The new anatomy of health care - includes related articles and glossary of medical terms - Panel Discussion

Chief Executive, The, Jan, 1996 by J.P. Donlon, Barbara Benson

Liguori: HMOs operate with tremendous price/growth ratios. To maintain these ratios and lower costs, many are recruiting more participants by offering more out-of-network options. But if you allow members to go out of network, aren't we full circle back to an indemnity-based plan?

Go: There is an imbalance between demand and supply, and managed-care providers do not have to truly manage care to make money. The marketplace is set up so that the average hospital is 50 percent to 60 percent occupied, and the marginal cost of taking care of a patient is 50 cents on a dollar of full cost. Why wouldn't that hospital bid 60 or 70 cents to care for that person if he or she were an incremental patient? As long as over-supply continues, there is little incentive to truly manage care, because managed-care companies can gain economic leverage through better negotiating and new payment systems.

Robert W. Lear (CE/Columbia Business School): Many people think there is an incentive. Few industries are undergoing more consolidation than the health-care industry. Local hospitals are going national in chains, as are nursing homes and doctors' clinics. Pharmaceuticals are broadening their base through distribution. Costs will be cut once these companies are centrally managed.

THE DATA GAME

Margaret E. O'Kane (National Committee for Quality Assurance): Today, we see a collision of value systems. The old value system, held by consumers, the press, and the purchasing community, maintains that fee for service is inherently better than managed care. The purchasing community only came to managed care because of cost incentives. A second set of values holds that if you industrialize health care, you will get better quality at lower cost. So your expectations are higher for a managed-care system than for a fee-for-service system.

Since these two value systems are at odds with each other, idiotic things are happening. Purchasers are buying preferred provider organizations without asking about quality, which is probably good since PPOs are discounted fee-for-service organizations. People think because PPOs offer more choice than HMOs, there's no reason to worry about quality. Right now, about 25 percent of the marketplace is in HMO products, 50 percent is in PPOs, and the rest are insured under indemnity plans. Those are my numbers. Our goal at NCQA is to release information about the quality of managed-care organizations, hoping it will raise the issues for a broader group of organizations. All health plans should have to provide results-performance data, because those will drive the market in an intelligent way.

We launched our accreditation program in 1991, largely because of demands by Fortune 100 companies. By early 1996, more than half of all HMOs will have gone through our accreditation process, which is based on defining processes, aggressive quality management and oversight, and care standardization. It's not easy to obtain our accreditation: Only 33 percent of the plans that have been through the process have been fully accredited. A number of them get a one-year accreditation or a provisional and then usually move up. Fully 13 percent of the plans flunk the process outright.