Managed Care - The Decline and Fall of Restrictive Managed Care

In One Era and Out the Other

Those that ignore history are doomed to repeat it.

Old Saying, Origin Uncertain

An article in the Mary 27 2007 American Medical News, “Blues Settlement in Class-Action Shifts to Last HMO Holdouts,” says that more than 30 of the nation’s Blue Cross Blue Shield Organization and their subsidiaries agreed to pay more than 900,000 doctors $128 million to settle a physician-led class-action suit against health plans. Only two companies – United Health Care and Coventry Health Care – haven’t settled. This is a significant victory since the Blues cover 98 million lives.

The Blues agreed to.

•Pay physicians more than $128 million.

•Uniformly define medical necessity and set clinical guidelines.

•Establish independent review board to resolve reimbursement disputes.

•Promptly pay clean electronic claims within 15 business days and paper claims within 30 days.

•Set up a mechanism to address disputes regarding the Blues’ compliance within the settlement.

•Provide fee schedules for doctors.

•Create a physician advisory committee.

•Give 90 days’ notice of policy changes and annual fee schedules amendments.

These changes bring the estimated value of the settlement to more $1 billion. Physicians hope their success will force insurers to play by the rules of reimbursement. This ends a nearly decade long fight by doctors against insurers.

The history of the conflict is this:

•1998-2000 – Doctors and state medical societies across the country begin filling lawsuits against health plans.

•October 23, 2000 – U.S District Court judge for the Southern District of Florida, Miami, consolidates cases.

•September 26, 2002 – Miami federal judge grants class-action status.

•May 21, 2003 – Aetna settles.

•September 4, 2005. Cigna settles.

•May 5, 2005 – Prudential Insurance Company settles.


•July 11, 2005 – WellPoint Health Networks/Anthem settles.

•October 17, 2005 – Humana, Inc. settles.

•June 19. 2006 – Miami federal judge dismisses claims against UnitedHealthcare and Coventry Health Care; ruling doctors are appealing to the U.S, Circuit Court of Appeals.

•April 27 – Blue Cross BlueShield Assn. plans settle.

Is this end of the line for health plans and their relationships with health plans? Of course not. The nation’s health plans are a $400 billion dollar industry, with plenty of money to pay lawyers, and a management structure that allows them to transition to other strategies including Medicare and Medicaid HMOs and to a new strategy that promises to dictate payment to doctors – it is just evolving and goes by the name of Pay-For-Performance.

The idea, which is not new, is that you can use performance data to judge doctors, reward or punish them for playing managed care ball, and include or exclude them from health plan networks. The problem with health plans, as the doctors see it, is one of altitude and attitude,

• the altitude problem being that managed care executives, far removed from the clinical scene, don’t have the knowledge and expertise to dictate fees,

• and the attitude problem being that independent doctors are quasi-employees of managed care plans. The class-action suit has created a deep divide between doctors and health plans, and with P4P we may see history repeat itself, with the health plans and doctors arguing and suing over what evidence constitutes “performance.”

For those of you not familiar with insider-details of the class action suite, I invite you to read this interview with Tim Norbeck, then executive director of the Connecticut State Medical Society and now retired, who led the charge against health plans. The interview appeared in my book Voices of Health Reform (Practice Support Resources, Inc, 2005)

Interviewer: Tell us about yourself.

Norbeck: I’ve been Executive Director of the Connecticut State Medical Society since 1977, and I’ve been in the Federation of Medicine since 1967, when I was working with the AMA. The Federation of Medicine includes the AMA, state medical societies, country medical societies, and specialty societies.

Interviewer: You’ve had 20 years of experience dealing with relationships between physicians and health plans. The relationships have been stormy at times, largely confrontations over micromanagements and fee disputes.

Not Initially Opposed to Managed Care

Norbeck: Well, first of all in the 1980s, we weren’t initially opposed to managed care. We knew employers and insurers were pushing HMOs to keep costs down. And in Connecticut we formed our own HMOs back in 1985, MD Health Plan. It succeeded, but after five years, it required more capital and was ultimately sold, much to our chagrin. When we formed MDHealth Plan, we adopted the theme that “nothing should come between you and your physicians.” We featured that them on the stationery and on billboards.

