The Life Savers' Dilemma
By David S. Hilzenrath
In the 1980s, when rival Minnesota networks required women to get a referral before seeing an obstetrician, Robinow's group offered unfettered access. As a result, it attracted more than its share of pregnant women -- incurring millions of dollars of losses, Robinow said.
Though delivering babies was much more expensive than providing routine care, the network was paid the same amount regardless of the patient's needs. So Robinow's group did the only thing that made economic sense: It stopped offering direct access to obstetricians.
"We learned the financial hard way," Robinow said.
In the world of prepaid health care, in which health maintenance organizations, physician groups and individual doctors are paid upfront to provide whatever services a patient might need, simple economics make healthy patients more desirable than sick ones. Paradoxically, the market can punish health plans that do well for patients who actually need care -- by steering more in their direction. And it can shower financial windfalls on health plans that do less for their members.
"It's a classic death spiral," said Sandra S. Hunt, a Coopers & Lybrand health care consultant.
As the spread of managed care raises the stakes, analysts, industry executives and government officials say this paradox is among the system's gravest flaws -- and they are searching for ways to eliminate it. A movement to overhaul health care reimbursements is gradually gaining momentum, with the goal of rewarding health plans for taking care of sick people rather than avoiding them.
There are many subtle ways in which health plans can attract the healthy and repel the sick, either intentionally or unintentionally, experts say. One example is "medlining" -- health care's version of redlining, the practice in lending and insurance of avoiding certain neighborhoods considered to be deteriorating.
To avoid patients with severe conditions, the simplest strategy may be to avoid doctors who excel in treating those conditions. Patients with chronic heart disease, for example, might think twice about joining a health plan if it doesn't offer access to leading cardiologists in their area.
Similarly, if health plans choose the most affluent locales when building clinics or recruiting doctors, they can reduce their exposure to poor populations with disproportionately high medical needs.
Offering certain relatively inexpensive benefits can pay large dividends. For example, health club memberships appeal to the fitness-conscious. Dental benefits attract young families. And vision coverage can be farsighted: People who would switch health plans for something as modest as a free pair of eyeglasses aren't likely to have the kind of attachment to a physician that develops over the course of a serious illness, said Carolyn Madden, a health economist at the University of Washington.
Gaps in coverage can be just as meaningful: If a health plan doesn't pay for the devices that diabetes patients use to monitor blood sugar, it might draw fewer diabetics.
Whether health plans have ulterior motives for doing these things doesn't really matter, said Harold S. Luft, a health economist at the University of California at San Francisco. It's the effect that counts.
Left unchecked, market forces could make victims of two groups: the best and most conscientious health care providers, and people who need top-notch care for serious conditions, analysts say.
Aetna U.S. Healthcare underscored the threat this month when it scaled back its unusually generous coverage of high-tech fertility treatments. People with fertility problems were flocking to Aetna for in vitro fertilization procedures.
It doesn't necessarily pay for a health plan to gain a reputation for inferior care. But, at the other extreme, it doesn't pay to become the plan of choice for the chronically ill, say analysts and health care executives.
George Washington University health care economist Warren Greenberg put it this way: "I don't see any managed-care firms today advertising, `Yes, we are the best managed-care firm, especially if you have cancer, if you have AIDS, if you have heart disease.' "
If Ann Robinow has her way, that's exactly what the ads would boast.
Now, as executive director of a Minnesota employers coalition, Robinow is championing an approach through which government programs and large business groups pay health plans based on the medical needs or risks of the people who enroll, instead of compensating all based on the same theoretical average. Thus, health plans with sicker-than-average populations are paid more than the standard rate, and those with disproportionately healthy populations are paid less.
In the jargon of the industry, it's called "risk adjustment."
Early adopters include Robinow's Buyers Health Care Action Group in Minnesota and the Health Insurance Plan of California, business alliances that offer their workers coverage through an array of health plans.
