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Ethical Issues in Contracting between HPHC and its Affiliated Providers

Thursday, March 29, 2001


HPHC has as its mission "to improve the health of the people we serve, and the health of society," but with the exception of a small unit in New Hampshire, HPHC does not itself directly provide any health care. Its members are served by HPHC's affiliated providers. The ultimate vehicle that governs mutual expectations and the flow of money between HPHC and its affiliated providers is the contract. The EAG meeting of March 29th focused on contracting.

Contracting between health plans and providers got onto the front burner of public attention on Monday October 23, 2000 when Partners HealthCare and Tufts Health Plan broke off negotiations. The 200,000 Tufts members who receive care from a Partners doctor or hospital were told they would have to switch doctors/hospitals or health plans. Dr. Peter Slavin, CEO of the Massachusetts General Physicians Organization was quoted as saying "We felt like we had no other choice [than to walk away from the negotiations]…the reality is that our hospitals simply cannot afford to continue absorbing the losses we've been facing." Dr. Harris Berman, the CEO at Tufts countered that "the real issue is just how much can we expect our members and employers to bear…the sticker shock would have been astounding." On Wednesday November 1, after nine days of turbulence among members and employers and heavy pressure on the health plan, Tufts and Partners signed a new three-year contract. [See Appendix A]

An article in the December 22, 2000 Boston Business Journal [see Appendix B] described a general perception that the balance of power in health care is shifting:

Until about a year ago, insurers were in the driver's seat. Now, the big hospital networks, especially Partners, have been calling the shots. The likely outcome, say experts: significantly higher premiums for Bay State employers.

HPHC deals with many powerful providers. Some, like Partners and the University of Massachusetts, dominate their region. Others, exemplified by providers on Cape Cod and Martha's Vineyard, are monopolies in more isolated settings. Situations like the Tufts/Partners negotiations will become more prominent. For contracting, 2001 is hardball season.

Case Presented

The following simplified and hypothetical cases provided the basis for the meeting:

TopCare is a highly regarded health system that includes three hospitals and their affiliated physicians groups. TopCare reports that it has been operating at a deficit in recent years. Staff reductions at TopCare hospitals have been front-page stories in the local newspaper. TopCare tells HPHC that it needs a 24% rate increase in the next year. Not having TopCare in the HPHC network would lead to substantial loss of members, but a 24% rate increase would drive premiums up substantially, which could lead to loss of accounts and members. TopCare tells HPHC that it will end its contract with HPHC in three months unless a new contract is signed.

FrailCare is a long established community hospital and affiliated physicians group. FrailCare has a loyal following, especially among elderly and blue-collar members of the community. FrailCare is respected for providing accessible, compassionate secondary level care. In recent years FrailCare has been losing market share in its local community to StrongHealth and is in a very weak bargaining position at contract renewal time. HPHC could probably lower FrailCare's reimbursement rate. Doing so might threaten FrailCare's survival, but could offset some of the cost increases in the contracts with TopCare and StrongHealth.

Customer for the 3/29/01 consultation

The customer for the March 29th EAG meeting is Leanne Berge, Vice President for Provider Contracting. Robert Farias, Michael Papasodoro, Michael Sullivan and Ken Vinhateiro from the contracting group also attended the meeting and were welcomed as customers for the consultation along with Leanne.

Questions for the Ethics Advisory Group

Taking "TopCare" and "FrailCare" as hypothetical examples of the kinds of situations that arise in contracting, Leanne and her colleagues posed two large questions for the March 29th meeting: Are there ethical issues associated with contracting decisions HPHC makes for economic and business reasons? If so, what are they, and what advice would the EAG give as HPHC considers its options?

Relevant precedents

On January 26, 2000 and February 10, 2000 the EAG worked on a "Values Inventory" requested by Charlie Baker and the leadership team for use in the receivership and turnaround process. While the EAG did not discuss contracting per se, it noted that "HPHC can only improve the health of its members through its provider partners…Consequently in situations that require trade-offs among values, sustaining collaborative and trusting relationships with provider partners should be given high priority."

On December 13th, 2000 the EAG discussed "Anticipating and Planning for Ethical Issues in the Start-up phase of the HPHC/ValueOptions Behavioral Health Contract." Two elements of that discussion are potentially relevant for the March 29th meeting:

  • The group identified continuity of care as the central value at risk in the implementation of a new contract. It recommended "that HPHC and ValueOptions be maximally proactive with regard to protecting continuity of care…Insofar as possible it will be best to intervene before a member experiences distress with regard to continuity of care issues…"
  • "Employer participants in the discussion emphasized that they want employees (and themselves) to know about any relevant considerations regarding their insurance choices [e.g.-such as whether or not TopCare is in the network] before the anniversary date of the contract…[but they] did not want ambiguous communications about 'what-if' possibilities many months in advance."

EAG Discussion/ Recommendations

At several points during this meeting the EAG recognized that in addressing as fundamental a component of corporate practice as contracting it was working in an uncharted area of healthcare ethics-the interface of "business" and "ethics." Throughout the discussion members recurrently sought to clarify whether and how examining contracting issues through the lens of ethics could contribute to HPHC's primary goals of improving health and achieving trust and respect. The group understood that in 2001 healthcare organizational ethics programs are on a steep learning curve the way healthcare clinical ethics programs were 30+ years ago.

In the 1960s and 1970s pioneer hospital ethics programs struggled to develop the role of ethics in clinical practice in a way that was useful at the front lines. Participants in those early programs asked-"these are complicated clinical issues-where does ethics come in?" At the 3-29 meeting the EAG raised a similar question-"contracting is a complicated business issue-where does ethics come in?" The group recognized that today's pioneering organizational ethics programs-like the EAG at Harvard Pilgrim-are in a situation analogous to the early clinical ethics programs except that in 2001 we can draw on the experience and well-developed practices of clinical ethics programs for guidance in the new areas of activity.

