Constantly frustrated by the lack of financial support from traditional insurers for programs that promote and maintain good health, Ron Brooks MD recently left his large medical practice to become a medical director for US Healthcare. According to Dr. Brooks, "I now have the ability to establish preventive health care programs that can save our country and its people the pain and expense of treating avoidable illnesses."

As medical director of one of the nation's leading health maintenance organizations, Dr. Brooks believes managed care is a solution to our health care crisis. He is not alone. Managed care enrollment has increased from 10.2 million members in 1981 to 38.2 million in 1991.

The different forms of managed care are health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point of service plans. They are all part of a system that finances and provides comprehensive medical care by:

* Contracting with physicians and facilities to provide appropriate medical care,

* Placing utilization and quality controls upon providers,

* Creating financial incentives for subscribers to use the contracted physicians and facilities, and

* Requiring providers to bear some financial risk.

HMOs come in two basic varieties, group practice plans and independent practice associations (IPAs). Group practice plans, such as the Health Insurance Plan of New York and the Kaiser Permamente Medical Care Program, are characterized by groups of physicians who serve plan members for a fixed monthly premium. IPAs are individual practitioners who maintain their own offices and agree to treat plan subscribers. They continue to see traditional fee-for-service patients but treat HMO members at a negotiated rate per capita, a flat retainer, or a negotiated fee-for-service.

HMO members choose a primary care physician. These physicians are generalists who provide the first line of treatment. In most cases, the primary care physician is the only one who can refer a patient to specialists, order tests or procedures, and admit patients to hospitals. HMO-primary care provider contracts usually create financial incentives to control the frequency of such use. "Gatekeeping" can create some potential conflicts between primary care physicians and their patients and specialists.

Interestingly enough, Drs. P. Franks, C. Clancy, and P. Nutting reported in the August 6, 1992, issue of the New England Journal of Medicine that gatekeeping actually promotes good health by protecting patients from potentially harmful overtreatment. Furthermore, there is little evidence of primary care physicians withholding beneficial care for financial reasons. They relate any undertreatment risk to inadequately trained physicians.

PPO systems are organizations that contract with physicians to become part of a network of preferred providers who administer care to PPO members at a discounted rate. Typically networks are created by employers and insurance companies.

Network physicians hope to compensate for their reduced fees with increased patient volume. Enrollees may choose to see physicians who are not on the preferred list but do so at greater out-of-pocket expense. Deductibles and copayments are significantly lower when one stays within the "network." PPO plans make no attempt to direct members to primary care physicians.

Point of service plans are a recent derivative of PPO plans. Lower out-of-pocket costs motivate members to receive care through primary care physicians. These primary care doctors act as gatekeepers. Members can choose treatment outside the network and/or seek out specialists without consulting a primary care doctor. They must, however, pay the additional out-of-pocket costs.

An employer's decision to contract with managed care plans has an impact beyond the bottom line. Potentially it affects the health care of every employee and his or her family. Thus, it is important for management accountants not only to analyze and project expenses, but to examine costs and quality care issues as well.

A. Foster Higgins, a benefits consulting firm, recently surveyed 2,409 employers. In 1991, these employers' average costs per employee were:

* 14.7% less for HMO coverage than traditional indemnity plans,

* 6.1% less for PPO coverage than indemnity plans, and

* 7.9% lower for point of service plans than indemnity plans.

These numbers do not account for the fact that HMOs provide more comprehensive coverage and subsequent lower out-of-pocket costs. Some question the study's validity because it is commonly believed that HMOs attract younger and healthier people. However, John Iglehart's "Health Policy Report" in the September 3, 1992, issue of the New England Journal of Medicine states that research does not bear this out.

I recommend that before choosing among managed care plans, companies should consider the following cost issues:

* Do plans have hidden costs in the form of pre-existing exclusion waivers, eligibility waiting periods for specific benefits, and so on?

* What are the out-of-pocket costs employees must bear for each plan alternative?

* What is the plan's history of rate increases? Some organizations may "low-ball" to increase initial market share.

* Is the organization financially sound and stable?

Quality care issues are harder to assess. US Healthcare's Dr. Neil Schlackman suggests companies ask the following questions to compare plans' quality of care. Dr. Schlackman is on the Standards Committee for the National Committee for Quality Assurance, an independent nonprofit organization headquartered in Washington, D.C. This organization is the HMO industry's standard bearer for quality assurance.

1. What percent of primary care physicians applying to join the plan are accepted? Plans that have rigid criteria will not accept everyone. What are the selection criteria? Are licensure and credentials reviewed? Must physician applicants maintain current hospital admitting privileges? Must they furnish information about malpractice claims? Are applicants' medical records reviewed by other physicians for appropriate structure and content?

2. Are physicians readily available? Look beyond the usual geographic availability. Do physicians' appointment systems have a realistic limit on how many patients can be scheduled in an hour? Do physicians work out of one office, or do they have several offices that may have office hours only one or two days a week? Do physicians provide 24-hour coverage to handle emergencies? Do physicians provide an appropriate site for patient care? Was the site visited by plan staff members, or was it just described in an application?

3. How well do providers perform? For example, are primary care physicians periodically reevaluated? Are specialists, hospitals, and other providers screened and reviewed? How? By whom, and how frequently? Is member satisfaction queried? What type of information is assessed? Is it just utilization or quality care information as well? How is this information used? Are physician training topics prompted by identified problem areas? What are the providers' abilities to provide specialized services such as high-risk maternity care, neonatal intensive care, open-heart surgery, organ transplants, and so on.

4. How does the quality of care affect physician compensation? Is compensation based primarily on utilization containment?

5. How is the program's quality assured? For example, is there a subscriber grievance procedure? Have provider contracts actually been terminated based on reports from subscribers? Do plans devote dedicated resources to quality assessment and problem solving? Are these programs significant, well staffed, and internally respected? What contractual provisions are there to assure plan participants' access to health care if it is not locally available? Are transportation and living expenses provided for members who must travel to receive treatment? Do plans evaluate treatment to safeguard against unnecessary and inappropriate surgery? If so, what are the credentials and training of the individuals who perform this work?

How do plans arrange for follow-up care in patients' homes, nursing homes, or rehab centers? Is this the sole responsibility of treating physicians, or does the plan provide specially trained home care and case management nurses to support members? Do plans conduct pre-admission certification and concurrent reviews? Do they do this in-house or outplace these services. If so, to whom?

Other important issues include the frequency of data reporting and analysis service. These reports can be very helpful in evaluating different plans' performance. In addition, companies should consider paperwork requirements for plan members and how cumbersome they are.

Members should have access to a customer relations function. Access should not be limited to human resource personnel. Check to see if the plan has an 800-number, who staffs the function, and what hours staff members are available.

Finally, what preventive health programs exist to control weight and tobacco use? Do programs exist to identify those at high risk for breast cancer, cardiopulmonary disease, and flu? What systems are in place to monitor and deliver care to high-risk patients? What provisions are made for perinatal care? How about inoculations against childhood diseases?

Increasingly, corporate managers are considering implementing managed care plans to control costs. It is important, however, to be able to assess both their quality and cost. The questions and criteria outlined here will help managers make the best decision for their employees.

Good Resources: http://www.webmd.com/   http://www.medicinenet.com/script/main/hp.asp