11 May Policy adoption can be very challenging to healthcare leaders. Many organizations employ consultants to assist with the implementation of new poli
Policy adoption can be very challenging to healthcare leaders. Many organizations employ consultants to assist with the implementation of new policies. There have been significant changes to health policies over the past few years that have forced providers to institute implementation strategies, ensuring that they remain competitive and profitable. Review the “Global Medical Coverage” case (Chapter 6)
- Does Blue Ridge Paper Products’ (BRPP) policy differ from a traditional employee stock ownership plan (ESOP)?
- Are there any implications?
- Are there any ethical concerns in the case?
- Did the case present a buyer-dominant or a seller-dominant approach?
- What important lesson(s) are learned from this case study?
- Provide examples of how would you apply this to practice?
Alternative Responses and Initiatives of Institutions and Professions
Nongovernmental health care organizations provide most medical services and handle the financing of much of the system. For-profit and nonprofit institutions operate side by side, often competing directly for the same business.
This chapter identifies a number of strategies that individuals and organizations adopt in response to governmental programs or initiate on their own to influence health policy. We start with Table 6-1 , which outlines the actors and the alternatives for responding to government actions and the marketplace. Where alternatives have been addressed and terms defined in earlier chapters, we try not to repeat that information.
6.1 COMMON RESPONSES
All of the players listed in Table 6-1 employ strategies to influence the marketplace and its regulators. These can be classified into three main types of interventions:
• Public relations
• Marketing and education
Table 6-1 Responses and Initiatives of Institutions and Professions
• Public relations
• Marketing and education
• Subsidy offered
• Plans offered
• Relationship with insurers/self-insurance
• Worker education and training
• Method of organization
• Method of payment
• Plans offered
• Case management/carve-outs
• Utilization constraints
• Consumer education
• Organization of practice
• Services offered
• Patient relationships
• Primary versus specialty care
• Organizational structure
• Scope and scale of services
• Quality improvement
• Consumer information
• Credentialing decisions
• Involving payers in change processes
• Quality improvement
• Provider education
• Consumer education
• Plan selection
• Provider selection
Each player manages its relationships with the media and with politicians and regulators directly, and each acts indirectly through trade associations and professional groups. You will see illustrations of this throughout the cases included in this text and in subsequent chapters dealing with political feasibility and values. The focus of each intervention changes depending on the nature of the specific market. Lobbying is particularly intense in administered markets such as Medicare and Medicaid, especially when new legislation is under consideration. Lobbying also goes on continuously with the relevant executive branch agencies. Public relations and education are used more assertively when regulators are considering changes, and marketing, especially advertising, is most intense where the market is less regulated. The term education can apply to the many different types of efforts to influence behavior. Government antismoking campaigns can be characterized as education, for example, but the term can also be used as one of the rationales behind highly commercial interventions,
such as direct-to-consumer advertising of prescription drugs.
Customarily, the term payers refers to the financial entities, usually insurers, who pay the bills; however, they are only intermediaries for the true payers, those who sign the contracts for care, who are usually employers and the government. In an increasing number of cases, insurers will cover individuals who purchase their policies directly or through state and federal insurance exchanges, if they choose to participate in them.
Employment-based health care benefits have changed markedly since the 1950s. At first, employers were very passive about whether their unions took collective bargaining settlements as wages or as benefits and how those benefits were distributed. All that they cared about was the immediate cost per hour of the total contract agreement. Health care costs were low, and the workforce was young; however, these defined benefit packages took on a life of their own as costs in both pensions and health care began to rise much faster than prices or productivity. Now employers have to deal with both rising costs and the reactions of employees, retirees, and the public when they reduce benefits. A number of U.S. steel and airline companies, for example, have gone through Chapter 11 bankruptcy proceedings in part to free themselves of these “legacy” liabilities for their employees, even the unionized ones.
Employers compete for the best workers, especially the highly skilled ones, in every labor market. They want their health benefits for workers and their families to be in line with those offered by competing employers. If benefits are too low, better employees will go elsewhere. If they are too high, the employer will attract those with high health care costs or health risks in their families (adverse selection) and become saddled with higher costs than their competition.
With the passage of the Affordable Care Act (ACA), employers with more than 50 full-time employees that have not offered a health insurance benefit or that are considering dropping it have to factor in the cost of the penalty, which is $2,000 to $3,000 per uncovered employee. This is, of course, well below the average nonpublic employer contribution for individual premium coverage, which was about $4,500 in 2012.
