Hopkins plan omits traditional pieces EHP has no outside insurer, no third party, no HMO

April 26, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

The pieces are all familiar -- and getting more familiar by the week: A hospital-centered medical network. A cost-conscious employer with self-funded health benefits. A managed-care approach.

But the Johns Hopkins Health System has contrived to assemble these pieces in a new way, with its Employee Health Plans (EHP).

And in the process of assembling them, it's left out some pieces that are usually present: There's no insurance company. There's no health maintenance organization. There's no "third-party administrator."

With EHP, Hopkins is contracting directly with employers to provide health care. The employers are self-insured; Hopkins manages the care network and administers the claims.

"The unique piece to a Hopkins-sponsored plan is that they're pitching Hopkins medicine," says John Welch, a principal in the Washington office of the benefits consulting firm Foster Higgins. "It has the Hopkins name and quality behind it."

And Hopkins, which launched EHP in January and is now seeking to expand it, believes it is the first hospital in the country to put together the pieces in precisely this way -- a provider serving as benefits administrator but not as insurer.

But, "conceptually, it's no different than [managed-care plans offered by] NYLCare, MAMSI, Columbia Medical Plan, FreeState," says Mr. Welch. "They're all attempting to generate market share for their owners."

Dr. James A. Block, president and CEO of the Johns Hopkins Health System, says Hopkins got into EHP partly "as a way for us to deal with employers and have access to their employees."

Hospitals, especially academic medical centers like Hopkins, where teaching and research add to the cost of care, are concerned with reaching patients who might be steered by insurers to lower-cost hospitals.

Also, Dr. Block says, while in some ways designed to compete with HMOs, EHP can help Hopkins "be able to better serve the HMOs in this market, to learn to be effective managing care." As Medicare patients move more to managed care, he continues, it will benefit Hopkins if "our hospitals and our physicians are disciplined" in keeping costs down.

Indeed, Hopkins' construction of EHP has a logic, almost an inevitability, given the trend toward each of the pieces:

Hospital-centered networks.

Hospitals these days -- singly or in groups -- are assembling networks of doctors and other health providers, such as labs. In some states, these networks are contracting directly with employers. More common, however, are contracts with insurers or HMOs.

"Everyone's looking for their own niche to retain their market share in their own market or extend their tentacles out for referrals," says Richard Sinni, a principal in the Secaucus, N.J., // office of Buck Consultants, a benefits consulting firm.


Being self-insured allows employers to tailor benefits to their own work forces, avoiding the elaborate and varied mandates imposed by states on insurance benefits.

Large employers, able to bear the risk, typically self-insure -- more than 90 percent of employers with more than 20,000 workers do, according to a Foster Higgins survey. And it's growing among small employers as well.

It is not only for employers that self-insurance provides flexibility. For Hopkins, it means being able to operate EHP without having to meet state regulatory requirements, such as fiscal reserves, that apply to insurers and HMOs.

It also mitigates a unique Hopkins problem. Hopkins once had its own HMO, but sold it to Prudential in a deal in which Hopkins promised not to compete directly with the insurer. But that left Hopkins restricted in what it could do to contract directly with employers.

Managed care.

Traditional insurance (even traditional plans where the employer was self-insured) simply paid claims as employees used services. Medical costs grew much faster than general inflation, and critics said the system created incentive to provide unneeded procedures.

Managed care changed the system -- and the marketplace. It is now estimated to cover about 70 percent of employees, compared to about 10 percent a decade ago.

It cuts costs in two ways. First,it negotiates reimbursement rates and volume discounts with providers. Second, it controls use by having each member's care managed by a "gatekeeper" physician.

Mr. Welch estimates that a loosely run managed-care plan can save 5 to 7 percent for employers over traditional payment of claims. And a "stringent" plan, he says, with tighter gatekeeping, can save 10 to 20 percent.

By assuming the role that might be taken by an insurer or HMO or plan administrator, Hopkins is joining another clear trend in health: The building of "integrated" structures in which one part of the health care system takes on the roles of other parts.

Insurers are buying HMOs. HMOs are buying hospitals. Hospitals are buying doctor practices. Physician groups are accepting insurance risk.

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