Managed Care Economics

1
Managed Care Economics

• Health Care Finance
• From the Blues to Managed Care

2
What Does Life Expectancy Tell Us?

• The Last 100 Years
• 25 Years in 1850
• 50 Years in 1950
• About 75 now
• Lower for Blacks and Native Americans

3
What made the Difference?

• 25 - 72
• Sanitation
• Immunizations
• Disease Control
• All Public Health
• 72-75
• Antibiotics
• Chronic Disease Treatment

4
Quality of Life

• When Social Security was started, less than 5 of
  the population lived to 65
• Now a significant number of people live into
  their 80s
• Most of them are fairly healthy and active
• Many chronic diseases and conditions have been
  controlled
• Allergies
• Diabetes

5
The Downside - Health Care Costs Too Much

• Many People Cannot Afford It
• Diverts Dollars From Other Things
• Hurts Global Competitiveness
• Cars in Canada
• Low Cost Labor

6
Costs More Than Other Countries

• Health As of GNP Has More than Doubled in 50
  Years
• It is 20-50 Higher Than Europe
• Their Health Statistics Are Just As Good
• Do They Know Something We Don't?

7
U.S. Has A Lower Life Expectancy than Most Other
Industrialized Countries

• Taken as a major criticism of the US system
• Is life expectancy really the right measure?

8
Life Expectancy Is Not Health

• Bias
• Weighted Toward the Young
• One Baby Is Worth Several Grannies
• Only Life Counts
• Discounts Quality of Life
• Nursing Home Is As Good As the Ski Slopes
• Masks Aging Population
• Masks Improved Health
• A Good Measure for Developing Countries

9
What Complicates Health in the US?

• We Have 3rd World Public Health
• Ineffective Prenatal Care
• Poor Immunization Practices
• Limited Access to preventive and routine care
• Teen Pregnancy
• Prematurity
• Poor Parenting
• Developed World Leader in AIDS

10
Non-medical Issues

• The Problem of the Poor
• Poor Education
• Poor Health Habits
• Cannot Afford Prevention
• Geography
• Too Many Isolated Areas
• Expensive to Deliver Care

11
How has the Health Care Umbrella been Expanded?

• Sin to Sickness
• Alcoholism
• Drug Abuse
• Mental Health Services
• Nursing Homes
• Vanity Surgery
• Should Compare Total Social Welfare Budget with
  Europe

12
The Core Problem

• Public Health Does Not Work Well but Medicine
  Does, for people who can get it
• Old People Are Healthier
• Middle-aged (Middle-Class) People Do Well
• Drugs and Devices Matter

13
Second Order Demographics

• More Old People
• More Care Per Person
• Costs Have to Go up
• Much cheaper in a country where few people live
  to be 65

14
Paying for Medical Care

• Pre-WW II
• Mostly Private Pay
• Some Employer Provided - Kaiser
• WW II
• Price Controls
• Post WW II
• Health Insurance As Benefit
• Private Insurance
• The Blues
• Medicare/Medicaid

15
Blue Cross - Blue Shield

• Developed by Docs and Hospitals
• Sold to Teachers
• Assure Access
• Assure Payment
• Reimbursement Policy
• Pay Whatever Was Charged
• Subsidize the Rural Areas
• Subsidized Over-bedding and Over Treatment

16
Federal Programs
17
Social Security Income and Disability

• 1930s
• Lifted the elderly out of poverty
• Provided disability insurance for workers
• The disability is quite a big and valuable
  program and pays for a lot of medical care

18
Hill-Burton

• Post-WWII
• Funded construction of community hospitals
• Had community service requirements, but those
  have all expired
• Created the US emphasis on hospital based care
• Spent from the 1970s to the 1990s reducing
  hospital beds to control costs
• Excess beds or Surge Capacity?

19
The Great Society

• Medicare
• Old People
• Certain disabled people
• Medicaid
• Poor People
• Nursing Homes
• About 40 of medical dollars
• Fought by the AMA
• Made Docs Rich

20
No Good Old Days for Patients

• Gaming the System under Fee For Service
• Right to Die As Example
• Cannot Just Open the Checkbook
• Greed Is Not Good in Medical Care
• Fee for Service Drives Unnecessary Care
• Hospitals Have to Care More About Money Than
  Patients
• Rich Docs Are Not Always Better Docs

21
Federal Interventions

• Feds Pay About 40 of Health Care
• Other Plans Follow the Feds
• Usual and Customary Charges for Docs
• Based on the Community
• Adjusted for the Docs Previous Charges
• Complex

