Race, Health Care and the Law
Return: Race, Health Care and the Law
IMPACT OF MANAGED CARE ORGANIZATIONS
Consider the following:
K is facing knee surgery. She has health insurance with a preferred provider organization (PPO) through her employer. One doctor, a member of the PPO, recommends a certain operation. Another doctor recommends a different operation which is more expensive but allows faster recuperation. K's insurer will not pay for surgery from the second doctor, who is not a member of the PPO, and she cannot afford to pay for the operation herself. When she has the PPO-recommended operation, her recovery takes three months longer.1
B, a teenager, is suicidal. B's parents have insurance for him through their employers. His doctor wants to admit B to a psychiatric hospital. However, the insurance company, which requires pre-approval of any nonemergency hospital admission, denies approval. Since B's parents cannot afford the 21-day proposed hospital stay, they decide to have him treated as an outpatient. Five days later, B commits suicide.1
R, a single mother, is pregnant. She works at minimum wage but qualifies for government health insurance. Because the government pays doctors significantly less than what they would receive from other patients, no doctor in her immediate community will accept her. The nearest doctor is one hour and two bus transfers away. Because of the three or four hours she would have to miss from work, R does not receive adequate prenatal care. Her baby is born premature and with a low birthweight.1
As these anecdotes illustrate, a person can have adequate health insurance (or finances) without having adequate health care. Insurers, both private and public, can ration health care in any number of ways. They can restrict the patient's choice of provider, they can deny or modify the services to be received, or they can simply make services less available. Such rationing occurs through health-insurance products that "manage" the patient's care. They do it through managed care organizations (MCOs)--health maintenance organizations (HMOs), preferred provider organizations (PPOs), and individual practice associations (IPAs).
As currently operated, these managed care organizations may cause ethnic Americans and other underserved populations more harm than good. It is important to remember that MCOs have not developed in response to the poor health status of underserved populations, but rather to third-party payers' and employers' desire to control expenditures is strict utilization review and financial risk-shifting. These mechanisms may operate in direct conflict with the goals of improving the health status of the underserved.
The assumption behind MCOs is that expenditures for health care can be reduced by reducing the significant overutilization that exists in the current system because patients lack incentives to forego health services. MCOs propose to form a partnership with physicians and other providers to reduce utilization. Under this partnership, third-party payers can use MCOs to reduce costs and increase profits (or, in the case of government, to lower taxes). They do so by prospectively deciding what the organization will pay for and by using financial incentives to encourage physicians and other providers to act as gatekeepers whose functions include preventing so-called unnecessary services.
But what if a population group shows little or no overutilization? Ethnic Americans and other underserved populations demonstrate underutilization rather than overutilization. When that underutilization is combined with poorer health status, it is easy to discern that these populations will need (and use) more services than the norm. Thus, health care will cost more, which may defeat the underlying goal of cost control. How will third-party payers respond? Will they accept increased costs among this population group? Or will they seek stronger mechanisms to reduce costs? Will access to services remain the same, or will they be reduced? Will the standards, criteria, and methods that determine when a service is "unnecessary" be culturally appropriate, or will they be based on a cultural norm appropriate to European-American*, middle-class males?
Unfortunately, the multi-cultural perspective that must be reflected in the reform of the health care system is often missing from policy discussions. Yet without this perspective, MCOs can never effectively improve the health status of underserved populations.
The current discussion of health care reform focuses on cost containment, for good reason. In 1992, over $840 billion--14 percent of the nation's income--went to purchase health care.2 While federal and state governments, businesses, and insurance companies are major funding sources, families and individuals bear the greatest impact. For the poor, that impact is disproportionately large. Rasell and her colleagues, for example, found that: low-income families pay over twice their share of income for health care as do high-income families is nearly nine times that of high-income families; and expenditures for premiums by low income families, as a share of income, are nearly four times that of high-income families.2
One reason costs are out of control is that no one has had an incentive to ration health care to those with the ability to pay. Traditionally, health care has always been rationed based on economics. One hundred years ago, the gatekeeper to health care services was the patient(Figure 1). Since the patient had to pay for all health care services out of pocket, patients overtly considered the cost of care in their decisions to seek care. The doctor was also very conscious of a patient's ability to pay, because the provision of service to someone who could not pay constituted "uncompensated care." Nevertheless, the primary gatekeeper was the patient.
