California and Oregon voters defeated ballot initiatives on provider compensation during the November election, but the issue of how managed care plans compensate providers in their networks remains a hot topic at statehouses across the country.
Providers and consumers want increased scrutiny of provider compensation because they say the incentives created by payment methods are at the heart of concerns over managed care. Key among those concerns is ensuring access to specialty care, diagnostic tests and other services. So far, compensation regulations have been part of broader "patient protection act" bills, and have mostly required that plans disclose how they compensate providers. Since 1995, 10 states (California, New York, Alabama, Arizona, Georgia, Maine, Rhode Island, Virginia, Vermont and Washington) have passed laws requiring managed care plans to disclose this information. New Jersey is nearing completion of final regulations that would require similar disclosure.
In the past year, four states have passed measures that attempt to curb the incentives themselves. But, managed care groups say the rules don’t have much impact on how plans operate.
Three states — Texas, Rhode Island and Georgia — passed vaguely worded measures that prohibit incentives adversely affecting provision of "medically necessary" or "appropriate" care. But, all three laws specifically exempt capitation, and the American Association of Health Plans (AAHP) says they don’t pose a challenge to how plans operate.
A new California law, which takes effect in January, prohibits incentives to deny specific procedures or care to certain classes of patients. That’s a law California HMOs can live with, because they don’t have such incentives in their plans as it is, says Maureen O’Haren, chief lobbyist for the California Association of HMOs.
Maryland became the first state to ban withholds in 1994. That legislation followed negative publicity about withholds in the media, but had little impact on plan operations in Maryland, says Deron Johnson, director of legislative and regulatory affairs for the Maryland Association of HMOs, because only one plan was using withholds at the time.
More states look at issue in 1997
While the industry maintains that many of the provider compensation laws passed so far have had little impact on how managed care plans operate, more states will be looking at this issue in 1997.
•Massachusetts legislators are considering disclosure requirements and other regulations on provider compensation as part of major managed care legislation that may be filed next year.
• Maryland may also consider disclosure issues as well as legislation that delves deeper into provider compensation issues.
•The Medical Society of New York plans to launch a study in 1997 of how payment incentives such as capitation and withholds affect quality of patient care. The Society may seek legislation to regulate incentives if it finds evidence of a negative impact.
"Some people are just opposed to capitation per se, but I think it’s more a question of how capitation is done," says Rep. John McDonough, D-Boston, who chairs the Massachusetts Legislature’s Committee on Health Care.
"There are some ways to do it that make a lot of sense, and some ways that are troubling. We’re evaluating whether there are ways we can identify and either modify, restrict or prohibit some of the most troubling aspects of capitation." He defines as "potentially troubling" plans that capitate individual physicians and make primary care providers responsible for paying specialist fees out of their own capitation.
Central issue: Impact on quality
"In the popular media, the theme has been that capitation leads to denial of care, because it pinches providers in a way that they have an incentive to do less," says Vikram Khanna, president of State Health Policy Solutions in Baltimore, MD. "I think that the critical data is not clear. In most studies of managed care vs. fee-for-service, it’s pretty much a wash. But the studies don’t really isolate capitation, so the bottom line is that we don’t really know."
The industry says capitation and other payment mechanisms used in managed care result in better care—not worse— because they encourage more preventive care.
Paul Beckman, an instructor in health care administration at Xavier University and former vice-president of Group Health Associates, a large Cincinnati multi-specialty practice, points to a prevention program his group developed to reduce the high rate of premature births among teenagers in the practice. The program cut the premature birth rate of teens in the practice by two-thirds. "Without capitation, we never would have had the money up front to do that."
But, several provider and consumer groups point to myriad HMO horror stories as evidence that capitation can result in poor care. In a recent case in Oklahoma, Gross v. Prudential Health Care Plan, the plaintiff claims denial of an MRI resulted in permanent spinal cord damage, and his lawyers argue that capitation amounts to fraud and breach of fiduciary duty because physicians are placed in a position of conflict of interest with their patients.
Mr. Beckman believes it should be up to providers to reject plans that don’t allow them to have direct control over their own risk, such as when primary care physicians must pay for specialty care out of their capitation but don’t have specialists in their group.
Mr. Khanna, who has helped draft Maryland managed care legislation in the past, is intrigued by a recent study published in the Journal of the American Medical Association, which concluded that plans with capitation rates adjusted for case mix provide better quality than others. "I think that study got a fair amount of attention in Annapolis," he says, indicating that risk-adjusting capitation rates might address some of the concerns about managed care. "I’m working on some legislation (that would require case-mix adjustment for capitation), and I think we may find a receptive audience."
Besides risk-adjustment, another issue is spreading the risk among providers. Many believe that if risk is spread over an adequate number of providers, capitation is less likely to be troublesome.
Ms. O’Haren of the California Association of HMOs predicts that the next round of legislation in her state will focus on Independent Provider Associations that capitate individual physicians."That’s where the trend is as far as impact on the actual patient," she says.
Peter Grant, a lawyer with Davis, Wright, Tremaine in San Francisco, who specializes in managed care contracts, says he sees relatively few plans capitating individual physicians or small groups. When they do, he says, plans try to build patient satisfaction or other quality measures into bonus formulas to counterbalance incentives to withhold care.
Informing the consumer
The most popular form of compensation regulation to date—disclosure rules—has generally given insurers little problem.
Arizona’s disclosure law, the only one with a track record, requires disclosure of any incentives to withhold care or referrals to specialists.
Greg Harris, assistant to the director of the Department of Insurance, describes the information filed so far as "pretty summary," usually including only a brief sentence or paragraph that lists the incentives used. Summary information is all that is required by Arizona’s regulation.
"Patients have a right to know how their doctor is being compensated," says Don White, spokesman for the AAHP. "But they don’t necessarily have the right to know down to the penny, in terms of actual numbers, because that is generally considered proprietary and plans are very concerned that if that information were made public that other plans coming in to the area would be able to steal away their networks."
Says Paul Langevin, president of the the New Jersey HMO Association: "We can tell people whether we have a withhold, bonus payments or capitation, but there are literally over 100,000 ways to pay, and these systems are very proprietary. And, quite frankly, the plans change them all the time."
Contact Mr. White at 202-778-3200, Ms. O’Haren at 916-552-2910, Mr. Khanna at 410-997-9283, Mr. Langevin at 609-581-8237, Mr. Johnson at 410-269-8007, Mr. Grant at 415-765-5333.
Consumers and providers lobby for state oversight of managed cares compensation plans, incentives
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