Opposition in Managed Care Grew

Norbeck: Distinct signs of the egregious managed care system first appeared in the late eighties and early nineties when physician began to complain.. They said contracts were unfair, payments were either denied or delayed, and claims were being down-coded or improperly bundled. Furthermore, their medical necessity decisions were being overruled by HMO personnel that had no first hand knowledge of the case or the patient. After failing to resolve our differences with the HMOs, we took our complaints to the legislature. After considerable lobbying efforts, our State Legislature stood up and passed some relief.

But the health plans ignored the legislature. We were back to square one. Doctors couldn’t get through to insurers. Phone calls weren’t returned one urologist performed lithotripsy for a kidney stone patient after receive pre-certification approval. Ninety days later, when he hadn’t been paid, he called. The clerk said, ”Oh, we never approve it.” “Wait a minute, “he said, “I have a fax of that very approval in my hand.” She responded, “No, you don’t.” Understandably, he went ballistic. It was that type of arrogance that naturally offended physicians throughout the country

Interviewer: As I recall, the Connecticut State Medical Society did a study. The average telephone “hang time” to get in touch with HMOs, was 29 minutes.

Opposition Crystallizes

Norbeck: It was extremely frustrating. We gain went to the legislature. They passed more managed care reform legislation, and it was again ignored. By the summer of 1999, we knew we need to do something else. So we ran full-page ads in all the newspapers in Connecticut. This was September of 1999. We said in big, bold headlines, “Aetna is Playing Doctors with Our Patients.” And they were!

The insurers, legislators, and the public picked up on it. We received national coverage as well. At the time, Dick Huber was CEO of Aetna. He was under fire from many directions besides us and was eventually forced out. Bill Donaldson became interim CEO of Aetna. We invited him to our House of Delegates in May of 2000. He appeared and said he understood physicians’ problems and that Aetna wanted to make amends – to reach out oat the physician community and to have a better relationship. He talked out a “sea-change” in attitude.

Lawsuit Ensues

Norbeck: Well, we waited until fall, and we didn’t see any change in attitude. So we contacted a law firm. What else could we do? We felt it was time to step up... There as only one last alternative available to us, ant that was to bring a class action lawsuit. We spoke to Milberg Weiss out of New York, a large class action that had plenty of experience in health care and had represented some hospitals in their complaints against HMOs. We worked with them for a number of months. Then, on February 14, 2001, we held a press conference announcing that Connecticut was brining suite against the HMOs in Connecticut state court.

Meanwhile, five other states were pursuing RICO claims against managed care firms. Eventually, ten state societies and two county medical associations joined us in brining actions in State courts. Texas, California, Georgia, Louisiana, and then Florida brought their RICO actions in Federal court.

Interviewer: How many state medical societies?

Aetna, then Cigna Settlement Occurs

Norbeck: Ultimately, on May 22 2003 in New York, we had a press conference with Aetna announcing a settlement. Subsequently, Cigna settled.

Interviewer: Didn’t the Federal Court in Miami play a role in this.

Norbeck: Judge Fredrico Moreno, the Federal Judge in Miami, played an instrumental role. He was sympathetic to the plight of physicians and deserves great credit for helping to change the system for the better.

Interviewer: You said you sued the managed care industry. You jut indicated Aetna and Cigna settled. What about the other HMOs?

The Other HMOs

Norbeck: The other insurers included WellPoint, United Healthcare Group, Anthem, Human, HealthNet, Coventry, and Pacificare. They haven’t settled yet. But they have pretty well exhausted their legal remedies in avoiding their day in court, especially since the 11th Circuit Court decision in Atlanta confirmed our right to bring these actins.. It took away the lat legal recourse for the other health plans. They will either have to settle, or we will see them in court on September 6. he question I would ask those who haven’t yet settled is: Do you really want to appear as not wanting to be accountable for reaching out to physicians and patients? Some future day in HMI boardrooms, someone will say the suits were actually good for them – that they lost their way, and we helped them find it.

I believe Aetna has done better and improved business because of their leadership settling. Jack Rower, the CEO of Aetna, took a statesmanlike approach. CIGNA settled, and I believe they will be the better for it as well.

David and Goliath

Interviewer: Wasn’t this confrontation between David against a Goliath? The managed care industry, after all, is a $300 billion industry, and State medical societies are financial pygmies.

Norbeck: Absolutely. Few people gave us any chance. The HMOs saw no reason to budge, and you know what they say about compromise – when the Lion and the Lamb lie down together, the Lamb won’t get much sleep... We have to do something to save the profession and the patient/physician relationship. Physicians had to understand the knight in shining armor wasn’t going to come to rescue them. Not now – not ever. We had to do it ourselves. And our co-counsels, Archie Lamb and Edith Kallas, and other attorneys did a great job.

