Managed Care Plans Challenge Any Willing Provider Laws

One of the hallmarks of managed care is selective contracting with physicians, hospitals, and pharmacies as one tool to manage quality and contain costs. Over the last decade, in response to consumer “backlash” about constraints on their choice of providers, many states have passed legislation requiring managed care plans to contract with “any willing provider” -- that is, any provider who is willing to agree to the insurer’s reimbursement rates and contract terms. While many plans have expanded their provider panels in recent years in response to consumer demand for increased choice, selective contracting for physicians, hospitals, and pharmacies is still widespread. Managed care plans have argued that any willing provider laws constrain their ability to operate effectively in violation of the 1973 Employee Retirement Income Security Act (ERISA), which prohibits states from regulating employee benefits, except for laws regulating insurance, banking, and securities.

In 1994, a group of HMOs and the Kentucky Association of Health Plans challenged two any willing provider laws in Kentucky (Kentucky Association of Health Plans v. Nichols, 9/7/00). On Wednesday, April 2, 2003, the Supreme Court ruled unanimously that states do have the right to force managed care organizations to accept any willing provider (Kentucky Association of Health Plans Inc. v. Miller , U.S., No. 00-1471, 4/2/03). The Kentucky act states that “health care benefit plans shall not discriminate against any provider who is located within the geographic coverage area of the health benefit plan and is willing to meet the terms and conditions for participation established by the health benefit plan.” The Justices concluded that any willing provider laws regulate insurance “by imposing conditions on the right to engage in the business of insurance.” As author of the opinion, Justice Antonin Scalia noted that, in the future, state laws will be considered insurance regulation if they are “specifically directed toward entities engaged in insurance” and affect the “risk pooling arrangement between the insurer and the insured.”

Several HCFO projects conducted over the last decade help shed light on the impact of this court decision. These projects explore the adoption and impact of any willing provider laws, the factors influencing how managed care organizations identify the hospitals with which they contract, and the information consumers use to make choices among health plans and providers.

In light of the recent court decision upholding Kentucky’s any willing provider statute, it is particularly important to understand the impact that plan control over provider networks has had. To the extent that this vehicle for improving quality and containing costs has been utilized and may no longer be available to plans in some states, alternate mechanisms and incentives will be necessary. In addition, this court decision may encourage adoption of any willing provider laws in additional states or for additional groups of providers within states.

HCFO-funded Projects Relevant to Provider Contracting by Managed Care Plans and Any Willing Provider Laws

Title: The Impact of Managed Care on the Appropriateness and Outcomes of Carotid Endarterectomy
Institution: Mount Sinai School of Medicine
Time: March, 2003 - February, 2005
PI: Mark R. Chassin, M.D., mark.chassin@mssm.edu

What is the impact of managed care versus fee for service on overuse of carotid endarterectomy? The researchers are examining the effectiveness of specific managed care interventions in reducing overuse. Specifically, the researchers are addressing the following specific research questions: 1) Did Medicare beneficiaries enrolled in Medicare+Choice managed plans undergo carotid endarterectomy less often for inappropriate reasons compared with their counterparts in fee for service Medicare? 2) Compared with fee for service Medicare, did Medicare managed care enrollees receive carotid endarterectomy more frequently at high-volume hospitals or from high-volume surgeons? 3) Compared with fee for service Medicare, did Medicare managed care enrollees have carotid endarterectomy performed more frequently at hospitals or by surgeons with low risk-adjusted perioperative complication rates (i.e., at higher quality hospitals)? 4) What specific mechanisms for assessing appropriateness and quality did these plans use to prevent inappropriate carotid endarterectomies or to select providers with higher quality? What specific plan structural attributes, operational characteristics, or management programs are associated with lower (or higher) rates of inappropriate surgery? Which are associated with better (or worse) risk-adjusted complication rates? 5) Is there evidence of a managed care “spill-over effect” on quality of care such that appropriateness or complication rates are better among fee for service Medicare patients in regions with greater managed care market penetration than in regions with less managed care market share? The objective of the project is to inform the policy debate about what cost containment mechanisms may be effective in the current environment.

Title: Are Highly Concentrated Health Care Markets Bad for Health Care?
Institution: University of Washington
Time: April, 2002 - March, 2003
PI: George Wright, Ph.D., gwright@fammed.washington.edu

This project will examine the relationship between the market power of health plans, relative to providers, and the quality, intensity, and accessibility of health care. Using the household and physician surveys from the Community Tracking Study, the researchers will study the following questions: 1) Across markets, are concentrations of market share among a few health plans correlated with the clustering of providers into a few dominant organizations? 2) Do physicians in markets with a few dominant provider organizations report lower work hours and changes in compensation? 3) What are the relative effects of provider and health plan concentration on the intensity and specialty-orientation of health care? 4) What are the relative effects of provider and health plan concentration on the perceived quality and convenience of care? 5) How closely correlated across markets are the perspectives of physicians and patients? The objective of the study is to inform the policy and regulatory debate about the advantages and disadvantages of concentrated market power.

