More MS news articles for January 1999

Managed-Care Incentives Should Be Disclosed, Physician Says

Contact: Linda Sage
Washington University In St. Louis

What if your lawyer got paid more if you received a smaller settlement? Or your mechanic reaped a bonus for withholding service on your car?

In an effort to contain health-care costs, many managed-care companies reward doctors who restrict medical care. Such financial incentives should be disclosed to patients and consumer groups, says Thomas H. Gallagher, M.D., in a recent issue of the American Journal of Medicine.

"Disclosure might lead plans to be more cautious in the types of incentives they adopt," says Gallagher, a primary care physician and instructor in medicine at Washington University School of Medicine in St. Louis. "And it might make patients scrutinize their doctors' recommendations more closely. In theory, it also could allow market forces to protect patients."

Financial incentives have long been part of medicine. The fee-for-service system encouraged doctors to provide more health-care services, some of which may have been unnecessary. Managed-care plans hope that providing physicians with new types of financial incentives will encourage doctors to be more cost-conscious in the medical care they provide, ordering only those services that are medically necessary.

The new incentives come in a number of different forms. Some plans give doctors a year-end bonus if they haven't referred too many patients for specialty care or laboratory tests. Others withhold a certain percentage of salary if cost-containment goals are not met. Many plans also capitate services, paying doctors a set amount per patient regardless of the number of visits. And these incentives often are combined -- a doctor may be promised $24 per patient per month, for instance, but receive only $16 per patient if the cost of referrals exceeds a certain amount.

Financial incentives could have two adverse effects, Gallagher points out. "If doctors withhold care that is really needed, patients' health care could suffer," he says. "But even if incentives do not affect patient care, they may create the perception of conflict of interest, damaging the trust between doctors and patients."

He says patients should be aware of incentives so they can become educated health-care consumers. And he urges health plans and doctors to disclose them when asked. "It is in the self-interest of managed-care plans and physician groups to be more open about these incentives," he says. "They should come out in front on this issue and try to come up with ways to deal with patients' suspicions about managed care."

Gallagher and co-authors argue that voluntary disclosure would be better than federally regulated disclosure because it could adapt more quickly to rapid changes in the health-care industry. In 1990, for instance, Congress instructed the Department of Health and Human Services to develop more detailed regulations on financial incentives to physicians in Medicaid and Medicare. These regulations did not take effect until Jan. 1, 1997, and the managed-care industry had changed drastically meanwhile. The federal regulations ban incentives that limit necessary medical services to individual patients, but they apply only to referrals that physicians order but do not supply themselves. They also require managed-care organizations that contract with Medicaid or Medicare to disclose financial incentives that cover referral services. These disclosures are made to the Health Care Financing Administration (HCFA) or the state Medicaid office.

Managed-care plans also must disclose their financial incentives to Medicaid or Medicare patients who request this information, but they are required only to summarize a plan's incentives rather than provide information about a patient's own physician.

Managed-care plans also are under no obligation to inform patients about the financial incentives they offer to subcontracting physicians. The federal regulations single out for special scrutiny plans whose financial incentives place physicians at "substantial financial risk" -- doctors who could lose 25 percent or more of "maximum anticipated total payment." Such plans are required to ask patients about their satisfaction with quality of care and access to services and to report the results to the HCFA. Physician groups with more than 25,000 patients are exempt from these additional requirements.

Interpreting Incentives

Gallagher and co-authors have several concerns about the federal regulations. They point out that little is known about the effects of financial incentives on the quantity or quality of health care. "It is difficult to scrutinize care that has not taken place, and the technology to detect underutilization is not well-developed," Gallagher says.

The fact that health plans only need to disclose summary information is another problem, the authors say, because patients may not be able to determine which incentive, if any, applies to their doctor or group of doctors. Without medical knowledge, patients also may be unable to assess whether financial incentives are influencing their doctors' judgment. Consumer groups, such as Consumers Union or the American Association of Retired Persons, could play an important role in helping patients interpret information about incentives. However, these consumer groups currently do not have access to enough information about incentives to help patients determine whether a specific incentive is likely to pose a significant problem.

The authors recommend that HCFA use its market power to promote the development of better outcome measures. When awarding
contracts, for example, it could favor health plans that monitor and reduce underutilization of services. HCFA also could give preference to health plans that survey patients to determine whether financial incentives create the perception of a conflict of interest between doctors and patients.

Meanwhile, the authors recommend broader disclosure so that interested patients -- even those not in Medicaid or Medicare -- could obtain information about their own physicians. "If you learned that your health plan used an incentive you didn't like, you could change health plans," Gallagher says, "though some patients lack a choice of health insurance."

Broader disclosure also might make patients scrutinize their doctors' recommendations. "If you come to me with a hurt knee and I don't order an MRI," Gallagher says, "you might be more likely to obtain a second opinion if you knew I was getting a bonus for not making referrals."

Perhaps the most important impact of broader disclosure might be that it could act as a deterrent. "Plans might be more cautious in the type of incentives they adopt if they feel as if those incentives would be disclosed publicly," Gallagher suggests.

Disclosure would not necessarily jeopardize the doctor-patient relationship, Gallagher believes. "I think health plans and doctors could help educate the public about how patients benefit from these incentives and reinforce their commitment to act as patient advocates," he says. "If there are safeguards in place to make it less likely that incentives cause problems, disclosure could help develop partnerships between doctors and patients for practicing cost-conscious health care."

Note: For more information, refer to: Gallagher TH, Alpers A, Lo B., "Health Care Financing Administration's New Regulations for Financial Incentives in Medicaid and Medicare Managed Care: One Step Forward?" American Journal of Medicine 105, 409-415, November 1998.