In 1995, leaders from two health systems and Pershing Yoakley & Associates tackled what many thought was an impossible task – improve medical care and patient satisfaction while reducing costs. They embraced the challenge by developing a comprehensive provider network that contracted to serve over 130,000 TennCare (Tennessee’s Medicaid program) members in Tennessee.
This wasn’t your typical healthcare initiative. The network previously servicing that population had lost over $35 million in its first year and was tracking to lose over $25 million in its second year, despite numerous efforts to contain costs.
In approximately 90 days, a network of over 1,200 providers was developed and contracts finalized. The network consisted of providers for all levels of care from home health to major medical centers. Policies were developed, including care plans, to promote the best medical practices while improving patient service. Below are a few examples of the network’s efforts to provide high quality care less expensively.
- Primary care physicians were assigned to every member to establish what is now commonly referred to as a “medical home.”
- Case managers were hired to serve those having the greatest needs or facing medical crisis.
- Highly trained, experienced pharmacists were made available for consultations with physicians to assist in managing medications for those seriously ill and/or facing chronic medical conditions.
- Arrangements were made with bus and other transportation companies to provide transportation for those lacking such resources or with special needs to ensure members could travel to appointments.
- Robust data systems were developed to monitor and report information to staff and management to allow timely monitoring of utilization.
- Caregivers were recognized and rewarded for successfully improving patient outcomes and service satisfaction.
In addition, care initiatives were promoted that would have long-term benefits. As an example, vaccination rates for kids exceeded 95%, a rate previously unheard of for this population.
Within six months of start-up, the network was successful beyond everyone’s dreams. Enrollees were receiving high quality healthcare in appropriate settings. Emergency room usage was dropping and unnecessary inpatient hospital admissions were virtually eliminated. Patient satisfaction scores were vastly improved and physicians participating in the program became its champions. Finally, those financial losses were eliminated as the network’s financial results were break-even by the fifth month.
In short, those responsible for the formation of the network were ecstatic and dreaming of promoting it as an effective model for the state and, ultimately, the country. That never happened.
The Downfall
During the network’s second year of operations, a federal judge ruled that certain TennCare benefits or services could not be limited as designed under the plan, including prescription drugs. The ruling was seen as being so pervasive that common medical management practices were discouraged due to the legal risks of being deemed a violation of patient rights. Demand for services, particularly prescription drugs, exploded.
As an example, the average cost per member per month (“PMPM”) for prescription drugs was approximately $20 PMPM when the initiative began. After the judge’s ruling, prescription costs began rising rapidly, quickly reaching almost $40 PMPM. The decision was then made to shut down the network as the potential financial and legal risks were overwhelming. We continued to follow data on the enrollees, learning that prescription drug costs eventually escalated to over $80 PMPM within a very few years.
The enormity of the TennCare funding problems ultimately required the governor and legislators to work on reform provisions that limited the impact of the judicial rulings. The scope of benefits was narrowly defined and strict limitations enacted.
Unfortunately, the “model” network was a casualty long before the crisis was solved. Those involved in its creation are still troubled by the loss of such an effective program. Those that advocated for a broad expansion of benefits, indirectly contributed to substantial restrictions in benefits. As I read about other states facing budget deficits and escalating healthcare expenditures, it repeatedly reminds me of the promising results of our initiative that were undermined by the actions and/or inactions of those who did not understand the unintended consequences of their positions.
Traditional medical staff development has a very singular focus – getting the right number of physicians to serve the community’s needs. Although meeting the demand for services is crucial, the importance of choosing the candidate with the “right stuff” is often an understated step in this process. Many organizations dive right into the relationship with little or no thought as to organizational fit, practice style, or whether or not you can get along with each other. The following are a few pointers to follow to ensure that you don’t find yourself stuck in a loveless marriage. 
I work with clients daily who are trying to best prepare themselves by implementing quality-based incentive compensation into their physician alignment strategies. As healthcare reform continues to be better understood and begins to be implemented, it is critical that hospitals understand how these bonuses/penalties will work.