Title: Health Plan Choice and Utilization: The Role of Plan Attributes
Institution: Indiana University
Time: January, 2002 - June, 2003
PI: Pravin K. Trivedi, Ph.D., trivedi@indiana.edu

How does managed care, through restrictions on access, affect utilization? What specific plan attributes influence access and utilization? While previous work has examined utilization relative to broad categories of plans (e.g., HMOs, PPOs, POSs), Pravin Trivedi, Ph.D., of Indiana University is looking at specific plan characteristics, such as whether members are required to sign up with a certain provider to whom they must go for all routine care, whether they need approval or a referral to see a specialist, whether the plan has a list of preferred providers, and whether the plan pays for any of the costs of visits to doctors not associated with the plan. Using data from the CTS’ Household and followback surveys, the researchers will study the determinants of an individual’s selection of plans with particular attributes. The researchers will also examine how restrictions on access affect utilization while allowing for self-selection and explore differences in what the members reported and what insurers reported.

Title: Second-Generation Evaluation of Buyers Health Care Action Group (BHCAG)
Institution: University of Minnesota
Time: October, 2001 - September, 2003
PI: Roger F. Feldman, Ph.D., feldm002@tc.umn.edu

The researchers are assessing the effectiveness of the Buyers Health Care Action Group's (BHCAG) efforts to promote employee consciousness of quality differences among care systems and considering whether the BHCAG model can be exported to other communities. As part of this evaluation, they are studying the effectiveness of BHCAG’s annual “quality award” in raising consumer awareness of quality and increasing their use of quality information when selecting a care system. They also are investigating the reasons that employees switch care systems and the role of perceived quality differences in that decision. The researchers are assessing whether the BHCAG model is uniquely suited to the Twin Cities or if it is flexible and attractive enough to purchasers and providers to be successful in other market areas and in other market conditions. The researchers are extending the work done under their recently completed HCFO evaluation of BHCAG. The objective of this study is to further inform policymakers and purchasers about direct-contracting and its ability to be transferred to markets beyond the twin cities.

Christianson, J.B. and R. Feldman. “Evolution in the Buyers Health Care Action Group Purchasing Initiative,” Health Affairs, Vol. 21, No. 1, 2002, pp. 76-88.

Title: Evaluating Managed Care Patient Protection Laws
Institution: Wake Forest University
Time: February, 2001 - January, 2004
PI: Mark A. Hall, J.D., mhall@wfubmc.edu

What are the effects of state managed care patient protection laws on patients, providers, plans, and network, corporate, and market structures? The researchers at Wake Forest University are 1) developing an index of regulatory intensity of patient protection laws (among states and over time); 2) learning more about the complexities surrounding the implementation and enforcement of states’ patient protection laws; and 3) determining whether patient protection laws have achieved their intended effects and have avoided unintended or potential harm by assessing the impact of such laws on patients, providers, plans and on network, corporate, and market structures. The first two major tasks will be achieved by studying primary legal sources and conducting a systematic national survey of state regulators and health care lawyers. The third major task will be achieved through a combination of quantitative and qualitative studies: at least two rounds of the Community Tracking Survey of patients and physicians (1996-7 and 1999) will be analyzed, and in-depth case studies in 6 selected states will be conducted. Given that policy makers at the federal and state levels are encumbered by a lack of empirical evidence, the objective of the study is to inform the national debate on the need for laws to protect patients enrolled in managed care organizations.

Sloan, F.A. and M.A. Hall. “Market Failures and the Evolution of State Regulation of Managed Care,” Law & Contemporary Problems, Vol. 65, No.4,
Autumn 2002, pp. 169-206.

Hall, M.A. “Is the Managed Care Revolution Finished?” Duke University School of Law and the Center for Health Policy, Law and Management,
November 2001, Durham, NC.

