by Marianne Benkert, MD
[Fall 1997; Vol.24 No. 3]
The following article, which has been shortened and edited, was originally presented at the 1997 Annual Meeting of the Medical and Chirurgical Faculty of Maryland as part of the Louis J. Kolodner, MD, Memorial Lecture.
Jay Rockefeller, in a keynote speech at the 1993 AMA Leadership Conference, said health reform would happen, and it would happen using either a sharp scalpel, in a controlled, purposeful manner, or it would happen using a meat cleaver, with pieces scattered all over the place. We are in the meat cleaver process right now. It’s messy and we don’t know quite where it will end.
Capitation—derived from the Latin caput, meaning head—is the classic prepayment method of HMOs and other managed care networks. The HMO pays individual physicians or groups of physicians a fixed amount for each patient the provider takes on, regardless of the number of visits made or the intensity of services provided. On a corporate level, capitation is the method used by many self-insured companies and insurers to pay a managed care delivery system to provide services to a group of employees. Advocates say capitation limits inappropriate use of specialists, hospitals, and other expensive services. Critics say it provides an inducement to undertreat patients.
Capitation is the centerpiece of health care reform. The health care industry expects it to slow rising costs, reduce unnecessary medical services, and correct the imbalance between specialty and primary care. The industry is increasingly relying on capitation to pay physicians. It has progressed in a predictable way. As the managed care market moves into an area and begins to consolidate, there is some capitation of primary care MD’s. As the market becomes hyper-competitive, that is 50 percent penetration, there is little “fee-for-service,” managed care payment dominates, and providers and insurers organize to serve covered lives.
The essence of capitation is a shift in financial risk from insurers to providers, the potential to lose or earn less money, or spend more time without additional payment. In the current marketplace, payers and HMOs are driving down capitation. This puts more intense pressure to restrict patient access to expensive specialty and diagnostic services. It rests on the narrow model that assumes financial incentives alone shape human behavior.
Business philosophy assumes that capitation will lead physicians to alter their routine office and treatment patterns in a way that will tend to be consistent with their economic incentives. A physician should always be aware of the potential for some types of systems to create conflicts of interest because of financial incentives to withhold medically indicated services. The fact that managed care companies and capitated practitioners earn profits by withholding services, or by substituting less expensive for more costly care, raises suspicions about their motives. This is a debate about trust. One’s position probably depends on one’s belief that companies, managers, and clinicians, operating under capitation limits and profit incentives in managed care, will manage in one’s best interests.
When we consider medicine as “commodity versus service,” we see a change in vocabulary. Commodity, customer, provider, vendor all demean the professional aspect of our calling. Language is a powerful and effective tool in changing perceptions. A special communication in JAMA (3/26/97) by John H. McArthur, DBA, and Francis D. Moore MD, clearly defines our ethical difficulty in this area, and I’m going to quote selected passages.
“The current trend toward the invasion of commerce into medical care, an arena formerly under the exclusive purview of physicians, is seen by the authors as an epic clash of cultures between commercial and professional traditions in the United States. The fundamental act of professional medicine is the assumption of responsibility for the patient’s welfare. The essential image of the professional is that of a practitioner who values the patient’s welfare above his or her own and provides service even at a fiscal loss and despite physical discomfort or inconvenience. There is no outside invested capital seeking returns from the physician’s work. The fundamental objective of commerce in providing medical care is achieving an excess of revenue over costs, while caring for the sick, ensuring profit for corporate providers investors, or insurers.” As long as any of these valuable health care dollars leave the system, we have not tried hard enough to discover whether our resources are sufficient to avert restrictions in care. “When a corporation employing physicians seeks profit by selling their services, the physician employees cease to act as free agents. Professional commitment to patient care is subordinated to the rules of practice that assure the profitability of the corporation. Physicians can then be placed in a severe ethical dilemma. Shall they follow their conscience and the good practice of medicine or shall they save money for their employers and in some cases of capitation for themselves?”
There are a number of unethical physicians who will profit unreasonably from capitation, just as there were physicians who profited unreasonably under fee-for-service. There are the Jekyll and Hyde forms of managed care, as distinguished by Clancy and Brody (JAMA, 10/2/96). The Jekyll mode, represented by some of the traditional nonprofit HMOs in the United States, encourages a primary care-oriented approach, a population health perspective, and a practice culture characterized by practitioners who equate good patient care with cost-effective care and who strive for quality improvement. The Hyde model typifies the newer, commercially oriented HMOs that lack a cohesive practice culture and rely heavily on financial incentives to change physician practices, with success measured by profits to shareholders. Capitation may bring out the Jekyll or the Hyde in physicians. While Jekyll responds to professional considerations and acts in the best interest of patients, Hyde is motivated by economic self-interest.
What is to be done? Legislation has helped. Organized medicine has been quite successful in legislatively restricting managed care companies’ abilities to impose gag clauses in contracts that restrict what physicians can say to their patients. Physicians have been less public in raising complaints about changes in the ways of financing health care, and the public has not spoken up much about them yet.
However, an encouraging headline in AMA News (1/27/97) stated, “New incentive rules offer first curbs on capitation.” For the first time, HMOs participating in Medicare and Medicaid must disclose physician financial incentives to the federal government and any curious enrollees. The regulations allow managed care plans to explore capitation and other cost constraints, but they establish a limited safety net for federal program beneficiaries. Starting Jan. 1, the federal government required Medicare and Medicaid managed care plans to disclose physicians’ pay arrangements that could compromise care.
The significant battles will be fought in the courts. AMA News (4/21/97), for example, reported a controversial ruling in Minnesota, where the Eighth Circuit Court of Appeals held that an HMO had breached its fiduciary duty under ERISA when it failed to tell a patient of its financial rewards for gatekeeper doctors who limit specialty referrals. The case involved a 40-year-old man who died of heart failure after his primary care physician failed to refer him to a cardiologist when he showed severe symptoms. In an unprecedented move, the three-judge panel also found that the HMO’s proprietary capitated deals with doctors had violated the federal law’s mandate that ERISA fiduciaries disclose essential information to beneficiaries.
The duty to disclose seems to mesh with a June 1996 report by the AMA’s Council on Ethical and Judicial Affairs calling on physicians to disclose any financial inducements that may tend to limit the diagnostic and therapeutic alternatives that are offered to patients or that may tend to limit patient overall access to care. These disincentives to refer patients probably are not going to be popular with the courts. It is unclear where this will go, but the article suggests that if plaintiffs can go after a health plan or employer, there is probably no reason to go after physicians.
It is my hope that physicians will be able to take back our profession. In some parts of the country, physician groups are organizing themselves so well that they are competing with managed care organizations for the same contracts. This means that the providers will have more influence. They can do their own credentialing, they can have the kinds of information systems that can generate capitation rates that are fair. They can classify lists of potential enrollees and they can keep track of their practice as an HMO would.
Health is a vital human good and medicine is a basic way of promoting it. Commercializing it, even for the sake of choice and efficiency, runs a great risk of subverting it. Markets have no capacity to set wise social priorities or to adhere to the goals of medicine. The integrity of medicine itself is at stake.
Dr. Benkert, a past president of the Baltimore County Medical Association, is chair of the Ethical and Judicial Affairs Council of the Medical and Chirurgical Faculty of Maryland. She is in the private practice of Psychiatry in Timonium.