A Conversation with Peter Boland, Ph.D.: Predicting MCOs’ Future By Learning From the Past

Will the electronic revolution overthrow managed care? Not necessarily, but it may help define a new role for MCOs not far in the future.

Consultant and author Peter Boland is an E-commerce expert, and has been a close observer of the managed care landscape for more than 20 years. He is president of Boland Healthcare, a consulting company in Berkeley, Calif. Boland helps health care leaders and organizations adapt to change and take advantage of new opportunities brought about by industry restructuring, information technology, and knowledge management.

Boland has written many books about health care, including The Capitation Sourcebook (1996), Physician Profiling and Risk Adjustment (1996), Redesigning Healthcare Delivery (1996), Making Managed Healthcare Work (1991), and The New Healthcare Market (1985). He was also founding editor of the journal Managed Care Quarterly.

Boland holds a doctorate from the University of California at Los Angeles, a master's degree from the University of Michigan, and a post-graduate certificate from Harvard University's Executive Program in Health Policy and Management. He spoke recently with Senior Contributing Editor Patrick Mullen.

MANAGED CARE: How do you define managed care?

PETER BOLAND, Ph.D.: I saw a bumper sticker at a bus stop in downtown Berkeley a few weeks ago that said “Managed Care: It's Neither.” I realize Berkeley is a special place, but still, there's something to that. I don't know that I can come up with a working definition of managed care that would make sense today. It's such a mainstream term that it's used as a catchall to cover whatever product offerings are in the marketplace.

MC: So essentially, managed care is the way health care is delivered these days. The fact that some people are looking for a new name says something about how managed care is viewed.

BOLAND: Yes, but I still contend there's nothing inherently wrong with the original concept and the aims of managed care. We ought to be doing more of it. I draw a distinction, however, between managed care and managed cost. The emphasis has swung far too much in the last decade toward managing costs and not managing care. As a result, costs have not been controlled because care has not been appropriately managed.

MC: What went wrong? There was a time when Kaiser and Group Health Cooperative and HIP were considered the vanguard. What changed?

BOLAND: I read an article last month in the San Francisco Chronicle by Dr. Jay Crosson, the executive director of the Permanente Federation [a partnership of the Permanente Medical Groups that serve Kaiser health plans]. The headline was “Court Has the Wrong R-word — Reform, Don't Ration Health Care.” It was a very thoughtful article in the wake of what Aetna and others have done to reduce precertification requirements. Crosson talks about the need to emphasize managing the care process, as opposed to just trying to inhibit people's access to needed care. Managed care has turned out to be quite a bit different from what we all thought it would become. The promise and potential of true managed care was never realized. It developed into a pretty perverse set of financial incentives that produced a no-win situation for most stakeholders.

MC: What happened?

BOLAND: There are a number of fairly complex factors. One, managed care companies became a financial play in the equity markets. The emphasis shifted from quality and care management to financial performance. Two, the federal and state governments removed themselves from day-to-day oversight of health care, leaving a public policy vacuum. That vacuum has been filled by the much tougher and more aggressive dictates of Wall Street — the new “regulator.” A subset of these changes on the governmental side is that we're seeing the wholesale dumping of Medicare lives by HMOs throughout the country. Three, measuring and improving quality of care and treatment outcomes is turning out to be a lot more complicated than we ever thought. We underestimated how complicated those things are and how little reliable information there is in the areas of quality and outcomes. We also probably underestimated the degree of cultural change required of providers in general and physicians in particular. The same is also true for consumers in general and acute-care and chronic-care patients in particular.

MC: What were the effects of these trends?

BOLAND: For one thing, the best and brightest in health care no longer migrate to managed care positions. I am alarmed that so many thoughtful and talented people have thrown in the towel on managed care in the last 18 months. They are either working in other aspects of health care such as E-health and the Internet, or they've decided to do something else entirely. They're increasingly dissatisfied with the managed care industry.

MC: You mean they've lost the sense that they're having a positive effect on the system.

BOLAND: Yes. Many of the most capable leaders want to work in a more positive environment, where performance and compensation are more closely linked.

MC: Wall Street may have lost its affection for managed care. What are the implications of that?

BOLAND: You have a couple things going on. Markets are very volatile and Wall Street tends to follow what's fashionable. Also, Wall Street has an attention span of somewhere around three months. So whatever has the highest potential rate of return at any moment is the Street's focus. Health care issues become hot and then overheat and then cool down. We saw that in the physician practice management sector, and it's happened two or three times with HMO stocks. We certainly saw it among health care Internet stocks. There was even an adjustment within the health care Internet sector, from customer-oriented content plays, to business-to-business health care Internet stocks — the infrastructure plays.

MC: In other words, the market has moved from DrKoop.com to Healtheon/WebMD?

BOLAND: Yes. Wall Street is whimsical in terms of what it favors in any particular quarter, so HMO stocks go in and out of favor. A rather interesting phenomenon is taking place regarding HMO stocks. Many large employers have thrown in the towel on the ability of HMOs to be effective cost-management vehicles. We have to understand that employers are the real customers of managed care, not patients. There's a growing impression among employers that the traditional approach to cost management that HMOs have used for over a decade has basically run out of steam. There's not much more an HMO can do to stem rising health care costs. We are well into the first phase of a longer-term underwriting cycle where health care costs, and therefore premiums, are going to be going up for a number of years. It's not just a blip.

