Confused by the ever-changing world of
healthcare? You're not alone. Here's a look at the players in Knoxville's
managed care revolution.
by Joe Tarr
More than 40 residents pack the community room of Summit Towers, a home for
elderly and disabled folks. The week before, someone slipped flyers under
their doors warning that insurance companies were going to restrict which
pharmacies they get their medication from. The flyer urged them to call their
legislators and ask them to support the "Patient Advocacy Act."
The scared residents called a meeting to get to the bottom of it. They called
pharmacists to see if one of them could boil it down into simple English
for them, but none could make it. Lined up in front of a podium, the residents
sip coffee, waiting for someoneanyoneto speak.
Finally, resident Mary Beth Williams hobbles to the front on her cane. She
knows a little bit about it, and tries to explain it to her neighbors.
"This will affect anyone who is on TennCare," Williams says.
"What about BlueCare?" a neighbor yells back. "It's the same thing."
"The insurance companies want to pick the pharmacy for us," Williams continues.
Eyes wander the room, hands scratch heads. The crowd begins asking about
their own situations: "Can I still use Kroger?" "What about Wal-Mart?" "I've
always gone to Mugfords." No one has any answers.
Unnoticed, a stout senior citizen in the back of the room stands up. Dressed
in a house dress gleaming with flower prints, she slowly maneuvers her way
around clusters of chairs and tables, excusing herself as she pushes her
bulky walker in front.
"This is too much for my mind," she mumbles, slowly gaining on the door.
It's too much for most minds.
The baffled Summit Tower residents are trying to understand just one of many
changes that may or may not be in the works for the abstruse healthcare industry,
which consumes more than $1 trillion a year in the United States.
Doctors, hospitals, managed care companies, insurance companies, employers,
politicians, and Wall Street investors are all fighting to shape those changes.
In Knoxville, doctors have seized the moment by forming a large coalition
and embracing the managed care revolution. They are beginning to make the
dollars and cents decisions that were once left to accountants and
But can doctors be trusted to give you the best care, while they're nervously
keeping an eye on their expenses and profits? And will they be able to hold
their own against the mammoth managed care companies and hospitals? These
questions have yet to be answered, but they could have a big effect on the
care you receive and how much you pay for it.
Dr. John Sonner remembers pleading with an HMO to approve medication for
an elderly woman with osteoporosis, a disease that deteriorates bones. Although
she was in severe pain, the woman had yet to break a bone.
The HMO the woman was in refused to let Sonner prescribe the drug that would
help her, he says. The doctor kept going farther up the corporate chain to
find an authority who would OK it. Eventually, he got the company's head
pharmacist in New Jersey on the phone. The man wouldn't budge.
"Finally, he says, 'We'll allow you to use the drug as soon as she breaks
a bone,'" Sonner remembers. "Well, I just broke into a string of profanities.
And of course that didn't do any good."
The anecdote is a classic example of managed care disrupting needed treatments,
"It puts a corporate entity or a huge hospital chain between you and your
patient. The people who are in them may be very good people, but corporations
don't have any soul and they don't have any view of good and evil. All they
see is that bottom line. I've seen it happen in medicine and I don't like
it. I've seen it actually injure my patients," says Sonner, a Sevierville
doctor who has practiced for more than 30 years.
Ideally, managed care emphasizes preventive medicine and tries to eliminate
costly and unnecessary tests, procedures, or drugs. Many people associate
managed care with an HMO, or a health management organization.
In an HMO, patients select a primary care doctor from an approved list. That
physician is the first stop for most medical problems. The doctors and the
care they give are "managed" by administrators who keep track of what procedures
and drugs work best and which are the cheapest, trying to find a balance
between the two.
In East Tennessee, the transition to managed care has been slow but steady.
As of January 1997, 63,731 people in the Knoxville region were enrolled in
HMOs, up from 52,891 the previous year, according to Harkey & Associates,
a Nashville-based firm that studies healthcare. The number has grown steadily
since 1990, when 17,331 people were enrolled in HMOs.
Doctors also claim the managed care approach has hurt them financially.
Since medical care companiesgroups like BlueCross BlueShield, Healthsource,
and John Deerebring patients to doctors, they can often dictate what
those doctors get paid, doctors claim.
"What happened with small or independent practices is insurance companies
cut your rates by 10 to 35 percent each year, so you could not compete. You'd
have to close up shop," says Dr. Charles Barnett. Doctors typically lost
control of their practices and went to work for a hospital or a managed care
Banded together, the doctors are not so vulnerable.
In January 1995, 37 primary physicians in the Knoxville area formed Summit
Medical Group. It now numbers 85 physicians (including Barnett and Sonner)
at 26 doctors' offices in six counties.
