One of the objectives (and presumed advantages) of Managed Care is its mandate to rationalize care. "Traditional" fee-for-service (FFS) Medicaid, like a commercial indemnity health insurance plan, responds to claims submitted from any Medicaid-certified provider, including specialists, hospitals and emergency rooms. Each claim is generally reviewed independently, and may be retrospectively questioned as to medical necessity. Medicaid, as well as commercial insurance, will pay a standard amount for a given medical procedure or product (such as a prescription or device). Some procedures may require prior authorization, but this process is oriented to a single episode of care rather than the management of the entire health care experience of a covered individual.

Managed care, however, places greater emphasis on review of the consumer’s overall health needs and oversight by a primary care provider (PCP) who can make clinical decisions in a knowledgeable, long-term manner based on more complete knowledge of an individual’s condition and history. Treatment decisions, including specialist referrals and hospitalization, can be made with greater sensitivity to the patient’s needs, and clearer lines of accountability for health outcomes.

According to the Centers for Disease Control and Prevention (CDC), there are several principal reasons to focus on the role of Managed Care Organizations (MCOs) in prevention: (1) they are rapidly becoming the norm in both privately- and publicly funded health insurance coverage; (2) they reinforce the primary care relationship; (3) they are pursuing systems to measure and improve quality of all services, including prevention; and (4) by definition, they take responsibility for a defined population and are accountable to purchasers for results. In this sense, MCOs assume much more of the role of a public health entity than do conventional insurers.

In addition to the reasons cited by CDC, MCOs have generally established a closer and more coordinated relationship with service providers, more akin to the commercial relationships between, say, consumer goods manufacturers and retailers than to the arms-length relationship between an indemnity plan and independent submitters of claims. Prevention initiatives can be like retail promotions, negotiated as part of a package of services for which the MCO pays the provider either discounted fee-for-service or a subcapitated group rate. Providers will offer special preventive services using educational and promotional materials furnished by the MCO; some portion of the initiative may be handled directly by the MCO, as in the recent offer of discounted bicycle helmets by Prudential.

There are numerous examples of prevention initiatives under managed care. CDC cites several in its 1995 report. Indeed, both long-established MCOs, such as Kaiser Permanente and Group Health Cooperative of Puget Sound, and newer ones, including HIP, United Health Care and Oxford Health, seem to be competing in part on the basis of the quality of their preventive efforts.

Some of this interest in prevention can be traced back to the early days of managed care, and staff-model plans such as Kaiser, organized by employers, unions and physicians for relatively idealistic purposes: making care more accessible and affordable. The term "HMO" was coined by pioneer Paul Elwood, a driving force behind the HMO Act of 1973, which provided important early funding for creation of HMOs. When Federal funding began to shrink during the Reagan administration, HMOs turned to private sources of capital – while in the same period, employers began to react to increases in conventional health insurance premiums. Competition, and pressure from employers to hold the lid on premiums, began the shift to compelling greater efficiencies from the system.

The managed care industry is also under tremendous pressure to document its value-added contribution to health care. After all, the average consumer knows health services as personified by the providers with whom he/she interacts directly. Often the only direct contact a consumer has with their managed care plan is in pre-authorization of a treatment service her/his provider has recommended, or in the appeal of a denial of coverage: it is understandable that he/she may regard this as an intrusion in the doctor-patient relationship, and question the necessity of a "middle-man."

David R. Smith, M.D., former Commissioner of Health for the State of Texas, in a 1996 essay, predicted a "third generation" of managed care based on provider and MCO "incentives… to promote an increase in preventive services and early intervention for chronic diseases." Dr. Smith went on to suggest greater emphasis on preventive services, incentives based on health outcomes, consumer incentives to complete prescribed treatment and wellness plans. He foresaw a movement to "shift the orientation of managed care from the individual to the broader community, focusing on the health of the entire enrolled population, not just those who walk in the door" and "measure the impact of prevention practices on business-related outcomes such as employee attendance."

