Dr. LeRoy Sprang and 90 of his colleagues say insurers’ penny-pinching ways drained the life out of their North Shore medical offices.
He blames a much-maligned practice known as capitation, in which health maintenance organizations pay doctors a fixed fee per patient and refuse to pay more, no matter how sick the patient is.
The practice has become notorious among many patients and doctors. It is blamed for some of the managed-care industry’s biggest abuses: doctors withholding care, refusing to provide referrals to specialists and cutting other corners while attempting to turn a profit.
But now health insurers are coming around to Sprang’s way of thinking. Some are abandoning capitation altogether, and that raises fundamental questions about the future of HMOs.
The pay-one-price formula is among the most important parts of the HMO business model. Without it, the supposed cost advantages of HMOs over other forms of health insurance could be negated. That could make health insurance more expensive at a time when the number of uninsured already is rising sharply.
Yet capitation is going away for some very practical reasons.
For one, doctors like Sprang are rebelling, saying the system forces them to take on too much financial risk. After all, it forces them to gamble that they can provide all the services their patients need and still walk away with a profit. Just doing their jobs properly can push them into bankruptcy if their HMO patients require extraordinary care.
Moreover, plaintiffs’ lawyers are feasting on abuses committed by doctors who are under pressure to keep costs down because of the cap on payments from HMOs. That has inspired a wave of class-action suits against the managed-care industry.
The relationship between doctors and patients is suffering, too.
“Capitation creates tension between the physicians and patients,” said Jim Watson, vice president of network management for United HealthCare of Illinois Inc., which insures 200,000 of its 900,000 patients in HMOs. “When you delegated the medical management function and the claims management function to doctors, they essentially became insurance companies. The doctors don’t want to do a procedure because it’s going to come out of [their] own pocket.”
By June 1, United HealthCare, the state’s second-largest health insurer, will essentially pull out of most capitation contracts in Chicago, allowing doctors and hospitals to return to fee-for-service medicine, the insurer confirmed.
And just last week, Aetna Inc., the nation’s largest health insurer, said it will allow its Connecticut doctors with fewer than 100 HMO patients to return to fee-for-service payment on the heels of a similar decision in Texas, where it settled a lawsuit over alleged aggressive business practices. The Hartford-based insurer is evaluating whether to make such changes in Illinois.
When introduced in the 1980s, capitation was embraced as a way to rein in spiraling health-care costs. Doctors say it left them holding the bag.
“Either you go bankrupt or you don’t provide the care: In our case, we provided the care,” said Sprang, an Evanston obstetrician who was recently elected president of the Illinois State Medical Society.
“The HMOs kept ratcheting down and ratcheting down what they paid us until we are now essentially bankrupt,” said Sprang, who continued to practice medicine in Evanston after the practice closed but won’t contract with insurers using a capitated system.
How Aetna’s and United’s decisions will affect health-care costs is open to debate.
Health-care analysts say a return to fee-for-service medicine and other less restrictive forms of health insurance, such as preferred provider organizations that allow patients to see a specialist without their doctor’s approval, mean higher costs for consumers and employers. Already, medical inflation of between 8 percent to 10 percent easily outpaces general inflation.
“This is truly a landmark trend because capitation is the key way HMOs could say to employers: “Hey, this is the magic formula, this is the way to control health-care costs,'” said Todd Swim, a benefits consultant at William M. Mercer Inc. in Chicago. “Now you are going to see HMO costs trend up.”
A typical Chicago employee in a PPO with full family coverage pays about $1 more a day, or $29 more a month, than if he were in an HMO, according to Mercer figures.
United says its HMOs will keep costs down because its plans limit a patient’s choice of a doctor or hospital to members in the insurer’s network. It also will continue to control referrals to specialists.
“We already have fee-for-service HMOs and costs are about the same as those with capitation,” said Bill Whitely, chief executive of United Healthcare.
One benefit of capitation, industry officials say, is that it made doctors think twice before ordering unnecessary medical tests or performing surgical procedures.
Sprang, however, says what constitutes “necessary” care is often a judgment call. He says doctors in the Evanston Glenbrook Physicians Association in which he practiced owed hundreds of thousands of dollars to hospitals and specialists because the group’s patients got needed services the HMO’s fixed fees would not cover. The practice is still paying off its bills.
“We provided care and weren’t paid,” Sprang said. “What are your other options?”
In California, where HMOs are much more common than in Illinois, doctors are reeling largely as a result of capitation. “One in three of the medical organizations that were capitated groups in 1997 have gone bankrupt between 1997 and 2000,” said Dr. Jack Lewin, executive vice president of the California Medical Association.
Although insurers say they are not to blame for the demise of doctor practices, Aetna has admitted that capitation prevents some doctors from making money.
In Texas, Aetna decided last month to change the way it compensated some member doctors to settle a lawsuit alleging that the insurer misled customers by offering financial incentives to doctors to limit the cost of medical care. The Texas attorney general, in a 1998 lawsuit, said the payment method offered incentives that resulted in doctors withholding service.
Aetna denied wrongdoing and paid no fines or penalties. But the insurer did allow doctors who have 100 or fewer HMO subscribers to return to fee for service. .
There are, however, physicians who like capitation on a limited scale. Physicians are paid regardless of whether their patients require care, an added bonus if their patients are healthy.
“We’re still involved in capitation, but we have reduced risk,” said Dr. Jim Dan, an internist and president of DuPage Medical Group, a 95-doctor practice that counts 25 percent of the residents in DuPage County as its patients.
The DuPage Group this year stopped accepting Humana Inc. Medicare HMO patients because, they say, they were unable to make money on the insurer’s payments.
“We don’t mind capitation as long as we know that the cost is going to be a part of what we do in our [multispeciality] group,” Dan said. “When you are at risk for paying the hospital bill or for the specialists outside of your practice, that’s when you get in trouble.”
Indeed, Humana and Blue Cross and Blue Shield of Illinois and other insurers that use capitation acknowledge that some doctors do better than others. Dan says he does not think that in the absence of capitation physicians will begin ordering unnecessary medical tests or services, because managed-care companies, self-insured businesses and the Medicare and Medicaid insurance programs only have so much money to pay doctors.
“We’re still going to be faced with lots of medical-care needs and fewer resources,” Dan said. “Society has to decide what is the value of medical care because we only have limited resources.”
