This market has some of the highest premiums in America; and this is a
market where nobody is making any money. As far as we can tell, barely anybody
is breaking even. What's wrong?
Boulter is the Medical Director and Senior Vice President of Boston-based Tufts Health Plan, considered one of the country's best managed care companies. Formerly a practicing internal medicine physician and endocrynologist, Dr. Boulter served in leadership positions in New Hampshire at the Hitchcock Clinic and Matthew Thornton Health Plan before joining Tufts. He is also an Associate Clinical Professor of Family Medicine and Community Health at Tufts University School of Medicine.
I'm not sure anybody knows what is really wrong in this marketplace. It's
known for the high quality of its medical facilities. It's a bastion of
medical education. It has the highest costs, and yet, over the past several
years, the hospitals, the physicians and the health plans--all the segments of
this population--are now losing money.
There is no question that the medical cost structure has increased
dramatically. But probably more importantly, over the past five years, there
has been a significant decrease in what we call the income that health plans
have to pay for medical costs. There really has been a disconnect between the
cost of medical care, and the money flowing through the system to pay for
It's a competitive marketplace among the health plans. As the health plans
here were growing rapidly, they were competing for members, and when you
compete in a competitive marketplace, the prices tend to go down. health care
is a very cyclic industry. Over the past five years, the cost of health
insurance in this environment has gone down quite significantly, while the
medical costs for delivering the care have risen. Over the past several years,
that has led to losses in health plans, and losses both in the hospital and the
But who's driving it? What institutions are driving it? Is it
corporations? Is it employers?
It's a combination. The employers are looking for the best deal to pay for
health insurance for their employees. And the health plans want to deliver the
best deal they can to those employees. The disconnect occurs in many aspects,
between what the employees want, what the health plans wish, and what the
medical community, patients, and health plan members feel that they can have
for services. In many aspects, we have a disconnect between the demand of
services and the ability to pay for services. And remember, health insurance
covers most of those services. So we have a unique market phenomenon
here--people can get pretty much what they want without paying for it.
Why can people get what they want without paying for it?
Because it is being paid for by insurance. As long as health plans have
first-dollar coverage for insurance--which most of the employers around here
are very happy to give to their members--they really have carte blanche to get
the type of care that they want, wherever they want to get it.
But in the situation before, under fee-for-service, people weren't going
broke, so something has changed. It was true before that patients can go
spend somebody else's money. Something's changed. What critical factor
The critical factor that changed is that health care has become much more
expensive because of sophisticated technology. We do procedures now that were
never even thought of even ten to 15 years ago. And other technologies--not
just health care technologies--but pharmaceutical costs, and x-rays, all have
become tremendously much more expensive, because they're much more
sophisticated. We did not have MRI scans 20 years ago. An MRI scan costs
about a thousand dollars. We just had plain chest x-rays, which cost $50-$60.
. . .
And you had a collective scream in the late 1980's from corporate America,
and from Congress, saying, "Enough."
That's correct, and that's when they moved to managed care as the middleman to
try and control the costs. Managed care has, at least in my view, controlled
the costs significantly--certainly since the late 1980's, and up until around
three to four years ago. The cost for health insurance decreased significantly
across the country, rather, the rate of increase decreased. We have seen
improvements in the cost of health care, as far as the number of procedures that
people have, and in days in the hospital. But really, that has now run its full
freight. There now needs to be more fundamental change to control the costs,
and those are tough changes. Hospitals, doctors, and health plans must work
together to improve good health care delivery at a cost that people can afford.
That's a challenge that we have in this market right now.
There's cost squeezes from the employers, from Congress, and there's
pressure coming up from patients who want more. Technology is modernizing and
getting more expensive. Doctors at places like Beth Israel Deaconess said, "We
want to take more of the health decisions and the management decisions into our
hands from the health plan. We think we can control the cost." At the same
time, they had to take some of the risk. Was that a good idea, and has that
It is a very good idea to have doctors be responsible for both the cost and
quality of care at the site of service. And it was an idea that has long been
thought to be the best way to control costs. At the Beth Israel Deaconess,
some components have been successful, and in others it has not been successful.
The problem is that you're dealing with physicians' behavior, clinical
behavior, and this is an area where physicians are very autonomous. They tend
to want to deliver what they want to their patients, to the members of the
health plan. So the question comes, at what price? And physicians don't like
to deal with "at what price." Physicians are there to serve. As I frequently
say, physicians have a fiduciary responsibility for health care for their
patients. A fiduciary for health care for the patient means that physicians
should not have any perception of a conflict of interest. They should be
looking out for the patient's welfare. That means that they should put the
welfare of their patients first, and above all other influences on them--not
the least of which is economics.