Accordingly, organizations such as the National Committee for Quality Assurance (NCQA), an accrediting body, and the American Association of Health Plans (AAHP – formerly Group Health Association of America) have undertaken initiatives to sharpen the industry’s focus on quality and accountability. We will address briefly the relevant provisions of a major initiative of each of these organizations: NCQA’s Health Plan Employer Data and Information Set (HEDIS), in version 3.0 as of this writing, and AAHP’s "Putting Patients First" campaign.

HEDIS 3.0

HEDIS (Health [Plan] Employers Data and Information Set) is a set of over 100 standardized performance measures to which NCQA-accredited MCOs are expected to subscribe. The measures are intended primarily to enable purchasers and consumers to compare the quality of care offered by different MCOs. Areas of measurement include effectiveness of care, accessibility of care, informed consumer choice and health plan descriptive information. Measures are grouped into a "reporting set" and a developmental "testing set."

Putting Patients First

PPF is a set of voluntary policies adopted by AAHP members (MCOs) emphasizing "partnerships with physicians and patients." The physician’s central role is reinforced in most of PPF’s policy statements. AAHP’s "Philosophy of Care" statement includes the following principle:

AAHP also began in 1997 a project to identify best practices in women’s health among MCOs. The study, supported by the Commonwealth Fund, emphasizes preventive care.

Managed care also makes a point of offering coverage for regular preventive care, including annual physical exams, which are not covered by FFS Medicaid or most traditional indemnity plans. This coverage is clearly intended to be an incentive to the consumer to make use of this care. Ironically, as managed care becomes generally more pervasive, and more the norm than the exception, this distinction may be less salient to many consumers – less of a change when one enrolls, and less distinctive as a benefit – since fewer consumers will be switching from an indemnity plan.

There is also an assumption that consumers desire to avoid future illness, and can be persuaded that preventive and early primary care will reduce the risk or severity of illness. Yet numerous studies have found that consumers avoid routine tests that might detect illness, out of fear of the illness itself, as if not knowing one has a condition were the same as not having it.

In theory, encouraging consumers to use preventive care can be part of a general shift in consumer behavior toward pro-active use of health care in pursuit of overall improved health status (the empowered consumer). A preventive visit to a doctor’s office or clinic can and should be a positive, educational experience. Dentists are ahead of other providers in confronting this issue: parents are encouraged to introduce children to the dentist in the context of a friendly, comforting and non-threatening preventive visit, perhaps for a cleaning and application of sealants, rather than waiting for a toothache and a first encounter with a dentist wielding a scary syringe. Theoretically, the same principles should apply to the relationship with the primary care provider.

Medicaid MCOs receive monthly capitation payments intended to cover most or all costs of care. This structure is explicitly intended as an incentive to reduce the total cost of care. The capitation rates are set on the basis of some percentage reduction from average FFS cost experience, assuming that better care management can enable the MCO to make a reasonable profit covering a less costly pattern of service utilization.

There is a widely-accepted assumption that in a "closed" system, such as the membership of a managed care plan, increased use of preventive care is an investment whose anticipated return is reduced treatment cost in the future. Preventive care theoretically reduces the later risk of acute illness and the attendant costs of treating that illness.

As evidence of this notion, a highly successful new business venture, Matria Healthcare, sells a comprehensive maternal-newborn program to MCOs. Matria uses customized incentive programs to bring pregnant women into early prenatal care, conducts risk assessment, education, and case management for high-risk pregnancies. MCOs who contract with Matria report significant reductions in neonatal intensive-care (NICU) days for infants born to participating women. With NICU episodes costing $200,000 and more, a substantial prevention program can be justified by a very modest improvement in health outcomes. Medical Mutual of Ohio’s "BabyLink" program follows a strategy similar to Matria’s, and has achieved a reduction of one-third in NICU days compared to national rates. In a state like Texas, in which Medicaid pays for three-quarters of childbirths, this can mean important improvements in terms of both costs and birth outcomes.

In addition to actual early detection of acute conditions, routine preventive visits to the PCP also provide an entry point to disease management programs for chronic conditions, notably asthma, diabetes and cardiovascular diseases, and to wellness programs (e.g., physical fitness, nutrition and weight loss, smoking cessation and accident prevention). One Medicaid HMO official in San Antonio has estimated that in diabetes alone, participation in the HMO’s disease management program is only about 20 percent of what it should be, based on expected incidence in the member population.

