Saturday, June 18, 2011

Capitation and HMOs

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Capitation and HMOs


“Managed care, as we know it, is inherently unethical in its organization and operation. We have an industry that can exist only through flagrant ethical violations against individuals and the public.


- Dr Linda Peeno, May 0, 16


Such harsh words may seem appropriate and expected coming from a vehemently anti-Managed Care activist. But they transform into a powerful indictment of the HMO industry when it comes from an insider. Dr Linda Peeno gave this statement as a part of her testimony before the U.S. House of Representatives Committee on Commerce on May 0, 16. She had worked as a medical reviewer at Humana, as the medical director of a 5,000 member HMO, a medical director at a hospital, and as a physician executive at Blue Cross/Blue Shield of Kentucky. In her own words, Whether it was non-profit or for-profit, whether it was a health plan or hospital, I had a common task using my medical expertise for the financial benefit of the organization, often at great harm and potentially death, to some patients.


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Her powerful testimony began with a heartfelt admission of guilt, In the spring of 187, as a physician, I caused the death of a man. Although this was known to many people, I have not been taken before any court of law or called to account for this in any professional or public forum. In fact, just the opposite occurred I was rewarded for this. It brought me an improved reputation in my job, and contributed to my advancement afterwards. Not only did I demonstrate I could indeed do what was expected of me, I exemplified the good company doctor. I saved a half million dollars. The man died because I denied him a necessary operation to save his heart. I felt little pain or remorse at the time. The mans faceless distance soothed my conscience. Like a skilled soldier, I was trained for this moment. When any moral qualms arose, I was to remember I am not denying care. I am only denying payment. At the time, this helped avoid any sense of responsibility for my decision. Now I am no longer willing to accept this escapist reasoning that allowed me to rationalize this action. I accept my responsibility now for this mans death, as well as for the immeasurable pain and suffering many other decisions of mine caused.


Unfortunately her directives in life had changed from the Hippocratic Oath in which she swore to protect the interests of her patients, to protecting the interests of the business of which she was a medical director or executive. The code of ethics so fundamental to all physicians was struck from her morality as she assumed the role of a “company” doctor. A company has no soft side, no humanitarian agenda, only the drive for one goal; money. When Dr Peeno would not deny enough care, she was reprimanded, and rewarded when she met her quotas. At one conference, she received a standing ovation for her presentation before 500 medical directors and nurse reviewers on how to bring specialist’s costs down using the denial process. In this presentation, she used a military model with physicians and patients as the enemy.


Dr Peeno detailed the technique used by HMOs to manage care, and it is brought down to the level of “gatekeeper” physicians. By carefully designing and manipulating their contracts with physicians, and by offering various rewards and punishments for following or straying from company policy, they are able to control the physician. This makes the physician essentially a medical director of the plan, who holds the interests of the HMO higher than those of the patient. This is accomplished by offering bonuses for complying with policies, and by including penalty clauses into the contracts for any disobedience. Physicians, stuck with ever increasing competition and shrinking incomes, willingly sign on with the HMOs in exchange for a large patient base and consistent income. Now the patients not only have to deal with the HMOs denying them treatment, but also with a physician who has become lame in his or her ability to effectively treat them.


HMOs use the excuse that the physician will always make the decision based on what is best for the patient. They argue that their physicians are of good character and competence, and are committed to the betterment of the healthcare system. Unfortunately, good character, competence and the best of intentions are often swayed when misguided by a mission independent of these ideals. When an HMO takes over the mind of a physician, they do so by controlling their finances, after which, the HMO is free to mold the physician into whatever they desire.


Health Maintenance Organizations were initially started as the answer to all the woes of the American Healthcare system. An HMO is a group that contracts with medical facilities, physicians, employers and sometimes individual patients to provide medical care to a group of individuals. This care is usually paid for by an employer at a fixed price per patient and so the patient generally does not have any significant out-of-pocket expenses. Unfortunately, there is a severe downside to this concept of managed care, and that is rationed care. An HMO is usually a for-profit corporation with responsibilities to its stockholders that take precedence over its responsibilities to the patient. The HMO directly and indirectly controls the amount of health care that the physician may provide for the patient. With that power, the good intentions of the HMOs find their first downfall. A strong example of these intentions going bad is the use of capitation by HMOs.


