I am a private practice neurosurgeon at Cedars-Sinai Medical Center in Los Angeles, California. Frustrated by the nature and degree of managed care penetration and the “divide and conquer” mentality of many health care plans, I, along with several of my colleagues, decided to take charge of our specialty by developing effective methodologies to handle managed care. Together, we formed a network of neurosurgeons, called West Coast Neurosurgical Associates, Inc. (WCNA), and have targeted managed care contracting.
Presently, the WCNA network includes 86 neurosurgeons in three states (California, Arizona and Michigan) and services 1,730,000 contracted lives (nearly half of which are exclusive). These contracts include fee-for-service arrangements, case rates and, to a small degree, capitation. WCNA is presently developing neurosurgical networks in other states under the name of the American Neurological Surgeons Association (ANSA).
Fewer Specialties
Neurosurgical practices span the spectrum of organizational structures from the solo practitioner, still common in the West, to the large, fully integrated groups of neurosurgeons prevalent in the East. Although specialists generally participate in all kinds of organizations, the common multi-specialty group has become more driven by primary care physicians in the West, with fewer specialists. In a mature managed care market, Heath Maintenance Organizations (HMOs) or payor independent practice associations (IPAs) are interested in obtaining particular specialties through a capitated risk arrangement, rather than employing specialists.
Compounding the problem are primary care physicians, who have aligned together to control access to specialists through the gatekeeper function, while at the same time driving specialists’ fees lower and lower. Specialists are being asked to take less reimbursement and yet are encouraged by the utilization departments of HMOs to decrease bed days, improve utilization and be more cost-effective.
In California, there are neurosurgeons who currently have a capitated contract that pays for a fee-for-service equivalent of less than 50 percent of Medicare allowable. These physicians have little incentive to see such patients in a timely fashion, provide the highest quality of care or reduce hospital stay. With reimbursement at its current level and rapidly dropping, there is very little incentive for neurosurgeons to do anything that adds value to the HMO.
In this respect, the current HMO delivery system is upside down. The primary care gatekeeper models contend that they control facility costs, which are approximately 50 percent of the total health care dollar. However, the specialists, whose professional fees account for nearly 20 percent of the health care dollar, collectively control as much as 91 percent of the facility dollar. When you combine the specialists’ 20 percent of the health care dollar for professional fees, and the hospitals’ 50 percent of the health care dollar, specialists control nearly 70 percent of the total health care dollar – this is in stark contrast to the 10 percent of the health care dollar primary care physicians receive for their professional services.
Primary care-driven groups have taken the risk for medical practices, in some cases for both professional and facility expenses. These groups have managed their risk by managing access to specialists and specialty care. Currently, managed care is largely managed access. At one health plan in Southern California, the average salaries for primary care doctors are $120,000 to $130,000, with bonuses of an additional $100,000 to $150,000 per year for reducing the utilization of specialists, tests and hospitalization. There you have it – the public debate surrounding physicians receiving money and not delivering care.
The Food Chain
This is not to say that there is no room for better management of technology and facility utilization. The question is who is in the position to exert the most influence on thee efficient and effective utilization of current medical resources. The answer should be specialists, however, for several reasons this is not the case, and specialists are reduced to the bottom of the food chain. Managing risk is the only way that specialists can move up the negotiating food chain and actively manage the risk passed to them by HMOs and other payors.
The current power brokers of health care will never invite specialists to the health care table until they perceive specialists as their organizational peers. Therefore, neurosurgeons must be organized and work together. As specialists, we can do the following:
- Participate in larger entities that spread risk over a broader base;
- Use more sophisticated systems and management techniques toward practice profiling and facility utilization tracking;
- Increase shared management staff;
- Develop diagnosis-related or disease state outcomes; and
- Provide for economies of scale and operating efficiencies.
Effective Models
One popular organizational structure to get specialists more involved in managed care operations is the Physician Hospital Organization (PHO). Experience has shown that PHOs are organized mainly by the hospitals to help keep the hospital beds filled, and to help the hospital maintain a position of strength.