Interviewer: What moved Aetna and Cigna to settle?

Norbeck: Jack Rowe, CEO of Aetna and himself a physician, understood the bad publicity and other negatives about being in conflict with physicians, was hazardous to their financial health. I’m sure the resource managers around the country took note that Aetna wanted to reach out physicians and settle their conflicts.

Interviewer: What were the date and terms of the Aetna Settlement?

Norbeck: The Aetna Settlment includes industry –leaidng improvements to physician-relte business practies that set new levels of tranparncy in playing claims, incuding a ntional Advosory Committee of Practice Physicians to prove advice to Aetna on issues of important to physicians. It also established an independent foundation dedicated to helping physicians in their practices and improving the quality of health care in America. The Agreement has helping to streamline communications between physician and Aetna, reduce administrative complecity in the claims payment system, and help improve the quality of the health care sytme. We announced the settlement on May 22, 2003.

That is not to say everything has now been resolved. We do have some compliance disputes with Aetna, but remain confident that well resolve them amicably to the benefit of the physicians of America -- but we prepared to go back to Judge Moreno if necessary.

Insurer-Physician Foundations

Interviewer: Out of these settlements cam the formation of two foundations. Tell us the name of the Foundations and your role in them.

Norbeck: The Aetna Foundatiion is called the Physicians Foundation for Health Systems Excellence. The CIGNA Foundation, which came later, is called The Physician Foundations for Health Systems Innovations. I’m privileged to the President of both Foundations. Jew Lewin, MD, my counterpart in the California Medial Assocaiton is Vice President of both oaf these Foundations. Lew Goodman, PhD, who is our counterpart with the Texas Medical Association, is the Secretary, and Bill Maho, who is the retired CEO from the South Carolina Medical Association, is Treasurer.

We have on our Boards six physicians and five medical executives. I cannot say enough about the physicians who serve on the boards and committees who have given so generously of themselves and taken so much time from their practices, without reimbursements, so that we can stay focused on our objectives. They are truly an inspiration. We’ve been meeting monthly since December 2003, although we sill try to meet every other month in 2005. Our missions, through the Judge, Federico Moreno, are to provide physicians with the tools to improve practice management, and promote and improve patient safety.

The Importance of Information Technologies

Norbeck: We would like to help physicians in their efforts to implement EHRS in their offices, whether they are in large groups or small, but with an emphasis on helping solo physicians in small practices, which need help the most. I noted in your book, Hello Health Care Consumer Practice Support Resources, 2004), that 47 percent of physicians are in groups of one or two. And you mentioned 82 percent are in groups of ten or less. We would like to help the small practices in their efforts to reduce errors, improve patient care, and enhance efficiencies.

Interviewer: Do Aetna and CIGNA fund these foundations?

Norbeck: The agreement was that Aetna would pin $20 million and CIGNA would donate $15 million. There were also some very modest forms of restitution to physicians, but their main expenditures under the settlement agreement were to change their operating practices – to change the system going forward. That $35 million may grow to $100 million. Frankly, $100 million for 700,000 physicians doesn’t amount to much – less than $150 per doctors. It certainly doesn’t make restitution to reimburse doctors for all their losses by any means, namely the unfair denials and delays and bundling and down-coding of claims and the overruling of medical necessity decisions and so forth.

But full restitution would have broken the system, if we had been able to pay back physicians for all they were improperly deprived of by the HMOs for the past 10 years. it would have put all the managed care companies out of business. Many would say, so what, that might not be so bad! But, there was no way; Judge Moreno was going to allow the system to break – for all those insurers to go out of business. If just wasn’t going to happen. It was impossible to reimburse the doctors for all their past grievances, and restitutions for past grievances would not change future egregious behavior. So, se got them to change their practices.

Interviewer: It would also have been a logistical nightmare to pay each doctor for what he or she had lost.

Never about Money

Norbeck: It would have been that too. But it’s important for people to understand these suits were never about the money. They were about changing a managed care system going forward. We have done 6that in the two settlements thus fare. Doctors had the option of letting the Foundations have the money or they could take a check for $100 to $200. Most doctors, I believe, have elected to let the Foundations have the money and thereby create a fund that can really help physicians in their practices. Physicians deserve credit for that act.