Capitation is the practice of paying a physician a fixed prospective amount for each patient in the area covered by the HMO, regardless of the cost of caring for the patient. An unfortunate side effect of this practice is that it results in paying the physician for not treating the patient. For example, if a doctor signs up with an HMO at 50¢ for every subscriber to the HMO in the area, with 0,000 subscribers the physician will be paid $10,000.00 monthly from the HMO. If the physician sees 50 patients a day, and 5 of them are HMO subscribers, no extra compensation will be provided, unlike the other 5 patients who have no insurance, or some other insurance program. For these exact same office visits, even with being reimbursed $100.00 each, the physician makes a total of $,500 for seeing these 5 paying patients. If these figures are applied to a 0 day work month, seeing 50 patients a day, the financial breakdown is as follows


# of pts/day $ reimbursed Days Total


HMO 5 $0.00 0 $10,000


Non-HMO 5 $,500 0 $50,000


If those same figures are applied to seeing 5 non-HMO patients out of the 50


# of pts/day $ reimbursed Days Total


HMO 15 $0.00 0 $10,000


Non-HMO 5 $,500 0 $70,000


The increase in income for the physician is quite substantial, raising the monthly income from $60,000 to $80,000. This can be further increased by spending less time with HMO patients in order to see more non-HMO patients. Even though the consumer and the HMO might be saving money by using this technique, the quantity and quality of the care provided declines.


The practice of capitation was initiated because of the altruistic desire of HMOs to help improve healthcare while reducing costs. The original impetus for starting this program was the desire for the physician to see more patients. The patients were also supposed to receive monetary benefits from this program that would reduce the costs for them. Because no extra payment was due for physician visits, both the HMO and patient would save money. In addition, because no extra compensation would be provided to the physician, in theory more care would be used in selecting expensive and dangerous tests for the patient.


Unfortunately there were serious side effects to this practice of capitation, the greatest of which was the result that physicians were paid to not treat the patient. In addition, since no extra compensation was awarded to the physician, it encouraged them to not utilize more expensive, albeit effective and accurate tests. As a result, the Physician-Patient relationship was damaged because the value of HMO patients compared to non-HMO patients was lowered. The lower monetary value of HMO patients could easily result in less time and care allocated to them.


Another harmful result of this monetary association with patients was the damage done to the principles of autonomy, beneficence, nonmaleficence, and justice. Because the physician is likely to be reluctant in offering the HMO patient the full-variety of treatment options because of the expensive involved, beneficence and nonmaleficence come under heavy attack. Since the options of procedures and tests are limited, the patient does not always enjoy complete autonomy. Finally, because money controls how much time each patient is assigned, the principle of Justice is not upheld.


There are many alternatives available to HMOs, one being a Medical Savings Account, or MSA. With an MSA, individuals or their companies could make regular, tax-free deposits that would be the property of the individual. Money may be withdrawn without penalty for the sole purpose of paying medical bills or health insurance premiums. Unused money would collect interest and may be used for medical bills after retirement or be rolled into an IRA or pension plan. An MSA is not intended to take the place of traditional insurance policies, but rather to complement them. Insurance can be reserved to pay for higher, and less frequent bills, while the MSA can handle any small bills covering routine services. The reduced monthly payment to the insurance premium can instead be put in the MSA, in which case the money is not lost. MSAs would decrease bureaucracies, restore patient-choice in the market, thus restoring physician-patient relations. Also by taking money away from HMOs and into the hands of the consumer, it would prove a strong force for competition in the medical field. Also, overall medical expenses will be reduced because doctors and hospital administrators will be spending less time on paperwork, and more time with the patients, reducing man-power requirements.


Because of the violations of ethical principles, and the damage done to the integrity and professionalism of the physician, capitation should be avoided as a method of lowering expenses in an attempt to increase healthcare quality. Although this principle was initiated with very ambitious and altruistic intentions, it did not completely succeed due to unforeseen negative consequences. Even though the costs to the patients as well as the HMO were lowered, the level of care was decreased. With viable alternatives such as MSAs available, the relatively few benefits of HMOs should not outweigh the potentially disastrous consequences. HMOs have many drawbacks, and the theory of managed care was created out of good intentions. However, once the problems inherent in the system are exposed, steps need to be taken to correct them, and the practice of capitation serves as a strong example of this.


References


1. Physicians Who Care. Visited March 00 http//www.pwc.org


. Patients Who Care. Visited March 00 http//www.patients.org


. Health Maintenance Organizations. Visited March 00 http//www.hmopage.org


4. Medical Savings Account. Visited March 00 http//www.msapage.org


5. eHealth Insurance. Visited March 00. http//www.ehealthinsurance.com


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