The Health Care Cost Crisis;

Can it be Managed? Baby Steps Through Medical Care Management

by Mark Goran

During the past several years, employers sponsoring and contributing to health care plans have felt the pain of double-digit annual increases in the cost of health benefits in an economy with 3%-4% overall inflation. At the same time, many physicians are either relocating or seeking other vocations due to reduced reimbursement for professional services and higher costs of doing bus-iness, including the cost of medical malpractice insurance. Hospitals are showing inconsistent financial performance; senior living facilities are going bankrupt; and, patients are unhappy with the attention they are able to get from their providers.

Changes in management of healthcare services have not led to the expected greater efficiency, better outcomes and cost reductions. Furthermore, many managed care payors are realizing significant growth and profits while the dissatisfaction of employers, providers and patients grows.

What is the root of the problem? One major issue lies with the fundamental difference between the health care industry and practically every other industry contributing to the gross national product. In most industries, consumers of products and services and sellers come together in a free market with the benefit of competition, as encouraged by the antitrust laws. In the health care industry and managed care environment, the consumer is really not the purchaser. Rather, the employer of the consumer (typically with some contribution from the consumer) pays a premium to a managed-care payor, which then utilizes the leverage of a large membership (buying power) to obtain favorable pricing from providers. The antitrust laws preclude the providers from doing any type of meaningful collective bargaining with the payor, and, as a result, the payor is in substantial control. So long as managed care payors can "arbitrage" on the difference between premium revenues and costs of heath care, payors are able to remain profitable and are not motivated to invest in the development and implementation of new approaches to population-based medical care management which could, over the long term, yield efficiency, better outcomes and cost savings. Similarly, providers who are reimbursed on a discounted fee-for-service basis have neither incentive nor resources to improve efficiency or contain costs.

Managed care initially attempted to control utilization through procedures whereby providers were required to seek permission to perform services. Managed care then attempted to use capitated compensation models to provide incentive to primary care physicians to control the direction of care and limit costs. The use of the primary care physicians as gate-keepers proved unsatisfactory, and managed care payors have reverted largely to discounted fee for service arrangements and some prospective payment arrangements with providers as vehicles to control the cost of healthcare.

A segment of the health care industry has been developing which is focused on better outcomes through medical care management. Medical care management involves the use of claims and other data to identify patients who are at most likely to incur significant ongoing healthcare costs. These patients can often benefit from proactive (as opposed to reactive) care management. In general, statistics demonstrate that a relatively small portion of the patients account for a vast majority of the costs. In 2001, approximately 20% of the U.S. consumers accounted for 80% of direct healthcare spending according to statistics provided by the Agency for Healthcare Research and Quality. Chronic disease contributes significantly to healthcare costs.

Medical care management typically takes the form of implementing scientifically proven protocols for the treatment of certain disease states (e.g., diabetes, asthma, congestive heart failure, etc.) and the monitoring of various patient health indicators so that abnormalities can be detected early and high acuity circumstances avoided. When successfully implemented, medical care management will (i) enhance the health of a covered population and diminish absenteeism in the workplace, (ii) demonstrate enhanced outcomes and financial return on investment, and (iii) reduce the cost of care by avoiding costly high acuity circumstances necessitating hospitalization or other extraordinary measures. Data already exist to confirm the benefits of care management. The Federal government has become aware of the potential benefits of medical care management and has a number of demonstration projects currently in process.

Employers seeking to reduce the cost of health benefits by self-insuring typically hire managed care payors (or their affiliates) to act as administrative service providers or third party administrators. Typically these employers rely upon those entities to provide whatever management tools are available to establish efficiency, better outcomes and cost reduction. Sophisticated employers who provide health benefits through insurance or self-insurance arrangements are arguably in the best position to insist that medical care management techniques be implemented. Such purchasers of health care benefits for employees should insist that medical management be included as a part of their health benefits programs.

Care management concepts are being developed by managed care payors and by private medical care management companies. Medical care management companies are growing as a segment of the healthcare industry as recognition of the benefits of medical care management increases. Medical care management is an important service separate and distinct from the ordinary provision of clinical physician, hospital and other provider services.

Medical care management will certainly not fix all of the controversial aspects of the United States health care system; however, it is one currently available tool to enhance the health of the American population while reducing costs and does not require reduction in reimbursement paid to providers.

Mark Goran is a partner of and leads the Healthcare Practice Group with Bryan Cave. He may be reached at 314.259.2686 or by e-mail at mgoran@bryancave.com.