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    HMO's Prescription for Change: Flexibility

    By David S. Hilzenrath
    Washington Post Staff Writer
    Monday, October 20 1997; Page A01

    For Kaiser Permanente, the nation's largest health maintenance organization and one of the oldest, an internal memo to its doctors in the mid-Atlantic region last March contained a sobering message:

    Fewer than two-thirds of Kaiser's patients here said they had a personal physician. What's more, fewer than half were satisfied with their ability to see their personal physician.

    "Improving the percent of members who have a personal physician is critical for retaining members and improving our reputation in the community for providing personal care," wrote Adrian E. Long, president of the HMO's regional physician group. "Unfortunately, over the last four to five years, the number of members . . . who say they have a personal physician has steadily declined."

    For generations, Kaiser set a standard in managed care by running its own medical clinics and staffing them with its own doctors. On the West Coast, Kaiser built its own hospitals, creating a system that was all but self-contained.

    Now, the statistics from the HMO's own patient surveys help explain why the Kaiser model of managed care is giving way to a more flexible approach, sometimes called the "virtual" HMO.

    Health plans such as Kaiser's generally have been losing market share to HMOs that use networks of widely scattered physicians. The physicians work out of their own offices and often serve several competing HMOs at the same time.

    The loose physicians networks potentially offer patients a greater choice of physicians, more convenient office locations, and more consistent contact with their personal doctor -- characteristics that consumers seem to value highly.

    They also appeal to people who perceive self-contained HMO clinics as impersonal, something akin to taking a number at a deli counter.

    But some health care analysts say the trade-ff for patients may be considerable, whether it is apparent to them or not. According to this school of thought, HMOs like Kaiser have greater power to control the quality of care they deliver and to improve methods of care by studying what works and what doesn't for a large, captive patient population.

    Kaiser has long argued that its approach offers distinct advantages, but it has begun to bow to the pressures of the marketplace. The health plan has been assembling its own networks of outside physicians, and today they outnumber full-time Kaiser doctors in the mid-Atlantic region by almost 4 to 1.

    Moreover, Kaiser has begun marketing a plan that lets patients seek care outside the HMO, albeit at a reduced level of coverage.

    "The market was saying that a wider range of choice of physicians was desirable," Long said in an interview.

    "We know that there are some people, as good as our medical center operations are, that, you know, perceptually do not want to go into a large building to get medical care. They're more comfortable in a private doctor's office," said Robert P. Pfotenhauer, executive director of Kaiser's Washington area operations.

    Kaiser officials say they remain strongly committed to their traditional model of health care and will continue to offer it in tandem with the network option.

    As HMO enrollment rose dramatically over the past 15 years, HMOs that employ their own full-time medical staff or form exclusive alliances with physicians groups like Kaiser's lost more than half their market share. "Staff" and "group" HMOs claimed 70.3 percent of HMO enrollment in 1982 but only 30.4 percent as of Jan. 1, according to InterStudy, an HMO research firm.

    Nationally, Kaiser's market share has been eroding over the past several years, spokesman Daniel Danzig said. This year, Kaiser appears to have regained lost ground as it made its rates more competitive, Danzig said.

    In the mid-Atlantic region, Kaiser estimates that its market share declined in the early 1990s before rebounding somewhat over the past two years.

    Some analysts lament the long-term trend. "It is very possible that a very important way of delivering health care will have been lost," said Douglas B. Sherlock, an investment banker who studies Kaiser's investor-owned competitors.

    The consumer fixation with choosing a physician is "a misguided notion because consumers don't know whether the doctor they're going to is any good" or "what kind of results that doctor gets," said Paul Ellwood, a longtime advocate of managed care and president of the Jackson Hole Group, a health policy organization.

    Beyond patient preferences, another factor favoring virtual HMOs is their relatively low overhead. They can expand swiftly without investing in bricks and mortar.

    "The challenge for Kaiser is whether they can modify their model to compete in the new world and still hold onto what they believe is unique and special to them," said Drew Altman, president of the Henry J. Kaiser Family Foundation, which sponsors health care research and has no connection to Kaiser Permanente. "They've had to water down what they do and make a variety of concessions and changes in order to appeal to a broader cross section of the public."

    Amid an onslaught of price competition, some other differences between the nonprofit Kaiser and its commercial rivals have been blurring.

    Priding itself on the collegiality of its medical staff and a deeply ingrained professional culture, Kaiser historically refrained from using some of managed care's more controversial management techniques. However, this year, the Kaiser Foundation Health Plan of the Mid-Atlantic States Inc. and the Mid-Atlantic Permanente Medical Group PC, its physicians organization, began requiring doctors to get approval before referring patients to specialists or ordering certain tests and procedures.

