And Now, The Managed Care 'Revolution' In The USA

By Marilynn M. Rosenthal
Professor and Director, Program in Health Policy Studies, U-M-Dearborn and Associate Director, Program in Society and Medicine, U-M Medical School.

In the absence of comprehensive federal legislation, the ever turbulent health care market in the United States is producing its own 'revolution'albeit without universal coverage. The banners on the barricades proclaim "managed care" as the rallying cry and cost containment as the goal. Like all revolutions, this one is long on rhetoric and short on facts.


"Managed Care" is loosely used to cover a wide variety of health care plans that 1) offer a pre-selected network of doctors and hospitals, 2) have pre-negotiated levels of reimbursements for providers, and 3) have some controls over the services offered. The details of each of these three elements vary wildly.

Each consumer member of a managed care plan chooses a primary care doctor who manages all care and provides as much of that care as possible, sending the patient to a specialist only when a clear need is established. Managed care emphasizes preve ntion, outpatient services, and seeks low cost at all levels.

The managed care concept in the U.S. began during World War II with Kaiser factory workers on the west coast. The Kaiser Plan was a staff-model (all doctors on salary) Health Maintenance Organization (HMO). Salaried doctors and Kaiser-owned hosp itals provided all needed care. Out of these beginnings grew today's proliferating managed care plans. The current diversity is not unexpected, given the heterogeneity of the U.S. health care system and the habit for innovation that characterizes the Am erican marketplace.

The various managed care approaches differ in the contractual relationships and financial incentives for providers, and in the range of benefits, services and choices offered to the consumer. In addition to the salaried staff model HMO, there are group model HMOs, the Independent Practice Association (IPA), the Preferred Provider Organization (PPO), and Point of Service plan (POS). The POS option allows consumers to pick providers outside their plan, but at additional out-of-pocket cost. The ot her models differ in the relative independence of the provider.

Doctors in the various plans are either on salary, on capitation or are getting a pre-negotiated set of fees. The doctors are commonly given bonuses when they perform preventive services, have low referral rates to specialists, and have patients with low hospital admissions rates and brief hospital stays. Increasing numbers of doctors are salaried. And increasingly, those remaining in private practice obtain patients by participating in managed care contracts.

From the consumers' point of view, the issues are the range of choice of doctor, the amount of deductibles and co-pays, and the quality of care. Very few consumers understand the convoluted contractual arrangements under which their doctors may w ork. From the employer's point of view, cost, cost control and quality of care are important issues. Employers are increasingly pressuring HMOs for lower premiums (which usually means limiting benefits) or at least a slower rise in the cost of premiums. Control is the central issue for consumers, doctors, managed care plans and employers---control over consumer choice, control over clinical decisions and control over costs.


The Group Health Association of America (the national trade association of HMOs) reports that in 1994, HMO enrollment grew nationwide 10-12% and was approaching 56 million members at the end of 1995. The greatest growth of managed care has been in the Northwest and South.

Managed care is growing in the two main programs for which federal and state governments are responsible. Medicaid, the joint state-federal health insurance for the poor, covers 19 million adults and 18 million children. Medicare, the federal he alth insurance for the elderly, covers the 30 million over 65. Although less than 10% of Medicaid and Medicare recipients are presently under managed care, this is expected to grow. Fifty big employers across the nation are encouraging their retirees to enter Medicare HMOs.

If managed care comes to Medicaid and Medicare, it could reduce unnecessary care, close inefficient hospitals and control overpayment to doctors, according to supporters. However, critics suggest managed care will increase costs of private insura nce, increase the number of the uninsured, threaten

the best and most needed hospitals and eliminate charity care.

The American Medical Association recently initiated a Physicians Capital Source Program, acknowledging that managed care is now the driving force in health care. The AMA is encouraging physician-owned health plans to compete for patients and is teaching business skills, including how to raise capital.