Understand that physicians, by their behavior, drive 80 percent of the cost,
whether it's by writing a prescription, giving patients a test, laboratory work
or just taking care of them for the necessary needs they have. In the new
environment, physicians are asked to be the drivers of controlling cost. So
you put physicians in a very difficult bind--to control costs, and yet meet
their fiduciary responsibility to deliver services to the patient. That's what
makes it tough to manage health care costs at a physician level.
Whose idea was this?
It was a philosophy of many health care economists, and people in the country,
who believed that the most important area of controlling health care costs has
to occur at the physician/patient relationship--at the site of the service
where the cost is being generated. And that makes sense. For example, it is
very difficult for me, as a physician executive in a large managed care
company, to have significant influence upon physicians in practice. It would
make more sense for physicians in practice to be controlled by a physician
executive who is in charge of their practice, who pays their paycheck, if you
will. That just makes common sense.
In this market, did the idea come from Beth Israel Deaconess, or did the
idea come the health plans?
The idea absolutely came from the provider community--from the Beth Israel
Deaconess itself, and from the physicians themselves. It did not come from the
health plan. The health plan was willing to give organizations like the Beth
Israel Deaconess the tools, the ability and even the finances to try to control
the cost of the care. In medical terms, we call that delegating medical
responsibility to where it ought to be, at the physician level. That also
means delegating the financial responsibility there, too.
Folks at Beth Israel Deaconess will say, yes, they took it on, but they
really don't have much choice. Their competitors were going to cut cutting the
rates, and they felt they had no choice.
The Beth Israel certainly is in a competitive marketplace. They needed to
respond to the competitors, not the health plan competitors, but the
competitors from other provider groups that were organizing within the Boston
marketplace. Did we drive it for them as a health care insurer? No. But when
they came to us and asked us to do it, we said, "Yes, if this is what you need
to do to survive in the marketplace, because we would like to have multiple
groups of physicians out there dealing the best care they can, and competing on
which would be the best quality health plan out there."
Why do you think they wanted to do it? Because they thought they could make
money, or they thought they had no choice, because Partners was going to go do
They had to do it because of the marketplace. I think they knew that they
needed to take control of medical management, to try to control the cost rather
than to rely upon an insurer to control the cost. Our major role is to package
health insurance by developing products, and then delivering the funds to the
people who deliver the care, who are the doctors, and organized doctors'
groups. It is very attractive for organized doctors' groups, like the Beth
Israel organization, to take that money, then allocate it themselves to
wherever they feel most appropriate at the site of service, where the services
are being delivered.
You said this business of doctors managing health care decisions and taking
on the risk had worked in some components of Beth Israel Deaconess, but not
others. Where does it work, and why? Where doesn't it work, and why
We have looked at this extensively within our health plan. Five years ago, we
had 34 different groups of doctors within the Boston area. Now that has
coalesced down to really only five large groups. We're able to look at those
original 34 groups we had, and see which ones performed the best as far as
quality of care is concerned. We get a lot of complaints from their members.
We look at death rates, and what type of care they delivered. Our measures
showed that most of the groups were excellent.
But the financial performance was very different from each of these groups.
What we found when we looked carefully is that most successful groups, above
all else, had physician leadership. They had strong leadership committed to
the quality of the care they delivered, and committed to doing it at a
reasonable price. They were the most successful. You need the leadership at
multiple levels. But when you have a thousand physicians or so working
underneath you, you need the leadership at the really local level--at what we
call "pods" of physicians--at each little group of physicians who work
So the leadership needs to be there through the organization. It's very
difficult to develop these systems of care within the large organization with a
senior executive who controls a thousand physicians. It's much easier to do
when you have multiple physician managers paying attention to groups of ten,
15, or 20 physicians.
From your perspective as an insurer, as a health plan, is it better to have
risk management down at a pod level, at a group of doctors that's fairly small,
down from the top levels?
Where is it best to have the leadership and the risk? I think the risk for the
quality of care and the delivery of care is best delivered at small pods. I
personally have concerns when you have the financial risks spread over a small
number--ten, to 15 or 20--of physicians. The financial risk needs to be spread
over the larger institution, and this is what CareGroup is trying to do. The
quality and appropriateness of services should be delivered at a local level.