Maryland and Colorado recently began using risk adjustment in Medicaid programs for the poor and disabled. In the state of Washington, a health benefits program for public employees implemented it this month. Under legislation enacted last year, Medicare, the federal medical insurance program for the elderly, must begin adjusting reimbursements by the year 2000.
One Minnesota HMO has taken this approach to an even finer level by risk-adjusting the amount it pays physician groups serving its members.
"What we really want are the sickest people going to the best doctors. And the only way we make that happen is . . . reward the best doctors for attracting the sickest patients," said George C. Halvorson, chief executive of HealthPartners Inc.
Michael B. Rothman, who helped organize the Colorado Medicaid effort, echoed that logic. "Our goal is to pay [health plans] more appropriately so they have a reason to treat high-cost [cases] and people with chronic needs effectively," the former state official said.
"Our concern is, if we don't pay them for taking on our more expensive populations, they won't do it. They'll find ways not to do it."
The chief of preventive medicine and research at the Kaiser Permanente HMO in Denver agrees in principle. "If you're going to pay me X number of dollars for every patient, then I have an incentive to enroll healthy members and to not enroll sick members. And risk adjustment takes that perverse incentive away," Ned Calonge said.
Cherry-picking, as the bias toward healthy patients often is labeled, is a long-standing practice in the health insurance business. Conventional insurers routinely screen applicants for medical problems, denying coverage to the sickest or charging them higher premiums.
But less straightforward methods dominate when prepaid health plans agree to accept all members of a government insurance program or employee group. And new factors come into play when managed-care companies control the delivery of care as well as its financing.
The cost controls and red tape of managed care can have a hidden payoff for HMOs: They may scare away consumers whose medical needs make them especially sensitive to bureaucratic hurdles. That helps explain why the Medicare beneficiaries who choose health maintenance organizations have been healthier on average than those opting for Medicare's traditional fee-for-service coverage, many analysts believe.
Health plans' quest for low-cost doctors and hospitals can affect the membership profile, too. Providers with more than their share of serious cases can wash out of a health plan's network -- if they aren't shut out.
"In my long experience in HMO administration . . . I've seen groups [of doctors] avoided for contracting because they have high-risk populations in them," said David J. Knutson, now a health care researcher in Minnesota.
Whether the number crunchers have effectively mastered the art of measuring and compensating for medical "risk" is an open question. Health economists say most medical needs are unpredictable. For that reason, risk-adjustment systems generally play a game of catch-up -- for example, changing this year's reimbursement rates based on last year's patient diagnoses.
Kaiser Permanente's Calonge contends that Colorado's risk-adjustment methodology slights his HMO. In October, when the adjusted rates kicked in, Kaiser lost $33,874 a month in Medicaid premiums -- or 8.55 percent. By contrast, rival Colorado Access gained $169,802 a month, or 4.25 percent, according to the state Department of Health Care Policy and Financing.
At the Health Insurance Plan of California, the early results are mixed. Since the program was started in 1996, there have been three rounds of adjustments, and the variation in medical risk among participating health plans has narrowed dramatically. That's what's supposed to happen.
As a result of the December 1997 adjustments, the health plan that gains the most gets an upward risk adjustment of 4.95 percent, and the one that loses the most gets a downward adjustment of 3.14 percent.
By contrast, the December 1995 adjustments ranged from an increase of 20.09 percent to a reduction of 6.04 percent.
But some of the health plans have dropped out. Some that stood to benefit from the pay adjustments found it still wouldn't be profitable to participate, said Sandra Hunt, a consultant to the program. Meanwhile, some that faced reduced reimbursements argued that the assessments didn't reflect reality. They had trouble providing data on their members' medical needs, Hunt said.
And some habits die hard. In negotiations, one health plan balked at risk adjustment, Hunt said. The health plan had gone so far as to sever its relationship with a university hospital, an institution known for practicing high-tech medicine and tackling complicated cases, Hunt said. "Their basic response was . . . `You're destroying our strategy. We've constructed our provider network to avoid these high-cost risks,' " Hunt said.
© Copyright 1998 The Washington Post Company