The director of California's Department of Managed Health Care sees problems if high-deductible plans replace the state's 'delegated model.'
When Democrats lost control of the California statehouse with the 2003 recall of Gov. Gray Davis, Cindy Ehnes figured her time at the state's Department of Managed Health Care had come to an end. She left her appointed position as deputy director for plan-provider relations and took a job at the state's public employee pension system, CalPERS.
To her surprise, Republican Arnold Schwarzenegger crossed party lines and appointed Ehnes as the department's director in March 2004. The department, created in 2000 within the state's Business, Transportation and Housing Agency, is responsible for the licensing and accountability of managed care plans through the enforcement of prevention and care laws. The department reviews managed care mergers, operates a 24-hour, seven-day-a-week HMO Help Center for consumers, and has developed a public education campaign so consumers know their rights under managed care plans and a third-party grievance system for consumers.
Before coming to California in 2002, Ehnes served as legislative affairs director for the Commission on Family Medicine in Colorado for two years and from 1997 to 2000 as the director of enforcement for the Colorado Division of Insurance. From 1978 to 1984 and again from 1988 to 1996, she was a lawyer in private practice. She holds an undergraduate degree from George Washington University and a law degree from Catholic University, both in Washington, D.C. She spoke recently with Senior Contributing Editor Patrick Mullen.
MC: How would you describe your approach to your job?
EHNES: The job is very much to balance inequities among parties who are part of a relatively delicate health care ecosystem, not to exert a heavy regulatory hand. California has a strong managed care environment that relies on a multiplicity of relationships between plans, hospitals, and 250 different provider groups. Our job is to shore up situations where there's an unequal bargaining power, without going overboard in any direction. I prefer to use problem solving and collaborative decision making to come up with industry solutions.
MC: What types of inequities are most common?
EHNES: When I took this job, one inequity was the failure to enforce laws ensuring that providers of health care, those who actually touch the patient, are paid fairly and on time. That was having a serious impact on access. Over and over, doctors who had worked with managed care plans told me they were dropping managed care contracts because they got paid faster and better without them. I decided that we had to attend to this issue in a meaningful way, and we have. We set up a separate provider complaint unit that is charged with the responsibility of enforcing laws that were already on the books, but which had not been meaningfully enforced. Some health plans and large provider groups took a very blithe approach to paying doctors and hospitals on time. They were doing a variety of things, including a lot of unfair edits, coding tricks, and issues relating to contractual provisions. Our role is not to tip things in favor of providers, and I'm sure that if you asked the plans, they'd tell you that all I care about is providers. That absolutely is not the case. An imbalance had to be corrected. We weeded out run-of-the-mill billing issues that should have been handled properly by health plans or provider groups the first time. When a bill comes in, their job is to pay it right, on time, the first time. We put some teeth behind that. That has helped create appropriate expectations among providers that they will be paid for services rendered, which allows us to focus on tougher issues.
MC: Why do you think plans perceive you as tilting toward providers?
EHNES: They shouldn't have that impression. When I came into this job, I sat down with health plan CEOs and asked them for a list of what they were looking for from the department. Number one on the list was to ease the licensing stranglehold on new products that this department had imposed under a strong ideological bent. Plans wanted more copayments, deductibles, and greater cost sharing. We are going through a two-year restructuring of licensing from top to bottom. We're making sure we don't collect a piece of paper that we don't read and that we do as much electronically as we can. We use model evidences of coverage and other template documents so that when they file, they use those documents and redline their changes so that the review doesn't take as long. We're approving flexible cost-sharing arrangements that would never have been approved two years ago. I have tried very hard to meet them more than halfway to loosen restrictions on HMO products so that they can remain viable in a rapidly changing marketplace. They forget that when we take on issues of potentially excess billing by providers, we're carrying their water.
MC: Beyond greater cost sharing, what types of new products are plans asking for?
