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?