Clinical risk management and cost avoidance are the basic threads in the preceding analysis. But MCOs, even in publicly-funded plans, also have a stake in member satisfaction and loyalty. Preventive care and wellness programs provide an opportunity for the MCO to demonstrate its customer orientation and intangible qualities of caring. They also allow the MCO to get to know the member, and her/his potential health risk profile.

Estimates of actuarial risk depend on adequate participant information. In this instance, "what you don’t know can hurt you." It has also been postulated by insurance marketers that relationship matters. In a report on a recent Gallup poll of MCO executives, the authors note that "adverse selection thrives in environments where MCOs do not form relationships with ALL of their members." In other words, those members who are not using services are more likely to leave the health plan than those who are. And in order to get healthy members to use services, the MCO must get them into preventive services.

Providers may themselves operate under risk contracts, and in such cases the provider will theoretically go through the same reasoning just cited. For those under discounted FFS contracts, more preventive care means increased numbers of simple (brief) office visits, even among their healthiest patients, and more patients willing to come in for easily treatable conditions not requiring specialist referrals. In terms of their professional practice patterns, more exposure to assigned patients translates into better clinical knowledge of their patients and prospects for greater patient satisfaction, each of which can reduce the provider’s malpractice risk exposure. If the providers are under a risk contract, they (instead of the MCO) will benefit from better prediction of clinical and financial risk.

We will deal here principally with the "reality factor" under Medicaid; much of the argument also applies more broadly to Medicare and commercial managed care.

Consumers

Consumer habits and fears persist. Even with coverage, many low-income families do not develop an individual PCP relationship, and seek care only when sick. Many consumers prefer drop-in clinics and even emergency rooms for important fundamental reasons: they are familiar, they provide a known level of quality care and can usually be counted on to provide care on demand. It is clearly not emergency departments’ role to provide preventive care. While community clinics encourage preventive care, they may not have the resources to develop the continuity of care intended in the conventional primary care relationship.

The historical experiences of many Medicaid recipients (and the low-income community in general) with the health care system has also created fears. It is common to hear that "the hospital is where you go to die" and "the doctor doesn’t want to see you unless you’re really sick." An encounter with the system carries many negative connotations, some of which were noted earlier. While encouraging regular preventive care (theoretically) can help change these perceptions, fears of unwelcome news as well as fears of rejection or humiliation can keep many from approaching their physician.

There is also a potential logical contradiction in consumer perceptions of managed care: MCOs require providers to meet some definition of "medically necessary" for coverage of actual treatment services. The consumer may confuse "necessity" with severity of illness: therefore if one is not sick a doctor visit is not necessary.

Seeking health care services is not an activity that takes place in a vacuum. Other consumer needs are frequently more important than preventive care. A consumer weighs the value of the use of her/his time, convenience of access and transportation, and whether they have had a pleasant or unpleasant experience seeking care in the past.

It may legitimately be asked: why should a single mother working two jobs take time off from an hourly-wage job, take two buses across town and wait four hours for the doctor to see a child who is not sick? Prevention is perceived as a luxury by most low-income families. Professionals have a hard time convincing the low-income community that preventive services are anything other than a self-serving requirement on their part.

There is a crucial need to find better ways to demonstrate and express the value of preventive care in terms meaningful to low-income families, particularly to mothers of young children. While inducements to get routine immunizations, for example, have had some success, there are elements of resistance to even these procedures. Right now, the most powerful incentive for the Health Steps (EPSDT) exam in Texas is a negative one: the mother’s TANF benefits can be reduced for failing to keep up with them.

MCOs and providers

Reimbursement and capitation rates are under pressure. State policymakers, in an effort to control cost, have been attempting to reduce provider payment rates, or at least to hold them steady, for a number of years. Managed care in most States has been introduced after a series of reductions, and capitation rates have often been set based on a further discount from FFS payment experience.