An effective model for accommodating managed care and other practice pressures is the fully integrated single specialty group or practice roll-up. As specialty reimbursements continue to be reduced, finding ways to decrease practice expenses is increasingly important. A fully integrated group is a good way to achieve economies of scale on various levels. To be fully integrated, physicians merge their practices into one large group and combine their gross incomes, as well as their expenses.
The integrated group then takes advantage of economies of scale in such areas as: consolidating billing and collections; group cost and profitability analysis; central purchasing of malpractice and general liability coverage and supplies; employee benefits consolidation; patient satisfaction survey instruments; and a central data repository for outcomes studies. This integrated group also can take advantage of more traditional capital raising activities, such as debt instruments, private placements or announcing an initial public offer.
It can be difficult, however, to get several physicians who have competed privately for many years, to join together in a fully integrated group. If physicians are able to successfully integrate, they can present themselves as a unified group, deal with contract negotiations in a managed care setting and implement the cost saving mechanisms referred to previously.
The single-specialty independent physician association (SSIPA) is another effective model of forming an alliance between specialists to accommodate managed care. The SSIPA model represents a regional affiliation of doctors within the same specialty, facilitated by the development of a professional corporation to hold contracts. Each physician within the specialty signs a provider services agreement to serve as an independent contractor to provide health care to the contracted lives.
SSIPAs are generally non-exclusive arrangements that allow specialists to join other IPAs and deal primarily with managed care contracts. This enables the private practitioner to effectively accommodate risk-bearing contracts within the context of the group, while continuing to work with private insurance and Medicare patients separately. There are anti-trust issues related to SSIPAs that are not issues with integrated groups, but the Department of Justice has shown trends of relaxing anti-trust regulations with regards to SSIPAs. This model may be a very comfortable “courtship” for those specialists who are uncomfortable with jumping directly into a comprehensive, career-long commitment represented by the integrated group model. After working together in a network or SSSIPA model for a certain amount of time, specialists can always decide to further integrate.
Starting with the SSIPA model is a good way to begin thinking and working as a team, regardless of a desire to integrate at a later date. Sometimes groups of physicians desire to be fully integrated, but do not succeed because some of the physicians are not ready for that level of commitment. The market will not be kind to those physicians, regardless of their good intentions. As individual neurosurgeons begin to work together, they should be careful not to create a competitive environment within their specialty. The “divide and conquer” strategy used by the payor community has been widely successful at grinding down rates for specialty services. The formation of SSIPAs, or networks designed to drive out the rest of the specialists in a geographic area, can create dramatic price competition and are often counter-productive.
Management Teams
It is critical that neurosurgeons understand the importance of management. It’s not possible for a physician or a physician’s office staff to have the sophistication to provide utilization management, quality assurance data reporting, length of stay data, outcome studies, or encounter data on physician services to the HMO in a valuable way, nor is it cost effective for a specialist in private practice to do this.
Make sure that members of the management team are professionals in managed care, with experience working with the primary care community. These individuals know how to satisfy the primary care groups’ needs, while protecting the specialists’ interests. They also know the primary care groups’ capabilities and how the dollar flows through the system.
If the specialty network is prepared and has a sophisticated level of management to guide it, it will likely succeed. Make sure network development is inclusive, and avoid the “country club” model that includes only close friends, or special cliques. In addition, take advantage of “safe harbors” by participating in risk sharing contracts with HMOs.
A single specialty IPA’s organizational flexibility will add a new dimension to local health care delivery systems. With the infusion of management sophistication, information systems and operational economies of scale, these networks will add new balance to the delivery of medicine, with true peer review and aligned incentives.
Moreover, in an era of market pressures to reduce the overall cost of medicine, the single specialty IPA can help facilitate the market, while preserving the interests and values of specialists, as well as lead to other contracting, joint venture and integration opportunities.
Todd H. Lanman MD, is a neurosurgeon in private practice at Cedars-Sinai Medical Center (Los Angeles).