Physicians cashing in with their own Medicare plans

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Medicare Advantage plans have carved out a profitable niche by managing the care of Medicare recipients. Many physicians say that while such plans can be highly profitable, health insurance companies achieve those savings through an autocratic style that dictates to doctors what they can and can't order for patients. One St. Louis physician group sensed an opportunity and took a big step in 2003: forming its own Medicare managed care plan. Now the physicians believe they have a competitive advantage over insurer-owned MA plans and are rolling out the plan in several more cities.

The opportunity does seem significant. About 20% of Medicare beneficiaries now belong to such plans, which were conceived as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 as a way to help both beneficiaries and the government save on healthcare costs. And they are profitable for insurers—so much so that some politicians are seeking to roll back the program. But that noise doesn't deter the expansion plans of Essence Healthcare, formed in 2003 in St. Louis as an outgrowth of Esse Health, a local physician practice. Essence had its genesis with the birth of global risk contracting. Under that model, which fell into disuse around the turn of the century, physicians were no longer bound by the oversight of HMOs' medical management programs. The bet was that physicians could gain better financial rewards from reduced utilization, but bore the risks should utilization not decline.

"It failed because it was underfunded and physicians couldn't function as good purchasing agents," contends Tom Doerr, MD, a practicing internist and chief innovation officer with Essence Healthcare, who says the average physician has about $2 million in annual spending authority. "They didn't know how to spend money wisely."

If Doerr's last name sounds familiar, it's because he is the brother of John Doerr, a multibillionaire founder of the search engine Google and a key financial backer of Essence Healthcare. Tom Doerr says Esse Health flourished under global risk contracting because he and his physician colleagues were able to develop printed pocket guides covering prescription drugs and their efficacy compared to lower-cost alternatives. Based on the success of the first guide, they developed several more that compared treatments, medical devices, and other medical decisions over which physicians often have the final say.

Doerr, the author of the first guide on drugs in the mid-1990s, intended to use the guide personally, but many of the 70 other physicians in his group kept asking for copies. By 1999, United Healthcare informed Doerr and his partners that they were among the top 2% of groups as they assessed quality of care, cost and patient satisfaction. And then a light bulb went off. "We decided to form our own health plan as a defensive effort, because we realized we had a lot of revenue tied up in these Medicare risk contracts and we were in a vulnerable position with payers," Doerr says.

After raising $4 million from its doctors and developing more such guides, Esse Health rolled out Essence Healthcare in its home city in 2003. Fast forward to 2008, and Essence has debuted similar Medicare managed care plans in two more cities: Louisville, KY, and Seattle, with plans for two more cities in 2008 and two more in 2009.

"If docs had some remuneration, they would cut out the waste in healthcare," he says, adding that for most doctors, the onus is on them to figure out how to practice medicine efficiently while they get none of the financial rewards.

"Evidence-based medicine is often admired but seldom practiced, because [for physicians] there's a negative business case for doing it," he says, "We've created a positive business case."

How? By getting patients in on the cost-saving game. Essence has written at least 500 patient educational handouts, written at an 8th-grade reading level, which help patients understand what the medical journals teach about responsible use of drug therapy and diagnostic testing, for instance.

Esse doesn't force doctors to do much of anything. It rewards preventive care by cutting the out-of-pocket cost of office visits for patients while increasing the patient's share of costs—compared with other plans—for big-ticket healthcare costs like inpatient hospital stays. Many of its physicians do house calls, in fact. But that doesn't mean its maximum out-of-pocket costs for members are higher than other plans.

"In 2007 our physician-owned plan had the most generous benefits of any Medicare plan in the state, he says. "Also, CMS does a survey of 600 members of every Medicare HMO, and we have the highest member satisfaction."

By 2007, the average Esse primary-care physician went from seeing 23 patients a day in 2000 to 17.5 patients per day, while his income went up 44%, Doerr contends.

"We cover more benefits than other plans and give docs more flexibility on how they care for their patients."

Philip Betbeze

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