Rates for some preventive care are a disincentive to providers; interviews with providers suggest that many are no longer conducting EPSDT exams, even when they are carved out of risk contracts, because (among other reasons) the half-hour exam is only reimbursed at about $40. This is a complex issue, in that the official EPSDT protocol is more than many pediatricians consider necessary. Unfortunately, it may be difficult to evaluate the extent of "near-EPSDT" well-child care being rendered, due to uncertainty in the classification of encounter data. And while the local health department or community health center might provide these exams more cost-effectively, referring-out violates the concept of the "medical home."

Some States have "carved out" EPSDT from managed care, so that any registered provider can perform the exam. Unless systems are in place to communicate exam results to the PCP, however, continuity of care again suffers. In Texas, when the State revised HMO contracts to include EPSDT in their capitation, some HMOs with provider risk contracts pressured their providers to accept EPSDT under their capitation payments. Anecdotal evidence suggests that this change has had a perverse effect, reducing the number of EPSDT exams performed.

Since managed care is at least in large part a cost-control strategy for the State, with full access to MCO financial results, the State will press its advantage as costs are reduced. If a Medicaid MCO shows a profit, it is a target for the State to negotiate lower capitation rates, especially if MCO has stop-loss coverage as a cushion; therefore the MCO will not necessarily pursue investments that improve short-term profitability, such as strategies to improve its members’ overall health, because the State will attempt to recapture part of improved earnings, either by an explicit "profit-sharing" provision^* or by pressing for lower capitation. The MCO further cannot count on any long-term cost savings which might help maintain its profitability from year to year, which in turn would permit the MCO to accept lower capitation rates.

In discussions with senior management of MCOs, it is apparent that they are not entirely convinced by the argument that increased preventive care really reduces acute care costs. In honesty, prevention advocates must acknowledge that research findings are mixed. While it is beyond the scope of this report, the debate over cost-benefit and cost-effectiveness of both clinical preventive services and population-based prevention programs is highly relevant. Because of the narrow focus of managed care on cost control and clinical outcomes, and the unsettled sociopolitical issues of responsibility for non-medical prevention strategies such as housing and employment, there is no consensus on the value base on which the impact of prevention should be judged.

The problem of accountability becomes even more complex when an MCO or provider group provides services under a partial-risk contract. Partial-risk contracts typically exclude one or more categories of services such as hospitalization, which continue to be covered by fee-for-service reimbursement. A partial-risk contract may not give any incentive to reduce hospitalization, but does encourage the contractor to hold down the costs for which the contractor is directly responsible, such as primary care. Under such a structure, the contractor may not be willing to pursue preventive services aggressively, since preventive care can increase short-term costs with no long-term return.

The theoretical long-term motivation for the MCO relies on member retention for a long enough period to realize better health outcomes. The reality of Medicaid is that these consumers on average will not be members of their Medicaid HMO long enough to become "healthier members." The average turnover in Medicaid eligibility in Texas is about 9% per month… So why should the MCO go out of its way to encourage prevention among its members? If a Medicaid HMO’s members do not get preventive care, someone else (an employer plan, the public hospital, another Medicaid HMO, or the family itself) will pay for the illnesses that result in the long term, when they are no longer members of that HMO.

The cost of motivating consumers and providers to increase use of preventive care, beyond the direct cost of providing the preventive services, is unknown. This cost must be considered when pressing for (or responding to) a policy to increase the provision of those services, just as the cost of selling a commercial product must include the cost of getting customers to buy it (advertising and promotion costs). When an MCO gets an average of less than $100 per month for services each member, they would have to think twice about investing in something that simply can’t be proven to help control current costs. In a setting of uncertainty, the natural tendency of most organizations is to adopt a familiar, usually conservative, strategy.

Many doctors resent being "told how to practice medicine" by an HMO, and some have declared their resentment quite openly. The traditional practice of medicine placed few restraints on the practitioner’s relationship with the patient, other than the Hippocratic Oath and the cost of malpractice coverage. HMOs commonly conduct utilization management and retrospective utilization review, and add their own reporting requirements and other paperwork. Providers suggest that managed care has increased their administrative workload by 15 percent. So with the notable exception of PSOs and negotiated partnerships between MCOs and group practices, providers are not always anxious to collaborate with MCOs on prevention initiatives.