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As patients shoulder a larger share of their own health care costs, they'll expect more from physicians — and reward those who meet their expectations.

Fam Pract Manag. 2000;7(1):46-49

The last decade was an eventful period for health care. Annual increases in health care costs flattened, enhancing American competitiveness in a global economy. The gatekeeper model enhanced the role of primary care. The gap narrowed between primary and subspecialty reimbursement. The fragmented physician community began to consolidate. New technologies, drugs and strategies improved morbidity and mortality for many conditions, while decreasing reliance on acute-care environments.

These positive changes came with a price. Prepaid health care delivery models pitted physician against physician and physician against hospital. Many integrated networks failed, leaving physicians unpaid and, occasionally, unemployed. Administrative and regulatory burdens became increasingly onerous.

Prepaid health care also created a wall between physicians and patients. Capitated payment systems offered minimal rewards for individualized, compassionate patient care. For many physicians, medical practice lost much of its meaning. Many of us blamed managed care itself for these events. We didn't recognize that managed care was just a business model that arose to meet market demands. We didn't recognize that managed care was neither the disease nor the cure; it was merely the symptom of an unbalanced health care system.

Market evolution has certainly not ceased. To the contrary, the new millennium — the new decade — we are entering seems likely to bring sweeping change to the market, with significant new challenges and opportunities.


  • The market is evolving beyond prepaid health care and large-scale integration.

  • Increased cost sharing is giving patients more health care options and making them more interested in the value of the care they receive.

  • Health care is entering an age of accountable consumerism in which patients will demand service excellence.

Managed care growth at a crossroads

National enrollment in HMOs declined by 3 percent during 1998, and it remained nearly flat in California. In the Northeast and Midwest, PPO enrollment surged 8 percent. In these regions, nearly one-third of all patients elected to receive care under discounted fee-for-service plans. These plans typically offer open access and a broad choice of providers, and they make it easy for patients to switch providers if they're unhappy with an element of care or service.

Health care cost-shifting: The next generation

Despite an 8 percent to 9 percent projected rise in annual health care costs, employers' concerns about these rising costs seem to be lessening. Part of the reason is a change in strategy. Many employers are softening the blow by sharing cost increases with employees. These shifts in cost are appearing in the form of variable co-pays and tiered benefit packages for specialty care and drugs.

Many employees are surprisingly sanguine about these changes. Their tolerance is due in great part to widespread dissatisfaction with managed care. Employees are recognizing that they need to pay a little more out-of-pocket to get what they want. Patients' increased share-of-cost yields a new currency with which they can purchase the type of care that best meets their needs.

Learning through experience

Large-scale integration has been an economic disappointment to both for-profit and nonprofit entities. In the for-profit sector, physician practice management companies (PPMCs) have come upon tough times. Growth and profitability have stalled. Declining premiums and erosion of prepaid enrollment have hurt both large and small networks. In the public sector, stock prices have plummeted. One large company has filed for bankruptcy and another has exited the physician management business. Multiple midsized PPMCs have been delisted from the major exchanges. While some specialty PPMCs have met both growth and earnings targets, they have been tainted by the failures of their larger cousins.

Not-for-profit systems haven't fared much better. The conventional wisdom is that 80 percent are losing money and the other 20 percent are probably overstating their results. Chronic losses in these networks may jeopardize nonprofit status. Physicians in all integrated networks have received a wake-up call: No more above-market practice buyouts; no more above-market salary guarantees.

Emerging health care delivery models

In Minnesota, long viewed as a heartland of managed care, a quiet revolution is occurring. Employers have become discouraged about limited options among leading HMOs. They have embraced a new model of delivery: the employer-provider coalition. The flagship, known as the Buyers' Health Care Action Group (BHCAG), has broken all the rules.

Features include direct contracting between providers and employers, open access and no fee restrictions. There is one catch. The coalition carefully surveys and measures patient perceptions about outcomes, cost and customer service. Provider groups are ranked, and the rankings are reported publicly on the Internet. Future plans call for public reporting of individual physician rankings.

It is too soon to ascertain the impact of the BHCAG model on patient selection of providers. However this project foreshadows an era of public accountability for customer service and perceived value. It allows consumers to see comparative rankings of providers based on nonclinical factors. Health care quality is defined by satisfaction with the totality of goods and services received rather than by pure clinical outcome. Hence, the market rewards providers who consistently deliver on the full spectrum of patient expectations.

