Medicare+Choice will put focus on physicians

Long term looks promising despite market turmoil

The new Medicare+Choice program offers so many new options for receiving care that many seniors will react either by picking plans with "household names" or by picking their own physicians, says Stephen P. Wood, national practice leader for Towers Perrin's health plan consulting practice in Chicago.

"Confused by the large number of new health plan products, most people will opt for the constant that they find comfortable and familiar," says Wood. "And that's their own doctor."

While the doctor-patient relationship could become more cemented by these changes, they are just as likely to create conflicting loyalties and alliances between doctors and hospitals, says Wood.

"Health plans, some sponsored by both providers and payers, will vie aggressively for the Medicare risk business, potentially pitting Medicare-dependent physician specialists against their hospitals and requiring decisions about staying 'loyal' to the hospital or pursuing other entrepreneurial opportunities to shore up declining revenues, " says Wood.

According to Wood, these Medicare+Choice changes will increasingly push physicians to seek safety in numbers by searching for opportunities to integrate with larger group practices and health systems. This means they will reject traditional compensation systems for new models that better reflect their role in acquiring and keeping a share of the local medical market.

"Most people identify with their health care organizations through their physician," notes Wood. "As health care organizations narrow their focus, we're increasingly likely to see physicians - particularly those with primary care roles, such as internists - recognize their role in creating and retaining market share."

Health systems, meanwhile, are expected to focus on clinical care process management to achieve better quality and performance results while also pressing providers for even more rate cuts, says Wood. "As payers continue to consolidate, they will feel better-positioned to pressure providers for more reductions in prices and rates," says Wood. Meanwhile, large employers will remain price-sensitive when it comes to premiums, but they are less likely to sacrifice employee satisfaction for a few price points.

For physician groups that are considering starting their own PSO, consultants Coopers & Lybrand in Chicago have developed the chart on p. 163 as a guide. The chart provides a check list of the major steps needed to design and launch a PSO or other Medicare risk product, including completing HCFA's application, and the estimated time needed to complete each step. Overall, Coopers & Lybrand estimates the total process should take at least 15 months, from initial assessment of the market potential to product launch and enrollment of first members.

"Considering that traditional Medicare covers a limited scope of professional services, has an annual $100 professional deductible, and pays only 80%, leaving the remaining 20% to be collected from the beneficiary or their Medigap plan, these new risk payment rates are effectively higher than traditional Medicare, without the administrative costs of collecting the balance," says Wood.

Adding to the potential payout will be health plan bonus and incentive programs based on member satisfaction results and achieving budget goals, giving physicians another opportunity to exceed traditional Medicare payment rates.

On the downside, in markets where Medicare managed care has captured a substantial portion of the population and there is an excess supply of physicians, payment rates for specialists are as low as 60% of Medicare, notes Wood.