American College of Physicians: Internal Medicine — Doctors for Adults ®

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Rising premiums may open door to direct contracting

From the June 1999 ACP-ASIM Observer, copyright © 1999 by the American College of Physicians-American Society of Internal Medicine.

By Phyllis Maquire

NEW ORLEANS—The recent rise in health care insurance premiums may create new contracting opportunities for physicians, according to speakers at a pre-Session course on managed care.

After years of holding the line on health care costs, a number of health plans recently began raising their premiums by as much as 10%. Speakers at the day-long course, "Managed Care: Surviving and Thriving," said that the hike in insurance rates may prompt some employers to contract directly with physicians to avoid working with managed care companies.

Speakers at the meeting explained that with direct contracting, physicians typically receive higher reimbursements because they perform the administrative functions of an insurance company or health plan. But while physicians stand to profit from such arrangements, speakers warned that doctors can also lose money if the contract does not set reimbursements high enough to cover those administrative functions.

In a segment on strategic options for managed care, Barbara Grenell, PhD, president of Preferred Health Strategies, a consulting group in Rye, N.Y., said that physicians in independent practice associations (IPAs), integrated delivery systems, specialty networks and large medical groups are in the best position to contract directly with employers. To get direct contracts, she said, physician groups must convince employers that they have both the necessary financial infrastructure and can offer top-quality care to serve the company's employees.

"Those are hard contracts to get, but they're very good ones to have," Dr. Grenell said. "And if you're a good doctor, they're not hard to hold onto."

Physicians who enter direct contracting arrangements can expect a different relationship with employers than they currently have with managed care companies, Dr. Grenell pointed out. In part, that's because employers tend to have a much more direct relationship with employees than health plans do with enrollees. Employers also pay more attention to patient satisfaction surveys and often offer more choice in their provider panels.

But there is a tradeoff: While physicians who contract directly with employers may not face the micromanagement of clinical decision-making used by some health plans, they will have to continuously demonstrate a high level of business competence to secure and renew contracts with employers.

Banding together in IPAs and networks can improve physicians' contracting capabilities, but it may also complicate patient relationships. Patients who are used to being billed directly by their physician office may be unhappy having to work out billing issues with a larger, more centralized group administration.

That doctor-patient relationship was the focus of a presentation on ethics in managed care given by Susan Dorr Goold, ACP-ASIM Member, assistant professor in the department of internal medicine at the University of Michigan Medical Center in Ann Arbor. While managed care has made some advances in medical ethics, according to Dr. Goold, because of its focus on best practices and quality improvement, physicians under managed care must deal with many more patient "disconnects"—or breaks in patient care—as employers shuffle managed care products on a yearly basis. Doctors also face tough ethical issues, particularly when they accept risk contracts.

Dr. Goold pointed out that the traditional doctor-patient relationship, which is based on vulnerability and trust, is now changing to a financial relationship based on cost and utilization considerations. One of the biggest challenges that doctors have to confront under managed care is how to continue to advocate for their patients while receiving financial incentives to reduce utilization.

Dr. Goold also said that managed care's insistence on containing costs has meant a shift in the profession as a whole away from providing charity care. As doctors embrace more direct and risk-bearing contracts, their biggest ethical dilemma will be how to care for the uninsured, she concluded.

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