However, gatekeeping had little to do with the cost of, or access to, health care. Health care was low-technology, nursing-oriented, and primarily palliative. Before the mid-1800s, those who became sick or injured and could pay stayed at home for treatment. 3,4Only the lowest-class person went to the "hospital," which was often only a separate wing of an almshouse, jail, or pesthouse.3 Moderate-size cities had almshouses, also called poorhouses. These institutions primarily provided food and shelter for the homeless; medical care was generally only a secondary function. Pesthouses operated as quarantine stations for persons with a contagious illness. Usually, mentally ill persons received care at home, at the almshouse, or at the jail. With advances in biotechnology, drugs, sanitation, and the scientific method, the growth and development of hospitals and more expensive health care procedures exploded. In only 36 years, from 1873-1909, the number of hospital beds in the United States grew from 50,000 to 907,133.4 However, the Depression ushered in a significant decline in bed use, as patients, unable to pay for health care, rationed care and simply stayed away. Hard hit by the Depression, the American Hospital Association (AHA) developed health insurance (Blue Shield) as a mechanism to assure stable revenues.4 After World War II, as medical technology advanced, reliable access to medical services became increasingly important.5 Unions began to demand and employers began to use health care benefits as a part of employee compensation.
By the early 1960s, it became apparent that the cost of health care far outstripped many individuals' ability to pay. As the cost of care rose, an access gap began to develop between those who had either health insurance or wealth and those who did not. Because health insurance was available almost exclusively through employment, the number of individuals who could not afford health care was significant. In 1965, the Congress, in response to the medical-insurance crisis, created Medicare6 and Medicaid7, which provided health insurance to the elderly, to the disabled, and to poor women and children.
By 1985, three-fourths of payments to physicians were made through public or private insurance.8 It is this widespread availability of insurance that has contributed to the escalating development and use of technology, and consequently, escalating expenditures on health care. With the introduction of insurance, the incentive for the patient or provider to refuse services or to be selective was minimized or eliminated (Figure 2). Imagine the houses that homeowners would choose if they only had to pay 20 percent of the full mortgage or rent. Imagine the houses that builders would build if they were guaranteed 80 percent of their charges or fees. Is it any wonder that over the last 60 years, neither of the two primary actors in health care delivery--patients and providers--had had an incentive to ration care?
In fact, insurance has had a "perverse influence" on health service delivery.9 Since providers make more money when they treat more10, they tend to de-emphasize preventive care, which is not as lucrative as treatment services, and they tend to place excessive reliance on the use of medical technology because third party payers pay for discrete procedures, not time spent with patients.11 However, as the cost of health care has spiraled upward, employers12,13, government14-16, and third-party payers have gained strong incentives to restrain costs by rationing health care.17 In 1990, private insurance and other private payers paid 37 percent of health care bills; government programs paid 42 percent, and individuals paid 21 percent (including premiums).1
Current cost-containment efforts center on MCOs which deny or modify the availability of services before they are received ("prospective utilization review") and which shift the risk of financial loss for "unnecessary services" in whole or in part to the providers of those services ("financial risk-shifting").18 MCOs ask providers to be gatekeepers to health care in order to improve efficiency and cut costs (Figure 3).
Despite providers' historical opposition to risk-shifting, the position of physicians and hospitals has been weakened by the current economy. One-third of the nation's hospital capacity is permanently idle. Hospital days dropped from 280 million in 1980 to 240 million in 1984.1 By the mid-1990's, the number will drop to an estimated 120 million.1There are not 2.2 physicians per 1,000 persons, 1.2 physicians more than is needed.1
In 1980, MCOs were begging for providers to enter into agreements with them. Today, MCOs have become the darling of the health care reform movement (R.G. Stevens, personal communication). At least 60 percent of individuals with employer-sponsored health care plans are enrolled in MCOs (R.G. Stevens, personal communication). All sorts of experienced and inexperienced individuals and entities--acute-care hospitals, physicians, private and government insurers, employers, and "plain vanilla" entrepreneurs--are developing MCOs because of their potential for profit. Perhaps the only group not developing MCOs is the population most affected by the delivery of health services--ethnic Americans and the underserved. It is these two population groups that have the most to lose from the implementation of utilization review and strict financial risk-shifting.