Interviewer: Today there’s much talk about wiring together the health system with interoperable systems. The government appointed Dr. David Brailer as health of their health information technology effort to make it happen. Are you working with him?

Norbeck: Our Health Information Technology Committee has been in touch with him. Don Berwick has also addressed us. We’ve invited the national experts to come in and talk with us and help us with our mission.

Interviewer: Well, as you know, making this electronic revolution isn’t in the details. It’s in the culture.

Norbeck: Of course. Only 10 to 15 percent of physicians and maybe 20 percent of hospitals are using electronic health records. We know IT proponents are well-meaning, certainly sincere, and passionately devoted to doing these things, but we have to be sure physicians can afford to implement these systems. And initially, after implementing the program, productivity goes down. That’ a big reason why EHRs are a difficult concept to sell to struggling physicians.

Doctors are financially stressed and overburdening with paperwork and administrative hassles. Many don’t even both submitting Medical claims. The reimbursement is so low. Sending out a bill increases the cost. Professional liability insurance premiums are skyrocketing almost everywhere. Medicare will impose additional cuts in 2006 unless changes are made in the fatally flawed reimbursement formula. If Medicare cuts go through, doctors will end up being paid what they were being paid 15 years ago. Meanwhile, their office expenses escalate. Doctors simply have far more important economic priorities t6han investing in EHRs. Many are just trying to find a way to remain in practice. Our foundations hope to be sending out Requests for Proposal for IT in the early spring so we can entertain some grant proposals that are transferable and economically feasible. We want to do the right thing, and we’ll be working with any organization or others that can help us help doctors.

Consumer-Driven Plans and HSAs

Interviewer: let’s talk about other emerging phenomena that may gain traction -- consumer-driven high deductible plans linked to HSAs. In the last month, Kaiser-Permanente has puts a pant on the market: United has switched all their employees to a high deductible plan, and all the major insurers, particularly Aetna, are out front pushing these plans. These plans have about three percent of the market, but they’re gaining momentum.

The prophets are these CDHPs will have a tremendous impact on not only the doctor/patient relationship, but also on the doctor/health plan relationship. Comment, if you will, on Aetna’s approach. They emphasize transparency whereby the patient can get all the information about the quality of their doctors and hospitals and their outcome. Patients can even determine the comparative price of a brand name drug versus a generic drug. Have you thought about what impact this transparency might have?

Norbeck: We’re very much aware of the HSAs. We’ve had initial discussions with insurers about consumer-driven plans. Many believe HSAs sill save health care costs, particularly for people who are health... HSAs will definitely appeal to young healthy people. If you’re in Medicare, of course, you can’t avail yourself of an HAS. But it’s an interesting phenomenon. We plan to track it careful.

But I wonder if HSAs will have much effect on overall costs. After all, 10 percent of people account for 70 percent of costs. Unless we have a better handle on that 10 percent, so many of them afflicted with chronic disease, we won’t make much of a dent on health costs. Many Americans, those on Medicare and Medicaid, won’t be affected by HSAs. Twenty percent of Medicare beneficiaries have five or more chronic diseases and account for 55 percent of medical spending in the program—35 percent is attributed to Medicare beneficiaries with congestive heart failure.

With HSAs, you are looking at somebody who may be 39 years old and in good health, and who has a medical checkup once a year, and that’s about it. There are a lot of these people. To be spending $5000 a year or so on a health plan and you can get tax relief on an HAS and roll it over into the next year is very enticing. Those people would be foolish not to get into an HAS. Will HSAs save the whole system by reducing overall costs? I doubt it.

Interviewer. But the market is driving consumer-drive plans. I was speaking to an insurance broker in Farmington. He told me 90 percent of the policies he had sold were linked to HSAs.

Norbeck: And some uninsured individuals are already buying into HSAs, which is good. But HSAs aren’t a comprehensive solution. We’ve got 45 million uninsured individuals and a health care finance system that doesn’t work for everyone. It’s a national disgrace. It has to be addressed. And with all the concerns about health care costs, you may have seen that McKenzie Group report that said in five years, employer’s health costs will consumer all the business profits in the United States. That’s never going to happen, and it can’t be allowed to happen.