With this system, the doctors continue to own their practices. They can save
money by consolidating all their administrative duties and sharing computer
information systems, says Tim Young, Summit CEO.
Summit also saves by doing all lab work in one office. Patients get basic
diagnostic testswhich a small practice could never affordat a
special Weisgarber Road office.
Perhaps the biggest advantage is that Summit physicians have more clout when
they bargain pay schedules and contracts with managed care companies, which
bring the patients to the doctors through healthcare plans.
Primary care doctors are known as gatekeepers, which means they're usually
the ones who decide what drugs a patient needs and when they need to see
a specialist, have an operation, or get tests at the hospital. If enough
doctors join together, they can control who gets a lot of this business.
Or if they refuse to sign with a particular HMO, that HMO may have a tougher
time finding doctors to staff it.
Many healthcare administrators would not speak on the record about Summit,
fearing reprisal for what they might say. These sources must deal with the
group but privately question whether the physicians' motive is really to
control the market. One insurance agent calls Summit "a bunch of greedy doctors."
Diane Lardie, executive director of the Universal Health Care Action Network
(UHCAN) based in Ohio, says the benefit of groups like Summit depends on
"To the extent that they do this and become a closed group and exclude segments
of the population or get themselves in a position that they can drive prices,
then they ought to be held up to public scrutiny," Lardie says.
Summit reportedly made life difficult for BlueCross BlueShield by not signing
up with its newest HMO, according a number of sources who did not want to
Young says the group didn't like the contract terminology, the compensation
rates, or the limited network of specialists Summit would have to work with.
Although BlueCross wasn't able to make a deal with Summit, the new HMO is
being sold in Knoxville, says Ron Harr of BlueCross BlueShield. He adds there's
nothing wrong with doctors pushing for better contracts.
"We use that clout in the other direction. It would not be fair to say they
shouldn't do that. It's a two-edged sword," Harr says.
Doctor coalitions could end up being good for managed care, improving quality
and keeping costs low, Harr says. They could also be bad.
"We're not opposed to them as long as the motivation is not to set prices
or be a collective bargaining unit," Harr says.
Not all local family doctors are in Summit, but it is by far the largest
group in Knoxville. Most other physicians generally work for hospitals or
are affiliated with large managed companies, says Dr. John M. Burkhart, another
Summit member. There are few independents left.
"In terms of our business, they're a force to be reckoned with, which is
what they wanted," says Kevin Burris, CEO of Premier Surgical Associates,
a group of general and vascular surgeons in Knoxville. "They can gatekeep
for more and more of the population. They're the place I get my business.
Rather than try to view them as the enemy or something to be afraid of, we
try to serve the patient. That part of healthcare hasn't changed. It's become
Premier is one of many specialty doctor groups that formed after Summit came
on the scene. Others include orthopedic, pediatric, and gynecologicalt groups.
Healthcare mergers are going on around the country. Hospitals are merging
with hospitals, doctors are merging with doctors, insurance companies are
merging with insurance companies.
Managed care companies are competing with each other to provide the best
healthcare at the cheapest price. They're also being pressured by their
stockholders to keep the bottom line low and profits high.
"There's a lot of pressure out there on all healthcare providers to provide
greater value at less cost," says Marvin Eichorn, executive vice president
of Covenant Health. "The cost pressures are extremely high. Once you get
a lot of cost pressures, different organizations look at merging. You can
see this in any business, whether it be airlines or banks or whatever."
Covenant is the region's major hospital chain, owning Fort Sanders Hospital
along with its own provider network, PHP/Cariten.
In a month, Summit will take more control over managed care locally, when
it begins managing an HMO owned by Healthsource TN.
Healthsource will pay Summit a flat fee for each patient, regardless of how
much care they need, says Larry Nall of Healthsource. The doctors' group
will be in charge of deciding how to treat each patient, when they must go
to a specialist, have surgery, or be admitted to the hospital. Summit pays
the hospitals and specialists out of its own pocket.
Healthsource still provides access to larger programs, like an organ transplant
network. About 10,000 patients belong to the new HMO, most of whom are already
being treated by Summit through other Healthsource plans, Young says.
The arrangement removes administrators from decisions regarding medical care.
Doctors are running the show.
To make it successful, they must be more aware of the bottom-line decisions
insurance companies and HMOs are typically responsible for.
"In the old environment, you didn't have to figure out the cost effectiveness
of procedures," says Dr. Michael J. Passarello, president of Summit's board.
"You might have just worked a 14-hour day and you're tired. A patient calls
you on the phone and you might say, 'Go to the emergency room.' Well, the
emergency room is an expensive place."
Since the cost of that trip will now come out of Summit's wallet, the doctors
must find cheaper ways of dealing with cases like thatexpanded hours
and interspersing staff hours, for example. But Summit officials insist the
added emphasis on money will not mean doctors will scrimp on care.
