The Doctor's Dilemma Revisited: Ethical Physician Decisions in a Managed Care Environment

I faced a conflict between my patient's best interest and my own best financial and professional interests. In recent years, Medicare beneficiary enrollment in health maintenance organizations (HMOs) has expanded, especially in parts of the country where managed care has achieved a major foothold and where there are large numbers of retirees, for example, California, Arizona, and Florida. To beneficiaries, one of the major attractions of the Medicare risk plan option is the broader set of benefits that HMOs and other risk plans are able to offer. For example, 97 percent of risk plans were able to offer routine physical examinations, 91 percent eye exams, and 88 percent immunizations in their basic benefit packages in 1997 (Physician Payment Review Commission, 1997). Perhaps most important to Medicare beneficiaries with chronic diseases, 69 percent of Medicare risk plans were able to offer coverage for outpatient drugs as part of their basic packages (Physician Payment Review Commission, 1997). Two thirds-called zero-premium plans-were able to provide additional benefits without charging premiums to enrollees (Physician Payment Review Commission, 1997). These additional benefits and reduced costsharing obviously are attractive to beneficiaries, who have to weigh the advantages of the additional benefits against the cost of losing the full freedom of choice of provider that is a feature of the traditional, fee-for-service Medicare program. Less appreciated is that Medicare risk options also require physicians to weigh benefits and risks, not only to themselves, but to the Medicare patients for whom they care. COMPENSATION METHODS To understand the doctor's dilemma posed by the availability of HMOs and broader Medicare choices, it is necessary to briefly review how managed care organizations compensate physicians for their patient care services. The three basic methods include fee-for-service, salar, and capitation. There are additional variations in methods, such as the use of financial penalties and bonuses based on assessment of actual utilization, but these may be applicable to all three basic approaches. Historically, private physicians were paid on the basis of fee-for-service, which reimburses them for every individual service they provide to patients. Before insurance, doctors simply billed their patients, fee-for-service, for the relatively few services doctors provided. With the advent of private insurance in the thirties and forties and then Medicare and Medicaid in the mid sixties, physicians often received fee-forservice reimbursement from the insurer-the third party-with patients usually required to pay modest deductibles and relatively small coinsurance payments. Under fee-for-service, the more services physicians provide, the greater their remuneration from the insurer and patient. Although fee-for-service is inherently inflationary, many managed care organizations, such as preferred provider organizations, continue to pay in this way. Even many HMos, which are allowed legally to shift financial risk to providers, continue to pay their professional providers fee-for-service, relying mostly on discounting fees and utilization review to try to keep costs down (Goldfield, I992). Although partly successful initially, even deep discounts ultimately may fail to sustain cost reductions. At some point, physicians refuse to accept further discounts. Also, with fee-for-service payments, physicians may respond by increasing the volume of services provided and by manipulating the billing system (Casalino, 1992). Salary has been common in group practices where physicians are employees. Salary is considered an incentive-neutral compensation system in that physicians do not benefit directly by either increasing or decreasing the volume and intensity of services they provide to patients. The problem is that salaried compensation sends no signals about appropriate physician behavior in an era of constrained resources (The Governance Committee, 1995). …