Managed Care Economics
Health Care Finance
From the Blues to Managed Care
What Does Life Expectancy Tell Us?
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The Last 100 Years
 25 Years in 1850
 50+ Years in 1950
 About 75 now
 Lower for Blacks and Native Americans
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What made the Difference?
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25 - 72
 Sanitation
 Immunizations
 Disease Control
 All Public Health
72-75
 Antibiotics
 Chronic Disease Treatment
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Quality of Life
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When Social Security was started, less than 5% of the
population lived to 65
 Now a significant number of people live into their 80s
 Most of them are fairly healthy and active
Many chronic diseases and conditions have been
controlled
 Allergies
 Diabetes
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The Downside - Health Care Costs Too
Much
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Many People Cannot Afford It
Diverts Dollars From Other Things
Hurts Global Competitiveness
 Cars in Canada
 Low Cost Labor
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Costs More Than Other Countries
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Health As % of GNP Has More than Doubled in 50
Years
It is 20%-50% Higher Than Europe
Their Health Statistics Are Just As Good
Do They Know Something We Don't?
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U.S. Has A Lower Life Expectancy than
Most Other Industrialized Countries
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Taken as a major criticism of the US system
Is life expectancy really the right measure?
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Life Expectancy Is Not Health
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Bias
 Weighted Toward the Young
 One Baby Is Worth Several Grannies
Only Life Counts
 Discounts Quality of Life
 Nursing Home Is As Good As the Ski Slopes
 Masks Aging Population
 Masks Improved Health
A Good Measure for Developing Countries
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What Complicates Health in the US?
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We Have 3rd World Public Health
 Ineffective Prenatal Care
 Poor Immunization Practices
 Limited Access to preventive and routine care
Teen Pregnancy
 Prematurity
 Poor Parenting
Developed World Leader in AIDS
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Non-medical Issues
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The Problem of the Poor
 Poor Education
 Poor Health Habits
 Cannot Afford Prevention
Geography
 Too Many Isolated Areas
 Expensive to Deliver Care
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How has the Health Care Umbrella been
Expanded?
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Sin to Sickness
 Alcoholism
 Drug Abuse
Mental Health Services
Nursing Homes
Vanity Surgery
Should Compare Total Social Welfare Budget with
Europe
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The Core Problem
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Public Health Does Not Work Well but Medicine
Does, for people who can get it
 Old People Are Healthier
 Middle-aged (Middle-Class) People Do Well
Drugs and Devices Matter
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Second Order Demographics
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More Old People
More Care Per Person
Costs Have to Go up
Much cheaper in a country where few people live
to be 65
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Paying for Medical Care
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Pre-WW II
 Mostly Private Pay
 Some Employer Provided - Kaiser
WW II
 Price Controls
Post WW II
 Health Insurance As Benefit
 Private Insurance
 The Blues
 Medicare/Medicaid
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Blue Cross - Blue Shield
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Developed by Docs and Hospitals
 Sold to Teachers
 Assure Access
 Assure Payment
Reimbursement Policy
 Pay Whatever Was Charged
 Subsidize the Rural Areas
 Subsidized Over-bedding and Over Treatment
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Federal Programs
Social Security Income and Disability
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1930s
Lifted the elderly out of poverty
Provided disability insurance for workers
The disability is quite a big and valuable program
and pays for a lot of medical care
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Hill-Burton
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Post-WWII
Funded construction of community hospitals
Had community service requirements, but those
have all expired
Created the US emphasis on hospital based care
Spent from the 1970s to the 1990s reducing
hospital beds to control costs
Excess beds or Surge Capacity?
