[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15772]
[[Page Unknown]]
[Federal Register: June 29, 1994]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Public Health Service
The Effect of Managed Care on Academic Medical Centers--Request
for Comments
AGENCY: Office of the Assistant Secretary for Health.
ACTION: Notice of request for comments.
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SUMMARY: The Public Health Service (PHS) is seeking public commentary
concerning the effect of managed care organizations on academic medical
centers. PHS is interested in examining the role of academic medical
centers and their financial viability under a health reform system that
would significantly expand the number of people insured through managed
care organizations. Respondents are asked to identify issues of
interest, to be analyzed in a future study.
DATES: The deadline for submission of comments is July 11, 1994.
ADDRESSES: Comments should be sent to: Dan Ermann, Room 740G, 200
Independence Ave. SW., Washington DC 20201.
SUPPLEMENTARY INFORMATION: Academic Medical Centers (AMCs) are a
cornerstone of the current medical educational system, and undertake
three distinct activities: teaching, research, and patient care.
Funding for AMC programs currently relies heavily on patient revenues.
Managed care organization (MCOs) have grown rapidly over the past
decade and are projected to account for approximately 40 percent of all
insurance coverage by 2000. Under most health reform plans being
debated, the market share of MCOs would grow even more rapidly than
this projection. MCOs contract with specific providers to serve their
enrollees, focusing on providing quality health care at the lowest
negotiated price. AMCs, with higher charges than most non-teaching
hospitals, may not be able to offer competitive prices to MCOs for many
services. With MCOs managing an increasing share of health care
expenditures and patient volume, and with a growing emphasis on price
competition in the insurance market, it is possible that relatively
expensive AMCs will face a reduced patient volume and lower revenues.
This is likely to affect the way AMCs operate, potentially jeopardizing
teaching and research quality and/or patient access to specialized care
procedures.
The goals and practices of AMCs and MCOs are in many ways
incompatible. First, since patient expenditures are expected to
subsidize teaching, research, and the training of interns, many types
of health services are more expensive at AMCs than at non-academic
hospitals. Since MCOs seek efficient and low-cost health care
providers, they may be less likely to contract with an AMC than a non-
academic hospital. Second, most AMCs emphasize hospital-based medical
education, and a high proportion of their resident physicians are
training for medical specialties. MCOs emphasize the use of primary
care physicians to manage patient care and to provide treatment.
Referral specialties are used only when the primary care physician
determines that this level of care is required. Third, a common
perception of academic medicine is that patients find the care to be
cold and distant and fragmented. MCOs emphasize the relationship
between the primary care physician and patients, and they were
structured to provide coordinated health care that assures that the
primary care physicians is fully involved in all decisionmaking about
the patient's care.
In spite of these differences, AMCs and MCOs could benefit through
cooperation. AMCs would benefit through association with MCOs by: (1)
having access to a larger, more varied patient base; (2) increased
market share; and, (3) increased exposure to primary care practice and
coordination of care. In addition, MCOs could provide AMCs with an
excellent model for the study of innovations in primary ambulatory care
delivery. Finally, centralized record keeping, as required by many
MCOs, would increase the quality of data used and generated by AMCs.
MCOs could benefit through association with AMCs in several ways:
(1) AMCs could provide educational opportunities for MCO-affiliated
physicians, which could increase job satisfaction for these
practitioners; (2) the quality of health services provided through the
MCO network could be increased, overall; and (3) affiliation with an
AMC would be a positive factor in MCO physician recruitment. In
addition, affiliation with AMCs could provide a positive marketing
advantage to MCOs, to the extent that potential enrollees judge the
quality of care offered by the MCO on the basis of the participation of
a prestigious AMC in the provider network.
At the present time, there is anecdotal evidence, but little data,
on the extent to which MCOs contract with AHCs and their teaching
hospitals. In addition, if they do contract with teaching hospitals,
MCOs may permit enrollees to use these hospitals for routine hospital
care or may limit use of these hospitals to specific diagnoses and
treatments for which they are particularly well-qualified. It would be
useful to obtain information on these issues, in order to assess the
potential impact of further growth in managed care on the viability of
AHCs and their teaching hospitals.
PHS thus is seeking comment on the potential impact of the growth
of managed care enrollments on AMCs and their future patient volume and
financial viability. Responses to the following questions are
specifically sought (as well as all other pertinent commentary).
Issues for Managed Care Organizations
Do you have contracts with AHCs and their teaching
hospitals?
If you have contracts with AHCs, are your physicians
permitted to refer patients to the AHC hospital for routine conditions
or is access limited to patients with specific diagnoses and treatment
requirements?
Have you been successful in negotiating discounts with
AHCs that compare to the prices negotiated with non-teaching hospitals?
Who in your organization makes the decision about whether
to contract with a specific hosptial or not? What are the key factors
in making that decision?