Title: Research on Determinants of Hospital Contracts with HMOs
Institution: Boston University
Time: May 1999-April 2001
PI: Gary J. Young, J.D., Ph.D., health@bu.edu

What characteristics determine hospitals’ ability to contract with managed care organizations (MCOs)? Researchers at Boston University studied how hospitals in different markets in Florida compete for MCO contracts, how different factors affect hospital consolidation and competition over time, and how competition for MCO business affects hospital revenues. As MCOs become an increasingly important source of hospital revenue, hospitals unable to secure MCO contracts are often left in a weak position requiring them to merge or consolidate with other organizations in order to survive. An analysis of the determinants of hospital contracting may give policymakers information that can be used to predict future hospital consolidation trends in different types of markets, and to predict the types of hospitals that may not survive. The objective of the study was to explore in depth why and how hospitals contract with managed care organizations, and possible effects of contracting with MCOs on hospitals’ ability to remain independent entities.

Young, G.J. et al. “Competition Among Hospitals for HMO Business: Effect of Price and Nonprice Attributes,” Health Services Research, Vol. 37, No. 5, 2003, pp. 1267-1289.

Title: Evolution of Physician Organization Under Managed Care
Institution: University of California at Berkeley
Time: May, 1998 - April, 2002
PI: James C. Robinson, Ph.D., jamie@socrates.berkeley.edu

How and why are Physician Practice Management (PPM) Organizations forming? Investigators at University of California, Berkeley analyzed the growth and evolution of Physician Practice Management organizations. PPMs are management organizations which perform credentialing, contracting, utilization management and quality assurance to physician groups, which in turn contract with HMOs or other organizations to receive premium payments. The researchers studied PPM’s internal operations and their contractual relations with health insurance plans between 1998 and 2000. Case studies were conducted of all major PPMs and their associated health plans in the mid-Atlantic states and in California. The case studies collected quantitative data on PPM physician affiliations, patient enrollments, and financial performance, and qualitative data on corporate structure, strategy for mergers and acquisitions, physician compensation and methods of utilization review and quality management. Similar data were collected on their contracted health insurance plans. The objective of the study was to inform policymakers about these new organizations and whether regulations are needed that address consumer protection, solvency, quality, and antitrust issues, and how these entities might function in the Medicare program as Provider Sponsored Organizations.

Robinson, J.C. "Physician Organization in California: Crisis and Opportunity," Health Affairs, Vol. 20, No. 4, 2001, pp. 81-96.

Robinson, J.C. "Theory and Practice in the Design of Physician Payment Incentives," Milbank Quarterly, Vol. 79, No. 2, 2001, pp. 149-177.

Robinson, J.C. "Paying Doctors," Expert Voices. July 2001. Washington, D.C.: National Institute for Health Care Management.

Robinson, J.C. "Organizational Economics and Health Care Markets," Health Services Research, Vol. 31, No. 1, 2001, pp. 177-189.

Robinson, J.C. "Blended Payment Methods in Physician Organizations Under Managed Care," JAMA, Vol. 282, No. 13, 1999, pp. 1258-1263.

Title: Managed Care: Contractual Arrangements with Physicians and Implications for Pediatric Health Care Use
Institution: University of Florida
Time: September, 1996 - December, 1998
PI: Elizabeth A. Shenkman, Ph.D., eas@ichp.edu

How do financial arrangements between managed care organizations and physicians affect the primary and preventive care children actually receive? Researchers conducted a longitudinal study that assessed how different models of financial and contractual arrangements of managed care organizations (MCOs) influence pediatric health care use, the provision of primary and preventive care, and the charges for such care. The study analyzed five managed care organizations that use a variety of contractual provider arrangements: capitation, salary, negotiated fee-for-service for both primary care and specialists providers, financial penalty and bonus structures, risk sharing methods, and varying approaches to referral management. The organizations serve different groups of children, as well, notably low-income children enrolled in subsidized commercial plans (not Medicaid), those enrolled in Medicaid health maintenance organizations, and children enrolled in commercial plans. Data are available for more than 90,000 children living in urban and rural settings in the State of Florida. The objective of the study was to increase understanding of physician financial incentives, and their implications, as they relate to children's health care use.

Title: Hospital Contracting Under Managed Care
Institution: University of Alabama at Birmingham
PI: Michael Morrisey, Ph.D., morrisey@uab.edu
Time: June, 1996 - December, 1998

What factors affect HMO and PPO decisions to contract with some hospitals and not with others? This study examined the determinants of managed care contracts and the dynamics of those contracts over time. The researchers examined: 1) the effects of insurance market competition; 2) the relative importance of hospital costs, quality, services, and other factors; 3) the stability of HMO/PPO contracts over time; and 4) the effects of HMO/PPO strategies on managed care market penetration over time. The objective of this study was to help policy makers understand why managed care organizations contract with specific hospitals.

Morrisey, M.A. “Competition in Hospital and Health Insurance Markets: A Review and Research Agenda,” Health Services Research, Vol. 36, No. 1, 2001, pp. 191-221.