MC: What's driving this cycle?

BOLAND: The three factors usually cited are higher prescription drug costs, our aging population, and higher costs of medical technology. There's an awareness that managed care can't deal effectively with those three drivers of health care costs. I would add another factor. We still have largely an acute care-oriented system. In the next 10 years, we're going to see an enormous increase in the prevalence and incidence of chronic care. We're going to spend at least as much on chronic care as we spend on acute care. It's not that one is going to replace the other, it's additive. How can the managed care industry, which is still struggling with a largely acute-care oriented system, deal with acute care plus chronic care in the next 10 years? That's a real ticking time bomb.

MC: It's the result of the aging of the baby boomers.

BOLAND: Baby boomers want choice, they want it now, and they want personalization. They're used to getting it in other sectors, and they're going to shop for best price. Thanks to the Internet, they have the tools to make better choices than before. Wall Street looks at this, and is beginning to understand that the basic structure of HMO delivery will probably have to change. So we're seeing pressure on managed care to change both from Wall Street and from employers.

MC: How will the delivery system have to change?

BOLAND: That's what we don't know. We do know that managed care is stalled as an effective cost-management vehicle, and we know that managed care has done a particularly poor job at insuring adequate quality of care that can be measured and translated into a tangible value proposition. I realize that's a large and complicated undertaking; I don't want to underestimate the challenges.

MC: Managed care plans claim they do a good job delivering quality care, but lack measurement tools to prove it. You say Wall Street and employers conclude they're not doing a good job.

BOLAND: Yes, and they've concluded that plans lack the capability to do a much better job. There's a fundamental shift in thinking taking place, and it has a couple of different strands to it. Wall Street is increasingly aware of marketplace dynamics that are much bigger and more powerful than anything that we see in health care per se. These dynamics are having an enormous impact on our expectations about health care in general and managed care. There is the rise of consumerism. Certain types of companies, whether they're large financial services companies like American Express or Fidelity, or retailers like Nordstrom, have a much better grasp of consumer behavior and buying patterns than any health care companies. The financial markets understand that the closer to the customer a company or industry can be, the more successful and profitable it will be. With this rise of consumerism, customers are having a tremendous effect on the design of products and services across the economic landscape. But consumers have had little effect on the design of health care, because health care still is very much delivery system-centric and provider-driven. Consumerism is working its way into health care, and the managed care industry has been wholly unprepared for this. This is a very large challenge because of the other part that comes in — the advent of Internet-savvy consumers. They have access to more information about their health status and health choices than ever before. In fact, consumers often have more and better information about treatment choices than the health plan or the physician. Health plans are at a loss as to how to help consumers make sense of this information and to help them make better choices.

Then there's the explosion of technology, which goes beyond information technology. For the first time, we can truly engage in disease management. I'm not talking about the flavor-of-the-month stuff that existed 10 or even five years ago, when adequate disease-management technology didn't exist. Disease management overpromised and underdelivered. Today, tools are available to begin to design and implement true disease management programs. For the first time, thanks to Internet-based technology, we have access to reliable information, including personally tailored information, and that's absolutely crucial. We have electronically reported vital health information, next-generation health-risk appraisals, interactive communications, self-care management tools, and automated monitoring and support services that go beyond the actual physician-patient interaction. We also have moderated discussion groups and bulletin boards. All these things added together give us a real technological basis for true disease management. This all fits into a new paradigm of Internet-based health care. There are now disease management companies focusing on three key things: the care management process, education and behavior modifications, outcomes research and clinical care. Patient education is essential. Without that, it doesn't work. Disease management services are being effectively applied to cardiology, diabetes, asthma, oncology, HIV, and transplants. We have access to information and technology tools that effectively can deliver health care and manage it for both chronic and acute care populations. This is a real breakthrough and an opportunity for managed care to adapt.

MC: To what degree are current managed care companies and executives aware of the need to make these changes and equipped to make them? In other words, will today's companies evolve, or will they be replaced?

BOLAND: That's an excellent question. Most managed care plans have paid lip service to health education and disease management for over a decade without committing the necessary resources to affect health status or the bottom line. To the extent that managed care companies are willing to make a multiyear investment along with employers and health and welfare trust funds, then disease management can succeed.

MC: Does that willingness exist?

BOLAND: I don't know. It's not just managed care. It's also employers. Managed care will only do as much as employers demand. I don't see support among leading employers to push managed care organizations further along the continuum of disease and health management.

MC: What else do you see on the horizon that might have a big effect on the direction of managed care?

