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Managed care

Managed care


Managed care is a generic term for various health care payment systems that attempt to contain costs by controlling the type and level of services provided. Health maintenance organization (HMO) is a term that is often used synonymously with managed care, but HMOs are actually a particular type of managed care organization.


Health care reform has been an increasingly urgent concern in the United States over the past 40 years. Until recently, the primary source of health care coverage was indemnity insurance, which pays or reimburses the cost of medical services in the event of a person's illness or injury. Indemnity insurance gives health care providers few reasons to use less expensive forms of treatment the insurance companies generally pay for any treatment deemed necessary by a physician. Presumably, this type of system encourages providers to overuse expensive, unnecessary treatments and diagnostic procedures. Patient co-pays and deductibles attempt to limit excessive use of medical services. Yet costs continue to rise, resulting in insurance companies' frequently raising premium prices.

The primary intent of managed care is to reduce health care costs. Emphasis is placed on preventive care and early intervention , rather than care provided after an illness or injury has occurred. The responsibility of limiting services is placed on the service provider rather than the consumer. This limitation is achieved by (a) "gatekeeper" policies that require individuals to get referrals for specialized treatment from their primary physicians;(b) financial incentives (either bonuses or withholding money) for providers to restrict services and contain costs; (c) guidelines requiring adherence by providers at the cost of being dropped from the plan for noncompliance; (d) review of services by the managed care organization and denial of payment if services are considered unnecessary.


Health maintenance organizations have been in existence in the United States since the late 1800s. It was not until the 1950s, however, that the government began to encourage the development of HMOs. In 1973, the Health Maintenance Organization Act was passed; and in 1978, a Congressional amendment increased federal aid for HMO development. From 1980 to 1989, enrollment in HMOs increased from 9 million to 36 million Americans. By 1990, 95% of private insurance companies used some form of managed care. In the 1990s, managed care was incorporated into Medicare and Medicaid plans as well.

Managed care organizations frequently contract with a group or panel of health care providers. HMOs and PPOs (preferred provider organizations) are examples of these types of contracts. Individuals insured under an HMO or PPO may receive care only from providers on the panel. These providers are expected to deliver services according to specific stipulations. Payment is often subject to utilization review, in which delivery of medical services is scrutinized to determine whether the services are necessary. The review may occur with each episode of treatment, or may be ongoing through the use of a case manager. If the managed care organization thinks that the services were unnecessary, payment is denied.

Payment arrangements between managed care organizations and care providers are often made in advance. Capitated payment systems are typically used with large health care facilities that serve many people. The health care provider receives a set amount of money each month based on the number of individuals covered by the plan. The provider may or may not serve that many people in one month. Capitation systems provide a steady, reliable cash flow, but involve some economic risk because the services provided may exceed the dollar amount allotted. Another type of payment system uses case rates. The provider receives a predetermined amount of money per individual on a case-by-case basis. The amount of money reflects the estimated service costs to treat the individual patient's condition. Again, the provider takes the risk that unanticipated services will be required.

In the past, mental health services (including substance abuse treatment) were routinely excluded from managed care plans. In the 1970s, some mental health care coverage was required in order to meet federal qualifications. Carve-out plans were developed in the 1990s. These plans essentially create a separate managed care plan for mental health services. Mental health services tend to be covered at a lower rate than general health services and have also been cut back more severely. From 1988 to 1997, mental health care spending decreased by 54%, which reflects cutbacks 670% higher than those for general health care benefits. Mental health care providers are also subjected to higher levels of utilization review than medical care providers.

Ethical concerns

Managed care has been successful in fulfilling its primary purpose of lowering health care costs in the United States. Statistics show drastic decreases in the use of inpatient care and accompanying overall reduction in costs. Many observers, however, would argue that the quality of care has suffered as a result. Individuals have fewer choices regarding the locations where they can receive treatment. If a managed care organization closes, individuals under that plan must switch to other care providers under a new plan, which disrupts ongoing treatment. Care providers often feel that their clients are denied essential care in favor of saving money. Employers have become disillusioned because of increasing disability claims due to employees having received inadequate treatment for illnesses or injuries. In addition to disability claims, inadequate treatment results in hidden costs to employers in terms of lost productivity.

Another factor in decreased quality of care involves conflicting loyalties for health care providers. On the one hand, providers want to ensure quality care for their clients. On the other hand, they are encouraged to provide the least amount of care possible in order to receive financial benefits. Just as dishonest practice was suspected in conjunction with indemnity insurance, managed care creates a powerful potential for inappropriately addressing patients' needs.