Employers can decide who gets health care benefits and when they start. New employees usually have a waiting period before they are eligible for health care benefits. Full coverage is typically limited to full-time, directly employed individuals and their families. This is one reason why contract employment and outsourcing have become so attractive. Contracting relieves the employer of the direct expense of health care and pension benefits, although some of those costs are probably reflected in higher wages paid to skilled contract employees and in the bids from prospective domestic suppliers. Under provisions of the ACA, however, federal regulations will determine who is considered a full-time employee for penalty purposes (initially,
30 hours or more of service per week or 130 hours in a month), and employer working hours and benefit policies will tend to align with that.
The proportion of employees’ health insurance that the employer pays is fixed by contract in unionized settings and by company policy elsewhere. The employer negotiates for an array of plans, marketing them to employees, collecting premiums, and funding much of the cost of the basic plan. More recently, employers have moved toward pledging a defined contribution (a fixed dollar amount). Coverage for dependents is usually much cheaper under the employer’s plan than anything available independently. This is due to the purchasing power of the group and the reduced costs to the insurer of marketing and administering the plan. Employers may also offer additional health insurance products not normally included in health insurance, such as dental insurance, long-term care insurance, and vision insurance. Here employers most likely do not subsidize the care, but pass along the advantages of group purchasing.
Many employers have traditionally offered new employees plans that do not exclude preexisting conditions, offering coverage not usually available on the open market prior to the ACA. Some employers, however, do require a pre-employment physical. Under the Americans with Disabilities Act, the use of this information must be limited to the ability to meet specific job requirements, but it may still have a chilling effect on the job-seeking behaviors of those who have severe health problems.
Most employers offer multiple plans so that they do not bear the onus of forcing their employees to participate in a specific plan. Because of the antipathy among Americans to plans that do not allow a choice of providers, most offer a point-of-service (POS) plan as well as the basic plan and plans with alternative tiers of deductibles and copayments. The exchanges under the ACA also offer choices of plans with various levels of benefits.
Some employers also offer cafeteria plans, which allow employees to select customized sets of benefits that best meet their individual needs, including or excluding health care benefits. Cafeteria plans are also called flexible benefit plans or Section 125 plans after the applicable section of the Internal Revenue Code.
Employers, especially those with self-insured plans, can also provide incentives to their employees to participate in wellness programs, pay only the prices negotiated with local centers of excellence for specific procedures, or limit risk through reference pricing. The latter puts a cap on what the plan will pay based on prices of services available in the community. For example, grocer Safeway found that prices for a colonoscopy in the San Francisco area ranged from $898 to $5,984. The company determined that it could provide reasonable coverage with practices charging $1,500 or less in 2009, and limited its payment to that. This was reduced in 2010 to $1,250 (Robinson & MacPherson, 2012). A number of European countries use reference pricing for prescription drugs. Using it in the United States requires careful attention to both federal and state regulations.
Relationship with Insurers/Self-Insurance
Employers offering insurance have the option of bargaining with insurers or of self-insuring. A self-insured plan may be administered by the employer or by an insurance companies or third-party administrator, but regardless of who administers it, the employer takes the risks and rewards of the resulting underwriting loss ratios. Usually the employer also purchases stop-loss insurance against any string of unexpected adverse events. This alternative is used mostly by large employers. More than half of all covered U.S. employees work for self-insured employers. This proportion of firms that choose self-insurance is particularly high among firms with more than 1,000 employees and in multistate companies. Small employers are showing greater interest in self-insured plans to avoid the benefit levels required for the exchanges under the ACA.
Worker Education, Disease Management, and Worksite Wellness
Increasingly, employers are providing wellness and disease management programs directly or through their insurers. Most commonly, they provide wellness promotion through Web-based portals. Some employers provide personal interventions. Company nurses who in the past were mostly responsible for treating acute problems often now play a proactive role in identifying high-risk employees and helping them change their behaviors. Some employers also provide incentives for healthy behaviors, such as not smoking or joining and using a health and fitness club. Some are changing the workplace environment to promote health—for example, placing parking lots away from the building, publishing walking maps and holding walking meetings, installing exercise equipment on site, and replacing high-calorie, high-fat food and drink in lunchroom vending machines with more healthy fare. The Centers for Disease Control and Prevention (CDC) decorated its stairwells with art and piped in music to make them more enticing to employees who might otherwise take an elevator.
Employers have a strong interest in promoting medical savings accounts, which shift more of the costs of routine medical care to the employees while still providing catastrophic care insurance.
