Physician payments: Health care reform uncertainties are blurring the future

Douglas W. Jackson

Implementing controls on health care spending in the United States will become more of a priority, and we can expect more aggressive regulations and mandates by federal, state and private insurers. There will be many different approaches to trying to lower costs.

We are already seeing a wide range of different relationships and entities being created in an effort to be more competitive in a world of declining reimbursements. Among the spectrum of changes, some health care plans are buying clinics and, on the other hand, hospitals are exploring payment models that increasingly resemble insurance companies. One common aspect is that physicians are being salaried in most of these new models. Currently, there is more social engineering by non-physicians than ever before trying to reduce and control costs. While the underlying motivation is to control costs, the spin is that all claim their new models will reduce costs and improve the quality of health care delivery.

New arrangements

There is mounting pressure to limit or eliminate traditional fee-for-service care. It has been painted to be a significant part of the reason for the current escalating health care costs. We hear repetitive speeches and numerous articles are written on the premise that our current reimbursement system provides incentives for generating unnecessary procedures and services. A major underlying pinning in these new emerging arrangements is to limit and control physicians by having them salaried. It is a widely held feeling among policymakers that this is necessary to reduce unnecessary studies and treatments. In addition, most of these new models want the salaried physicians to be accountable to patient-satisfaction measures. They also talk in vague terms of the possibilities of bonuses and incentives for their salaried physician staff based upon “measured superior patient outcomes.”

The current momentum appears to favor the fact that the government will play an even more predominant role in the future of health care in the United States. With the eventual full implementation of the new health care reform package, we are progressively moving toward a single-payer system and, at some point, it may become a reality. If it occurs, a number of questions impacting physicians will need further clarification: Who will provide the medical care and the decision making involved? What will be used as incentives for physicians in these new models? Will physicians share in the profits and potential cost savings?

Owning and controlling physicians

Accountable care organizations, foundations, hospitals and insurance companies know that physicians order the tests and prescribe the treatments. They prefer to salary physicians as a way to not only reduce their incentives to do more, but also better control their behavior. We are all familiar with previous efforts to integrate insurers, institutions and health care providers — all in an effort to reduce costs — have produced mixed results. Physicians who worked in establishing the independent practice associations and HMOs in the 1980s and 1990s know well that startups are faced with difficult organizational challenges and experience ongoing clashing of interests. If you have never been part of any type of start-up integrated medical system, believe me when I say “the devil is in the details.” The details are not truly appreciated until compensation and responsibilities are discussed, assigned and implemented.

Patient care

Starting a successful integrated system today is a significant challenge. The long-time systems that currently exist have had time to adjust, evolve and grow over the years to achieve their current levels of success. As an example, the nonprofit Kaiser Permanente in California is frequently touted for their cost containment and efficient care. This organization has thrived in California, where in the 1980s and 1990s, many markets tried to build a better “mouse trap” and compete with the formation of new integrated HMOs. Consumers revolted against several of these newly formed integrated HMO models and voted with their pocketbooks. They sought other choices. Patients sent a clear message that they did not like losing their choice of providers and specialists. Additionally, they perceived many of these plans to be heavily relying on rationing care. While these new integrated HMOs tried to duplicate Kaiser’s success, most ultimately failed and experienced financial ruin.

It is clear that many of the previous organizations failed as they tried to profit from care that was not provided. However, the new paradigm proposed this time around is for the government and insurers to only pay for “proven care.” Their main objectives to achieving their success include eliminating unproven treatments, keeping patients out of hospitals and reducing readmissions. A real challenge they will face will be persuading patients that the associated cost-crunching will not hurt the quality of patient care or cut off access to specialists.

Learn from our colleagues

The Kaiser Foundation Hospitals are a subsidiary of the Kaiser Foundation Health Plan, which is a not-for-profit insurance company. The health plan contracts with various medical groups across the United States, and these entities contain the name “Permanente” in their group, thus forming the Kaiser Permanente entity. Each Permanente Medical Group is independent of each other and may be a partnership or incorporated. They are loosely affiliated through an entity called the Permanente Federation.

In southern California, the Southern California Permanente Medical Group is a partnership, so there is a profit-sharing plan with distributions to each partner based on specialties, instead of salaries. Every year, each regional medical group negotiates a capitated agreement with the Kaiser Foundation Health Plan to provide care for their members in their respective regions. All aspects of how this care is delivered is left solely to the discretion of the regional medical group, except for what facilities are used to provide care. The Health Plan and Medical Group entities are bound by a mutual exclusivity agreement.

Tadashi T. Funahashi, MD, assistant area medical director and regional chief of orthopedic surgery for Kaiser Permanente, shared with me that it is a “balance of power arrangement that is working well for both the Health Plan and Medical Groups currently, and the culture of mutual respect and collaboration is quite strong. As such, both entities work to make each other successful – and success is best achieved by providing evidence-based care for our members.”

Kaiser Permanente, in my opinion, has been a successful HMO that has evolved and adapted since its inception in 1940. It is well managed. The physicians are organized in different ways by region and are either tied together in partnerships or professional corporations, and these entities contract with the health plan. The plan then determines the pricing structure for their capitation contracts to remain profitable. I ask you as you read these comments, if you can imagine a new bureaucratic management structure, like a hospital administration, governmental or private insurer, running a newly coordinated care effort the size of Kaiser or bigger.

What does it mean for patients?

In the end, it boils down to who will be looking out for the individual patient and the quality of patient care. Patients need to know that their physician is able to be an active proponent for their needs. They also need to know if a “big brother,” such as the government or another bureaucracy, will tell their physician what is covered and how often treatments can be given.

The role and access to specialists is a big part of these proposed integrated programs, and they usually concentrate on primary care in the beginning. Orthopedic surgeons need to be involved when these types of new plans are being structured.

We should be looking at the whole picture as to how it will impact our patients and profession. Remember – do not be seduced to give up too much control simply for an attractive salary now. That initial salary may not be nor look as good as you think in the long run.

• Douglas W. Jackson, MD, is Chief Medical Editor of Orthopedics Today. He can be reached at Orthopedics Today, 6900 Grove Road, Thorofare, NJ 08086; email: OT@slackinc.com.