Interviewer: I’m on the Board of an organization called the Center for Practical Health Reform. Our three basic principles are:

1. Basic health coverage for all.

2. Management platforms to compare results and insert guidelines.

3. Medical liability reform.

I know malpractice reform is a big thing in medicine, and that you spend most of your waking hours thinking about it, agitating for it, and talking about it.

Professional Liability Reform

Norbeck: It’s the number one concern of most doctors – particularly in the 20 crisis states. “How can I stay in medicine?” doctors complain, when revenues are dropping and expenses, particularly Malpractice premiums are rising? What a sad, sad commentary o the state of medical practice. Physicians desperately need relief.

Low Physician Morale and Declining Access to Physicians

Interviewer: Your comment reminds me of two things –one, a book by Merritt Hawkins, the recruiting firm, Will the Last Doctor in American Please Turn Off the Lights. The book says a doctor shortage is already upon us and is rooted in deep and pervasive morale problems among doctors. The second thing is January article that just appeared in U.S. News and World Report, “Doctors Vanish from View.” It cites two California surveys shows 75 percent of doctors are dissatisfied with practice, and 87 percent believe there has been a loss of morale.

Norbeck: In my nearly forty year career in organized m3dcine, I have never seen moral so low. The PLI (Professional Liability Insurance) situation accounts for much of it. Doctors are taking relief wherever they can get it. In some cases, hospitals will pay for them, and larger groups may cover malpractice insurance costs. In either case, physician independence is eroding.

I have never said this before, but I need to say it. One reason we don’t have a perceived patient access to care crisis now is related to those horrible, unforgettable events of 0/1ll. Thousands of doctors throughout this country were about ready to retire around that time. But, in addition to the horrendous human carnage, 9/1ll also caused the United States economy to crash, which has a devastatingly negative effect on retirement funds. Those losses forced many physicians to stay in practice, hoping to rebuild their funds.

Those financial reverses cannot and should be compared to the devastating loss of lives on 9/1ll, but that tremendous tragedy and the subsequent economic disaster to which it lead forced may physicians to stay in practice who otherwise would have returned. Therefore, legislators didn’t perceive enough of a PLI crisis, because their constituents didn’t complain about not being able to see physicians. When the access problem does become acute, and it already has in some places, it will happen fast and the bottom will drop out. Legislators must act now or there will be serious consequences.

Interviewer: We started this conversation by focusing on physician/insurer relationships. Do you see prospects for improvement?

Prospects for Improvement

Norbeck: It is too soon to say our relations with Aetna and CIGNA are improving. We have some compliance issues in dispute. I expect other insurers to settle because the PR value alone for them will be substantial. I don’t believe they want to face us in court. If they lose, and I believe they will, the losses for them could be catastrophic. Someday, the HMOs will thank us for suing them. Their behavior will not be allowed to continue forever. We will force them to find their compass.

Interviewer: Any other comments?

Norbeck: We still have worked to do with the foundations. I want to repeat: our lawsuits were never about the money. They were about making the system more equitable. Doctors down the road will b happy with what we’re doing and about what we’d doing to address the EHR it situation to help physicians in their practices.

Fast Forward Summary

Doctors are still fighting health plans over a variety of issues – fees, decredentialling, speed of claims payment, claims rejections. In some cases, as with United’s acquisition of Sierra Health, the health plans are simply buying up competitors with their affiliated physician groups.

The malpractice crisis remains unresolved, and neither state or federal legislators, dominated by lawyers, seem willing to intervene. Lawyers argue malpractice costs make up only 2-3 percent of health costs, but conveniently ignore the fact that the practice of “defensive medicine” to avoid future malpractice actions may lead to $50 to $100 billion costs for unneeded tests.

Meanwhile there has been a shift of attitude towards universal coverage. Events in Massachusetts, California, and Pennsylvania have shown the path to universal coverage may not lie in a single payer government controlled system but in political compromise , multiple private payers, payment for pre-existing conditions, requiring individuals to buy insurance, and requiring employers to provide benefits or pay into subsidy funds.

How this path to reform might affect the powerful insurance, pharmaceutical, and hospital lobbies remains unclear, or how such reform might impact consumer choice, market incentives, and technology initiatives remain unclear.

Nor is it evident how this universal coverage would be paid for, though the Democrats say they would do it by taxing the “rich” and canceling the Bush tax cuts. Democrats say they would cut costs by ending “profiteering” of health insurers , drug companies, and device manufacturers, and by covering more preventive care and averting expensive illnesses, a logical but improved strategy.