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The Great Society
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Medicare
 Old People
 Certain disabled people
Medicaid
 Poor People
 Nursing Homes
About 40% of medical dollars
Fought by the AMA
Made Docs Rich
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No Good Old Days for Patients
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Gaming the System under Fee For Service
 Right to Die As Example
 Cannot Just Open the Checkbook
Greed Is Not Good in Medical Care
 Fee for Service Drives Unnecessary Care
 Hospitals Have to Care More About Money Than
Patients
Rich Docs Are Not Always Better Docs
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Federal Interventions
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Feds Pay About 40% of Health Care
Other Plans Follow the Feds
Usual and Customary Charges for Docs
 Based on the Community
 Adjusted for the Docs Previous Charges
 Complex
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Hospital Costs
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Big Dollars Are in the Hospital Charges
Docs only get 20-25% of the health care budget
Hospitals get a lot of the rest
Drugs are an increasing share
Fee for Service Drove Unnecessary Care
Open-end Reimbursement drove High Prices
Hospitals did not even know costs
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Diagnosis Related Groups - DRGs - 1983
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Watershed in Health Care Reimbursement
 Prospective Payment (Capitation)
 Based on Admitting Diagnosis
 Fixed Payment
 Some Adjustments
Encouraged health insurers to also manage
physician care
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Making Money Under DRGs
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Fewer Tests and Procedures
 Complete Reversal of Prior Reimbursement
 No Bump for ICU
Reduce Length of Stay
 Dropped About 20% at Once, continued to drop
 Ideal Is Out the Door, Dead or Alive
 Patients Discharged Much Sicker
Which Was Right, Then or Now?
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Federal Laws Enabling Managed Care for
Docs
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Federal HMO Act in the 1970s
 Preempted State Laws Banning Prepaid Care
ERISA
 Passed to allow labor unions to negotiate national
health plans with big employers
 Preempts state regulation of certain self-insured
health plans
 Gave self-insured plans an edge and drove most
employers to them
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Managed Care Organizations - MCOs
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Insurance Plans That Control Patient Care
Includes the Old Alphabet Soup
 HMOs
 PPOs
 IPAs
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Two Major Variables
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Employer or Contractor
 Do the docs work for the plan or a captive group?
 Do the docs contract with many plans, treating
patients based on different plan benefits?
Open or Closed
 Do the docs treat only patients from a single plan or a
mix of plans?
Why do these matter?
 Leverage on the doc's decisions
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Direct Controls on Costs
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Pay Less for Services
 Use Market Power to Bargain
 Control Access Points
 Limit Hospital Stays
 Limit Tests, Procedures, and Referrals
Direct Control of Access
 Pre-approval
 Tell the Docs What to Do
 Most Honest
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Indirect Controls
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Capitation
 CRF--Consultation and Referral Funds
 Withhold and Incentive Pools
 Stop-loss and Reinsurance
 Total Capitation
Economic Credentialing
Dumb Down Services
Free Ride on Other Plans or the Government
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Deferring Care
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Stop-gap Care
Keep You Out of the Hospital
Keep You Away From Specialists
Managing Crises, Not Solving Problems
Only works in the short term, but plans only think
in the short term
Unsustainable Policies - Plans Are Going Broke
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How Patients Get Hurt - Easy Answers
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Denied Care - the Usual Lawsuit
Incompetent Care by Bad Doc
Incompetent Care by a Non-doc
Putting Patients in Dangerous Facilities
Not Using Proper Drugs
Simple Negligence
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Good Docs Do Bad Things
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Too Little Time to See the Patients
Inadequate Labs and X-ray Available
Locked Into Problematic Specialists
Patients Cannot Get in to See You
Lose Control in the Hospital
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Why Fears of Malpractice do not Improve
Care
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Too Far Away in Time
Too Uncertain
Fight for Quality - Die Today
 Lose Your Job
 Get Hit With Restrictive Covenants
 Get Blackballed by Other Plans
 Get Reported to the BOME for Alleged Bad Care
ERISA Preemption
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Kill the Messenger Phase - 1990s
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Plans Will Not Tolerate Dissent
Key Issues:
 Avoid Notice of Problems
 Keep Other Staff in Line
 Keep Patients in the Dark
 Keep Regulators Ignorant
Gag Rules
Fire’em
Gresham’s Law
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Where Does ERISA Preemption Come In?


Series of Case in the 1980s and 1990s
Suits against Plans (not docs) claiming malpractice
through plan decisions or incentives
 Courts ruled that you could sue the individual doc for
malpractice
 Could not sue plans for malpractice injuries because
ERISA preempted state claims against plans
 Plans that employed physicians could be vicariously
liable
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Plan Medical Directors
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Plan Medical Directors wore the plan hat and also made
medical care decisions
Most plans provided medically necessary care
 Exclusions for quack care
 Exclusions for experimental care
Deciding if care is medically necessary is a medical
decision
Some states required these decisions to be made by
docs licensed in the state, not by accountants in New
Jersey or India
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Pegram
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Pegram is a case about a doc wearing both hats
She is a plan owner as well as a treating physician
The court is trying to decide if the plan should be
liable for her decisions or whether ERISA
preemption should apply.
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