Issues for Academic Medical Centers
How many contracts with MCOs do you currently have?
What proportion of patients treated in your hospitals are
enrolled in MCOs?
--With which you have a formal contract?
--With which you have no formal contract?
If you have contracts with MCOs, do you treat patients for
routine conditions or is treatment limited to patients with specific
diagnoses and treatment requirements?
What is the average negotiated price under managed care
contracts relative to the full charges and to discounts you offer
traditional insurers?
Who in your organization makes the decision to contract
with a specific MCO or not? What are the key factors in making that
decision?
Background
AMCs are defined by the functions that they provide to the medical
community: research, education, and health care services. They are
composed of three related entities that perform the broadly defined
tasks undertaken by AMCs: (1) the teaching hospital, (2) the faculty
practice plan (FPP), and (3) the medical school. The teaching hospital
and the FPP serve as revenue sources, as well as an avenue for the
applied teaching of students and a locus of research activity. In
particular, the FPP bills patients for physicians' services and
distributes revenues to the medical school, its clinical departments,
and its faculty. AMCs have become increasingly dependent on FPP
revenue, with the FPP providing approximately 30 percent of all medical
school revenue in 1990.
MCOs are structured to provide quality health services in a cost-
effective manner. Preferred provider organizations (PPOs) provide
financial incentives for patients to use specific providers. In
exchange for higher volumes of patients, these providers agree to
receive discounted fees for services. The staff model health
maintenance organization (HMO) vertically integrates health care
providers. The physicians are employed by the health plan and are paid
a fixed salary. Group model and network model HMOs generally contract
with physicians for comprehensive services on a capitation basis.
Independent practice model (IPA) HMOs contract with physicians on
either a discount fee-for-service or capitation basis. While some staff
and group model HMOs own hospitals, most HMOs contract for hospital
services on a preferred financial basis.
The goals and practices of MCOs are in many ways inconsistent with
those of AMCs. MCOs seek efficient medical providers that operate at a
low cost, while AMCs must use patient revenues to subsidize research
and teaching, and thus tend to be relatively more expensive. MCOs tend
to emphasize primary ambulatory care, while AMCs tend to provide
specialized and inpatient hospital care. MCOs must be concerned about
patient satisfaction in order to maintain their customer base, while
the focus of AMCs includes the training of new physicians and the
development of cutting edge techniques, often at a substantial cost in
dollars and convenience to the patient.
Historical Overview
AMCs have been tied historically to federal support and influence.
The National Institutes of Health (NIH) have provided extensive support
in the areas of research and research training, and has been
responsible for a significant share of the expansion of full-time
medical faculties. The NIH has provided grant-based support, allowing
researchers a degree of independence from routine institutional duties.
Congress has made several legislative attempts to stimulate medical
training. The Health Professions Educational Assistance Act of 1963
authorized federal funds for the construction and renovation of medical
schools, and made substantial loans available for medical training. The
Health Manpower Act of 1968 and the Comprehensive Manpower Training Act
of 1971 provided additional financial incentives to students studying
medicine and other health-related fields. The Family Practice Medicine
Act of 1970 and the Health Professions Educational Assistance Act of
1976 attempted to target the financial assistance provided to medical
students to a desired mix of primary care and specialist physicians.
The Department of Medicine and Surgery was established within the
Veterans Administration (VA) to ensure that veterans of World War II
would have access to high-quality health care. The Department
affiliated itself with a large number of medical schools, providing
expanded full-time faculty, additional residency positions, and
research funding. In 1972 the VA provided assistance to several
affiliated medical schools, allowing the creation of new medical
centers.
An additional government-sponsored revenue source was provided in
1965 with the creation of Medicare and Medicaid, increasing the number
of insured patients, and dramatically increasing FPP revenues. Direct
and indirect payments to AMC's from the federal government, including
NIH, Medicare and Medicaid, have reached $5 billion annually. Funding
for research and teaching are also provided by state and local
government, as well as through higher charges by AMC's to patients. In
recent years, direct federal payments to medical centers have fallen as
a share of total revenues and patient revenues have increased. In 1990,
patient revenues accounted for nearly 30 percent of AMC funding. Thus,
AMCs are dependent on a continuous stream of patients to fund their
teaching and research programs, in addition to funding received from
government sources.
MCOs are rapidly becoming the dominant players in the market for
health care. The number of HMO enrollees increased from 10.2 million to
38.8 million in the ten years ending in 1992. PPO enrollment is thought
to equal or even exceed that of HMOs. Over the past decade, both
Medicare and Medicaid have encouraged the growth of managed care
options for their recipients. In addition, most health reform proposals
currently being discussed include provisions that would increase the
market share of MCOs beyond the currently projected growth. In markets
where managed care is a well-established option, AMCs and MCOs are
involved in a number of arrangements or have limited contacts. The
experience that these organizations have gained, and the outcomes with
respect to negotiations, payment arrangements, and the volume of
patients directed to AMCs by MCOs can provide information and insight
into the potential effects of future growth in managed care enrollments
on AMCs.