Future directions

Due to growing popular discontent with managed care organizations, many critics believe that the system will not continue in its current state. No one, however, expects managed care to disappear completely and indemnity plans to rise to their former prominence. Changes are expected to occur as managed care programs begin competing among themselves. Cost and efficiency will no longer be the main selling point; quality of services will take precedence. One researcher has suggested that along with new systems of managed care and continuing systems of indemnity plans, health care providers may even organize and offer services directly to employers, thus eliminating the middlemen. This development would be beneficial to all involved: employers would pay less; providers would be better compensated; and clients would receive better care.

See also Case management



Horwitz, Allan V. and Teresa L. Scheid, eds. A Handbook for the Study of Mental Health. New York: Cambridge University Press, 1999.

Sauber, S. Richard, ed. Managed Mental Health Care: Major Diagnostic and Treatment Approaches. Philadelphia: Brunner/Mazel, 1997.

Tuttle, Gayle McCracken and Diane Rush Woods. The Managed Care Answer Book for Mental Health Professionals. Bristol, Pennsylvania: Brunner/Mazel,1997.


Gottlieb, Michael C. and Caren C. Cooper. "The Future of Mental Health Care Delivery: Ideals and Realities." Counseling Psychologist 28, no. 2 (2000): 263-266.

Reed, Geoffrey M., Ronald F. Levant, Chris E. Stout, Michael J. Murphey, and Randy Phelps. "Psychology in the Current Mental Health Marketplace." Professional Psychology: Research and Practice 32, no. 1 (2001): 65-70.


American Association of Health Plans. 1129 20th Street NW, Suite 600, Washington, DC 20036-3421. <>.

Department of Managed Health Care. California HMO Help Center, 980 Ninth Street, Suite 500, Sacramento, CA 95814-2725. <>.

Medicare. 1-800-MEDICARE. <>.

Sandra L. Friedrich, M.A.

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"Managed care." Gale Encyclopedia of Mental Disorders. . 17 Dec. 2017 <>.

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Managed Care


A general term that refers to health plans that attempt to control the cost and quality of care by coordinating medical and other health-related services.

The U.S. health care system has undergone major structural changes since the 1970s. The traditional way of obtaining medical care has been for a patient to choose a doctor and then pay that doctor for the services provided. This "fee-for-service" model, which has been financially rewarding for doctors, gives the patient the right to choose a physician. But the fee-for-service model underwent a rapid decline in the 1980s and 1990s as the concept of managed care took hold in the health care industry.

Managed care is a new term for an old medical financing plan known as the HMO, or health maintenance organization. HMOs are not insured plans. They are prepaid health care systems, offering services to which the member is entitled, as opposed to a dollar amount guaranteed by an insurance policy. Doctors are paid a set amount of money monthly for each patient regardless of the level or frequency of care provided.

HMOs emphasize preventive care. They became popular with employers who purchase health care coverage for their employees because they charged lower fees than insurance plans that reimburse patients for fee-for-service payments. Holding down the cost of medical care was one of the chief aims of HMOs.

The first HMOs were started around 1930. The Kaiser Foundation Health Plan of California was one of the first and largest HMOs. Another large HMO is the Health Insurance Plan of Greater New York. Both Kaiser and Health Plan also have their own hospitals. The federal government has promoted HMOs since the 1970s, enacting the Health Maintenance Organization Act of 1973, 87 Stat. 931, and other legislation that allow HMOs to meet federal standards for medicare and medicaid eligibility.

A person who participates in an HMO deals with a primary care physician, who directs the person's medical care and determines whether he or she should be referred for specialty care. This "gatekeeper" function has drawn both criticism and praise. Critics argue that a person can be tied down to a physician not of his or her choosing, who has complete control over whether the person will be seen by a specialist or be given special drugs or treatments. Critics also argue that HMO physicians are not allowed to perform thorough testing procedures because of the demands of HMO management to limit costs, and that this ultimately leads to rationing of medical treatment.

Advocates of HMOs and managed care argue that it is an advantage to the patient to have one physician with full responsibility for his or her care. With few exceptions, these primary care physicians are trained as general practitioners, family practice physicians, pediatricians, internists, or obstetrician-gynecologists.

The debate over national health care reform escalated during the first term of the Clinton administration. President bill clinton sought to overhaul the U.S. health care system by guaranteeing universal coverage while simultaneously controlling costs. His plan, which emphasized the managed care model, died in Congress, yet managed care continues to grow. Medicaid, the state-operated, but federally and state-funded, health care plans for the poor, started in 1966 as a fee-for-service program. By the 1990s, the conversion of Medicaid to a managed care model of service delivery had grown rapidly, serving as many as 10 million people.