What does evaluation research reveal about managed care performance? Documented growth of HMOs suggests 'success' in controlling costs, but the studies are mixed. At a meeting in July 1995, health economists and insurers noted that health premi ums dropped 1% last year after 10 years of climbing up to 18% annually. Part of the drop resulted from the spread of managed care, especially to HMOs that most closely control treatment decisions and pay doctors and hospitals less.

Other evidence suggests that while managed care may save money in its first few years, costs begin to climb again. A Government Accounting Office study, published early this year, found little empirical evidence that employers' overall health car e costs have been significantly controlled. The ability to save depends on tightness of controls, including limiting consumer choices and physicians' clinical decisions. Savings may accrue in plans that serve healthier employees.

As for the quality of care, 97% of HMOs say they conduct patient satisfaction surveys, 85% of HMO doctors are board certified, compared with 61% of all practicing doctors, and 93% of HMOs report using specific clinical practice guidelines. This s ounds promising. However, patient satisfaction surveys are easily manipulated, board certification is no guarantee of being up-to-date and practice guidelines may be too rigid, or be encouraged but not monitored.


Managed care settings are rife with potential ethical conflicts, particularly challenges to the traditional trust relationship between doctor and patient. The doctor must now balance responsibility to patients and responsibility to the managed ca re organization. The concern is whether there is an inherent conflict between reducing expenditures which limit services, and maintaining quality. Some doctors complain that their contract forbids discussion of treatment options with their patients unti l management authorizes specific treatment options.

Some for-profit managed care companies report great success in controlling the rise in costs. The New York Times recently reported that the three biggest for-profit HMOs are "squeezing every penny possible out of doctors and hospitals .....(and) rewarding their CEOs with sizable pay packages."


Fortunately, none of the HMOs in Michigan is in the for-profit sector. If you are one of the many faculty and staff who selected a managed care program during the Fall open benefits period, there are several questions you might want to address. H ere are a few to consider:

1. How is your doctor paid? Is s/he part of a bonus plan? On what basis is the bonus given?

2. How extensive are your choices of primary care doctor and specialist? How easy is it to change your doctor?

3. What criteria does your plan use to include doctors on its lists?

4. Can you find out where your doctor did his/her residency, whether and when they were board certified, and their years of experience?

5. What is the entire range of quality assurance and improvement techniques your plan uses? How frequent are evaluations?

6. Are telephone services available 24 hours, 7 days a week?

7. What happens when you need care outside the state?

8. What is the procedure for lodging complaints?

There are many more questions to ask. Additional information is available in several excellent guides to HMOs and managed care in local bookstores.


In the state capitols, all sorts of legislation are pending. For example, many state medical societies are promoting the passage of 'any willing provider' legislation which would prevent HMOs and other entities from selecting only the most cost- effective doctors. Pending state legislation includes laws limiting too extensive or too sparse benefit packages, and "Right to Know" laws permitting patients to know how their doctors are compensated.

The budget resolution in Washington will impact Medicaid and Medicare and have a ripple effect

throughout the health care system. Federal spending on health care will rise more slowly, and the states will have increased responsibilities. The use of managed care will increase.

Mergers between hospitals, doctors, insurers, managed care management companies and other segments of the health care world will continue, making managed care easier to implement. The states will be the major regulators of these systems as federa l monies and authority shrink. Doctors and hospitals will increasingly take the initiative in forming improved data collection, particularly to assess the usefulness of various diagnostic and treatment approaches. Consumers will have more access to such information.

The 'revolution' in managed care is far from complete, unclear in its impact and remains uncertain in what it will accomplish for the average patient. Temporarily, some for-profit managed care entities are wringing costs down. What have the incr eases in efficiencies and provider productivity wrought for the patient? Will this improve medical practice by reducing unnecessary care and emphasizing the most effective diagnostic and treatment techniques? Will it improve patient outcomes or just pro duce profit-taking in the market?


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