Vol. 2. No. 1

by Paul Reich, M.D.

Physicians continue to amaze me. Although they claim to be powerless in the face of managed care corporate giants, their behavior has brought many HMOs to their knees. Their power lies in their pens and computers as they order medical services for their patients. One axiom well known to HMO Medical Directors, who are paid to manage physicians in HMO networks, is simply stated: "Happy physicians are cost-effective physicians." The converse is also true and has led to the failure or near-failure of many HMOs as demonstrated by the following examples.

A financially successful HMO in the Northeast experienced computer system failures and a large backlog of unpaid claims. Within a few months, medical costs escalated out of control and, even worse, the claims backlog prevented management from realizing how precarious their financial condition had become. Did physicians (out of anger and/or frustration) subconsciously "stick it" to the HMO by ordering more services / testing? Possibly, because other HMOs, comprised of the same physician network, did not experience a similar explosion of costs, or at least not to the same degree.

In another example, an HMO's change in ownership/governance resulted in miscommunication and ill will. Previously, this HMO had an IPA Board of Directors, consisting of community physician leaders, who kept management apprised of the needs and the mood of its physicians, including providing physician feedback for the design/change of programs. The value of this physician partnership was lost on new managers; physician input was neither solicited nor desired. Not surprisingly, medical costs rose, due to increased utilization of services. Physician satisfaction with the HMO declined.

A third example involved a physician hospital organization that was offered a global capitation rate that its leadership determined was too low. Rather than accepting it, they decided to sever their relationship with the HMO. The PHO had incorporated the loss of revenue into its budget projections for the next year and began to transition the membership. Only at the very last minute was a compromise reached. The final capitation rate paid by the HMO might well have been less had it not outraged its longtime partners.

The Lessons Learned: Physicians do have the power to make an impact upon the well-being of an HMO. It is prudent, therefore, for HMOs to maintain good relationships with network physicians. Other lessons of value include: (1) provide "world class" provider service, (2) pay fees or capitation rates that cover physician expenses and margins, (3) avoid claims payment backlogs at all costs, and (4) include physicians in all decisions that affect their practices and organizations. If necessary, obtain outside expertise to diagnose and treat the causes of physician dissatisfaction. Physicians who are included in decision-making and treated fairly will respond positively to the utilization, case management and disease management programs that are vital to the HMO's Success.

About the Author: Paul Reich's career spans 23 years as a practicing physician and eight years as a physician executive. As Chief Medical Officer for Scheur Management Group (SMG), Reich is responsible for coordinating SMG's clinical services to clients in the areas of medical management, disease management, quality improvement, financial accountability and the integration of information systems with medical management programs. Paul is the Project Director and initiator of SMG's MCORE: Managed Care Operations and Revenue Enhancement MCO assessment survey program.