Provider networks are also changing shape. Product-oriented medicine is once again on the ascendancy. Consumer pressure for direct access and focused excellence has spawned a renaissance of single-specialty and disease-oriented networks. These networks are interdisciplinary aggregations of providers that adopt a single-minded focus on specific markets, problems and diseases. They range from asthma to cancer to addressing the unique health problems of the homebound frail elderly.

Beyond a commitment to clinical excellence, these networks position themselves in narrow “layers” of integration combining best practices with efficiency and customer service. The specialty-oriented delivery model could represent a challenge to the generalist approach of family practice.

Health care innovation: End users become accountable for value

Value is defined as outcome divided by cost. Despite a constant stream of new drugs, technologies and procedures, many medical advances represent limited improvements over existing options. Others, such as laparoscopic surgery and the protease inhibitors, have dramatically changed health care practice.

With more health care costs being shifted to consumers, patients inevitably bear more of the cost of each new innovation. As a result, the incremental value of each new advance must be proven to individuals as well as to insurance companies and government regulators.

Evolution of information technology: Meeting market needs

The Internet has changed patient expectations about the scope and pace of health care delivery. To date, most providers' focus has been on the use of electronic medical records (EMRs) and data warehousing to track outcomes.

Patients are more focused on information, communication and instant responsiveness to their needs. Growing numbers of patients appear for appointments armed with medical information gleaned from exhaustive Internet searches. These patients also tend to purchase items over the Internet, access bank balances, pay bills and trade stocks online — all of which involve the transfer of highly confidential information. They are wondering why they can't get answers to medical questions and results of lab tests via e-mail.

New technology models are increasingly focusing on low-cost, Web-enabled connectivity to link providers and other stakeholders. EMRs are a valuable tool, but are becoming secondary to the need for connectivity among a broad spectrum of stakeholders.

Risk-averse physicians are justifiably concerned with documentation and patient confidentiality. In each of these areas, e-mail represents new challenges. Patients expect alternate routes of communication with physicians and other segments of the health care industry. They also expect providers to be aware of the latest health care information available on the Internet. They expect rapid response times to questions and concerns. Winning providers will recognize these demands and respond accordingly.

Consumerism: The market always wins

Health care has, for many years, been in denial about its status as a service industry. It has been much more of a technology industry with highly erratic levels of customer service. Health care must evolve into a true service industry.

Whether we like it or not, patients are becoming militant consumers. They are likely to be even more demanding in the future. Aging baby boomers want everything and they want it now. Regina Herzlinger elegantly captures the paradox of our traditional approach in her book, Market Driven Healthcare (New York: Perseus Books; 1997): “An industry that labels its consumers ‘patients’ is clearly off to a bad start in factoring convenience as a prime attribute of its services.”

Consumerism poses a significant adaptive challenge for health care providers. However, the trend also carries with it a silver lining of opportunity for family physicians. With increasing patient access and share-of-cost, health care is becoming a “balanced” consumer model, in which end users bear significant accountability for the cost of purchased goods and services.

Under prepaid managed care, primary care physicians typically receive the capitation rate, regardless of their individual levels of service excellence. Under a balanced consumer model, family physicians have the opportunity to gain additional rewards for total patient satisfaction. As the balanced consumer model takes hold, patients will bear more and more costs and be increasingly responsible for defining health care value. This consolidated power should eventually translate into additional physician compensation for responsiveness, access, empathy and communication — special attributes in which family physicians take great pride.

The future is ours to make

Challenges remain ahead. As physicians, we want sustainable income, job satisfaction and security. We also want meaning from the practice of medicine. However, no one is going to create these circumstances for the physician community. Just as practice guarantees have run out in integrated delivery systems, there are no guarantees in this new environment.

We are entering the age of accountable consumerism. This trend offers new opportunities to achieve our goals. To capitalize on consumerism, we need to understand the environmental factors driving this trend. Beyond understanding, we must take more difficult steps.

Change management remains a critical tool for success. We also need to allocate resources carefully and continually push ourselves to “think out of the box.” We must focus on service excellence and align ourselves with networks that share this priority. Administrative performance standards, such as telephone response times, appointment wait times and turnaround times for reporting test results, must be of equal importance to clinical standards.

Most important, we must focus on the things that only we, as family physicians, can do to please our patients. We must remember that the future belongs to those who prepare for it.

Editor's note: A slightly different version of this article first appeared in California Family Physician, Autumn 1999, page 8. Adapted with permission from the California Academy of Family Physicians.

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