"If they're not treated well and they end up back in the hospital, it's going
to cost you more. So you have to take care of the patient," Passarello says.
And there's more of an urgency for preventive care, adds Dr. R. Wesley Dean,
a Summit board member. "It's certainly cheaper to treat for high cholesterol
than it is to pay for a heart bypass surgery 10 years down the road," Dean
says. "You don't benefit anybody by cutting costs if you don't provide care.
I don't think the incentive is to cut care."
To try to improve care, Summit has also outlined ideal treatment "paths"
for various illnesses and conditions it recommends each doctor follow. However,
doctors have the independence to stray from those guidelines. The group has
a peer review system to evaluate each other, Young says.
Not everyone is going along with the Healthsource arrangement. Summit created
its own network of specialists and hospitals, which it will refer patients
to when needed. But Covenant didn't join the network, meaning Summit's
Healthsource patients will have to go to other hospitals for treatment.
Passarello says there's no hard feelings between the groupsmany Summit
doctors work out of Covenant hospitals. They just don't always see eye to
"We're paving new ground in this market," Passarello says. "The reason it
can seem we're at odds with Covenant is they own an insurance company. Often,
we're competing for business. At the same time, we're partners [in other
Eichorn agrees that the two groups can work together but was vague about
their differences. "We're all the time in discussions with groups. We're
trying to work through issues with Summit. I think we will work through these
Not having Covenant on board has slowed the growth of the new HMO, which
Passarello says is a good thing, since Summit wanted to start small with
this venture. The group hopes to sign more deals like Healthsource's, once
they become more comfortable managing patients' care.
Arrangements like these are what doctors want, says Burkhart. "It's not so
much about finances, although a lot of people will automatically say that,
but about independence. I know doctors whose income went down when they joined
Summit. But what they've gained is independence."
Physician groups in other cities are way ahead of Summit. But insurance and
managed care companies aren't always eager to give doctors more control,
says Peter Kongstvedt, an MD partner with Ernst & Young in Washington,
D.C. "That's how they're making their money," he says.
In other cities, coalitions have even gone a step further, cutting out the
middlemeninsurance and managed care companiesand selling their
services directly to large employers. That holds out the promise of steeper
profits but comes with a daunting financial risk. Young says Summit won't
go that far, because it's too expensive and hazardous a venture.
In Knoxville, employers are waiting to see how the changes shake out.
"As far as how it's going to affect health in the community, it's really
too soon to tell," says Abigail Hudgins, who manages benefits for the City
of Knoxville. "One of the concerns people have is whether they are adequately
financed, in case they have serious losses."
Burris says doctor groups like Premier and Summit are waiting for insurance
and medical companies to make the next move. "The physicians are organized
ahead of the marketplace. We've put ourselves in a position to negotiate
with managed care companies," he says. "Managed care companies aren't quite
ready to do that."
The old folks at Summit Tower are caught in the middle of a battle in the
Tennessee legislature over a bill called the "Pat-ient Advocacy Act."
If passed, the bill would mean managed care and insurance companies would
have to allow any "willing provider" into their network. The provider would
have to accept the pay the company offers, but no one could be excluded,
unless that person has a history of "unprofessional conduct or a pattern
Doctors and pharmacies across the state teamed up to hire a public relations
firm to lobby for it. Lobbyist Kim Hale, of the Nashville firm Bill Hudson
& Associates, says the legislation targets the ugly side of managed care.
The bill would ensure that patients can use the doctor and druggist they
"We don't want to do away with managed care. We realize there are skyrocketing
costs. But you can only cut so much before it has a detrimental effect to
the patients you cover," Hale says. "You're paying your premiums, but you're
getting fewer and fewer services because money is the overriding principle,
not the lives they cover."
Managed care companies and large employersincluding BellSouth, Levi
Strauss, Ford Motor Company, and NationsBankhave a different take on
the bill. They've hired a firm to fight it.
The bill would prevent them from cutting deals with a select number of doctors
and pharmacistswhich free-market champions say is the best way to keep
costs low and quality high. And they say the legislation doesn't really protect
consumers, but the doctors and pharmacists who make money off them. They
worry the legislation will end up hiking healthcare costs.
"If this bill is passed, it's the death of managed care in Tennessee," says
BlueCross' Harr. "It says you cannot contract with a group of providers for
a discount in exchange for volume. That's the heart of managed care."
For example, the company has asked pharmacies across the state to put in
bids for serving BlueCross BlueShield's TennCare patients. The company hopes
to sign a contract with the pharmacies that offer the best deals, Harr says.
"If there are two competing pharmacies across the street, why do they both
have to be in the network? Can we get a better price from one pharmacy by
excluding the other?"