The early promise of HMOs has given way to deep concerns about the steady escalation of health care costs. By 2003, annual premium increases of almost 20 percent were hurting employers, employees, and small business owners who purchase their own health insurance. An average HMO family premium has risen from the $100–$150 range in 1993 to the $400–$600 range in 2003. HMOs defend the rise in costs by pointing to advances in medical technology that require the purchase of high-priced equipment, rising prescription drug prices, and a U.S. population that demands increasingly more services, in particular the aging "baby boomer" population. To manage costs and discourage frivolous visits, most HMOs now require members to make a co-payment for most types of medical visits. HMOs also point to state laws that undercut their management of costs by giving members the right to go outside of the HMO network of health providers for services. In addition, members can now take advantage of state laws that provide appeal rights when denied medical services.

HMOs and health insurance companies have challenged these state laws, arguing that the 1974 federal employee retirement income security act (ERISA) preempted these state laws. ERISA seeks to protect employee benefit programs, which include pension plans and health care plans, through a lengthy set of standards, rules, and regulations. Health care providers have pointed to the comprehensive nature of ERISA as demonstrating the intent of Congress to maintain a uniform national system. However, the U.S. Supreme Court has been unsympathetic to these arguments.

In Moran v. Rush Prudential HMO, Inc., 536 U.S. 355, 122 S. Ct. 2151, 153 L. Ed.2d 375 (2002), the U.S. Supreme Court, in a 5–4 decision, upheld an Illinois law that required HMOs to provide independent review of disputes between the primary care physician and the HMO. Debra Moran had complained of continued numbness, pain, and loss of function and mobility in her right shoulder. A nerve conduction test revealed that she had braxial plexopathy, which involves compression of the nerves. Moran researched this condition and found a doctor in Virginia who performed microsurgery to correct this type of problem. Because the doctor was "out-of-network," Rush Prudential refused to pay for Moran's consultation with him. The doctor diagnosed Moran as suffering from a syndrome that could be corrected with surgery. Moran gave her Illinois primary physician the diagnosis, which was confirmed by two Rush-affiliated thoracic surgeons. Moran was not satisfied with the surgical methods offered by these two doctors. Even though Rush denied her coverage, Moran elected to have the operation performed by the Virginia surgeon. The surgery was a success, but Moran faced medical bills of almost $95,000. She took advantage of the Illinois independent-review law. A year later, the judge determined, based on an independent medical examination, that the surgery performed by the Virginia doctor had been "medically necessary." This conclusion led Moran to ask the state court to order Rush to reimburse her for the medical costs of the surgery. The U.S. Supreme Court upheld the Illinois review law, finding that the law was an insurance regulation rather than a benefit regulation.

Therefore, ERISA did not preempt the state regulation.

HMOs suffered an even greater defeat in their quest to manage services and costs when the U.S. Supreme Court upheld "any willing provider" laws passed by Kentucky. The laws permitted HMO members to obtain medical services from outside the designated list of HMO providers. HMOS again objected, contending that ERISA preempted the laws because they clearly dealt with health care benefits. The Court, in Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. 329, 123 S. Ct. 1471, 155 L. Ed.2d 468 (2003), unanimously rejected this argument. It again characterized the laws as insurance regulations, which are exempt from ERISA preemption.

further readings

Hertel, James. 2002. "Health Care Woes: Two Views." Rocky Mountain News (March 2).

Lee, Bryan. 2003. "Managed Care: Health Providers' Bill of Rights Now Law in California." Journal of Law, Medicine & Ethics 31 (spring).

Orentlich, David. 2003. "The Rise and Fall of Managed Care: A Predictable 'Tragic Choices' Phenomenon." Saint Louis University Law Journal 47 (spring).


Health Care Law; Health Insurance; Physicians and Surgeons.

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Managed Care


Managed care is the enrollment of patients into a plan that makes capitated payments to health care providers on behalf of its members, thus shifting the financial risk for health care from patients and payers to providers. The intent of this shift is to provide incentives to health care professionals to reduce their utilization of resources, ideally through measures such as health promotion and disease prevention among the group's members.

The phrase "managed care" is often loosely used to describe almost any attempt to limit health care expenditures in an increasingly competitive marketplace. Traditionally, however, managed-care plan members are cared for only by doctors who are part of the group. Each member is assigned a primary care physician who acts as that member's main caregiver and care coordinator, thus limiting the member's access to specialists and other more expensive types of care.

In the period following World War II, the predominant American health insurance paradigm was one in which insurance companies sold coverage to employers, who provided coverage to employees as a benefit of employment. Health coverage became an element in contract negotiations between employers and employee unions and during the 1950s and 1960s, when the American workforce was relatively young and healthy, and many industries agreed to provide generous health benefits at little or no direct cost to workers. At the same time, the public sector dramatically expanded its payment for health care with Medicare and Medicaid. In this "unmanaged care" system, patients were free to self-refer to the rapidly growing numbers of specialist physicians, with little or no coordination of their care. With relatively few restrictions, payments were made by insurance companies and government programs to physicians, hospitals, and other health care providers on a fee-for-service or cost basisthe higher the cost or charge, the larger the payment.

