john herr psychologist los gatos saratoga california

On Sabbatical

D A I L Y   B R I E F I N G

June 17, 1998

Kennedy-Dingell Strips Employers' ERISA Immunity

The Kennedy-Dingell bill is fraught with controversy. Introduced March 31, the bill combines Michigan Rep. John Dingell's 1997 health quality bill with the president's consumer bill of rights.

For plans governed by the Employee Retirement Income Security Act, the bill removes their immunity from malpractice liability. This means that ERISA plans, which are exempt from state insurance laws, could be sued for wrongful injury or death. Some senators worry that business might instead choose not to provide certain kinds of coverage, fearing costly legal settlements.

Protest is already in from the Health Insurance Association of America, which sponsored an actuarial analysis concluding that the bill's price controls on certain types of premiums would result in 160,000 people losing coverage. Chances for passage, according to lobbyists: no better than 40 percent.

June 16, 1998

Few Surprises In Medicare Rules Issued for PSOs

The Health Care Financing Administration has defined provider-sponsored organizations for purposes of Medicare, clearing the way for PSOs to offer themselves as an option under Medicare+Choice beginning Jan. 1. The Federal Register published HCFA's interim final rule April 14.

HCFA defines a PSO as an entity operated by a health care provider or group of affiliated providers that shoulders at least 70 percent of a beneficiary's health care expenses. Providers must also share substantial financial risk, as defined by several criteria. If a plan meets the definition, it immediately gains an advantage over other managed care plans: A PSO needs to enroll only 1,500 members in urban markets or 500 in rural areas to participate in Medicare+Choice. Other types of managed Medicare plans must sign up 5,000 or 1,500 people respectively. The idea is to give PSOs a chance to compete right out of the blocks.

The Department of Health and Human Services must still decide on solvency standards for PSOs. At press time, those had not been set forth. HCFA says PSO Medicare definitions had to come before solvency standards could be issued.

June 15, 1998

Physician, Help Thyself:
Management Positions Available

Many find that the risks are worth the rewards in moving from the examination room to the boardroom.

As executive search consultants in the health care industry, we often hear from physicians who are considering career changes. Their desire is to move from working as a full-time clinician or teacher to a leadership role in administration or management in a health care organization. Although some have already embarked on a new course, enrolling in management classes or even full-time business degree programs, others are still testing the waters, unclear about their options. They feel unsure about the risks involved in leaving active work in the profession for which they spent so much of their lives preparing.

June 12, 1998


Many consumers feel quality
plays second fiddle to stock price

Even bullish markets don't excite skittish consumers who worry that quality may be traded for profit. How much is this perception reinforced when once-thriving stock declines, as has happened to some large, publicly traded HMOs recently?

The total stock value of the HMO industry grew 13-fold between January 1987 and November 1997, according to the Henry J. Kaiser Family Foundation. Compare that with the growth of the stock market as a whole during the same period, "only" four-fold, and you can see why investors jumped aboard. Still, there's that nagging fear that what goes up.... Several large publicly traded HMOs lost market value in 1997.

The question persists: Are the dual goals of pleasing shareholders and delivering high quality health care contradictory? We can't answer that, but we can report what consumers told the foundation in a survey earlier this year.

Color charts   also available in PDF


June 11, 1998

The Pitfalls and Potential
Of Pharmacy Risk

Prescription benefit arrangements between physicians and managed care companies seem to be a growing trend replete with growing pains.

In 1995, Harris Methodist Health Plan, the largest in northern Texas, informed the Fort Worth Clinic and its physicians that they were to spend no more than 9.6 percent of each premium dollar on drugs. If the physicians violated this directive, Harris said, they would have to eat 35 percent of the additional cost.

Fort Worth signed off, pharmacy terms and all. Then it overran its pharmacy budget $30,000 every month, a third of which came out of its physicians' pockets. So the plan's directive, in essence, slashed the clinic's $11.33 per member, per month capitation by a third to a half. Unable to negotiate a higher pharmacy budget, Fort Worth sued Harris, claiming that the policy violated the Texas Medical Malpractice Act by encouraging doctors to drop sicker patients, such as transplant recipients on immunosuppressants.

June 10, 1998


Stark II: Don't Underestimate
The Feds' Resolve to Enforce It


From time to time we have discussed how important it is for physicians to consider the Ethics in Patient Referral Act (the so-called Stark law) when crafting an income division or compensation formula. This law prohibits physicians from dividing income among themselves in a way that tracks their utilization of certain "designated health services." In January, the Health Care Financing Administration proposed regulations that clarify or modify the Stark law. No doubt, HCFA will consider many of these proposals already to have the force of law, on the theory that many are restatements of existing law.

It is essential that physicians act now to ensure that their compensation formulas comply with the Stark law--including the new proposed regulations.

June 9, 1998

NCQA Adds Performance
To Accreditation Reviews

For the first time, HEDIS data will be included. Health plans will have to focus on results as well as systems to pass muster.

The National Committee for Quality Assurance didn't have to reach far to grab what it considers a useful tool to improve its evaluation of health plans. Its new accreditation process uses performance measures from its other major review program, the Health Plan Employer Data and Information Set, or HEDIS, already quite familiar to health plans.

