eye on managed care
A New Kind of Health Insurance
Defined Contribution Plans could mean more patients and better margins for your practice.

Thanks to double-digit increases in health insurance premiums over the past couple of years, many employers are wondering how -- or if -- they can afford to continue providing benefits. Some of the increased costs have been passed on to employees in the form of reduced benefits and/or larger payroll deductions, and most employees now have fewer plan options than before. But this has created new problems: As patients gradually lose control of their healthcare options and benefits, physicians are suffering a collateral reduction in cash flow as those patients are forced to go elsewhere for care, or simply do without.

Defined Contribution Plans 101

These plans typically involve some combination of the following (abridged) list of characteristics:

1) Employers fund individual accounts that pay the employee's healthcare expenses, up to a specific dollar threshold. After that, the employee pays for services, until the amount spent reaches a second threshold. From that point on the employer pays.

2) If the employee is willing to bear more of the risk -- i.e., accept a lower initial threshold point and "bet" that she won't need much care exceeding that threshold -- her monthly premiums will be less.

3) In some cases these plans arrange deals for certain services with select providers who agree to give preferred rates. Any employee taking advantage of these arrangements would have fewer dollars deducted from his medical account than if he went elsewhere. But the choice to go elsewhere is always the employee's.

DCPs turn patients from "entitlement consumers" into "benefits shoppers."

Vive la Difference!

Unlike traditional managed care, where patients are directed into (or financially motivated to use) limited panels, DCPs allow patients unlimited provider choice. This means that DCPs shift a significant portion of the financial decision-making responsibility from employers to employees. This has a number of positive effects:

Benefits for patients. In addition to expanded provider choice, patients can enjoy tax savings and, perhaps most significantly, the flexibility to allocate exactly how, when, and where their healthcare dollars are spent. For example, a patient who had no coverage for refractive surgery in an HMO might, in a DCP, elect to spend part of his discretionary healthcare services fund on LASIK. That patient would also decide whether to look for the cheapest provider in town or select from among the community's LASIK "gurus."

Benefits for physicians. Previously, many patients could only see a doctor on an approved panel; in a DCP they can see any provider they choose. As a result, ophthalmologists could have access to a much larger pool of potential patients and revenue. Also, most rates will be set by the doctor, not by a for-profit health plan. Assuming the physician prices competitively and doesn't blunder into pricing wars, those DCP patient visits should mean improved margins.

Of course, these changes will mean new marketing challenges for physicians. With patients able to spend their insurance funds at their own discretion, some will certainly price-shop for the cheapest deal in town, but financially savvy patients will look more closely at overall value and quality. At the same time, ophthalmologists may end up providing more previously noncovered services (LASIK, Botox, etc.), and those with optical dispensaries could see increased sales of higher-margin premium lenses (e.g., progressives and high-index), lens treatments (e.g., anti-reflection coating), and frames.

Ultimately, it will all come down to providing a compelling answer to the patient's most basic question: What's in it for me?

Blessing or Curse?

It's true that DCPs could be good or bad for any given practice. On the one hand, they could return many eyecare services to payment levels closer to their actual cost and value, and they could reduce the number of patients seen under marginal or money-losing managed care plans. On the other hand, we could also see that "recovered" portion of the business slide into a spiral of ever deeper, irrational discounting in a scramble to capture patients.

Defined Contribution Plans will present physicians with an opportunity to position themselves in the eyes of consumers who are thinking about the value they're getting for their money. If ophthalmologists can successfully communicate the value of their services, they'll profit from this change. If they can't, this growing slice of the third-party market could end up as yet another low- or no-profit disappointment.

Gil Weber, Ophthalmology Management's consulting editor, is a nationally recognized author, lecturer and practice management consultant to practitioners and the managed care and ophthalmic industries. He has served as director of managed care for the American Academy of Ophthalmology. You can reach him at (954) 915-6771, by e-mailing gil@gilweber.com or at www.gilweber.com.