Fed up with HMO as the middleman, physicians are reclaiming health care

Doctor-driven health plans bring care back to the community level

If you’re fed up with managed care and the restrictions it places on your practice, consider setting up your own health plan and contracting directly with the big employers in your community. In communities across the country, physicians and hospitals are joining together to create locally based health plans, bringing control of health care back to the community.

In North Carolina, the state employees’ and teachers’ plan has been self-insured and has directly contracted with hospitals since the mid-1980s. Two of California’s largest pension funds are considering contracting directly with doctors and hospitals and dropping their managed care plans.

In Madison, WI, 80% of the population is covered by managed care, but the majority of the HMOs are physician-owned and operated. The satisfaction level physicians in Madison have with managed care exceeds the satisfaction with fee for service, says William DeMarco, MA, CMC, president of DeMarco & Associates, a Rockford, IL, health care consulting firm. "The solution to America’s health care crisis is a community-based operation that is professionally managed, driven by physicians, and based on the community’s individual needs."

Direct contracting eliminates the middleman, the HMO, or other third-party payers. The employers take what they are paying the insurance company, put it in a fund, self-insure the risk, and pay the panel of health care providers, explains David Main, JD, of Shaw Pittman, a Washington, DC-based health care law practice. "Direct contracting is an effort by employers to eliminate the intermediary [the health insurance company] and pay for medical care for their workers directly with arrangements that look a lot like an HMO," he says.

Large companies want to take complete control of their health care budget and want to do it directly rather than pay an insurance company to handle it, says Mary Beth Johnson, a partner in Womble Carlyle, a law firm in Research Triangle, NC.

"When they engage in direct contracts with health care providers, employers feel like they have more control over insuring their employees and getting the coverage they want if they’re self-insured. Most will tell you that 15% to 20% of the premium dollars spent by HMOs are on administration," says Johnson.

In a direct-contracting arrangement, employers contract directly with a network of physicians and hospitals and pay them directly to provide care for their employees. Often employers are willing to split any savings with the physician group.

"A self-funded employer often has paid indemnity to these same doctors. Now the physicians are essentially saying that instead of doing unmanaged care, they will provided superior care management without compromising quality," says Bo Bobbitt, an attorney who leads the health law team at Smith Anderson LLP in Raleigh, NC. Physicians consume about 25% of the health care dollars and manage about 85% of the cost, Bobbitt says. "Community physician-driven medical management of that full 85% is basically untapped," he adds.

Bobbitt has set up physician networks across the Southeast that provide health care on a fee-for-service basis with an incentive bonus program attached. To qualify for the bonus, the whole group has to have achieved savings based on some kind of benchmark. For instance, a group might contract to split the savings over what an employer paid for health care the previous year. Individual physicians would have to meet established patient satisfaction, quality, and performance requirements to be eligible for the bonus. "You want to incentivize great medical care that is provided in a cost-effective fashion. If someone does that very well, they should be rewarded," he says.

Locally based health care works for everyone, Bobbitt point out. "The marketplace loves it. Patients are getting tender loving care. The em-ployers like having happy employees. The financial people like it because everybody is working together to get the job done for the least amount of expenditures without cutting corners, and without being concerned with their stockholders like the for-profit companies are," Bobbitt says.

Physicians like it too. In a direct contracting relationship, there aren’t as many controls over physicians as there typically are with an HMO relationship. For instance, doctors don’t have to call for pre-certification to anyone but a system they helped design.

"Doctors have antipathy toward managed care if it’s done by somebody to them. But it’s different if they do it to themselves," Bobbitt says.

Physicians are more likely to accept peer review if it’s a colleague they know who is looking at the long-term picture rather than merely trying to save money, Bobbitt points out.

"Calling a nurse out of state is unimpressive. But if a colleague in their specialty leans across the table and says, We don’t do that,’ it’s more effective and palatable. And the doctor can reply, I know Betty Sue, and she’s much sicker than you think’" Bobbitt says.

However, most employers have some kind of third-party administrator for their health insurance, Johnson points out. "It is the employer’s dollar, and they decide what they will cover. It’s not like an HMO with its own financial incentive. But physicians will not necessarily have carte blanche. Employers have got to control costs as well."

Patients’ rights legislation pending before Congress may provide opportunity for physicians and hospitals to get into direct contracting if it includes the right to sue an HMO, DeMarco says.

If employees can sue a health plan, they also may try to sue the employer for contracting with the health plan, particularly if they don’t get to see the doctor they prefer, he adds.

"There may be a floodgate for return to locally based health care. Where managed care is not working, this could be an opportunity for doctors and hospitals," DeMarco says.