Areas of Conflict
The primary area of conflict between AMCs and MCOs is the cost of
AMC services. AMCs require that their facility members split their time
between patient and academic research or teaching pursuits. Thus, AMC
physicians may be less efficient in providing services than are
physicians in non-teaching environments. This inefficiency is partly
offset by the utilization of resident physicians who work for
relatively little pay, but these less experienced staff members tend to
order more tests and hold patients longer for observation. In addition,
AMCs tend to attract a sicker-than-average distribution of patients,
which results in higher average costs per patient overall.
Traditionally, these higher costs per patient to support teaching
activities and due to a sicker case mix have been passed on to the
patient in the form of higher charges. Insurers paying these higher
charges pass the cost on in the form of higher insurance premiums. MCOs
may be unwilling to pay these higher than average rates, because they
emphasize efficient health services and competitive premiums. These
plans often negotiate payment arrangements on a per diem or per case
basis that allow, in part, for the sicker patient mix, but do not
provide a payment sufficient to subsidize the academic objectives of
the AMC. In addition, by contracting on a per diem or per case basis
with MCOs that serve Medicare and Medicaid enrollees, the AMCs stand to
lose the supplemental teaching reimbursement portion of Medicare and
Medicaid payments for these patients.
Aside from the cost issue, there are several other aspects of AMC
practice that may be inconsistent with MOC's goals:
1. Inefficient organization. AMCs tend to be organized very much
like a medical school department, usually divided by function, and
again by subspecialty. These departments often operate independently of
one another, and are allowed to determine their own sets of policies,
priorities, and business practices. There is no centralized authority
and little communications between departments. This lack of centralized
control make the implementation of consistent MCO arrangements
problematic.
2. Resistance to medical oversight. Each department within an AMC
operates, for the most part, independently of all the other
departments. There is no mechanism in place that provides a physician
with oversight regarding what care is appropriate for any given
patient.
3. Patient satisfaction. MCOs are concerned about their patients'
satisfaction. Patients' perception of physician competency is
influenced by many things, including how much the physician values the
patient's time. Measurable influences include: (a) Elapsed time between
requesting an appointment and the time of the appointment; (b) time
required to register a new patient; (c) elapsed time between the
scheduled appointment and actually being seen by the doctor; and (d)
the length of time they are ``put on hold'' while calling with problems
or for information. AMC physicians often must weigh their academic
duties against the desires of their patients, which tends to lead to
lower patient satisfaction rates.
Current practices in many AMCs may represent significant barriers
to participation in Managed Care plans. Most of these non-cost issues
stem from the traditional structure of the AMCs, and are not
necessarily required for the institutions to pursue their academic
function. However, physicians employed within the academic environment
may be resistant to the standardization and coordination among
departments that may be necessary to satisfactory arrangements with
many MCOs.
Areas of Mutual Benefit
Despite the differences in goals and practices between MCOs and
AMCs, there are benefits available to both types of organizations
through cooperation. These benefits may account for the fact that some
MCOs and AMCs are already working together under ongoing relationships.
In 1990, 15 percent of all HMOs responding to one survey indicated that
they were directly involved to some extent in medical education; and 14
percent had an agreement to serve as an ambulatory care rotation site
with an AMC or teaching hospital that was not owned or operated by the
HMO. The HMOs most likely to report involvement in medical education
were those that were older and well-established.
AMCs stand to benefit substantially, both financially and by
expanding their research opportunities, through ongoing relationships
with MCOs. These benefits could include:
1. Access to a more varied patient base.
2. Access to a larger market share.
3. Increased primary care practice opportunities.
4. Centralized record keeping.
MCOs would also profit from associating with an AMC in several
ways:
1. Increased MCO physician satisfaction.
2. Improved continuing education opportunities.
3. Improved physician recruitment.
4. Marketing to new enrollees.
Conclusion
The proposition of the population enrolled in MCOs has grown
dramatically over the past two decades. Under a number of health reform
proposals, this trend would accelerate, with the result that within a
few years nearly all Americans would obtain health services through
managed care provider networks. If MCOs choose not to contract with
AMCs and their teaching hospitals, because of their higher prices or
inefficiencies related to their educational role, then the implications
of these trends for the current system of training health professionals
may be profound. This announcement seeks comments and suggestions on
issues related to this topic, that may be analyzed in a future study.
Dated: June 23, 1994.
John Gallivan,
Federal Register Liaison Officer.
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[FR Doc. 94-15772 Filed 6-28-94; 8:45 am]
BILLING CODE 4160-17-M