Little thought appears to have been given to the predictable effects of the nation's demography (young people of the 1950s and 1960s grew older) or of financial incentives on the cost of care. Patients insulated from the costs of their care by insurance tended to increase their access to, and expectations for, health care; while physicians trained to go to extremes on patients' behalf developed increasingly effective, and expensive, means of doing so. In the 1970s, these two dynamics led to a crisis of rapid and uncontrolled escalation in the costs of care.

Although early managed care plans were first organized in the 1920s, managed care is generally considered as having its origins in the 1940s in notfor-profit organizations such as the Group Health Cooperative of Puget Sound, the Kaiser Foundation Medical Care Program, and the Health Insurance Plan of Greater New York. Managed care spread relatively slowly until the 1970s and 1980s, when the crisis in health care costs began to encourage managed care as a lower-cost alternative to the accepted approach. Increased competition in the health care market led to the adaptation of managed-care techniques by new for-profit health care firms, and at the same time a number of states changed their Medicaid plans to a managed-care approach. This led to rapid increases in managed-care enrollmentas of 1999, more than half of all practicing physicians in the United States, and over 75 percent of the insured population, participated in some form of managed care plan.

Managed care arrangements take many shapes including group- or staff-model health maintenance organizations (HMOs), in which salaried physicians and other providers cared for plan members predominated only among the early managed care plans. These have increasingly been replaced by individual practice associations (IPAs), in which physicians agree to accept managed care patients as part of their existing practices. Point-of-service (POS) plans allow plan members more flexibility than HMOs, but require a higher rate of payment. Preferred provider organizations (PPOs), though often included in the managed care category, are discounted fee-for-service arrangements in which providers accept lower fees in return for a guaranteed patient volume, and are not true managed care efforts.

As noted above, the membership of early HMOs consisted largely of employed workers. Recent attempts to contain costs by enrolling Medicare and Medicaid patients into managed care plans have been only partially successful at best, due to the fact that members of both groups are more likely to have higher-cost health needs than the employed workforce. Some insurers have participated in these plans, only to withdraw when they were unable to meet their financial goals. Other problems have occurred when managed care plans have attempted to improve their competitive position in the marketplace at the cost of their health care mission: misrepresentation of benefits; adverse selection of members; and delaying, limiting, or withholding treatment are some of the problems that have arisen. Problems of this sort have resulted in increased public dissatisfaction and calls for government regulation as the definition of managed careat one time considered a utopian health-improvement experiment, but now often considered a generic term for cost cutting at human expensecontinues to evolve.

James R. Boex

(see also: Health Maintenance Organization [HMO]; Medicaid; Medicare; Personal Health Services; Primary Care )


Breslow, L. "Public Health and Managed Care: A California Perspective." Health Affairs 15:92100.

Enthoven, A. C. (1980). Health Plan: The Only Practical Solution to the Soaring Cost of Medical Care. Reading, MA: Addison-Wesley.

Iglehart, J. K. (1992). "The American Health Care System: Managed Care." The New England Journal of Medicine 327:742747.

Starr, P. (1982). The Social Transformation of American Medicine. New York: Basic Books.

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managed health care

managed health care, system of health-care delivery that aims to control costs by assigning set fees for services, monitoring the need for procedures such as tests and surgical operations, and stressing preventive care. Managed health-care systems include health maintenance organizations; preferred provider organizations (PPOs), networks of doctors and hospitals that adhere to given guidelines and fees in return for receiving a certain number of patients; and point of service (POS) plans, which are similar to PPOs but allow patients to go outside the network for treatment, usually at a higher cost. The term is also used to describe more traditional health-insurance plans that require that more expensive procedures be reviewed and approved by a plan official before they are performed. In managed care, the doctor is often paid a set fee or is paid a set amount monthly for each patient, a scheme called capitation. Many physicians criticize managed care systems, saying that they take away their freedom to make treatment decisions, that they are motivated mainly by economics, and that they do not consider patients as individuals. Managed health-care systems also limit doctors' incomes and what many people consider to be the abuses of the older fee-for-service system that rewarded doctors financially for doing more procedures. See also health insurance.

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integrated care pathway

integrated care pathway (care pathway) (in-ti-gray-tid) n. a multidisciplinary plan for delivering health and social care to patients with a specific condition or set of symptoms. Such plans are often used for the management of common conditions and are intended to improve patient care by reducing unnecessary deviation from best practice.

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managed care

man·aged care • n. a system of health care in which patients agree to visit only certain doctors and hospitals, and in which the cost of treatment is monitored by a managing company.

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