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Managed care

Managed care

Definition

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.

Purpose

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.

Description

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

Resources

BOOKS

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.

PERIODICALS

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.

ORGANIZATIONS

American Association of Health Plans. 1129 20th Street NW, Suite 600, Washington, DC 20036-3421. <http://www.aahp.org>.

Department of Managed Health Care. California HMO Help Center, 980 Ninth Street, Suite 500, Sacramento, CA 95814-2725. <http://www.hmohelp.ca.gov>.

Medicare. 1-800-MEDICARE. <www.medicare.gov>.

Sandra L. Friedrich, M.A.

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Managed Care

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).

cross-references

Health Care Law; Health Insurance; Physicians and Surgeons.

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Managed Care

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 )

Bibliography

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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Managed Care

Managed Care

Definition

Purpose

Description

Ethical concerns

Future directions

Resources

Definition

Managed care is a generic term for various healthcare 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.

Purpose

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; and (d) review of services by the managed care organization and denialofpayment if services are considered unnecessary.

Description

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

KEY TERMS

Capitated payment system— A contract between managed care organizations and health-care providers involving a prepaid amount for blocks of services.

Carve-out plans— Managed care plans that make provision for mental health services by creating subcontracts involving different terms of payment and utilization review from those used for general health care.

Case manager —A professional who designs and monitors implementation of comprehensive care plans (i.e., services addressing medical, financial, housing, psychiatric, vocational, or social needs) for individuals seeking mental health or social services.

Case rate —A type of contract between managed care organizations and health-care providers involving a prepaid amount for services on a case-by-case basis.

Deductible —The amount of money that must be paid out of pocket by health-care consumers before the insurance provider will make payments.

Health maintenance organization (HMO) —A type of managed care system that involves payment contracts with a group or panel of health-care providers.

Health Maintenance Organization Act of 1973 — Federal legislation that provided aid to develop HMOs.

Indemnity insurance —Insurance plans that pay on a fee-for-service basis in the event of illness or injury.

Medicaid —A program jointly funded by state and federal governments that reimburses hospitals and physicians for the care of individuals who cannot pay for their own medical expenses. These individuals may be in low-income households or may have chronic disabilities.

Medicare —A federally funded health insurance program for individuals age 65 and older, and certain categories of younger persons with disabilities.

Preferred provider organization (PPO) —A type of managed care system involving payment contracts with a group or panel of health-care providers.

Premium —The cost of enrollment in a health insurance plan. Premiums are usually paid on a monthly basis.

Utilization review —A process used by managed care organizations involving scrutiny of service care delivery to determine whether services are necessary.

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 completely disappear 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 alsoCase management.

Resources

BOOKS

Codd, R. Trent, III. Destructive Trends in Mental Health: The Well-Intentioned Path to Harm. New York: Rout-ledge, 2005.

Foster, Joan, and Antonia Murphy. Psychological Therapies in Primary Care: Setting Up a Managed Care Service. London: Karnac, 2005.

Scheid, Teresa L. Tie a Knot and Hang On: Providing Mental Health Care in a Turbulent Environment. Hawthorne, NY: Aldine de Gruyter, 2004.

PERIODICALS

Addis, Michael E., Christina Hatgis, Esteban Cardemil, Karen Jacob, Aaron D. Krasnow, and Abigail Mansfield. “Effectiveness of Cognitive-Behavioral Treatment for Panic Disorder Versus Treatment as Usual in a Managed Care Setting: 2-Year Follow-Up.” Journal of Consulting and Clinical Psychology 74.2 (Apr. 2006): 377–85.

Beattie, Martha, Patricia McDaniel and Jason Bond. “Public Sector Managed Care: A Comparative Evaluation of Substance Abuse Treatment in Three Counties.” Addiction 101.6 (June 2006): 857–72.

Bobbitt, Bruce L. “The Importance of Professional Psychology: A View From Managed Care.” Professional Psychology: Research and Practice 37.6 (Dec. 2006): 590–97.