Insurers are intermediaries between payers and patients. Many insurers provide a wide array of insurance products and work to sell employers on the economics of one-stop shopping for all of their insurance needs. Others offer only or primarily health insurance products. Some are for-profit, and some are nonprofit. They all compete in the same market with similar products offered under the same state regulatory requirements. Insurers compete with each other based on price (driven by costs), their ability to keep enrollees happy, and their ability to come up with creative solutions to perceived problems.
Historically, insurance has been described as “driving through the rear-view mirror.” Premiums are based on experience rating, namely the past claims experience of one’s employees or similar employee groups. If claims were high in one year, losses could be recouped by raising premiums the next. Even when changing insurers, one cannot necessarily run away from a costly claims history. Underwriters examine past data and the composition of the workforce and decide whether to take on a group and, if so, at what premium level. Their analyses are backed by statistical analysts, called actuaries, who estimate trends in costs and claims and forecast outcomes.
Method of Organization
The insurer can provide insurance only, or it can provide health care services as well. Organizations that combine both insurance and care management functions tend to be called health maintenance organizations (HMOs). If the company is only an insurer, it negotiates the terms of contracts (policies) with providers and with the enrollee. It collects a premium up front and invests it in reserves until claims are filed. Corporate profits are a function of claims history, operating efficiency, and investment earnings. If the investment income is sufficient, premiums can be less than the combined costs of operating and paying claims. If a company provides coverage at sites where it does not maintain much of a presence, that company may use a third-party administrator to process claims and provide other services locally.
Insurance is a business of taking risks. If the insurer decides that the risk is too great to take on alone, it may purchase reinsurance against unacceptable losses (also called stop-loss insurance) from one or more other insurers.
Method of Payment
The payer wants to motivate providers to look after its interests. In economics this is called an agency issue. For health care providers, agency is a major issue because the physician is already an agent for the patient; thus, if the provider is also expected to be an agent for the payer or the insurers, this sets up a potential conflict of interest. To exert some influence over clinical decision making, insurers have experimented with a number of alternative ways of paying for care. Table 6-2 lists various contract options used by insurers and also identifies the dominant organizational form associated with each payment method and the degree of control that each method exerts on providers.
Health insurance companies historically paid for care on a fee-for-service basis, with the provider establishing a fee schedule and billing accordingly. Then large payers, especially the Blue Cross and Blue Shield organizations, began to take discounts, and Medicare and Medicaid took even greater discounts to the tune of 40–60%. Some payers contract with their key network providers, usually primary care gatekeepers, to assume some of the risk and allow a withhold from their payments until a certain settlement date, at which time each provider receives some or all of the withheld funds depending on their cost performance. Today, a number of payers have pay-for-performance clauses built into their contracts that offer additional compensation for meeting certain quality criteria, especially in the areas of prevention and following evidence-based practices. Ultimately, payers want to pay for outcomes, but such compensation systems depend on integrated information systems that can capture more than just an episode of care.
Capitation involves giving the provider so much per enrollee per time period and leaving the provider to take the profit or loss on the actual transactions for the period. For example, a primary care provider might be given a certain amount per member per month to cover primary care and diagnostics. Sometimes the costs of subspecialty referrals are included, which puts the primary care provider at even greater risk. Provider organizations may choose a staff-model HMO structure as well. Where state medical practice acts allow, physicians may be employed directly. Otherwise, they form a separate partnership entity that contracts (sometimes exclusively) with the HMO to deliver services. In such cases, the arrangement may offer additional compensation to the physician group if it meets certain targets.
Table 6-2 Compensation Arrangements for Physician Health Care Services
FFS = fee for service. PPO = preferred provider organization. ACO = affordable care organization.
HMOs started out as providers that integrated prepayment and service delivery into a managed care system, usually with a closed panel of providers. Over time, that distinction has blurred. Today, HMO is virtually synonymous with a managed-care organization, one that does more than pay claims. It takes responsibility for the quality and content of care over a period of time.
The HMO–provider relationship can be set up in a number of ways:
• Staff model. Physicians are employed or in a captive group with physicians on salary, with or without performance bonuses.
• Group model. A physician group accepts capitation from the HMO and allocates the capitation payments among its members.
• Network model. The HMO contracts with groups and individual physicians to take care of its enrollees. Providers may be paid by capitation or on a discounted fee-for-service basis.
• Individual practice association (IPA) model. A group of practices contract as a whole for payment under either capitation or discounted