Towards a choice-based model of managed care - Part 2: Global Theory and the Nature of Risk

Physician Executive, July-August, 1999 by Douglas W. Emery

WHEN LAST WE LEFT PART 1, the discussion ended with an introduction of the multidimensional risk analysis of global theory, and the fact that specialized markets (i.e., the ex ante and ex post markets) must evolve to allocate speclaiized types of risk (i.e., probabiiity, technical, and choice-utility risk). I also discussed the manner in which orthodox managed care attempts to compress time by integrating health insurance with health care. This, the reader may recall, partly explains why outcomes reports and satisfaction surveys play such an intrinsically anemic role in managed care. But time isn't the only aspect of health care reality being compressed by orthodoxy. Seen in its true light, the entire foundation of orthodox managed care is to compress all three types of economic risk into one marketplace, the ex ante market for health insurance.

The orthodox compression wedge

The basic orthodox business ideology, then, is to compress as large as possible a pool of reserves and insured lives onto as small as possible a care network. Graphically, Figure 1 represents the gist of the concept as an inverted isosceles triangle. The insured-life population, the premium base, and its master policy of benefits rules form the wide base of the triangle, all being focused downward on a point that represents both the narrowed care network, as well as the restricted patient/provider choice sets.

The idea is to collapse and merge the ex ante market (i.e., the point in time where medical demand is unknown and consumers demand health insurance) with the ex post market (i.e., the point in time where medical demand is known and patients demand health care). The intent is to create a synergy of financial interests between those who manage premiums and those who manage care. While there is little doubt this structural approach can save money over indemnity fee-for-service, there is also little doubt that it has the unfortunate effect of driving a wedge between the traditional patient/doctor relationship. This "compression wedge" is the primary source of tension feeding consumer and physician discontent with managed care, and nearly all new or proposed laws and regulations are attempts to pry the wedge open.

The four cardinal "pressure points" and phenomena

Orthodox managed care seeks to "integrate" the functions of health insurance and health care through a series of top-down, command and control techniques that compress the four cardinal "pressure points" of sensitivity In the health care public square. These are:

1. Patient choice/access compression (selective contracting, gate-keeping, etc.)

2. Physician choice compression (preauthorizations, utilization review, protocols, etc.)

3. Price compression (through such leveraging methods as volume-driven discounts, the RBRVS, and capitation. Payer fee schedules are really price controls)

4. Fiduciary role compression (the fiduciary role of insurance conflated with the fiduciary role of the Hippocratic Oath)

All depend. in one way or another, on a basic power asymmetry that exists between insurer and patient, and insurer and physician. This statement is not negated by the instances where physicians have willingly adopted the ideology of capitation or have voluntarily formed their own HMOs, PS (HM) Os, and IDSs, for though these circumstances do exist, they are by far outnumbered by similar arrangements that have been induced through an element of market coercion. If some element of coercion were not the case, and the entire matrix of orthodox managed care relations were the voluntary result of knowledgeable and willful choices, four observable phenomena would be in evidence:

1. There would be little or no consumer backlash. But the evidence to the contrary, however, is overwhelming. Here's just one of many examples: a mid-1998 New York Times survey revealed that 85 percent of Americans do not believe the current system is working and that 50 percent believe managed care harms the quality of care. (1)

2. There would be little or no physician dissatisfaction. But the fact of the matter is that a great many physicians to whom we look for care are either demoralized about or furious with managed care; in fact, a recent survey conducted by the MEDSTAT Group and J.D. Powers shows that 7 out of 10 physicians considers themselves anti-managed care. (2)

3. Orthodox managed care structures would be thriving, (i.e., closed-panel, vertically integrated HMOs and global capitation). Not only are these forms not thriving, but they are increasingly--and correctly--being seen as the source of friction generating the first two contrary indicators.

4. Consumers would not be turning to the state and the courts as a means of rectifying the power asymmetry.

Since 1994, well over 2,000 bills have been introduced in state legislatures alone, most of which are hostile to managed care in one way or another. (3) It's highly likely that some kind of patient's bill of rights' will come under close consideration by the federal government this year.