22
Hospital Costs

• Big Dollars Are in the Hospital Charges
• Docs only get 20-25 of the health care budget
• Hospitals get a lot of the rest
• Drugs are an increasing share
• Fee for Service Drove Unnecessary Care
• Open-end Reimbursement drove High Prices
• Hospitals did not even know costs

23
Diagnosis Related Groups - DRGs - 1983

• Watershed in Health Care Reimbursement
• Prospective Payment (Capitation)
• Based on Admitting Diagnosis
• Fixed Payment
• Some Adjustments
• Encouraged health insurers to also manage
  physician care

24
Making Money Under DRGs

• Fewer Tests and Procedures
• Complete Reversal of Prior Reimbursement
• No Bump for ICU
• Reduce Length of Stay
• Dropped About 20 at Once, continued to drop
• Ideal Is Out the Door, Dead or Alive
• Patients Discharged Much Sicker
• Which Was Right, Then or Now?

25
Federal Laws Enabling Managed Care for Docs

• Federal HMO Act in the 1970s
• Preempted State Laws Banning Prepaid Care
• ERISA
• Passed to allow labor unions to negotiate
  national health plans with big employers
• Preempts state regulation of certain self-insured
  health plans
• Gave self-insured plans an edge and drove most
  employers to them

26
Managed Care Organizations - MCOs

• Insurance Plans That Control Patient Care
• Includes the Old Alphabet Soup
• HMOs
• PPOs
• IPAs

27
Two Major Variables

• Employer or Contractor
• Do the docs work for the plan or a captive group?
• Do the docs contract with many plans, treating
  patients based on different plan benefits?
• Open or Closed
• Do the docs treat only patients from a single
  plan or a mix of plans?
• Why do these matter?
• Leverage on the doc's decisions

28
Direct Controls on Costs

• Pay Less for Services
• Use Market Power to Bargain
• Control Access Points
• Limit Hospital Stays
• Limit Tests, Procedures, and Referrals
• Direct Control of Access
• Pre-approval
• Tell the Docs What to Do
• Most Honest

29
Indirect Controls

• Capitation
• CRF--Consultation and Referral Funds
• Withhold and Incentive Pools
• Stop-loss and Reinsurance
• Total Capitation
• Economic Credentialing
• Dumb Down Services
• Free Ride on Other Plans or the Government

30
Deferring Care

• Stop-gap Care
• Keep You Out of the Hospital
• Keep You Away From Specialists
• Managing Crises, Not Solving Problems
• Only works in the short term, but plans only
  think in the short term
• Unsustainable Policies - Plans Are Going Broke

31
How Patients Get Hurt - Easy Answers

• Denied Care - the Usual Lawsuit
• Incompetent Care by Bad Doc
• Incompetent Care by a Non-doc
• Putting Patients in Dangerous Facilities
• Not Using Proper Drugs
• Simple Negligence

32
Good Docs Do Bad Things

• Too Little Time to See the Patients
• Inadequate Labs and X-ray Available
• Locked Into Problematic Specialists
• Patients Cannot Get in to See You
• Lose Control in the Hospital

33
Why Fears of Malpractice do not Improve Care

• Too Far Away in Time
• Too Uncertain
• Fight for Quality - Die Today
• Lose Your Job
• Get Hit With Restrictive Covenants
• Get Blackballed by Other Plans
• Get Reported to the BOME for Alleged Bad Care
• ERISA Preemption

34
Kill the Messenger Phase - 1990s

• Plans Will Not Tolerate Dissent
• Key Issues
• Avoid Notice of Problems
• Keep Other Staff in Line
• Keep Patients in the Dark
• Keep Regulators Ignorant
• Gag Rules
• Fireem
• Greshams Law

35
Where Does ERISA Preemption Come In?

• Series of Case in the 1980s and 1990s
• Suits against Plans (not docs) claiming
  malpractice through plan decisions or incentives
• Courts ruled that you could sue the individual
  doc for malpractice
• Could not sue plans for malpractice injuries
  because ERISA preempted state claims against
  plans
• Plans that employed physicians could be
  vicariously liable

36
Plan Medical Directors

• Plan Medical Directors wore the plan hat and also
  made medical care decisions
• Most plans provided medically necessary care
• Exclusions for quack care
• Exclusions for experimental care
• Deciding if care is medically necessary is a
  medical decision
• Some states required these decisions to be made
  by docs licensed in the state, not by accountants
  in New Jersey or India

37
Pegram

• Pegram is a case about a doc wearing both hats
• She is a plan owner as well as a treating
  physician
• The court is trying to decide if the plan should
  be liable for her decisions or whether ERISA
  preemption should apply.