Survey Report--Managed care: Could you live without it?

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HMOs and PPOs provide a larger share of revenue now, but less of it comes from prepaid care, doctors report.



Managed care: Could you live without it?

Jump to:Choose article section... Ob/gyns make hay from managed care HMOs still generate more income than PPOs do How participation varies by primary care specialty  Ob-gyns make the most from managed careWho's most reliant on managed care? How much of the practice is managed care? Managed care stays strongest on the coasts Groups under 10 doctors are most involved in managed care

HMOs and PPOs provide a larger share of revenue now, but less of it comes from prepaid care, doctors report.

By Ken Terry
Managed Care Editor

While their involvement in capitation has dropped sharply, primary care physicians are participating in managed care only a bit less than they did in 1998. On the whole, those who do participate are making more money from HMOs and PPOs than they did in 1998, and that money represents a higher percentage of their gross as well.

According to the latest Medical Economics Continuing Survey, which includes MDs and DOs in office-based private practice, internists earned 32 percent of their income from HMOs in 2000, compared with 23 percent in 1998, and saw their median gross income from HMOs soar to $64,900 from $52,700. They also earned more of their income from PPOs, but the dollar amount they took in from PPOs declined 12 percent, to $47,300.

FPs' HMO income jumped from 26 percent to 30 percent of gross, while their dollar volume fell from $66,800 to $62,700. From PPOs, FPs earned $56,800, or 26 percent of revenues, compared to $52,700, or 24 percent of revenues, two years earlier.

In percentage terms, GPs saw the greatest increase in PPO income. Their PPO earnings jumped 54 percent, from $28,900 in 1998 to $44,500. Their HMO income also advanced, from $46,400 to $52,800.

Pediatricians took in a whopping $87,400 from HMOs in 2000 vs $64,100 in 1998. HMOs accounted for 47 percent of their income, up from 35 percent two years earlier. But pediatricians made only $64,400 from PPOs, down from $73,300 two years earlier.

Ob/gyns make hay from managed care


After GPs, ob/gyns posted the biggest increase in managed care income of any specialty in the primary care orbit. Between 1998 and 2000, their median gross income from HMOs leaped from $109,500 to $134,100—a 22 percent increase—and the percentage of their total revenue from HMOs jumped from 36 percent to 50 percent.

Although ob/gyns' participation in PPOs dropped from 87 percent to 82 percent, those who belonged to PPOs saw their median income from those plans skyrocket from $96,600 to $124,000—a 28 percent increase. That was 40 percent of their total revenues, up from 32 percent two years earlier.

Many ob/gyns increased their HMO revenue by joining capitated plans; 25 percent had capitated patients in 2000, compared with 21 percent in 1998. Ob/gyns with capitation contracts earned 38 percent of their gross income from capitation, vs 15 percent two years earlier.

Why have ob/gyns boosted their income from managed care—and, in particular, from capitation—so significantly? Pediatrician Hank Golembesky, a San Diego-based consultant with the CSC Healthcare Group, speculates that recent legislation in many states requiring open access to obstetrician/gynecologists might have spurred plans to broaden their agreements with ob/gyns. "They're now viewed legislatively as primary care physicians," he says.

Michael LaPenna, a health care consultant based in Grand Rapids, MI, terms that theory "an awkward stretch. You don't see a lot of primary care capitation going to obstetricians. You see more of them signing up with HMOs because they can get an acceptable rate."

The reason many health plans have raised their rates for ob/gyns, he says, is that the plans are desperate to get these doctors in their networks: "Plans have a great need for that woman who wants to see her ob/gyn in the network."

A similar phenomenon explains the disproportionate share of income that HMOs contribute to pediatric practices, says Golembesky. Pediatricians saw a big jump in HMO income, he says, partly because young families "tend to gravitate toward HMOs, which have greater benefits and lower out-of-pocket costs than PPOs."

Overall, experts say, primary care physicians are making more from managed care because reimbursement rates are going up. "Managed care is 'how low will you go before you say No,'" says Philip L. Beard, a consultant based in Overland Park, KS. "Well, a lot of doctors said No, so the plans had to raise rates to keep them."

HMOs still generate more income than PPOs do

Even though the percentage of physicians participating in capitated plans dropped sharply in all primary care fields except ob/gyn, the income picture was different. The median percentage of gross income from capitation increased for FPs, internists, and ob/gyns, dropped for GPs, and remained the same for pediatricians. The strength of capitation in some markets—coupled with the sheer size of some plans—explains much of the continued dominance of HMOs in primary care income.

Primary care capitation may recede soon, however. Indeed, almost three-quarters of HMOs reimbursed some or all physician services through fee-for-service in July 2000, compared with 58 percent a year earlier, according to InterStudy Publications, a St. Paul, MN, HMO research firm. In that same period, the portion of HMOs that paid any capitation declined slightly, to 63 percent from 66 percent.

It's possible that competition with increasingly popular PPOs has caused some HMOs to shift their emphasis from capitation to fee-for-service. Golembesky cites a drop in global capitation of large groups, the resistance of primary care physicians to capitation, and some plans' perception that doctors might perform better if they're paid fee-for-service plus bonuses for quality and patient satisfaction.

Golembesky also allows that as some physicians and group practices have dropped their capitation contracts, others have picked them up. So a smaller universe of physicians is earning more money from capitation.

Neither Golembesky nor LaPenna believes managed care is going away. The numbers in Medical Economics' Continuing Survey, they feel, merely affirm that it's still the prevalent form of insurance.

But they also see HMOs mutating in the direction of PPOs by, for example, paying more doctors on a fee-for-service basis and relaxing referral restrictions. "Managed care isn't becoming less important, it's just shifting its product mix," says LaPenna.

The charts and tables here will help you see where you fit in the changing world of managed care. Our survey methodology is detailed in "Doctors' earnings: Time to call a code?" in our Sept. 17, 2001, issue.


How participation varies by primary care specialty

 Physicians participating in:
All primary care778151


Ob-gyns make the most from managed care


Who's most reliant on managed care?

 Portion of gross income in 2000 from
All primary care362925


How much of the practice is managed care?

 Active patients in
All primary care392929


Managed care stays strongest on the coasts

 Portion of primary care doctors’ gross income from
New England52187024
Great Lakes region22244320
Great Plains23325020
South Atlantic31276221
Rocky Mountain region32255728
Far West (including Alaska and Hawaii)54348247


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Groups under 10 doctors are most involved in managed care


Groups and partnerships of

2 physicians799290
3 physicians959897
4 physicians909898
5 - 9 physicians889496
10 - 24 physicians728890
25 or more physicians—*—*—*


Ken Terry. Survey Report -- Managed care: Could you live without it? Medical Economics Dec. 3, 2001;78.