I see a separation between the two, but obviously they're linked.
What do you mean by "risk" in a pod or a small group? What does it mean for
doctors to take on risk when they're dealing with patients coming from a health
In the Tufts Health Plan model, when we talk about doctors taking a risk, the
majority of the time we're talking about doctor contracting with a health plan
on a fee schedule for the services they deliver. For each service they
deliver, they get paid a certain amount that we negotiate with the physicians,
and with their parent company, such as the Beth Israel. We then take ten
percent of the fees that they do and put this in a separate pool. We develop a
budget for all the care they're going to deliver for all their patients,
depending how large the group is. For Beth Israel, we're talking about
30,000-40,000 patients. Then we say, "You will try to meet this budget for
the services. Ten percent that is being withheld from all the services that are
delivered will fit in this pool." If, at the end of the year, the whole
entity--not the individual physicians--meet that budget, they can receive that
ten percent of their money back. So the doctors get paid 100 cents on the
dollar. If they go above the budget, if they've saved more money, they can get
a surplus back. In 1993-1994, most physicians were getting some degree of
But in the last few years it's gone the other way?
In the last few years, it has gone the other way, predominantly because the
amount of money flowing through the system--the premium that we are selling in
the marketplace--has cyclically decreased over the past few years. Only now is
it coming back to where it was in 1994, so the employers have gotten quite a
good deal in the past three to four years.
A doctor told me something like this. "I normally would charge $100 for a
certain service. I got a bulk agreement with the health plan that I'm only
going to get paid $40, because I got a lot of patients coming from the health
plan. They've negotiated a $40 rate on what I would normally charge a hundred
dollars for. Because it's a 10 percent withhold, I'm getting $36. And at the
moment, I'm losing money on that $36, so I'm going in the hole. I'm not
getting my four dollars, and I'm not getting the other $60 I didn't get. And
I'm going in the hole on the $36. I'm losing three ways on this deal." That's
a tough set of risks for doctors to be taking.
Physicians have a choice regarding whether to accept risk. They have a choice
whether to join entities that will negotiate in their best interest. They have
a choice whether to accept whatever rules are put on by the health plan.
Physicians bond together in large organizations to negotiate fair rates for
their services for the care they deliver.
If you look at physician compensation in this marketplace, it is still better
than almost any other place in the country. So it depends on what way you're
looking at it. I came from New Hampshire, where there was no managed care.
Some physicians in New Hampshire felt themselves lucky to earn $30,000-$40,000
a year, and physicians were doing this in northern New Hampshire. In the
eastern Massachusetts marketplace, physician compensation is very much
significantly higher than that--well up in the six figures.
What are you talking about? For a top internist, a primary care physician
with a good, very active practice of thousands of patients--even under these
circumstances--what's a pay range for those kinds of doctors there?
The AMA has published it by regions. A busy internist, who's not a
sub-specialist, will certainly make $150,000-$200,000. That means they work
hard, and they may be on call nights and weekends. They work hard for that,
but that's the level of compensation. If you talk about surgical
sub-specialists, and even medical sub-specialists, you're talking about
considerably more income than that. There are certainly national surveys that
show that specialists are very, very well paid.
To go back to the business of risk, what you're saying is if doctors, either
individually or as a small group, take on the risk, they're going to get paid
so much for the services, and a certain portion of their pay is being withheld,
depending upon their economic performance. In a system where they're capitated,
where there's a limit on what they get paid. They get paid so much per month
for each patient, and they simply have to fit all the care for those patients
within that cap.
There are a number of ways physicians get paid. But the system that most
people have here is really like the old fee-for-service. For each patient you
see, for each procedure you do, you get paid on a fee schedule. You're paid
for services delivered. That's the fee-for-service model. In our model, which
is a ten percent withhold for each one of the procedures you do against a
budget, you just see another one or two patients a day and you make that right
on up. So physicians can drive utilization, see more patients, and have night
hours or weekends hours if they want to make up the difference. Then they make
a balance between the quality of their lifestyle, as far as the number of hours
they want to work. That's the main model we have here. With capitation, where
there's a fixed fee, they don't have that latitude.
