A Conversation with Thomas S. Bodenheimer, M.D., M.P.H.: Emphasizing the ‘Care’ In Managed Care

An important voice in health care policy, who is also a practicing primary care internist, sees the group model as both efficient and high quality.

Generally speaking, if you have 100 physicians who are practicing clinicians, you’re going to have a few whom you would call physician leaders … who have a sense that they have some responsibility to something larger than their own practice.” Though he was talking about the qualities that make for a good medical director, Thomas Bodenheimer could have been describing himself.

Since 1980, he has been a practicing internist with Bay West Family Health Care, a private group practice in San Francisco. He is also on the faculty of the University of California at San Francisco Medical School, where he is a clinical professor in the Department of Family and Community Medicine. He is a frequent lecturer on national health-policy issues, and is a regular contributor to leading medical journals, most recently as a national correspondent for the New England Journal of Medicine.

Bodenheimer, a member of Managed Care’s editorial advisory board, holds undergraduate and medical degrees from Harvard University, and a master’s in public health from the University of California at Berkeley. He spoke recently with Senior Contributing Editor Patrick Mullen.

MANAGED CARE: Tell us about your medical group’s experience with managed care.

THOMAS BODENHEIMER, M.D.: Sixty percent of our patients are managed care patients through Brown and Toland Medical Group, a big IPA. The rest have Medicare, MediCal, or are uninsured. We also have a few with old-time indemnity insurance. When we started out, there wasn’t much managed care. For a number of years, we were in three different IPAs, which meant we had to send different patients to different laboratories, different panels of specialists, different X-ray facilities, all using different procedures. It was a nightmare, and gradually we consolidated all our HMO patients into one IPA, Brown and Toland. It has been very helpful to be able to treat all our managed care patients pretty much the same.

MC: Your experience reflects a national trend of deciding where you’re actually getting patient volume from and consolidating around that.

BODENHEIMER: Right. Brown and Toland has been a good IPA until its recent financial difficulties, as many California IPAs have had. We’re concerned for the survival of physician organizations in general and our own IPA in particular.

MC: What are the underlying causes of your IPA’s financial problems and of the wider solvency crunch hitting medical groups in California?

BODENHEIMER: The number one problem is that income has stagnated while expenses have mushroomed. Income has stagnated because ultimately the money comes from either our patients’ employers or from Medicare. From 1994 to 1997, employers in California kept premium levels virtually flat, so new money was not coming in. Also, the Balanced Budget Act of 1997 reduced the rate at which HMOs could increase their payments from the federal government, so Medicare HMOs also have not had a lot of new money coming in. As a result, HMOs have been very stingy with the capitation rates that they pay IPAs. On the other hand, IPAs are at risk for a lot of the increased medical expenditures coming from new technologies and new drugs, but are not getting any increased money for them. The way they survive is to cut physician pay, but they can only do that to a certain point.

MC: Have they reached that point?

BODENHEIMER: I think they’re at the end of the line right now in terms of cutting physician pay. We’ll have to see if last year’s and this year’s premium increases paid to HMOs will result in more money to IPAs, which will keep them afloat.

MC: It sounds as if it’s not so much a structural problem with the IPA design as the result of the money spigot being turned down.

BODENHEIMER: There are structural problems with IPAs. IPAs were created to allow physicians to continue to practice in a way they were used to. IPAs were not seen by their physician members as organizations that they had any loyalty to.

MC: It was more of a defensive measure to forestall more integrated types of managed care?

BODENHEIMER: Physicians didn’t care much about the organizations. They wanted to make sure that all the dollars coming into the organization reached the physicians’ pockets by the end of the year. Any organization that wants long-term survival or solvency has to keep some money in reserve for rainy days. We’ve had rainy years in California, but IPAs have not kept enough money in reserve.

MC: So they’re in a poor position to handle a tight year or two.

BODENHEIMER: Exactly. And there’s been a lot of reluctance to reign in unnecessary procedures.

MC: It’s not like Kaiser Permanente.

BODENHEIMER: Right. The whole premise upon which managed care is built is to try to reduce unnecessary care. IPAs, particularly those that pay their physicians on a fee-for-service basis, have trouble reigning in expensive procedures, especially on the specialty side. So specialty budgets may be overrun, and the IPAs often have trouble paying claims to specialists. In some cases, they’re barely paying them at all.

MC: How do you see this shaking out over the next year or so?

