Physicians Practice - September 2008 - (Page 42) GETTING PAID to control healthcare costs and maintaining quality of life,” says Epitropoulos, who wants to see TPAC establish health and wellness programs within the first year, including programs for smoking cessation, diabetes, and asthma. “We hear a lot about ‘pay-for-performance.’ We want to do almost a ‘pay-for-quality,’ establishing measurable quality factors based on quality care, not economic factors. That’s unique.” SUCCEEDING WHERE OTHERS FAIL “They wanted to pay 200 percent of Medicare. I said you can’t stay in business doing that. You can’t. They said, ‘Oh, yes, we can,’” remembers Lessin. “They were wrong.” Good underwriting is key. The only It’s all well and good to talk about quality care and competitive reimbursement, but haven’t we heard this story already? A lot of bankrupt companies espoused this same philosophy 20 years ago. TPAC is well aware of the pitfalls. In fact, one of its first calls was to the organizers of the defunct Pennsylvania Physicians Care plan. TPAC learned two major lessons from its predecessors’ mistakes: Don’t overpay yourself. Pennsylvania Physicians Care did it, the nowdefunct California Medical Association plan did it, and so did … well, pretty much any physician-owned insurance plan that ever failed. There is always a temptation, especially among physician-owners, to reimburse participating physicians at a higher rate than competing plans, confirms Madden. “Physician-owned plans have a tendency to pay higher. They want to be fair, whereas a traditional carrier is looking to minimize costs and increase profits,” says Madden. “Doctors tend to want to pay other doctors a better rate.” But companies that pay providers too well risk putting themselves out of business. It’s exactly what happened to Pennsylvania Physicians Care. “They wanted to pay themselves significantly higher than market value,” says Epitropoulos. “Higher than Medicare — 130 percent over Medicare.” Lessin once consulted with a company that was even more ambitious. 42 | PHYSICIANS PRACTICE | SEPTEMBER 2008 way an insurance company can remain solvent long-term is by spreading its risk across a large enough patient population. In other words, there have to be enough healthy patients to pay for the sick ones. TPAC knows that and is working hard to get the right mix of patients. It’s targeting a nine-county area in central Ohio and working primarily with private employer groups and the fully-insured market, avoiding self-insured and government employers entirely. They’re also avoiding the Medicare and Medicaid markets. That means full premiums from a patient population that doesn’t necessarily have a high claims rate. David Rubadue, TPAC’s chief financial officer, is fully aware of the importance of underwriting to the company’s success. “We have to look at the variables that can influence price. What we don’t want to do is bring in a lot of business with very poor claims at a price that is very cheap,” he says. “We will go out of business really fast.” That might seem obvious, but it is surprising how many plans fail because of bad underwriting. “You have to spread the risk. You have to have enough people,” agrees Madden. “One person who requires heart surgery could bankrupt you.” Madden adds that healthcare costs can sometimes be cyclical. “If a bad flu comes along one year, it can raise costs. You need to make sure you have enough reserves,” says Madden. “The big companies have reserves. If they’re having a bad year with healthcare insurance, they can depend on the profitability of their life insurance division, for example. Physician-owned companies can’t do that.” Lessin also emphasizes the need for reinsurance: “If [the company doesn’t] have a reinsurance contract, and they are at risk for everything, they’re almost guaranteed to go broke.” He gives the example of a 100,000-member plan that might need to cover a liver transplant for a single patient. At a cost of over $3 million over such a patient’s lifetime, that could put the entire plan out of business. Small plans like TPAC and MVP need to contract with a third-party insurer to cover unexpected financial risks. BUSINESS IS BUSINESS Lessin’s MVP Healthcare is one of the success stories. Started in the late ‘80s by a local medical society in New York, MVP weathered the storms that tore other physicianowned companies apart. Now it’s a $2.5 billion not-for-profit managedcare organization serving close to 700,000 patients in the capital district of New York state, as well as Vermont and New Hampshire. Strictly speaking, it is no longer physician-owned, though physicians are well represented on its board of directors. “New York state law does not allow physician control of managedcare organizations,” explains Lessin. For 25 years, MVP has offered many of the advantages that TPAC is only planning to implement, including lower profit margins, physician involvement in decision making, and competitive reimbursement schedules. “We’ve been rated in the top ten or twenty [managed-care organizations] for our entire existence. We’re a good company, and we’re actually ‘profitable,’ to the extent that we have surplus, not profit, of course. Our profit margin is 3 percent, as opposed to 22 percent like that of for-profit companies,” says Lessin. Yet with 700,000 patients, MVP is small for a health insurance company and much more vulnerable to risk than a major corporation. “Even at $2.5 billion in premiums, we’re a minnow in that particular pool,” acknowledges Lessin. 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