Burns, L.R. et al. “Managed Care and Processes to Integrate Physicians/Hospitals,” Health Care Manage Review, Vol. 23, No.4, 1998, pp. 70-80.

Title: The Effects of Any Willing Provider Laws
Institution: University of Alabama at Birmingham
Time: April, 1996 - March, 1998
PI: Michael Morrisey, Ph.D., morrisey@uab.edu

Do state any willing provider laws inhibit the ability of managed care to reduce health care costs by forcing health plans to relinquish some control over the panel of providers? Researchers developed a compendium of AWP laws, reviewing each state AWP statute and classifying it with respect to providers covered, types of managed care firms covered, dates of enactment and implementation, and the nature of the enforcement provisions. In addition, they estimated the effects of AWP laws on: 1) prescription drug prices paid by HMOs and PPOs; 2) the number of participating providers in managed care firms and on the administrative costs of expanded participation; 3) managed care firms' market penetration; and 4) on health insurance premiums. The objective of this study was to better understand the impact of AWP laws on the growing managed care industry.

Ohsfeldt, R.L. et al. “The Spread of State Any Willing Provider Laws,” Health Services Research, Vol. 33, No. 5, 1998, pp. 1537-1562.

Title: Physician-Organization Arrangements: Impact on Integration and Managed Care
Institution: Hospital Research and Educational Trust
Time: February, 1996 - February, 1998
PI: Gloria J. Bazzoli, Ph.D., gbazzoli@vcu.edu

What are the effects of hospital, health market, regulatory, and community characteristics on the decision to develop a physician-organization arrangement and on the type of arrangement that is selected? The Hospital Research and Educational Trust (HRET), in collaboration with the Wharton School of the University of Pennsylvania, studied joint hospital and physician group efforts to create integrated service arrangements and facilitated managed care contracting. The study provides baseline data on the prevalence of these relationships, associates different organizational arrangements with measurable characteristics to develop classification schemes, and develops an analytic framework for assessing why hospitals and physicians implement various arrangements.

Bazzoli, G.J. et al. “Capitated Contracting Roles and Relationships,” Journal of Health Care Management, Vol. 45, No. 3, 2003, pp. 170-187.

Bazzoli, G.J. “Medical Service Risk and the Evolution of Provider Compensation Arrangements,” Journal of Health Politics, Policy, and Law, Vol. 26, No. 5, 2001, pp. 1003-1018.

Bazzoli, G.J. et al. “Is Provider Capitation Working: Effects of Capitation on Integration and Hospital Costs of Care,” Medical Care, Vol. 38, No. 3, 2000, pp. 311-324.

Bazzoli, G.J. et al. “Capitated Contracting of Integrated Health Provider Organizations,” Inquiry, Vol. 36, No. 4, 2003, pp. 426-444.

Dynan, L. et al. “Assessing the Extent of Integration Achieved through Physician-Hospital,” Journal of Health Care Management, Vol. 43, No. 3, 1998, pp. 242-261

McWilliams, J.L. “Health Plan Payments Can Motivate Tighter Integration
Between Physicians and Hospitals,” Changes in Health Care Financing and Organization Findings Brief, Vol. 4, Issue 3, April 2001.

Title: Evaluate Selective Contracting for Tertiary Services by Managed Care Organizations
Institution: Georgetown University
Time: July, 1994 - December, 1997
PI: Jack Hadley, Ph.D., jhadley@ui.urban.org

To what extent do managed care organizations contract for tertiary care services, and what is the impact of this type of contracting on health care markets? Today, many managed care plans employ this practice, but little is known about how it works or whether it is effective. The investigators described the current state of selective contracting for tertiary care services by managed care organizations; assessed the impact of characteristics of managed care plans, hospitals, and health care markets on the use and form of selective contracts for tertiary care services; examine the extent to which managed care plans channel their tertiary care patients to particular hospitals in response to price concessions; and evaluated the broader market effect of managed care penetration on the use, cost, concentration, and quality of tertiary care services provided to populations in different geographic areas. The investigators hypothesized that the ability of managed care plans to secure high quality tertiary care services for their enrollees at low cost is an important factor in assessing the success of a health care system based on managed care. The objective of this project was to help decisionmakers understand whether and how selective contracting improves the delivery of tertiary care services.

Schulman, K.A. et al. “Quality Assessment in Contracting for Tertiary Care Services by HMOs: A Case Study of Three Markets,” The Joint Commission Journal on Quality Improvement, Vol. 23, No. 2, 1997, pp. 117-127.