BODENHEIMER: It’s difficult to say. Some IPAs in California have gone bankrupt and disappeared. I think we’re going to see some weaker organizations go away. That can be very difficult on physicians and patients when it occurs, because of the disruptions in care. A number of stronger IPAs will survive, and some that are on the edge will learn that they are businesses and have to act like them. Long term, they have to pay close attention to their costs.

MC: Which means they have to somehow find ways to persuade physicians to practice more economically. How can they do that?

BODENHEIMER: One of the most popular ways recently has been specialty capitation — in particular, contact capitation. If you capitate specialists, the number of procedures and visits goes down, and costs could go down. The problem with capitated specialists is that you can set up the same dynamic you have when you capitate anything. Specialists may not want to see the patients at all, and may not do expensive procedures that are warranted. I think the ultimate answer is going to be some kind of blending of payment mechanisms that has an of incentive for seeing people and doing what needs to be done, but doesn’t have an incentive to do too much.

MC: What payment methods does your group work under?

BODENHEIMER: Primary care physicians are paid under capitation. Specialists are paid under a budget, with most paid on a fee-for-service basis and some paid under contact capitation.

MC: You’ve written about the possibility of returning to the prepaid group practice with salaried physicians. Are there signs that is happening?

BODENHEIMER: The opposite’s happening. It seems the country is moving away from prepaid group practices. Organizations like Kaiser do not seem to be growing rapidly.

MC: In fact, they seem to be emulating looser model types with point-of-service options.

BODENHEIMER: Some of the well-known prepaid group practices are also having trouble financially. Kaiser is certainly one example. Harvard Pilgrim, which is a mixture of IPA and group practice, is having a terrible time financially. It is a very sad commentary on what’s happening in the United States. I feel that integrated group practices have the best chance of controlling costs and providing high quality care, for a couple of reasons. First, you can pay physicians by salary, which tends to control costs. In addition to salary, you can add bonuses for patient satisfaction, for working hard, for seeing enough patients, for providing high quality care, and for doing extra things, like home visits or night call.

MC: So it gives you a way to influence physician behavior.

BODENHEIMER: A mixture of salary and incentive bonuses that encourage physicians to do socially desirable things can control costs and prevent underutilization. The second advantage of group practice is that it can enhance quality. There’s a more collegial atmosphere than in an IPA, in which physicians work in their own scattered offices, often don’t know each other, and don’t have a quality culture. Perhaps as IPAs see that they’re not controlling costs or responding to quality demands, they will transform themselves in the direction of prepaid group practices over the next couple of decades.

MC: Perhaps the generational transition of physicians will have an effect.

BODENHEIMER: Well yes, that’s another thing. People coming out of residencies tend to be more interested in salaried positions than in setting up practices and having to become business people as well as physicians. That trend could be important in terms of the choices that physicians make as they develop in their careers. In California, Kaiser gets the cream of the residency crop.

MC: What’s your sense of where the animosity between physicians and HMOs stands? Are physicians and plans finding any middle ground and finding ways to practice good medicine that is not wasteful?

BODENHEIMER: At this point, I think the animosity between physicians and HMOs is still getting worse. Certainly in California, leaders on both sides say that contract negotiations between health plans and IPAs are more bloody, more difficult, more acrimonious than they have been in the past. When there’s a shortage of money, everyone struggles to get as big a piece of that shrinking dollar that he can.

MC: Is the federal government trying to squeeze excess capacity out of the system without coming right out and saying that’s what it’s doing? It cuts payments for services and then lets the system do the bloody work of cutting pay to doctors and closing hospitals?

BODENHEIMER: When a politician in Washington or a state government tries to close a hospital, forget it. You’re going to get an incredible reaction from the community. But if you get a Columbia/HCA to close a facility, the community has few options. Companies are not accountable to political pressure. A number of IPAs have dropped specialists, much to the anger of the specialists and some of their patients. Again, it’s something the government would have a very hard time doing. So, yes, government has used the market to get rid of what is called excess capacity. I think there’s a question of whether it really is excess capacity. The whole question of excess capacity is interesting. Here in San Francisco, a number of hospitals have closed, and everyone said it was because we had too many beds. But now, in the winter, hospitals are so full that it’s sometimes hard to get a patient into any hospital in the city. In the summer it’s not so bad. You need some excess capacity. The same goes with physicians. People always say there are too many physicians, but then you hear about patients who can’t get an appointment. Studies have shown what the physician-to-population ratio should be. That ratio is in question when you’re dealing with a population that wants easy access to care. When you had too many physicians, you could get appointments. That’s helpful to patients, but it’s not helpful to the cost structure. We may decide to cut the number of health care providers. Once the baby-boomer generation hits Medicare age, we’re going to wonder if we’ll need them again.