Managed care, a payer-driven system, can be mistaken for a provider-driven system. They physician continues an obligation to act in the patient's best interest, and the third-party payer is contractually obligated to pay for services rendered by a physician. However, managed care brings the physician another obligation. The physician is contractually obligated to provide services under the guidelines and standards set by third-party payers if the physician wishes to be fully compensated for the services. The physician manages the patient's care for the payer--hence, the term "managed care." Thus, the physician's new responsibility requires her to balance the health needs of the patient with the cost-containment needs of the third-party payer.
Utilization review. With utilization review, third-party payers determine whether they believe medical services ordered (or received) are appropriate and necessary.19,20 If they decide that a service is unnecessary, they either refuse to pay the provider's charges (retrospective review8) or refuse to authorize the provision of the service (concurrent or prospective review14). Retrospective utilization-management programs analyze data on hospital admissions, patterns of treatment, and utilization of certain procedures. Under a prospective review system, the program gives prior approval to most nonemergency hospital admissions, and assigns an initial approved length of stay.
There are a number of different forms of utilization review, but they all rely on statistical norms, practice parameters, and other population data to decide whether a service is necessary. The problem with utilization review is that standards and decisions are made from data drawn from a largely European American, middle-class, male subgroup. Such data are inadequate and unreliable when applied to ethnic Americans and the underserved, for several reasons.
First, because of the lack of prior health care, ethnic Americans and the underserved typically approach MCOs with a backlog of illnesses that have been inadequately treated or have gone untreated. Because the illnesses are more severe, they require more intense treatment over a longer period, so that treatment falls outside of the normal course.
Second, even for illnesses developed after enrollment in an MCO, the course of the illness is likely to be longer and more severe. Without access to adequate housing, food, and clothing, the poor are sicker than the affluent. But even middle-class ethnic Americans have a different health status than do middle-class European Americans. Health status is related not only to the availability of current necessities (food, housing, etc.), but also to health care received during childhood and the health status of the parents. Form many middle-class ethnic Americans, a lack of childhood or parental health care has a generational or multigenerational effect on health status and the need for health care. If MCOs do not take this generational effect on health status and the need for health care. If MCOs do not take this generational effect into consideration when developing protocols or practice parameters, ethnic Americans and the underserved will continue to receive inadequate health care.
Third, the protocol for utilization review comes largely from research on European American middle-class males. Only in the last several years has there been a concerted effort to include women and ethnic Americans in trial studies of drugs and other treatment protocols. Even so, health providers have failed to recognize that race can influence the desired treatment of a disease and hot the disease responds to treatment. For instance, although hypertension is a leading health problem for African-Americans, only recently did a study conclude that hypertension medications prescribed for African-Americans were not as effective in controlling hypertension as they were for European Americans.28 MCOs' utilization review protocols are not likely to recognize these differences.
Finally, providers hired by third-party payers to conduct utilization review often lack the cultural background to factor into their recommendations regarding services a patient's poverty, race, class, and prior health care. Unfortunately, many of the providers who traditionally serve ethnic Americans and underserved populations are not signing contracts with MCOs. Indeed, ethnic American providers are finding the doors to MCOs closed to them both as owners and provider-employees. Without providers who consider race, class, and poverty, even culturally relevant protocols may be misapplied.
It is important to remember that prospective decisions of utilization reviews have a fundamentally different impact on the patient than do retrospective decisions. Theoretically, patients know what treatments will be paid for under either plan. However, the two systems have significantly different effects on patient behavior. In the retrospective system, a patient makes a decision about medical care and receives the medical care with only a potential risk of disallowance. Thus, an ethnic American who needs a service will more likely than not receive it. Consequently, the potential for injury because of an erroneous decision during utilization review is low.
On the other hand, in a prospective system, a patient knows ahead of time that the insurer will not pay for the treatment. The patient's only chance of recovering the cost of that recommended treatment is to challenge the insurer's decision. Thus, ethnic Americans who need services which are denied through prospective utilization review more likely than not fail to receive the services.28 Consequently, because of the bias in the standards and the potential bias of the utilization review process, the potential for ethnic Americans to be injured because of an erroneous utilization review decision is higher than for European-Americans.
