The numerous changes experienced in many fields and sectors especially in relation to improvement of efficiency and effectiveness including select efforts to revitalize the public sector affirm and represent the currency of a knowledge society. These changes have also been incorporated into the health care sector where hospitals and other relevant stakeholders in the sector as represented by the operations of managed care organizations (MCO’s).
These organizations can be viewed as organized healthcare delivery systems that link healthcare financing to healthcare service delivery with a goal of reducing costs and maximizing quality preventive and primary care in a coordinated and seamless manner (Huntington, 1997). Encompassing various forms of what the author refers to as organizational arrangements such as HMO’s, IPA’s, PHO’s and PPO’s among others, MCO’s utilize a variety of financial as well as non-financial incentives in accomplishing the goal of reduced costs and high quality care.
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"Managed Care Organizations and Financial Incentives".
Capitation, withholds and bonuses, selective contracting and gainsharing arrangements are some of the financial incentives used by MCO’s identified by Longest (2016). Others, as identified in a monograph by Bailit Health Purchasing, LLC (2002), in conjunction with the National Health Care Purchasing Institute, include performance fee schedules, variable cost sharing for patients, compensation at risk, quality grants and reimbursement for care planning. Cost control through capitation involves HMO’s paying physicians monthly payments for patients under their care instead of the fee-for-service basis and where the physician would incur risk of excess care utilization in exchange for the capitation payment (Longest, 2016). For withholds, a specific portion of the physician’s payment is withheld into a ‘pool’ which is utilized for hospital care and specialist treatment where residual money is then provided, in part, to physicians. Bonuses can also be placed in a pool or as a set dollar amount after performance evaluation related to various quality measures which, like incentives from withholds, require fewer referrals to specialists as well as hospitalizations, so that incentives do not dwindle.
Selective contracting is indicated as an incentive to provide fewer tests and treatments where MCO’s select physicians ‘whose computer profiles indicate a lower usage of diagnostic tests or a lower rate of hospital admissions’ (Longest, 2016). Compensation at risk involves placing a provider’s compensation ‘at risk’ in relation to his/her performance on quality measures while performance fee schedules entails MCO’s creating fee schedules linked to provider(s)’ performance (Bailit Health Purchasing, LLC, 2002). Quality grants however, focus on providing funds in exchange for quality improvement proposals with specified costs and time frames while .reimbursement for care planning entails provision of additional reimbursement for care planning task completion for chronic conditions. Longest (2016) indicates that gainsharing entails sharing cost-reduction savings with physicians even though only some of gainsharing arrangements are allowed after the federal government outlawed others promoting demands for fewer test and treatments for Medicaid and Medicare patients.
The outlawing of the aforementioned arrangements is tied to various potential pitfalls that accompany the use of incentives by MCO’s; which realign physicians/provider financial interests with that of payers (insurance) rather than the patient’s interests. Various legal and ethical challenges and dilemmas are also faced, especially in relation to physician’s advocacy duty to the patient, fiduciary duties to MCO’s as well as withholding services from patients. Alongside these pitfalls and associated prohibitions by the government related to the latter point, the use of incentives by MCO’s (which are especially varied) is highlighted as promoting competitive wars and negative business practices. This is highlighted in the case of BC/BS of Wisconsin v Marshfield Clinic case involving exercise of monopoly power by the 400-member physician owned Marshfield clinic with twenty-one branches (Longest, 2016). Despite disagreements on the final rulings by various authors, McDonald (1996) is of the opinion that BC/BS of Wisconsin simply failed to deal with the prevailing competition and firms opting to follow in BC/BS’s footsteps in terms of forwarding baseless litigation, will also fail.