MC: And the baby-boomer generation is likely to be very demanding of services.

BODENHEIMER: It already is. We haven’t seen anything yet in terms of cost-control pressures. Wait until that very large group of people really gets sick. They seem to be more highly educated about health care issues than preceding generations, and they bring up more issues with health care providers. The combination of that educational level, getting older, and really getting sick is going to shoot costs up to an unbelievable degree. Add all the new therapies from biotechnology and the pharmaceutical industry, and we’re going to have a cost crisis by 2015 or 2020 that will make what we’re going through now seem like peanuts.

MC: What health payment system could help forestall that?

BODENHEIMER: That gets into the whole issue of the uninsured first. There’s no health care problem in this country that comes close to this problem, not the problem of HMOs, not difficulties in quality. No problem comes close to the fact that we have more than 40 million people without health insurance. That’s a monstrous failing of our society. The other striking thing about that problem is that there’s not a single problem in health care that’s easier to fix. You could fix it tomorrow. All you have to do is have the federal government pass a law that every single person in the United States has comprehensive health insurance from cradle to grave. We’re a rich country, and we have rich people who pay virtually no taxes. We absolutely can afford universal health insurance. Technically, it’s not difficult to solve. You have to distinguish between problems that are technically difficult to solve and those that aren’t. You really have to struggle to figure out how to solve the quality problem. Quality is tough. Getting universal health insurance is not difficult conceptually to take care of.

MC: What should universal health care look like?

BODENHEIMER: The best program is a single-payer program. It could be an extension of Medicare, or it could be another publicly funded program. In addition to the fact that it’s equitable, a single-payer program is the best way to control costs. You just budget all health care. There’s nothing outside the budget, although people could buy extra health care. The countervailing force to prevent underfunding of health care is the political clout that comes from having all the people united in one health care program. The system would be equitable and much more efficient, since all the waste of the private insurance system would disappear at one fell swoop.

MC: How are you defining waste?

BODENHEIMER: There are two kinds, administrative waste and medical waste. Part of administrative waste is money to stockholders and high salaries to executives. Another part includes micromanaging physicians, the kind of thing that United HealthCare decided not to do any more, because it cost as much as it saved. That’s one kind of administrative waste. The fact that we have so many payers and insurers means that hospitals and medical offices have to have elaborate billing systems. In our office, we have four full-time billing people. That’s ridiculous. If you had one payer with a simple payment mechanism, you could save a huge amount of administrative money. Under the current system, this isn’t waste; it’s necessary. If you change the system, it wouldn’t be necessary.

MC: And medical waste?

BODENHEIMER: Medical waste — all the unnecessary procedures that are done that don’t improve people’s health — is a more difficult issue. Medical waste is probably worth $100 billion a year, according to some estimates. HMOs have not been very successful at eliminating it. The prepaid group practice with salaried physicians plus a bonus for doing the right thing is one potential way to go. It could reduce medical excess and save money.

MC: Do you see anything in any of the proposals from candidates for president that moves in what you think would be the right direction?

BODENHEIMER: Bill Bradley is the only person who even has any kind of proposal to make a dent in the problem of uninsured Americans. All the other proposals are not going to do a whole lot. How many of the uninsured Bradley’s plan would actually take care of is something I don’t know.

MC: Neither does he, I suspect.

BODENHEIMER: At least he has the right rhetoric in terms of wanting to solve the problem. I don’t think his solution is going to be the solution, but the first step is to at least have someone in the White House who firmly believes this should be done. There have been very few presidents who wanted universal health insurance. Harry Truman was the main one. Clinton wanted to do it for a while. Then he got his hand slapped and he never came back.

MC: You wrote in 1996 about the HMO backlash. You said it would probably force some reforms, but not produce fundamental change. Is that still your view?

