MICHAEL SOPER, M.D. SENIOR VICE PRESIDENT AND NATIONAL MEDICAL DIRECTOR, CIGNA HEALTH PLAN BEFORE THE MEDICARE AND LONG-TERM CARE SUBCOMMITTEE

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1 GROUP HEALTH ASSOCIATION OF AMERICA, INC. MICHAEL SOPER, M.D. SENIOR VICE PRESIDENT AND NATIONAL MEDICAL DIRECTOR, CIGNA HEALTH PLAN BEFORE THE MEDICARE AND LONG-TERM CARE SUBCOMMITTEE SENATE FINANCE COMMITTEE ON VOLUME OF PHYSICIAN SERVICES JUNE 16, 1989

2 HMDs provide appropriate medical care while achieving lower utilization rates, particularly for hospital inpatient care. HMDs have developed internal systems for measuring quality of care and under Medicare are subject to external review. There is no counterpart in the fee-for-service sector. HMD compensation of physicians is one method of affecting physician behavior. Many HMDs have developed incentive arrangements. These vary among HMDs, but are designed to appropriately share risk between physicians and the HMO.

3 Good morning Chairman Rockefeller and members of the Subcommittee. My name is Michael Soper, and I am a physician. I am also Senior Vice President and National Medical Director of CIGNA Health Plan. CIGNA is the largest investor owned HMD, with nearly one and one-half million members and 30 health plans, both staff and IPA models, located throughout the United States. In the past, I have been the Medical Director of an IPA model HMD in Florida and a staff model HMD in Kansas City, Missouri. Today, I represent the Group Health Association of America, the oldest and largest national association of HMD's. There are currently 614 HMDs nationwide with a total enrollment of more than 32 million people. I have been asked to comment on how HMD's manage the volume of services to our patients without sacrificing quality. CIGNA and the rest of the managed care industry, have discovered that the managed care approach has proven to contain costs while providing high quality health care. HMO participation in federal programs such as Medicare and the Federal Employees Health Benefits Program (FEHBP) provides an important alternative health care delivery option and often an enhanced benefit package. And, in the private sector, HMD's have achieved high consumer satisfaction while slowing the rate of employer costs for health care.

4 - 2 - It has been well-documented that HMD's do achieve a lower utilization rate for certain costly medical services, particularly hospital inpatient care. It is also increasingly apparent that variations in medical practice patterns are normal. HMD's manage to contain the volume of medical services towards the lower end, but still well within, this broad range of acceptable medical practice. This has been confirmed and reconfirmed by quality of care studies. However measured, including measures of health status outcomes, these studies consistently report that the quality of HMD care equals or exceeds that of the fee-for-service sector. HMD's have developed systems for measuring and managing quality. The systems vary on a plan by plan basis, but they are all aimed at assuring the appropriateness of care, including the access to all needed care. Some plans have process-oriented systems which track compliance with standards. Others have highly sophisticated systems using predetermined outcomes measures. Still other HMD's rely on external review agencies such as the National Committee for Quality Assurance (NCQA), the Joint Commission for Accreditation of Health Care Organizations (JCAHO), or the Accreditation Association for Ambulatory Health Care Inc. (AAAHC). And, many HMD's do all of these. This systematic quality management of HMD's has no counterpart in the fee-for-service sector.

5 - 3 - The inherent nature of an HMD, with its organized delivery system, relationship with physicians and application of medical management, lends itself to prudent and appropriate medical practices. Perhaps two features of this organized, managed approach are most noteworthy: The role of primary care physicians and the manner of physician compensation. HMD's establish each member with a primary care physician who serves as the access point to the medical care delivery system. Most needs to most members are satisfied directly by the primary care physician. When necessary, this physician also manages and facilitates referrals to specialists or inpatient care. This structure assures continuity and coordination. The HMD setting permits physicians to practice their profession free from considerations of the patient's ability to pay for a specific service. Such an arrangement is attractive to both physicians and patients, but it fuels the inflationary effect on volume that results from the piece work nature of fee-for-service compensation. Consequently, HMD's seek to compensate physicians in a manner other than fee-for-service. Salary is the most predominant form of physician compensation in staff model HMD's and capitation arrangements, which are equivalent to salary in many ways, predominate in IPA models, particularly for primary care physicians. Many observers

6 - 4 - credit this removal of fee-for-service incentives as a critical attribute of the success of HMD's in managing the volume of health services without compromise in quality. Many HMD's have also developed physician payment incentives which provide opportunity for payments in addition to the basic salary or capitation rates. These incentives take many forms, such as bonuses based on performance. In some cases, the incentive system is designed to demonstrate the well established principle of sharing risk among the physicians and the HMD. The most common incentive systems base the amount of the additional payment on the experience of a physician's entire patient panel, the aggregate results of a group of physicians, or the overall results of the HMD. Increasingly, measures of performance relating to quality and patient satisfaction are included in incentive arrangements. We understand that this legislation was initiated by an incident in which a hospital established an incentive arrangement to share with the attending physician the savings realized by the hospital in any case in which the Medicare DRG payment to the hospital exceeded the cost of service to the patient. Such an arrangement, which rewards the physician to

7 - 5 - selectively admit to the hospital those patients least in need of hospital care, was clearly destructive to the intent of the Medicare prospective payment program. The practice was quickly and correctly prohibited by Act of Congress. But HMD physician incentive payments are of an entirely different nature. The legislation wisely included an effective date of April 1, 1990 in order to determine the nature and impact of HMO incentives on the delivery of care, and whether or not corrective measures were needed. Studies recently released by the Physician Payment Review Commission (PPRC) and the Government Accounting Office (GAO) on physician incentive arrangements in HMD's did not find evidence that these financial arrangements have any adverse effect on quality of care. The role of physician incentive payments in affecting physician performance must be viewed in the entire context of HMO organization and management practices. These arrangements demand data, and the data provides information and feedback to physicians that is helpful in comparing and sharpening the accuracy of their medical practice. Therefore, we would urge Congress to proceed very carefully if it chooses to address the issue of physician incentive arrangements in HMO's.

8 - 6 - Finally, and to some most important, patient satisfaction remains at an all time high. - Recent independent enrollment surveys put HMD enrollee satisfaction in the 90% range. Mr. Chairman, neither we nor our systems are perfect. We constantly reevaluate the way in which we provide and pay for the health care of our members. We focus our management activities on quality and patient satisfaction as well as cost containment. We constantly look for improvement and are readily willing to try new ways. This ongoing evaluation process is similar to this committee hearing today. We congratulate you on your efforts and will cooperate with you to the fullest. Thank you. I'd be happy to answer any questions.

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