A modern HMO - controlling physician behavior by controlling the flow of dollars

Before beginning Phase 4 of his plan, Gekko continues paying his physicians on a discounted fee-for-service basis (i.e., they get paid for every service they provide, at a somewhat lower fee schedule than for Medicare). But for any HMO in the mid 1990s, the pot of gold at the end of the rainbow is capitation. And Gekko institutes capitation with great relish during Phase 4.

Under his capitation plan, FTP primary care physicians (PCPs) get paid a fixed amount per month for every FTP patient they follow in their practice. No matter how much or how little medical care they provide for that patient, the PCP makes only the capitated amount. But Gekko doesn’t actually pay them the full capitated rate up front – they get only 90%. He keeps the last 10% as a “withhold,” which he fashions as an additional incentive.

Thus, at the end of the year, if FTP meets its financial goals and the PCP meets certain performance requirements, Gekko distributes the last 10%. If not, FTP keeps the money. It is possible, of course (if FTP’s financial goals are exceeded and the physician’s performance is rated “excellent,”) for the PCP to receive a bonus in addition to the 10% withhold. And Gekko sees to it that at least a few PCPs get such a bonus each year, just to let his physicians know that such a thing is within the realm of possibility. Capitation fee schedules are renegotiated each year with each PCP, based on how “well” the PCP has done in the previous year.

It’s a shame Gekko’s accountants can’t yet figure out a way to capitate specialists as well, but so far it’s too complicated. The accountants cannot guarantee him that he’d make money capitating specialists. Some day they’ll have sufficient data to pull it off, but for now he continues paying his specialists on a modified fee-for-service basis. Gekko knows he needs alternative measures to control the behavior of the specialists.

The performance measures that determine whether the PCP does or does not get the 10% withhold at the end of the year are a vital part of Gekko’s plan. There are a few token “health care performance measures,” of course, that monitor whether the doctors are aggressively treating hypertension and screening for high cholesterol and the like. But Gekko wants to make sure his doctors know what he really means by performance, so he doesn’t try to disguise the fact that the bulk of FTP’s performance measures have to do with fiscal performance.

Each quarter, a dark-suited FTP representative (a “Practice Consultant”) visits each PCP with a “Performance Report.” The Performance Report accounts for every dollar that FTP has had to spend during the past quarter on patients enrolled in the PCP’s practice.

“Your patients cost us a mean of $439 apiece during the past quarter, Dr. Smith,” the Practice Consultant might say. “That compares unfavorably with the mean of $348 achieved by your peer PCPs, and even less favorably with the target of $264 that would be required for you to receive your portion of the year-end withhold. Now, Dr. Smith, let’s examine this report in more detail to see if we can figure out where all that money is going.”

So Dr. Smith and the helpful Practice Consultant look things over. They notice that Dr. Smith referred four patients to cardiology practices during the past quarter. The Valley View Practice ended up spending $3429 on the two patients Smith sent them, but the Cormatic Practice only spent $2453 taking care of the other two. They both agree that substantial savings could be realized by referring more patients to Cormatic, and fewer to Valley View.

“Of course,” the Practice Consultant says, “we would never ask you to send FTP patients to an inferior group of cardiologists.”

“Of course,” Dr. Smith replies.

It is a thing of beauty. Look what Gekko has accomplished here. By rapidly gaining control of physicians’ means of livelihood (i.e., their access to patients), he is able to essentially dictate the terms of their surrender.

Those terms put fiscal pressure on doctors at several levels.

Since they are paid a capitated rate, there is financial pressure on the PCPs to keep patients out of their office. Office overhead is often figured on an hourly basis, so the more time a patient spends in the office (i.e., the more office overhead that patient consumes) the less profit (or the more loss) the physician realizes on that patient. Under many capitation rate schedules, more than two office visits per patient per year will result in a net loss for the PCP. This is why doctors now take great pains to head off office visits by requiring patients to go through a screening process before letting them in the door.

Over and above capitation, however, is the pressure on PCPs not to refer patients to specialists unless absolutely necessary. While the specialists themselves are paid on a fee-for-service basis, the PCP is ultimately held accountable for whatever the specialist ends up spending in caring for a referred patient. It will affect their end-of-year “bonus,” and will impact on next year’s capitation rates.

Since doctors really do want to take good care of their patients, most PCPs will refer when they think it’s necessary. But to whom do they refer? In the old days, they referred to the specialists they thought gave the best care, or who were the most congenial, or who invited them to the best golf outings, or who were their brothers-in-law. The new fiscal incentives are so powerful that they tend to override any of these considerations.

And this is also how HMOs exert their control over specialists. A cardiologist whose referrals have fallen drastically is all ears when the friendly FTP Practice Consultant shows up in her office with facts and figures. Learning that she is spending a lot more money than her peers in providing patient care (and that her referring PCPs also have been provided with the same data), leaves her with two choices. Either cut out some of the services she is providing, or go out of business. After all, she is forced to consider, coronary artery stents may give better results than just routine angioplasty, but routine angioplasty is probably okay too, and it’s a lot cheaper.

Gekko’s operational plan has at least one other major benefit. Visualize what happens, if you will, when a patient with a chronic illness shows up for the first time in the office of a PCP. Most likely the PCP immediately has visions of $100 bills flying out the window. He gets paid no more for delivering care to that sick patient (who may require office visits at least on a monthly basis), than he does for a healthy 18 year old he will not see at all. And, odds are he’ll end up having to refer the patient to at least a couple of specialists during the course of the year. The PCP has already seen his income fall by more than 10% each of the last two years, and has had to lay off office personnel to boot. He just can’t afford to absorb any more cuts.

So, is he happy to see that patient? Or is he frustrated, and maybe even angry (at the patient, at the system, and at himself)? Under such circumstances, it would only be human nature to begin sending the patient subtle messages that indicate she’s not really welcome. During office visits the physician is more likely to seem disinterested, distracted, or rushed – off-putting. He may be a little less accommodating when she needs to schedule an appointment; he may drag his feet when she sends him a stack of disability applications to fill out. He may be a little slower than necessary to return her calls. And after a while, the patient is likely to get the message and switch PCPs, or better yet, to switch health plans altogether.

By appropriately incenting his physicians, Gekko has thus established a highly effective adjunct to his cherry-picking program. His physicians want just as badly as he does to avoid the sick, and by their words, actions and deeds are able to directly discourage the more expensive patients from staying with FTP.

Next: Making destruction of the doctor-patient relationship legally binding

Return to YourDoctorintheFamily.com home page