In the course of a wide ranging discussion that addressed an extensive series of topics the EAG recurrently challenged itself to make its deliberations relevant to the contracting group as a way of making the connection between "business" and "ethics." What follows is a summary that emphasizes four central themes that emerged from the EAG's efforts to relate its discussion to the realities of the contracting process, not a linear reconstruction of the meeting.

1. Create a framework for the contracting process that supports key values. EAG members, speaking from different perspectives, emphasized the importance of linking level of payment to quality of care. For consumers, good care is what they rely on their insurance to provide. For employers, increased premiums are bad, but less noxious if increased cost means increased quality. For providers, being paid less than others is unappealing, but would not be unjustified if the higher paid competitor provided demonstrably higher quality care. One member summed up this component of the discussion by saying-"if HPHC is going to have a problem it should come from costing more for providing higher quality, not from sacrificing good care in order to cost less."

Participants who had attended a presentation about the recent Institute of Medicine publication Crossing the Quality Chasm cited the tenth recommendation in that report as relevant to the EAG discussion. That recommendation states "Private and public purchasers should examine their current payment methods to remove barriers that currently impede quality improvement, and to build in stronger incentives for quality enhancement." The EAG felt that this recommendation provided good guidance for a contracting framework. The contracting process should be about value, not simply about price.

2. The right objective for contracting is making the best business decision, but good business decisions involve more than financial considerations. EAG members drew on their own experiences in contracting to emphasize that while HPHC should strive to get the best financial deals that it can, other values had to be considered at the same time. One organization an EAG member was associated with paid a premium in a contracting process in order to avoid destructive bad publicity. Another EAG member described a situation in which an organization was prepared to weather the disruption caused by a strike because holding the financial line seemed both fair and important for long term considerations.

The EAG spent considerable time discussing the issues raised by the hypothetical "FrailCare" case example. It asked whether HPHC should feel responsible for "protecting" a vulnerable provider organization by paying more than the market might require in order to sustain a valuable community resource? After all, HPHC's mission is "to improve the health of the people we serve, and the health of society" (underlining added). The EAG consensus was that HPHC should not seek to protect "FrailCare" beyond what follows from making the best business decision. Especially in the context of the receivership and its aftermath HPHC's prime goal must be meeting the needs of its members and restoring long-term financial stability. "FrailCare" may be important for the health of society, but the EAG felt that the appropriate focus of the contracting process was the health of the members. The HPHC Foundation provides HPHC with a vehicle for addressing the wider societal components of the mission.

3. Keep the consumer (patient/member) perspective on the front burner in the contracting process. All EAG members are actual or potential users of health care, and all were able to look at the contracting issues under discussion from their personal perspective as consumers. While keeping costs down is a crucial objective for contracting, from the member perspective the image of angry, alienated providers is, as one participant put it, "scary." For many, continuity of care is especially important. Good financial deals that lead to disruption of important care relationships or high levels of provider resentment are a mixed blessing. The point members were making was that these kinds of consumer concerns need to be considered as HPHC develops contracting strategies. Consumer concerns are not trump cards in making contracting decisions, but the EAG emphasized that they needed to be explicitly considered as part of the contracting process.

4. Consumers care about choice and convenience but do not currently directly shoulder financial responsibility for incremental costs. HPHC should look for ways to increase the alignment of choice, convenience and cost. While the EAG is not a vehicle for designing business processes, one member suggested the idea of a "tiered network benefit," modeled on the principles of the tiered pharmacy benefit. In terms of the hypothetical cases under discussion, members/employers might pay more for a network that included "TopCare." The pharmacy benefit proposal, which was discussed at the EAG meeting of June 24, 1999, has been well received by consumers, providers and employers, and appears to have modulated the cost trend for pharmaceuticals. Done right, some form of increased alignment of network choice and convenience with the costs that these desirable objectives incur would be consistent with the component of the Harvard Pilgrim Value Proposition that calls for "understandable, affordable insurance products." [For EAG members who are not familiar the "value proposition" it is included with these minutes as Appendix C.]

Summary. As it emerges from the receivership and charts its new course, HPHC is a substantially different organization than it was when the ethics program started five years ago. HPHC's current role is to support members and providers in achieving excellent care, not to provide or directly manage that care itself. These changes in HPHC require the EAG to expand its focus and develop new skills. In accord with this need, in its last three meetings the EAG has been addressing different components of HPHC's new challenges:

  • On December 13th, 2000 the EAG discussed "Anticipating and Planning for Ethical Issues in the Start-up phase of the HPHC/ValueOptions Behavioral Health Contract," which allowed it to look at how ethical issues can best be addressed in a multi-organizational environment in which HPHC contracts for key services like management of the behavioral health benefit. In the future HPHC will almost certainly have more partnerships of the kind it is developing with ValueOptions. To support the ethical quality of what HPHC provides to its members the EAG will have to look beyond HPHC itself and find ways of including partners like ValueOptions in the ethical dialogue.
  • On February 28th, 2001 the EAG discussed "HPHConnect: How can HPHC use the web to make health care management easier for its key constituents and address confidentiality concerns at the same time?" This topic allowed it to begin to work with the fact that HPHC now-in large measure-manages information, not care. The EAG will need to continue exploring the ethical issues that will arise in an increasingly digital, web-based environment.
  • In today's meeting the EAG discussed issues associated with what might be regarded as the most basic of all business processes. HPHC is a not for profit managed care insurer-not a care provider. The EAG will need to enhance its skill at clarifying the ethical dimensions of basic business activities like contracting and at making its deliberations relevant in ways that ultimately enhance the experience of members.

Jim Sabin