EHNES: Health saving account compatible products are our first order of business. We have been working very hard to approve HSA-compatible products for any health plan that asks. We did our initial one with Kaiser, to help them attract the young healthy lives that are more appropriate for HSA products. As a rich benefit product with low cost sharing, Kaiser is the Hindenburg for adverse selection, just a big target. We required a research component to give us demographic information we didn't have about who was buying that product.
MC: What are some of the tougher issues you're looking at on the provider side?
EHNES: One big issue is the question of what is a reasonable and customary amount for noncontracted providers, particularly emergency room providers. We haven't been completely successful in getting those resolved, but we're working on it. Of course, issues of reasonable and customary amount are much more prevalent in the rest of the country because of the lack of managed care penetration. California has around 51 percent managed care penetration for insured enrollees. In the rest of the country, it's more like 27 percent. In California, these issues come into play when a provider group or hospital perceives that it's more advantageous to be non-contracted. It comes up the most with emergency services, because at that point you're not picking a provider. A patient may go to an ER at a contracted hospital, but the on-call doc, the radiologist, or the trauma surgeon may be part of a non-contracted medical group. They submit a bill that may or may not be reasonable in light of what the rest of the market charges for those services. Then you're in a battle over what is the appropriate amount. According to the law, the amount to be paid must be the reasonable and customary value of those services.
MC: What can be done about that?
EHNES: We have convened a high-level work group that involves all the stakeholders. One of my major philosophies is that I don't want people trying to talk through us; I want people talking to each other, hearing each other very clearly and taking responsibility for formulating solutions that meet some or all of the interests of the other party, not just their own interests. This is a tough issue because at the end of the day, nobody wants us to tell them what to charge or what to pay. We don't have rate-setting authority, so we get into voluntary discussions. Still, there's a point at which everybody feels like they're touching the third rail. They start backing off because they perceive us to be trying to set the rate. We're working on a pilot program that will run for about a year starting this fall for an independent dispute resolution process based on baseball's arbitration model. An external arbitrator would look at the doctor's bill and the health plan's or provider group's payment offer and pick one number or the other that in the arbitrator's view best represented the value of the services.
MC: In other words, the arbitrator couldn't split the difference.
EHNES: That's right. This model will eventually bring parties more to the middle, because if ER docs are billing as extravagantly as health plans and provider groups claim, and plans and provider groups are being completely reasonable, as they assure me, then over time arbitrators will pick their number. If ER docs lose enough arbitration cases, they will moderate their behavior in the market.
MC: And this process won't be too time consuming or cumbersome?
EHNES: It won't be. Nobody's going to have to travel to Sacramento for a hearing or anything like that. In this country, we rely on emergency docs showing up to provide safety net care. The primacy of their role can't be questioned. You can say they're greedy but ultimately our safety net system relies on the willingness of an emergency room doc to show up to provide care. We can't just browbeat them. We must solve the problems they have getting paid and try to work the solution from a number of different angles.
MC: Where does the department fit in the regulatory environment in California, where the Departments of Corporations and Insurance has some regulatory duties related to managed care? What was missing that required creation of the Department of Managed Health Care?
EHNES: For reasons that are way beyond me, California decided that managed care entities would be regulated initially by the Department of Corporations as opposed to the Department of Insurance. The fact that Kaiser started here influenced that decision. The state Department of Corporations regulates more than a dozen industries and was not focused on managed health care. It was very much a business regulator as opposed to the more consumer-oriented managed care regulator that California consumers and legislators felt was needed. That helped spur creation of DMHC.
MC: You worked in Colorado so you've seen a market that is not dominated by Kaiser the way California is. How does the presence of one plan that big and well established with that particular model change the dynamic of the market?