June 8, 1998

Who Will Fund Tomorrow's
Breakthroughs in Medical Research?

New alliances are emerging in the field of medical research. Where does managed care fit in? And how does it affect the research agenda?

Before White House affairs knocked national ones off the front page, the new year produced a flurry of debates about medical research. In his fiscal 1999 budget, President Clinton proposed a $1.15 billion increase for the National Institutes of Health--only to be chided by Congress for not asking for more. Medical research is an election year crowd pleaser.

The call for more funding recognizes not only unprecedented research opportunities in genetics and biomedicine, but the fact that research is a driving economic force. Money invested in it is good for American health, as well as American business.

In keeping with this theme, medical researchers have joined the managed care backlash. The charge against the industry runs thus: By negotiating lower fees and turning to less-expensive providers, managed care has jeopardized research dollars at academic medical centers. Too, it is claimed, health plans' insistence on covering only standard treatments has constrained the experimentation that research needs to thrive.

June 5, 1998


Not quite the Midas touch

Profitability of physician practices tends to drop after acquisition by a hospital or integrated health care organization. The purchaser almost always loses money on the practice during the first year of ownership, with one estimate suggesting that losses between $50,000 and $100,000 per physician per year are common and that losses of $200,000 per physician are not unheard-of.

While selling a practice guarantees the physician a steady income--often higher than what the physician averaged when solo--financial losses can lead a buyer to implement stringent productivity measures. A model by Voluntary Hospitals of America demonstrates the effect of practice acquisitions, based on a typical solo practice with annual net revenue of $300,000.

Color charts   also available in PDF


June 4, 1998


Value-Based Purchasing Pioneer
Corrals Hospitals and Physicians

Many companies and employer coalitions base purchasing decisions on report cards or other statistical measures forwarded to them by health plans. Some businesses will also study the health plans themselves, to decide which offer the best services for employees. But the Dallas-Fort Worth Business Group on Health took a different approach. Instead of looking at health plans, it offered hospitals and physicians a direct link to large employers. Those that accepted agreed to establish meaningful performance measures and carry out an outcomes reporting plan.

June 3, 1998


Genetic Testing: Can What
Patients Know Hurt Them?


Say your sister has breast cancer. Say you've heard of BRCA1 and BRCA2, the genes which are mutated in 25 percent of women younger than 45 who get this disease. Say you want to know your risk.

Say Alzheimer's runs in your family˝╣»ur Dad has it. Say your older brother is in his 60s, and you're not that far away. Say you've heard of ApoE, on chromosome 19, now widely available for testing. Say you want to know your chances.

Welcome to the brave new world of genetic testing. It's a world in which testing comes before knowing, and knowing is everything. It's a world in which 26 states passed antidiscrimination and pro-privacy laws last year, while 20 bills pending in Congress would do the same. It's a world in which some Florida, North Carolina and Louisiana employers wish everyone would just forget about the time they could test for sickle cell trait. Their state legislatures had to pass laws to make sure they remembered.

June 2, 1998

Needed: Strategies To Get Physicians
To 'Buy in' to Disease Management

Physicians have to accept the programs for them to work. But most doctors need to be convinced that they're worthwhile.

When Ellen Hughes, M.D., enrolled one of her patients in a program to help people with heart disease learn how to take better care of themselves, it was a well thought-out move. The patient was motivated and ready to jettison bad habits to improve her condition, and the regimen met Hughes's criteria for disease management. The program, based on research by heart-care pioneer Dean Ornish, M.D., offered in-depth nutritional training, group therapy and consultation with the referring doctor. "I got a sense that it was a service and that they were not trying to take the patient away from me," says the internist.

June 1, 1998

A Conversation with
Regina E. Herzlinger

Harvard's Regina E. Herzlinger says entrepreneurial geniuses will give restless baby boomers what they want: a delivery system in which consumers can choose coverage the same way they shop for cars.

Regina E. Herzlinger, Ph.D., is the first holder of the Nancy R. McPherson Professor of Business Administration Chair at the Harvard Business School. An expert in management control and health care, Herzlinger argues that health care delivery in America is ripe for a consumer-driven transformation. In her most recent book, Market-Driven Health Care (Addison-Wesley, 1997), she details how that transformation might unfold. Impatient and demanding baby boomers will lead the charge. To meet the needs of these customers, health care organizations will draw on lessons that other American industries learned over the last 20 years. Integrated delivery systems will give way to "focused factories" that offer all the care needed to treat a particular disease. Third-party purchase of health insurance by employers and government will yield to direct purchase of health insurance by users.


To Home Page of John J. Herr, Ph.D.


On Sabbatical!

When my office lease expired at the end of 2004, I decided to turn it into a "sabbatical" from my private practice. Many years ago, in my grandfather's 89th year of life, he told me, "John, it is important to smell the roses while you can still smell them." His life gave living a very good reputation. It is also true that the pursuit of that philosophy required my grandfather to to re-open his assay office/ore market in Wickenburg, Arizona as a 75-year-old because he had run a little short of retirement money. Thus, if blessed with his luck and health, I'll be back.. --jjh

Copyright 1998-2007  John J. Herr, Ph.D.                                   Please send comments to