Nevertheless, utilization review alone is not the major culprit. Under utilization review, the potential to control costs is tempered, at least theoretically, by a patient's ability to protest denial of services. It is the combination of utilization review with financial risk-shifting which provides the greatest potential for harm to ethnic Americans and the underserved.
Financial risk-shifting. Financial risk-shifting causes the provider to change a pattern of practice from overutilization to "appropriate utilization" at best and "underutilization" at worst.
Years ago, the risk of loss due to unnecessary care was borne by the paying patient and the uncompensated doctor. Insurance shifted the risk of loss from these parties to third-party payers. MCOs, through financial risk-shifting, transfer at least part of the risk of loss back to the providers.
Financial risk-shifting arises in a variety of arrangements: ownership interest, joint venture, or a "bonus" arrangement. In these arrangements, the third-party payer shares the savings from "cost-effective" care with the provider.9,22,23 The risk-shifting occurs in various forms of rewards24, penalties,25 or both.25
Rewards can be a predetermined fixed dollar amount, fixed percentage of the surplus distributed among the risk pool, a bonus based on a physician's productivity, or a combination of methods. The methods also include increasing fee schedules and allowing practitioners to become investors. Penalties used to place the provider at risk beyond the withholding include: 1) increasing the percentage of payment for physicians' fees withheld during the following year; 2) placing liens on future earnings; 3) decreasing the amount of a capitation payment the following year; 4) excluding the physician from the program; 5) reducing the distributions from surplus; or 6) requiring physicians to pay either the entire amount of any deficit or some set percentage of the deficit. For example, a large percentage (approximately 40 percent) of MCOs require primary care physicians to pay for outpatient laboratory tests directly from their capitation payments. HMOs also use peer pressure as a significant motivator. They develop a reporting system that informs providers of their performance compared with that of their peers. The reporting identifies areas of excessive costs and service intensity.
The degree of risk assumed by the provider varies with the type of payment arrangement. Traditional fee-for-service practices are at one end (no risk-shifting) and traditional HMOs at the other end (full risk-shifting).18 Preferred provider organizations (and other MCOs) fall somewhere in the middle.
The most common means used by third-party payers to spread financial risk to physicians are capitation, withholding, discounted fee for service, per diem payments, and surplus (profit) sharing.9 The most frequently used means of shifting the risk to hospitals include case mechanisms and capitated payments per patient.
With capitation, a provider (or provider group) is paid a set fee per enrolle. The group then provides all necessary physician services. Primary care physicians are the gatekeepers to specialists and hospital services and are financially responsible for utilization. Because the amount of payment to the physician group is independent of the actual services rendered, the group takes on the risks of an insurer. When MCOs using withholding, they shift part of the risk by withholding part of the provider's periodic fee-for-service payments--usually five to 20 percent--for a claim period. At the end of a claim period, MCOs determine a medical-claim trend and compare it to a target trend. If the actual trend is lower than the target, the withheld funds are paid to the providers. If the actual medical-claim trend exceeds the target, the withheld funds are paid to the payer.
If the MCOs use a discounted fee for service, they obtain an up-front agreement that providers will discount amounts due from the payer. The MCO assumes the risk that the payer's premium will be sufficient to cover hospital charges. However, hospitals do not share the profits of the MCOs, and while payers which contract with hospitals without a discount may pressure the hospital for a discount, discounted charges may be insufficient to cover the hospital's actual costs.
With per diem payments, the hospitals are paid a flat rate per patient day, which must cover all necessary services. The advantage of per diem payments is that the hospital is not penalized for lengthy patient stays. However, if the MCO also emphasizes early discharge, then the hospital's total income may be reduced if the predetermined per diem payments are too low for the hospital to cover its costs, or the MCO discharges the patient before the hospital can break even by averaging cheaper end-of-stay days with the more expensive beginning-of-stay days.
With case mechanisms, a predetermined amount, based on the diagnosis, is paid to the hospital for each admission. The hospital is then at risk for the treatment and the length of stay.
Finally, hospitals are paid capitated payments per patient in an arrangement similar to capitation. That is, a hospital is paid a lump sum per enrolle in the hospital's service area to provide all covered hospital services required by those enrolles. Because the hospital's payments are independent of the actual services rendered by the hospital, the hospital assumes the role of an insurer.
