OVERVIEW
OVERVIEW
CHALLENGES
CHALLENGES AND
AND OPPORTUNITIES
OPPORTUNITIES
FOR
PREPAID
FOR PREPAID GROUP
GROUP PRACTICE
PRACTICE
Academy
Academy Health
Health
June
June 6,
6, 2004
2004
Professor James C. Robinson
University of California, Berkeley
Prepaid
Prepaid Group
Group Practice
Practice as
as Solution
Solution to
to
Woes
Woes of
of Health
Health Care
Care System?
System?
³
³
³
Long tradition of criticism of
organizational fragmentation, excessive
specialization, lack of costcostconsciousness
Convergence of ideas and interests
brought together advocates of market
incentives, group practice, prepayment,
organizational integration
The new American health care system?
Strange
Strange Detours
Detours on
on the
the Road
Road to
to the
the
New
Jerusalem
New Jerusalem
³
The market and polity seemed to be
moving towards the new model, but now
seem to be moving away from it
³
³
³
³
From managed competition to single
sourcing
From vertical integration to broad networks
From capitation to feefee-forfor-service
From multimulti-specialty to solo/specialty
practice
³ Peeling the onion of the model
³ Market framework
³ Vertical integration
³ Capitation payment
³ Multispecialty group practice
³ What is the emerging model?
The
The Elements
Elements of
of the
the New
New Jerusalem
Jerusalem
³Four key components of the model of a
marketmarket-oriented, organizationally
integrated, costcost-conscious health system
1. Group practice v. physician cottage industry
2. Capitation v. feefee-forfor-service
3. Vertical integration v. anyany-willingwilling-provider
4. CostCost-conscious choice v. paternalism
Explaining
Explaining the
the Detour
Detour
³ Peel the onion from the outside in:
4. Managed competition, costcost-conscious choice
3. Vertical integration, insurers and MDs
2. Capitation payment
1. MultiMulti-specialty group practice
4.
4. Challenges
Challenges to
to Managed
Managed
Competition:
Competition: Large
Large Firms
Firms
³ Large employers abandon costcost-conscious
multiple choice by employees
³ Administrative costs of multiple plans
³ Fears of adverse selection
³ Complications of fixed dollar contributions
³ Insurers develop total replacement metameta-
products that include multiple network (HMO,
PPO) and benefit (high/med/low) options
Challenges
Challenges to
to Managed
Managed Competition:
Competition:
Government
Government
Challenges
Challenges to
to Managed
Managed Competition:
Competition:
Small
Small Firms
Firms
³ Small firms never offered multiple choice
³ Purchasing alliances never got going
³ No incentives to create nonprofit alliances
³ Large employers and labor unions don’t want to
pool risk with small firms
³ Brokers are important intermediaries
³ Small firms want simplicity, economy
3.
3. Challenges
Challenges to
to Vertical
Vertical Integration:
Integration:
Different
Different Markets
Markets
³ Tax law subsidizes costly plan designs
³ Health care markets are small, local
³ Failure to expand FEHBP model
³ Insurance markets are regional, national
³ Medicare: good regulator, dumb purchaser
³ Overpay then underpay then overpay then…
³ Tricare,
Tricare, some Medicaid programs adopt
single vendor model rather than multiple
choice model
Challenges
Challenges to
to Vertical
Vertical Integration:
Integration:
Industry
Industry Life
Life Cycles
Cycles
³ Many industries begin with innovative
technologies and organizational forms, then
evolve from vertical integration towards
nonnon-exclusive (market contract) relations
³ Early PGPs needed to integrate
insurance/financing with delivery
³ Maturation of industry eliminated this
imperative, permitted market contracting
³ Difficult to sell narrownarrow-network products
³ Vertical integration accentuates internal
organizational politics, undermines
performance incentives for each unit
³ Successful examples have longstanding
culture and market position
2.
2. Challenges
Challenges to
to Capitation:
Capitation:
Complicated
Complicated Incentives
Incentives
³ Difficulties in developing measures and
methods to deal with wellwell-known problems
³ Risk selection and risk adjustment
³ Quality and quality measurement
³ Public perception that incentives to underunder-
treat are worse than incentives to overover-treat
³ Irony of success is slowing costs in 1990s
undermined constituency for cost control
Challenges
Challenges to
to Capitation:
Capitation:
Weak
Weak Physician
Physician Governance
Governance
³ Capitation requires sophisticated physician
entities to reap benefits, avoid problems
³ Financial management
³ Information technology
³ Strong governance and leadership
³ Adequate scale for spreading risk
³ With important exceptions, physician
organizations were incapable of this
Challenges
Challenges to
to Group
Group Practice:
Practice:
Organizational
Organizational Politics
Politics
³ Physicians distrust government, insurers,
hospitals, and other physicians
³ MultiMulti-specialty groups must mediate
professional rivalries, relative income
concerns of primary care, specialists
³ This is especially a problem when medical
group is linked to (owned by) a hospital
³ War of all against all
1.
1. Challenges
Challenges to
to Group
Group Practice:
Practice:
Incentives
Incentives for
for Productivity
Productivity
³ Attenuation of individual incentives for
productivity (free(free-rider) as physicians move
from selfself-employment to employment
³ Traditional solo practice is forfor-profit firm
where every dollar saved is a dollar earned
³ Productivity problems grow as the practice
grows, especially across multiple sites
What
What is
is the
the Emerging
Emerging Model?
Model?
1. New market/policy framework?
³What is consumerism in health
insurance?
2. New insurerinsurer-provider relationships?
³What are “efficient networks”?
3. New payment methods?
³What is “episode of care” pricing?
4. New forms of physician organization?