for broad provider choice.
References
| 1. | Gabel, Jon R., “Job-Based Health Insurance in 2000: Premiums Rose Sharply While Coverage Grows,” Health Affairs, Vol. 19, No. 5 (September/October 2000). |
| 2. | Gabel, Jon R., Paul B. Ginsburg, Jeremy Pickreign and James D. Reschovsky, “Trends in Out-of-Pocket Spending by Insured American Workers, 1990-1997,” Health Affairs, Vol. 20, No. 2 (March/April 2001). |
| 3. | Hogan, Christopher, Paul B. Ginsburg and Jon R. Gabel, “Tracking Health Care Costs: Inflation Returns,” Health Affairs, Vol. 19, No. 6 (November/December 2000). |
| 4. | Strunk, Bradley C., Kelly J. Devers and Robert E. Hurley, Health Plan-Provider Showdowns on the Rise, Issue Brief No. 40, Center for Studying Health System Change, Washington, DC (June 2001). |
| 5. | Brewster, Linda R., Liza S. Rudell and Cara S. Lesser, Emergency Room Diversions: A Symptom of Hospitals Under Stress, Issue Brief No. 38, Center for Studying Health System Change, Washington, DC (May 2001). |
| 6. | Strunk et al., op. cit. |
| 7. | Short, Ashley C., Glen P. Mays and Timothy K. Lake, Provider Network Instability: Implications for Choice, Costs and Continuity of Care, Issue Brief No. 39, Center for Studying Health System Change, Washington, DC (June 2001). |
| 8. | Kronick, Richard, and Todd Gilmer, “Explaining the Decline in Health Insurance Coverage, 1979-1995,” Health Affairs, Vol. 18, No. 2 (March/April 1999). |
| 9. | Kahn, III, Charles N., and Ronald Pollack, “Building a Consensus for Expanding Health Coverage,” Health Affairs, Vol. 20, No. 1 (January/February 2001). |
| 10. | Institute of Medicine, Crossing the Quality Chasm, Washington, DC: National Academy Press (2001). |