While the form may vary, these penalties and rewards have similar effects. Current cost-containment efforts shift the risk of financial loss for health care in whole or in part to the providers of that care.9 Providers (physicians in particular) are offered economic incentives to act as the third-party payer's agent--the gatekeeper to health care services.1,9,26 The gatekeeping role is not new to physicians. Physicians have used their authority to resist hospitals' and insurers' efforts to influence medical treatment. As gatekeepers, physicians have generally worked to obtain more services for the patient. Now, however, they use their position to save money for third-party payers by ordering fewer services. This fundamental change in the basic ethical concern of the system--from "the best interest of the patient" to "cost containment"--is revolutionary.21
As gatekeepers, physicians are concerned with limiting access to health care services such that third-party payers do not find excessive utilization. If a payer determines that a physician practiced within the payer's guidelines, the payer rewards the physician financially. If a payer determines that a physician has ordered too many services, the payer penalizes the physician financially. Consequently, physicians are motivated to order services for patients within a third-party payer's guidelines. Thus, gatekeeping shifts the focus of the health care system from the doctor-patient relationship to the doctor-payer relationship. Ultimately, the doctor and payer determine not only the quantity of services received by the patient but the quality of care as well.27
This shift of focus has serious implications for ethnic Americans and the underserved. First, given that most if not all utilization-review standards are culturally insensitive, the physician is under the greatest pressure to deny or modify services to the population--such as ethnic Americans--not represented in the standards. These are the patients who require the most services. Physicians may also believe, either consciously or subconsciously, that underserved Americans are less likely to deserve the services, or less likely to complain. "As [MCOs] continue to grow and as more physicians continue to sign contracts with them, these concerns will intensify."4
Second, physicians already order fewer services, and of lesser quality, for ethnic Americans. This difference is based on factors other than ability to pay. It is based, at least in part, on racism. A system focused on cost containment and financial risk-shifting allows physicians to continue, if not increase, this practice of providing disparate treatment.
Thus, some physicians will respond to risk-shifting incentives by cutting not only unnecessary and marginally necessary services, but also medically necessary care. It is not unrealistic to expect disparities based on race and class to be exacerbated by utilization review and financial risk-shifting.
MCOs will ultimately change the perceptions and expectations of society, physicians, patients, and third-party payers regarding what is owed to whom, what treatments are appropriate in what circumstances, and even what qualifies as a disease.9 These altered perceptions may be contrary to the needs of ethnic Americans and the underserved, and without safeguards could worsen existing disparities in health status between European Americans and ethnic Americans.
Quality assurance, utilization review, and practice parameters are essentially designed around data based on middle-class populations who have generally had adequate access to health care. Minority and underserved populations have poorer access to health care. That lack of access, coupled with racism, homelessness, violence, drug abuse, and other issues, means that ethnic Americans.
Quality assurance, utilization review, and practice parameters are essentially designed around data based on middle-class populations who have generally had adequate access to health care. Minority and underserved populations have poorer access to health care. That lack of access, coupled with racism, homelessness, violence, drug abuse, and other issues, means that ethnic Americans enter MCOs having poorer health status and needing more (not less) health care services. In a system focused on decreasing utilization, it seems difficult to imagine that ethnic Americans and the poor will receive this additional amount of needed care. If MCOs do not provide culturally relevant care, then underserved populations may have technical access to health care but not quality health care.
Moreover, MCOs' narrow focus on cost containment may be inherently antithetical to the needs of ethnic and underserved populations. Since third-party payers will make more money when providers treat less, they will, over time, tend to place increasingly stringent requirements on providers, and they will resist developing culturally appropriate treatment modalities, particularly if the provision of that treatment is more expensive. If health care providers and health organizations that serve underserved populations do not insist that the provision of culturally competent care be a basic component of any MCO, ethnic Americans and underserved populations will not benefit as much as we may hope from so-called health care reform.
As usual, whatever success this project represents is due in significant part to the unwavering support and encouragement of many persons. In particular, I owe a special thanks to my research assistant, Scott Hauert.
1. I reject the word "minorities" because of its connotation of subordination. Ethnic Americans, by definition, refers to African-Americans, Asian-Americans, Native Americans and Hispanic Americans. [Back]
Copyright @ 1993, 2008. Vernellia R. Randall