Editorial: The Future Of Managed Care

Brett N. Steenbarger, Ph.D., is Assistant Professor of Psychiatry and Behavioral Sciences and Director of Student Counseling at the SUNY Health Science Center at Syracuse. He founded and served as practice manager for PrimeCare of Central N.Y., Inc., an 80 clinician multispecialty behavioral group network centered in the Department of Psychiatry. At present, he is Director of Research and Training for the Department's Managed Care Institute, where he provides training and consultation to mental health practitioners and provider organizations.

He recently joined Simon H. Budman as coauthor of The Essential Guide to Group Practice in Mental Health (Guilford Press). Together with Bret Smith, M.Ed. and Jeff Zimmerman, Ph.D., he is currently coauthoring a text on practice management and editing an online behavioral health website (psycOH!) devoted to practice management and best practices.

Industry statistics suggest that three-quarters of all privately insured individuals are now covered by a managed health plan. In addition, all but a handful of states have received or applied for Medicaid waivers to enroll beneficiaries in managed health plans. Recent tax legislation is raising fees for HMOs operating rural Medicare health plans as a way to spur enrollments. Essentially every major urban center in the U.S. has at least a 20% enrollment of privately insured individuals in HMO plans; areas of California approach 75%. By the year 2000, according to a Pew Foundation study, 90% of Americans will obtain their health insurance from a managed plan. Quite simply, health insurance and managed care have become synonymous.

The Quality Crisis in Managed Care

A change of this magnitude was bound to encounter growing pains, but the backlash against managed care has exceeded most observers' expectations. Studies of consumer satisfaction published in Consumer Reports, Newsweek, and U.S. News all suggest that HMO plans vary significantly in their perceived quality. The Consumer Reports study was particularly interesting: 9 of 10 top rated plans were not-for-profit, while all 10 bottom-rated plans were for-profit. The clear implication is that the pursuit of profit in a capitated system may place the interests of health plans and patients at odds.

Responding to the crisis, coalitions of benefits purchasers (generally structured as regional alliances of businesses) have used their clout to exact quality concessions from managed care firms. This trend is most clearly exemplified in the recent National Committee for Quality Assurance (NCQA) accreditation for Managed Behavioral Health Organizations. These guidelines, which are rapidly shaping purchasing decisions, mandate ongoing quality improvement processes among health plans, empirical guidelines for treatment, system-wide programs of prevention, and ongoing data collection on quality indicators. Interviews we conducted for our group practice book suggest that these mandates are beginning to shape the contractual arrangements between mental health provider organizations and managed plans. In a nutshell, health plans need to contract with practitioners that can assist them in documenting quality.

As we note in our book, this promises to reshape the relationship between managed care firms and mental health practitioners. The reason is simple: managed care organizations can unilaterally reduce cost, but cannot unilaterally produce quality. The mandates of purchasers are pushing managed plans to form collaborative relationships with behavioral group practices that can meet NCQA standards for access, availability, guideline-based care, and outcome data. The Clinical Group program of Value Behavioral Health, Inc. is a notable example of this trend. VBH works with group practices in a fee-for-service arrangement, but does not require authorizations for treatment. Instead, it helps groups manage their own care and standardizes the process of data collection for quality assurance. Groups that perform well on efficiency and quality measures qualify for a bonus-something that has been a true rarity in managed care contracting to this point.

It is understandable that clinicians perceive managed insurers in the driver's seat of the health care system. This is a gross oversimplication, however. The advent of purchasing coalitions is bringing unprecedented accountability to both insurers and providers. Indeed, the current "quality revolution" in health care will bring every bit as much upheaval to the system as the recent cost driven managed care revolution. Thanks to ratings provided by organizations such as NCQA, J.D. Power, and Consumer Reports, employers and labor unions will be able to make purchasing decisions on the basis of value--quality per unit cost--rather than cost alone. This is good news for consumers and excellent news for clinicians that make the requisite investments in information systems that monitor and benchmark the efficiency and effectiveness of treatment. It also poses a challenge to solo, independent clinicians who are unable to make the investments in information infrastructure needed for effective quality management. Not surprisingly, we are seeing an increasing number of independent clinicians band together in network-model group practices and Independent Practitioner Associations (IPAs) to share the new managerial and technological overhead.

Government Regulation and Managed Care

The trend toward increased industry-based policing within managed care is accompanied by an even more powerful trend toward government regulation of health care. From the look of current developments, it would not be surprising to see the health care industry look much the same as broadcasting and air transportation, where a limited number of national systems offer competition to one another within the framework of active governmental scrutiny.

The number of regulatory bills pending are staggering. Consider the following:

20 states have passed legislation to ban "gag clauses" that prohibit providers from discussing the particulars of health plans with patients;
24 states have enacted statutes mandating direct access to obstetrician-gynecologists; another 18 states have such legislation pending;
6 states prevent managed care plans from removing providers without due process; another 16 states have legislation pending;
Texas has passed legislation to expand malpractice liability to managed care organizations; another 28 states are considering such a move;
27 states have introduced legislation to mandate point-of-service options within managed plans to broaden choice of providers for patients.
Altogether, 33 states are considering comprehensive managed care legislation that limit the ability of plans to restrict care options for patients.

Of these regulations, none is so powerful as the extension of malpractice laws to insurers. This would effectively eliminate "hold harmless" clauses in contracts and expose insurers to the same malpractice risks as providers.

Not surprisingly, managed care firms are showing considerable interest in research-based practice guidelines as a protection from this exposure.

Practitioners that are familiar with such guidelines and that can practice within these may find a competititve advantage in the emerging marketplace.

What It All Means

Cost was the catalyst for the emergence of managed health care, but the future resides with quality. While cost concerns will not abate, there will be increasing scrutiny of the quality achieved by marginal expenditures in health care. High cost provider organizations without the ability to document incremental quality will be at a dramatic disadvantage in tomorrow's marketplace. Hospital organizations that have jumped onto the Provider-Hospital Organization (PHO) bandwagon in hopes of creating "integrated systems of care" are learning this lesson the hard way. Over 80% of these organizations are losing money; by one estimate, physician productivity drops 30% when these integrated systems purchase a primary care practice.

It is difficult to find a managed care guru who doesn't espouse the virtues of covering a "continuum of care" and offering "one stop shopping" for health services. It is difficult to believe that these gurus have taken any elementary coursework in the economics of production. If there is one thing we know about production, it is that expansion of product lines increases unit costs and lowers productivity. This is why the "focused factories" of Japanese automobile manufacturers could beat General Motors on cost and quality; it is why general retailers such as Penneys cannot compete with "category killers" Toys "R" Us, Gap, and Home Depot.

Most mental health providers and groups have attempted to cover their bases by being as many things to as many people as possible. As a result, they achieve no true expertise in the treatment of any particular disorder. Regina Herzlinger notes that hospitals with such expertise in heart surgery and hernia treatment attain lower costs and lower resurgery rates than unfocused hospitals. These focused factories are the category killers of health care and the true winners in tomorrow's marketplace. Mental health organizations that understand the production dynamics underlying the treatment process will fare best in an era of accountability.