BODENHEIMER: I think the HMO backlash has produced some reforms, and I still think it hasn’t produced fundamental change. Let’s take the example of United HealthCare’s decision to stop a lot of its utilization-review practices. Is that meaningful change? In place of that, United will use its very sophisticated physician-profiling system to look at physicians after the fact, rather than before or during the fact. It could drop a lot of doctors from its networks who appear to be high-cost physicians. Someone who has a lousy profile could be dropped. Is that any better than utilization review? Perhaps it’s worse. Another reform is loosening the gatekeeper system. A main target of the HMO backlash has been the primary care physician who “doesn’t let me go see my specialist.” We have open-access plans in which people can go see their specialist without a referral, but is that real change? Well, it depends. It’s not totally clear to me that access to specialists is going to be enhanced by managed care organizations that eliminate the gatekeeper. A number of open-access plans will capitate specialists. If you capitate a specialist, the specialist is going to be less inclined to see the patient than if you pay the specialist on a fee-for-service basis. So you have a different barrier to access to the specialist. It’s not that the primary care physician says, “No, you can’t go.” It’s that the specialist’s receptionist says, “No, you can’t come, we don’t have any appointments.” So the gate moves from the primary care physician’s office to the door of the specialist’s office. People should have access to specialists. The problem with specialty care has been that once you get to the specialist, there’s a cascade of diagnostic and therapeutic procedures that, once started, never stops. Some aren’t necessary. So, you have to pay specialists in a way that gives them the desire to take care of patients, but doesn’t overpay them for doing things that are not needed.

MC: You’ve written recently about changes in the backgrounds of managed care medical directors. Do you see any danger in a trend that you noted, that an older generation of clinically savvy physicians is giving way to M.D.-M.B.A. graduates who don’t have the same clinical experience? Are we going to end up with medical directors who are more business people than physicians?

BODENHEIMER: I’m very worried about it. A number of very prominent medical directors who have had a lot of clinical experience are concerned about what could happen. A lot of medical directors want to help reduce variations in care. That’s a laudable goal, and it could be done by trying to get physicians to adhere to practice guidelines. That’s good in a sense, but people who have been practicing medicine for a long time know that every patient is different. They have different desires, different comorbidities, different family structures that might impinge on their care, different job situations that might make it impossible for them to come to appointments or to have a surgery that might help them. It’s astounding how different five people with exactly the same diagnosis are. People who haven’t practiced medicine a lot won’t see that. They won’t understand the complexity of taking care of real people. They’ll look at the diagnosis code and say, “These patients are the same, and they should be treated the same.” That’s not always possible or correct. They would tend to be much more rigid in imposing guidelines and evaluating clinicians than a clinically experienced medical director who has a better sense of the complexity of medical practice. One other thing worries me. In the hierarchy of a managed care organization, business people — some of whom are doctors, some of whom are not — are on top. In high-level meetings, the medical director may try to take the patient’s or physician’s point of view, as opposed to the sheer cost-saving or stockholder’s point of view. I would be concerned that medical directors with little clinical experience would not be patient and physician advocates in those high-level meetings.

MC: Also, many physicians prefer to practice medicine and have as little to do with administration as possible. Their voices are not necessarily going to be heard in these meetings. Do you see anything that might help that situation?

BODENHEIMER: If you have 100 physicians who are practicing clinicians, you’re going to have a few whom you would call physician leaders. They may not like administration. I can’t imagine liking administration, but there are people who are leaders and have a sense that they have some responsibility to something larger than their own practice. Those physicians are the ideal people to be medical directors. Maybe they’re part-time medical directors at first, still clinicians, and then gain more and more responsibility. I think that’s a more organic and healthy way to go.

MC: You graduated from medical school in 1965, when the notion of the physician on the pedestal still had currency. How has the way patients treat you changed over the years?

BODENHEIMER: I think it’s changed quite a bit. It tends to be somewhat class-based. More educated people no longer see us as on the pedestal, which we’re not and shouldn’t be. On one hand, people are much more involved in their care. Diabetes, for example, is an illness which people can be taught pretty much to take care of by themselves, and that’s a great thing. It should happen with everyone. On the other hand, sometimes less-educated people who are not participating as much in their care do tend to see us on a pedestal. But they’re much more grateful for what we do. One thing that can save us from the coming cost crisis is if people not only demand the best possible care, but also take responsibility for providing that care to themselves, after we’ve taught them how. Diabetes, hypertension, hyperlipidemia, osteoporosis, and arthritis are all examples of chronic diseases in which people can do a lot themselves.

MC: Given today’s hassles and what you see coming down the road, would you go into medicine again?

BODENHEIMER: I think I would. The mother-may-I situation with managed care in its early days, when we had to ask permission for everything, is getting better now. There are still hassles — for example, the ridiculous fact that half of the patients in our practice were not allowed to go to the hospital that’s right next to our office, because of HMO contracts. In spite of all those things, practicing medicine hasn’t changed all that much. Most of the time, you’re trying to take care of the patient.

MC: Thank you.