BOLAND: We're seeing the first few steps of the shift away from the defined benefit approach toward defined contributions. Two defined-contribution Web sites now up and running are MyHealthBank in Portland, Ore., and Healthmarket, which was put together by Steve Wiggins, the former CEO at Oxford Health Plans. We don't know where this is going. It could change the fundamental structure of managed care — not replace it, but change it. Defined contribution could radically change the interaction and the accountability among employers, employees/patients, providers and health plans. Right now, the distribution system is based on the health plan. With defined contribution, you can set up a different type of distribution system, based on whoever can aggregate subscribers and work and serve as the intermediary and catalyst. The companies that have the capability to do this, whether they choose to do it or not, are folks who have access to a large number of lives and know how to aggregate people and services, price and choices.

MC: Who has the capability?

BOLAND: We'll still have health plans, because you have to buy the services somewhere, unless these Internet folks go completely virtual and you don't even need a health plan. Still, I see at least seven distribution sources that could take over the distribution function now performed by health plans. You have insurance companies, niche channel players, Internet portals, clearinghouses, health benefit outsourcers, established retailers, and system integrators. It could be as diverse as American Express, Wal-Mart, Charles Schwab, Fidelity, or Amazon.com. These companies know how to aggregate customers and how to stay close to their customers. With a defined contribution, an individual employee may still choose a traditional managed care option, an HMO or a PPO. But he would begin to look at different aspects of that benefit choice, and maybe give a different value — what he is willing to pay — for some services over others offered by a particular health plan.

MC: Because they might use those dollars for something else.

BOLAND: Right. Defined contribution is part of a larger concept, defined care, which is explained on the Managed Care Online (MCOL) web site. With defined care, expectations are no longer “managed” by the health plan. Instead, expectations are defined by the consumer or purchaser, in terms of cost, benefit features and care delivery. Oddly enough, the very issues driving some of the consumer backlash against managed care — like management features — can become issues that lead people to choose certain managed care options in terms of savings. Some of the downsides of managed care become upsides.

MC: You mean, if people feel some sort of ownership of the money being spent on heath care?

BOLAND: Yes, because they're spending their dollars now. Market research has shown that something like 70 percent to 80 percent of car owners regularly maintain their cars. Fewer than 30 percent of people who have health care coverage maintain their health through preventive care. Employers are trying to think through how to put more responsibility for health care choices and health care costs in the hands of the employee. They're beginning to look at defined contribution and defined care as perhaps the most effective vehicle both to empower the patient and to save employers' benefit dollars.

MC: It sounds like the thinking is that if you get to people's pocketbooks, their hearts and minds will follow, as opposed to encouraging people to get a physical because it's a good idea.

BOLAND: Yes. It seems to work in every other sector.

MC: How would the role of physicians change under such a system? Some people argue that physicians are expensive dinosaurs who will be replaced by physician assistants. Others say that they will be at the very center of the care network.

BOLAND: The pendulum has swung way too far away from physician centrality. I think both consumers and employers realize again that physicians are at the heart of health care, that one of the main purposes of a good health care delivery system is to support and strengthen the integrity of the physician/patient relationship. To the extent that the health plan does this, it will be successful. If a health plan undermines that relationship, it will ultimately fail. There is a growing awareness among health plans that the strategy of risk transfer, as opposed to risk management, is not working. It's leading to the bankruptcy of far too many medical groups and IPAs. Nearly a third of groups in California, and between 10 percent and 20 percent in other parts of the country, are at or near bankruptcy.

MC: Is that because it was unrealistic to put physicians in the risk-management business when they really are in the care-delivery business?

BOLAND: Yes. It's a different business and they were never given the financial or the information tools to adequately manage clinical risk factors. Still, plans transferred as much risk as possible to providers. It was an ill-conceived strategy, and now we're all paying the price.

MC: Which Wall Street loved because, theoretically, it made the financial picture more predictable for the health plan. So, how well equipped are managed care plans to change the way they deal with doctors after a decade of horrible relations?

BOLAND: It will be hard for plans that shot themselves in the foot for 10 consecutive contracting cycles to salvage their relationship with physicians. Physicians are looking either to be paid more or at least to be paid differently. Few HMOs will elect to pay them significantly more, so they're going to have to pay them differently. That means doing two things. One, plans must pay doctors a lot quicker, as opposed to playing the float. That is unconscionable, and it's a dumb practice. Physicians are the number-one supplier to plans, and when your number-one suppler feels that you're the enemy, you've got a pretty ugly picture. Second, health plans must be willing to pay physicians based on the severity of their case mix. It's an issue of fairness and equity. Until managed care faces that issue head on, it's not going to substantially change its relationship with physicians, because the one-size-fits-all payment method just drives physicians crazy. It's irrational, and it represents the most superficial type of payment. It doesn't make any sense to physicians. For years managed care has said the right kind of tools aren't available to do meaningful case-mix adjustment. Nonsense.

MC: There are some things physicians do well. To do the other things, either a managed care plan or someone else has to be involved.

BOLAND: If managed care is transferring financial risk to providers and delegating important care decision-making functions to them, then it raises the question of what will be the new role for managed care companies? Maybe MCOs' strong point is not care delivery and management, but marketing — which raises an interesting issue. HMOs have not been exactly customer-centric. If their major role is going to be as marketers when they don't understand the needs of customers, that presents a very difficult challenge.

MC: Thank you.