The idea isn't to make life inconvenient for people, Harr says. Pharmacy
costs for TennCare rose $23 million last year, eating up all of the extra
$23 million the company got for its $750-million-a-year contract. "We know
there are crying needs that need to be addressed, like our immunization efforts
and our mammography initiative. Those [extra] dollars need to be spent on
moving forward, not just on rising costs," Harr says. "We are just trying
to react to the marketplace and get the best price for the taxpayer dollar."
Local mom-and-pop pharmacies are scared they'll lose a good chunk of their
business to chains who could easily undercut their prices. So they're rallying
their customers, like the ones at Summit Towers, to support the Patient Advocacy
Ben Lott, owner of Four Way Prescription Shop, says the bill will give people
a little bit of power.
"[Insurance companies] just have to play fair. The rates might be awfully
low, but at least you're in the ballgame; they're not just contracting with
Walgreens or Revco and that'd be it," Lott says. "Rather than give all the
power to insurance companies, [the bill] will give some of it back to the
"If everything was done on insurance, it'd be like communism or something.
All we're asking for is to be treated equally. How could you argue with that?"
But if passed, this bill will destroy the competitive bid process, which
Harr says is the only way to keep costs down. "If a bidder knows that anybody
else can meet the price they give, then they have no incentive to lower their
cost to gain volume. It just removes any competitive incentive."
Whatever happens, local folks won't be affected by BlueCross BlueShield's
attempts to shrink its network, at least for now. The company subcontracts
its 110,000 TennCare patients in the Knoxville region to Tennessee Health
Partnership (THP), a managed care company that is owned jointly by Covenant
and University Health Systems.
THP has its own pharmacy network, which includes most pharmacies in the area
and many mom-and-pop stores, says Rocky Davis, THP president. The company
isn't considering changing this arrangement, he says.
BlueCross is considering the change for 24 other Tennessee counties, Harr
However, barring passage of the Patient Advocacy Act, there's nothing preventing
managed care companies from making such a move. John Deere's HMO has already
limited access in the Knoxville region for its TennCare patients.
A vote on the Patient Advocacy Act will probably come this spring.
Another force trying to shape Knoxville's medical care is HealthCare 21,
a group of Knoxville's largest employers. Members include Union Planters
Bank, TVA, Lockheed Martin, the City of Knoxville, Knox County, and Pilot
HealthCare 21 wants to pressure doctors, hospitals, and insurance companies
to do a better job and do it more efficiently, says Jerry Burgess, the group's
To do that, it will collect data to see how Knoxville's medical care stacks
up to the rest of the country; for instance, to determine the success rate
and average cost for heart bypass surgeries. The first of these studies is
due in March.
The group also plans to survey patients to find out what their experiences
were. "Say we find heart patients are unhappy with some aspect of their care;
then hospitals will be urged to take a look at how they treat heart patients,"
Groups like HealthCare 21 have formed around the country. Many shop around
for the best deal on healthcare for their members and buy it at a bulk rate
from whomever is selling it.
HealthCare 21 doesn't plan to buy health services unless its other efforts
fail, Burgess says.
The Memphis Business Group on Health formed in the mid-'80s and now represents
52 employers with 63,000 workers. It purchases healthcare for a large chunk
of those companies, says CEO Cristie Upshaw Travis.
The group has filled a role that no one else is playing in free-market medicine.
"To a certain extent, we're a watchdog. We raise questions, we demand or
seek information. We want to hold providers accountable for their performance,"
Travis says. "Otherwise, there's nobody questioning whether providers are
doing things for their own position or whether it's for the benefit of the
The idea is that by creating informed consumers, the marketplace will take
care of itself. HMOs that neglect patients or are inefficient will not survive
because they won't have any customers. Those giving the best care will thrive.
It is impossible to predict what Knoxville's healthcare system will eventually
morph into. The changes are likely to be a mixed bag, Burkhart says.
One benefit is that patients are encouraged to have more of a relationship
with their doctors, instead of just scrambling to find one when they're ill.
That means more preventive care.
Paradoxically, the new system also devalues doctor-patient relationships.
With companies always looking for the best deal, stability is lost. "One
year you're with Healthsource, the next year you're with Covenant, the next
year you're with John Deere, and then next year you're back to Healthsource.
Every time your insurance changes, you may have to change doctors. How are
you going to build a relationship on that?" says Burkhart, who has practiced
medicine for 17 years, following in his father's footsteps.
"The terminology makes for an adversarial relationship. I'm a 'provider'
and you're a 'covered life,'" he adds.
Lardie says the changes to the nation's health system are being made by the
people who profit from them, not the ones who depend on it. "Managed care
in general is very unregulated. What we need is a rational look at the whole
system to make sure good healthcare is delivered."