    The addition of many outside physicians through the February purchase of Humana Group Health Plan, combined with membership growth, made the change necessary, Kaiser Permanente executives said.

    That's not the only way Kaiser is paying more attention to the bottom line. The Mid-Atlantic Permanente Medical Group this year began giving doctors monthly reports that attempt to show how much money they are spending on patient care.

    For example, a "Pediatrics Physician Practice Profile" shows the total cost per 1,000 patients of laboratory work, radiology, and medicines prescribed. It charts the average cost of a check-up performed by the doctor and the number of times a particular pediatrician's patients were hospitalized and referred to doctors outside the Kaiser system. It also measures medical indicators such as immunization rates.

    "We don't want to exclude the cost of delivering care totally from the delivery of care," said Larry Oates, associate medical director.

    Like many HMOs, Kaiser is under intensified pressure to reduce costs because it is losing money. The organization predicts that it will run a deficit of more than $10 million in the mid-Atlantic region and $30 million to $50 million nationwide this year, its first overall annual deficit.

    To help reverse its losses, the HMO plans to raise premiums in the mid-Atlantic region by an average of 8.75 percent next year, spokesman Wayne Rosenkrans said. That's almost four times the 1997 premium increase of 2.2 percent and markedly higher than industry averages projected by some analysts.

    Even so, Kaiser says it will remain competitively priced. On average, Kaiser family coverage will cost less than all but two of the other seven comparable HMO packages offered to federal workers in the District of Columbia next year, according to the government. Kaiser's biweekly premium will average $195.22, compared with a high of $233.42 for Aetna U.S. Healthcare and a low of $163.92 for Cigna.

    Whether Kaiser-style HMOs deliver better care than virtual HMOs is hotly debated, and even some champions of the Kaiser model concede that they have no solid proof of its superiority. However, according to data from National Committee for Quality Assurance, which accredits HMOs, Kaiser ranked first among 10 Washington area HMOs on three measures of preventive care: breast cancer screening rates, cervical cancer screening, and first trimester prenatal care.

    The medical director of Aetna U.S. Healthcare, one of the largest HMOs that relies on a network of loosely affiliated physicians, said it is at a disadvantage when it comes to gathering such statistics. "We have a harder time tracking down that same piece of information because of the nature of the way individual practices collect and store and document information about what they've done," Leibowitz said.

    Kaiser says that one of its key advantages is its ability to track results, determine the best methods of treating various conditions, and then get physicians to follow those procedures. For example, to reduce the number of babies born prematurely, the health plan developed a set of care guidelines for pregnant women and tested them over a one-year period at its Landover and Kensington clinics. The percentage of babies born prematurely or underweight proved much lower at the test sites than at the control sites in Reston and Springfield, and the guidelines have been implemented by Kaiser nationwide. By contrast, Aetna U.S. Healthcare doesn't attempt to implement guidelines of its own, Leibowitz said. Though the company publishes research and promotes established medical guidelines, dictating to its physicians could be a challenge: Its network encompasses almost half the doctors in the country, Leibowitz said. "We've never approached this as a quality improvement method top-down," he said. How effectively Kaiser can influence care among doctors working out of private offices is an open question. "It's one thing to exercise control over the people within their centers. It's a completely different effort to do that with the [independent] physicians," said Dennis Treat, a health benefits consultant with William M. Mercer Inc. "They can't just unilaterally make rules, because they're . . . just one of the many managed care organizations that that particular physician is contracting with."

    Some managed care critics warn that the Kaiser model's power to influence physicians for the better is also the power to influence them for the worse. In a looser network, there are more checks and balances and "more of a chance of finding an independent-minded physician" who will put the patient's interests ahead of the health plan's finances, said Washington attorney Jacqueline Fox, who represents patients in disputes with managed care organizations.

    Cost and pay issues often lead to bitter antagonisms between doctors and management in network-style HMOs. "It is not a relationship that is built on mutual respect and trust," Kaiser's Pfotenhauer said. Yet, he expressed confidence that Kaiser would avoid such conflict in its own relationship with outside doctors.

    Network-style HMOs generally require patients to designate a primary care doctor, so the problem Adrian Long cited in his March memo to Kaiser physicians isn't an issue for them.

    The HMO's goal was for 69.6 percent of members to have a personal physician this year. As of the second quarter, the total was 64.3 percent, up slightly from 64.1 percent last year.

    In the memo, Long underscored the importance of the matter -- for the sake of medicine, and for the sake of the business.

    "It is critical for patients to regularly see the same physician since continuity of care is related to better patient outcomes," he wrote. Patients who see their personal physician are 20 percent to 30 percent more likely to be satisfied with the experience, and that makes them more likely to stay with Kaiser, he added.

    © Copyright 1998 The Washington Post Company

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