EHNES: That's a very good question. Kaiser has a very profound and unique influence. In other markets, the Blues plans tend to be predominant. The difference is that Blues plans tend not to have the inherent values and cultural characteristics of Kaiser. The number one impact of Kaiser is the acceptance of the delegated model [under which organized groups of physicians accept responsibility for managing the care of HMO enrollees] and the influence that it's had in creating and preserving that model outside of Kaiser. It's a strong well-rooted delivery system in California, and it's under serious attack from PPO products and other high deductible health plans. Higher cost sharing means that the level of capitation goes down and by and large, high-deductible plans don't pay for the disease management and health information technology infrastructure that capitation has provided. That is a very serious risk in the California market. The second impact Kaiser has is their ability to attract new talent in the provider community. Kaiser hires a substantial percentage of the top level of new medical school graduates. The third thing is their information technology system. They don't tout it as strongly as they will in the future when they feel more secure about it. It will become a competitive distinction that will drive development of health information technology in the state. Absent Kaiser's leading edge role, California would not be moving as significantly as it now is in the direction of health IT buildup.
MC: You and your department took flak from some quarters for not scrutinizing the WellPoint-Anthem merger carefully enough. Are you confident you reviewed that deal as closely as necessary?
EHNES: I can tell you probably where you read that, either on the Foundation for Taxpayer and Consumer Rights Web site or Michael Hiltzik in the Los Angeles Times. Those two have been critical of our review.
MC: Correct. It was Hiltzik's "Golden State" blog on the Times Web site.
EHNES: First, I'm not running for office. I'm here to do my job within existing statutory authority. I work in an administration that is not in any fashion antibusiness, so they don't come in with a predisposition that a merger is a raw deal by definition. On top of that, our statute was never written as a merger and acquisition statute, the way the Holding Company Act in the Department of Insurance was. If you look at what [Insurance Commissioner John] Garamendi was able to do, the Insurance Department's authority ended up somewhat limited as well. Had he been tested in court, he might or might not have been able to sustain his disapproval. John and this department work well together. Within the confines of our existing authority, the general construct is that the plan that you approve to assume ownership tomorrow must deliver health care on the same basis that the plan did the day before. We have no rate-setting authority in California, and there is no limitation whatsoever on executive compensation. It's silly to suggest that I didn't have a reaction to the notion that health care executives were getting compensation packages that would enable them to buy private islands. These packages only make sense on Wall Street. They do not make sense to consumers and they do not generally make sense to regulators.
MC: Questions also came up about the thoroughness of the review of United HealthCare's purchase of PacifiCare. What were the department's goals in examining that deal?
EHNES: We were careful in our review to look at how we could preserve PacifiCare's historic role as a major participant in managed care in California. We got something out of that transaction that will benefit California, $200 million in PacifiCare funds to be invested in health IT infrastructure for rural and safety net providers, and another $50 million to be given out in the form of grants, again for build out of health IT infrastructure and safety net providers. We required PacifiCare to develop a number of new capitated HMO products, and to assist us in analyzing and talking about the value of the delegated model over the next year. What's getting lost in the discussion of consumer-directed health care is that we risk disaggregating our medical delivery system in favor of a fee-for-service environment. That wasn't a good idea back in the '80s and it's unlikely to be a good idea now. Before we go down that path, the DMHC, partnering with PacifiCare, is going to be taking a very strong look at the value of what delegation has brought to California in the form of lower premiums and we think better care, less costly care for sure.
MC: What's your sense of the ultimate impact of consumer-directed health plans?
EHNES: That term is the rubric under which — if a tipping point is reached — employers will be able to disengage from the delivery of health care. That's the risk. It isn't that HSAs and consumer-directed health care have a huge natural market. When people choose for themselves, these plans attract healthier, wealthier people, and that's a limited market. But employers may flock to such plans as a way of getting out of first dollar coverage, comprehensive benefits, and high premiums. These plans represent a tremendous risk that we take very seriously on a daily basis out here. You only need to look as far as the pension system to develop your model. The reality is that globalization has had a real impact. Health care represents about ten percent of the cost structure of employers that offer benefits. So Wall Street generally rewards Wal-Mart, which doesn't provide benefits, and disfavors Costco, which does. As a policymaker, my job is to try and look ahead, plan for the worst, hope for the best, and that's what I'm doing.
MC: Thank you.