The Advent of Managed Care

Bruce Feinberg, DO: I’m curious: With that first wave of reimbursement change that was managed care, how much different was that from what we have today? What were the drivers for managed care that were promoting that consolidation?

Mark S. Soberman, MD, MBA, FACS: The first wave of managed care was all about cost containment. There was not a lot of emphasis on outcomes and on quality of care. It was really, What does it cost? That has changed. I’m sure we’ll talk at some point about value-based care in the hour and a half that we have. But the other piece that I find interesting is that health systems are doing exactly what the practice management companies did back then. Healthcare systems now have realized that the hospital is not the nexus of all that they do, that they are in fact distributive healthcare networks that happen to operate hospitals. The hospital is becoming less of a driver of the bottom line. In fact, we’re seeing a huge outmigration of services from the hospital to the health systems ambulatory footprint to lower cost at the same outcome.

Michael Kolodziej, MD: The key has been diversification, and I know you in your practice career and I in my practice career have both had experiences where the smart people who were running the practice said, “I don’t know how long this chemotherapy is going to go on for.” You can treat only so many patients, and there’s a ceiling on growth when chemotherapy is your sole service line. We need to think about radiation. We need to think about imaging. Maybe we should hire a surgeon. All those other services fall under the term of diversification. Facilitative practice growth and practice success, in fact, became an attractive care delivery partner for managed care, right? They can negotiate an integrated contract with the provider. US Oncology viewed that as their game plan all along. After the negotiating around the drug went away, this was still going to be something that we could offer to our practices and our network in terms of dealing with other people.

Dana Macher: I think you could say that not just from the independent practice side but from the hospital side as well.

Michael Kolodziej, MD: Sure.

Dana Macher: The add-on services were also a big driver.

Bruce Feinberg, DO: Mark, the managed care of the 1990s: How was it different from value-based care of today? If this is another wave that is driving much of what we’re seeing with consolidation, how is it different?

Mark S. Soberman, MD, MBA, FACS: As I alluded to just a couple of minutes ago, now we’re beginning to understand how we’re measuring quality, and we have a long way to go. But back in managed care of the 1990s, it was just saving money. That was all it was about, the denial of service. That was something we as providers all experienced. “You can’t do this, you can’t do that.” In true value-based care, that’s not part of the equation. Yes, you want to manage cost, but you also want to make sure that you’re providing a quality outcome. If you drive down cost but you make the outcome worse, it’s not considered a success. I think that’s a big difference.

Michael Kolodziej, MD: The other thing that’s absolutely true is that health insurance companies do not want to be claims payment companies. There’s a limited degree of profitability that you can get through adjudicating and paying claims. There’s a certain administrative fee that you can generate on that kind of a service.

Bruce Feinberg, DO: It’s a medical loss ratio (MLR) we’re referring to.

Michael Kolodziej, MD: It is, right. So now we have a law that limits how profitable a health plan can be.

Bruce Feinberg, DO: We said MLR 15%, and that’s it, right?

Michael Kolodziej, MD: You can grow either by getting more members, which we’re going to talk about in a second, or you can grow by diversifying your services and finding other ways to make money. That’s what we’re seeing, interestingly, in the payer world right now. That’s how I look at it.