At least from the Tufts Health Plan, that is a choice that physicians make, not
a choice that Tufts Health Plan makes. We will not allow physicians to
capitate our members unless they have systems in place to make sure that they
are fulfilling the role they need to, in delivering all the services a member
needs--irrespective of the cost of those services. We feel that quality
oversight is crucial in the health plan. That is why the majority of
physicians in the Tufts Health Plan are on our discounted fee-for-service
system, not on capitation, like other models. In areas like California, where
models have been based on capitation, they are now moving away from capitation,
and moving more to the fee-for-service type of model that we have in this
Doctors are taking the maximum risk in programs that cap the payment per
patient for each month that the doctor covers all their care. Those are ones
in which the doctors are really taking maximum risk. It's not ten percent of
their salary that's at risk--it's all of it. If the patient is healthy, they
take the cream. If the patient is sick and has very expensive procedures, they
take the hit.
Capitation certainly has the greatest amount of financial risk for physicians.
That's why we believe physicians should not get into capitation arrangements
unless they understand what they are getting into. And it's not one that we
necessarily encourage. It does change physicians' behavior. You need to have
systems in place. Our responsibility as a health plan is to make sure the
member gets all the services they need.
So, you're fighting for the member and for the doctors. Is this where
you're talking about a doctor shouldn't be put at a conflict of
That is exactly right. This is where doctors get caught between their own
financial needs and the needs to deliver the services for the member and their
patient. And that's a difficult area for physicians to be in. It's one of the
key areas which has driven physicians to be very concerned and, many feel
uncomfortable with managed care in a capitation model. That's why I think we
will move away from individual physicians being capitated. If you have a large
number of physicians bonded together in a pod, and they're all paid on a
salary, that would be a great way to do it.
Finances do affect people. Doctors are human like everybody else. They have
mortgages, kids going to college. And in the old days, every time they did
more work, they got paid more. In the new era, that may not necessarily be the
case, if you're in a capitation arrangement. I think it will change behavior,
and you have to watch that very, very carefully.
Are patients confused? CareGroup and Partners have built up networks. One
of the most important selling points of many health plans today is choice.
Patients, members, and ordinary consumers are buying choice. They get into a
group through their primary care physician and they're told, "There is choice,
but it's choice within our shop." The shop may actually be quite large, but,
nonetheless, it's not unlimited choice. Are patients are confused by dealing
with different institutional set-ups?
The patients are confused with the structure of medicine as it is today. The
patient thinks of the relationship as "myself to the doctor." They don't think
of it as "myself to the doctor, to Beth Israel, to a larger group." . . . We
sell a product that says you can go anywhere within Tufts Health Plan, and that
may be to this academic institution, or to quite a different one. Yet the
member might want to go to a competing one across the street. That doesn't sit
well with the physician, and patient gets caught in the middle. And worse, the
physician/patient relationship gets challenged under those circumstances. "Are
you really serving my best interest as a patient, Doctor, or are you looking
out for your best interest?" That is a big challenge.
One of the senior doctors said that risk is like a hot potato. Nobody wants
it, and everybody's passing it on to each other. What do you want?
Financial risk is absolutely a hot potato. Physicians would prefer not to have
to deal with that issue, because of the conflict that it brings up with their
responsibility to deliver all the services to the patients. But physicians are
realistic that there has to be some control of cost, too. So where that hot
potato lies is going to be a challenge. In many aspects, however, physicians,
as a group, tend to like control. They like to have influence, and they like
to be in charge. It's probably a selection process of being a physician. I'm
a physician myself, so I can criticize myself for having those characteristics.
And in their pursuit of control, they understand as individual physicians, or
as part of integrated delivery systems, that whoever controls the money
controls the game. health care isn't a game. It's a very serious, important
thing to all people. But control comes with controlling the finances. By
having financial control, physicians would be better in control of their own
lives and their own destinies. But with financial control comes financial
risk. It is a challenge to balance the control needs you have as a physician
and the financial stress that that can put on the system.
Is that how you think it evolved? Looking back at CareGroup three or four
years ago, was it really an effort to regain some of the control they felt they
had lost in the earlier introduction of managed care?
The physician groups and the integrated delivery systems believed that, by
taking over a lot of the financial controls, they would take over all that goes
with it, which includes medical management and care of the patients. It was a
way to get control of something that they felt they had lost control over. And
in some aspects, I think they were right. Certainly, we at Tufts Health Plan
encourage physicians to take that responsibility on, but only when they're
ready, and when they have the systems to do it. But I think the answer is yes
to that question.
And then they discovered it was a hot potato?
And then physicians discovered that it's easy to talk about doing things, but
it's a lot tougher to pragmatically do them.
For more on the battle between doctors and insurers over who bears financial risk, see Tom Jennings' story, "The Game of Risk."
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