Managed Care: The Challenge

1
Managed Care The Challenge

• Satisfying marketplace preferences for less
  restrictive care while holding down costs

2
Managed Care The Challenge

• Plans facing mounting pressures to change
• Consumers becoming more active health care
  participants, demanding more choice, greater
  flexibility, and fewer restrictions on access and
  service delivery
• Employers (purchasers) demanding less restrictive
  managed care to appease employees

3
Managed Care HMOs

• Additional pressures on plans
• Federal and state regulations sought by consumers
  and providers in response to perceived problems
  with HMOs
• Declining HMO enrollment

4
Managed Care HMOs and PPOs

• Distinction between HMO and PPO products becoming
  less clear
• HMOs increasingly offer broad provider networks
  and no gatekeeper
• Premium differences between HMOs and PPOs
  shrinking

5
Managed Care Past Strategy

• Plans are changing strategies
• Historical reliance on two key strategies
• Use traditional managed care technology (limited
  provider networks, primary care gatekeeping of
  access to specialty services, medical necessity
  authorizations, and negotiated payments including
  provider risk sharing) to aggressively control
  health care costs
• Grow plan membership to gain leverage in provider
  negotiations and achieve economies of scale

6
Managed Care Strategic Shift

• Three strategic shifts between 1999 2001
• Offering less restrictive products and product
  features
• Focusing more clearly on profitability than on
  growth in market share
• Reconstituting often adversarial, friction-ridden
  contracting relationships with providers to
  establish a more peaceful coexistence

7
Managed Care Provider Relations

• Providers have the upper hand
• Consumers and purchasers preferences for broad
  and stable networks
• Consolidation among both physicians and hospitals
• Reappearance of capacity constraints for many
  hospitals

8
Managed Care Provider Relations

• Seeking less contentious contractual
  relationships with providers
• Contentious relationships are costly
• Increase contract negotiation costs
• Consume resources trying to mediate
• Often result in higher payment concessions
• Ill feelings may be passed to consumers, who
  become less satisfied

9
Managed Care Provider Relations

• Providers pushback on plans
• Dissatisfied with low payment rates and loss of
  autonomy
• Poor business practices contribute to
  dissatisfaction
• Failure to pay claims promptly
• Seemingly arbitrary service authorization denials

10
Managed Care Provider Relations

• Providers resistance to risk-contracting
  arrangements?
• In 1996-1997, health plans and providers
  anticipated rapid HMO enrollment growth
• Two years later, plans and providers were more
  cautious of risk-sharing arrangements
• Risk-contracting organizations began to fail
• Pharmaceutical costs soared
• Regulatory scrutiny of risk relationships
  increased
• By 2000-2001, some markets began aggressively
  resisting risk-contracting arrangements

11
Managed Care Strategic Shift

• Emphasis shifted to safeguarding profitability
• Shift in strategies created significant cost
  pressures
• By 2000-2001, responded by raising premiums,
  eliminating marginal lines of business, and
  retreating from unprofitable markets

12
Managed Care Strategic Shift

• Safeguarding profitability
• Intense price competition from 1996-1999,
  particularly among new market entrants and
  existing plans launching new products
• By 2000-2001, plans struggled to keep pace with
  rapidly rising medical costs trends
• Large premium increases, averaging 11 across
  employer groups nationally

13
Managed Care Strategic Shift

• Safeguarding profitability (continued)
• Reduced multiyear rate guarantees and premium
  caps
• Fewer unprofitable lines of business
• In 1996-1997, plans actively developed new lines
  of business (Medicare risk, Medicaid,
  small-group, and individual insurance products)
  to increase market share
• By 1998-1999, plans were less optimistic about
  these products
• By 2000-2001, definite shift in some markets to
  retreat from or eliminate unprofitable business
  lines

14
Managed Care Strategic Shift

• Safeguarding profitability (continued)
• Retreat from market expansions
• From 1996-1999, active pursuit of market
  expansion strategies
• Offered products at prices considerably below
  those of competitors
• From 2000-2002, market expansion proved
  financially burdensome
• Unsustainable pricing strategies in expansion
  markets

15
Managed Care Implications of Changing Strategies

• As plans move to less restrictive managed care
  products, they lose ability to control costs
• Likely to contribute to further premium
  increases, leading to fewer affordable insurance
  options for employees (likely leading to higher
  uninsurance rates and increased pressure on
  public programs)
• If employers health care costs return to rates
  of increase experienced in the early 1990s, they
  will seek relief

16
Managed Care Implications of Changing Strategies

• If employers health care costs return to rates
  of increase experienced in the early 1990s, they
  will seek relief
• Less expensive products
• Products with greater restrictions (limited/tight
  provider networks)
• Greater financial responsibility for employees

17
Managed Care Implications of Changing Strategies

• Movement toward less restrictive plans
  (especially non-HMO products such as PPOs)
• Products do not offer comprehensive benefits
• Makes risk-based contracting less feasible,
  because members have more freedom to seek care
  from providers outside the risk-bearing provider
  groups
• Likely to result in an overall weakening of plan
  accountability