Busch, Alisa B., Richard G. Frank, Anthony F. Lehman, and Shelly F. Greenfield. “Schizophrenia, Co-Occurring Substance use Disorders and Quality of Care: The Differential Effect of a Managed Behavioral Health Care Carve-Out.” Administration and Policy in Mental Health and Mental Health Services Research 33.3 (May 2006): 388–97.

Cohen, Julie, Jeanne Marecek, and Jane Gillham. “Is Three a Crowd? Clients, Clinicians, and Managed Care.” American Journal of Orthopsychiatry 76.2 (Apr. 2006): 251–59.

Kilbourne, Amy M., Harold Alan Pincus, Kathleen Schutte, JoAnn E. Kirchner, Gretchen L. Haas, and Elizabeth M. Yano. “Management of Mental Disorders in VA Primary Care Practices.” Adminstration and Policy in Mental Health and Mental Health Services Research 33.2 (Mar. 2006): 208–14.

Liang, Su-Ying, Kathryn A. Phillips, and Jennifer S. Haas. “Measuring Managed Care and Its Environment Using National Surveys: A Review and Assessment.” Medical Care Research and Review 63.6 (Dec. 2006): 9S–36S.

McLaughlin, Trent P., Rezaul K. Khandker, Denise T.

Kruzikas, and Raj Tummala. “Overlap of Anxiety and Depression in a Managed Care Population: Prevalence and Association With Resource Utilization.” Journal of Clinical Psychiatry 67.8 (Aug. 2006): 1187–93.

Raghavan, Ramesh, Arleen A. Leibowitz, Ronald M. Andersen, Bonnie T. Zima, Mark A. Schuster, and John Landsverk. “Effects of Medicaid Managed Care Policies on Mental Health Service Use Among a National Probability Sample of Children in the Child Welfare System.” Children and Youth Services Review 28.12 (Dec. 2006): 1482–96.

ORGANIZATIONS

American Association of Health Plans. 1129 20th Street NW, Suite 600, Washington, DC 20036-3421. Web site: <http://www.aahp.org>

Department of Managed Health Care, California HMO Help Center, 980 Ninth Street, Suite 500, Sacramento, CA 95814-2725. Web site: <http://www.hmohelp.ca.gov>

Medicare. Telephone: 1-800-MEDICARE. Web site: <www.medicare.gov>

Sandra L. Friedrich, MA

Ruth A. Wienclaw, PhD

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Managed Care

MANAGED CARE

•••

With the growth of employer-based medical insurance following World War II, fee-for-service indemnity insurance became the prevailing mode of financing healthcare delivery. Even prior to the rise of indemnity insurance, care was provided—for those who could afford it—in exchange for a fee or as part of a barter arrangement. Thus, a physician's order for care and the resultant delivery of care essentially commanded a payment from a payer source (for example, from a health insurance company, a self-insured employer, the government, or an individual patient) to a provider. For those who were insured and who could afford paying their co-pays and deductibles, there were few, if any, financial constraints on the delivery of healthcare in the feefor-service era. Both healthcare costs and provider wealth soared under fee-for-service insurance; and there is compelling evidence of over-utilization of services, variable quality of services, and an increasing percentage of uninsured Americans in this period. If three cardinal measures of a well-functioning health system are quality, cost control, and access, fee-for-service financing was an across-the-board failure.

In this era, a mentality of entitlement arose among both physicians and insured patients. The insured patient was entitled to any care deemed beneficial by their physician; and the physician (by virtue of professional prestige and the resulting presumption that practice would be ethically balanced by the duties to both benefit and do no unnecessary harm to patients) was entitled to order any treatment he or she deemed to be consistent with that ethic. While physicians have, at the beginning of the twenty-first century, lost the political and economic power to practice in such an unfettered way, insured patients carry the mentality of entitlement forward, and Americans generally exhibit little understanding of the cost problems in healthcare. This is not to blame the general public as patients or consumers, but instead to assert the need for a more educated citizenry, as part of a next effort to seek a solution to the healthcare crisis of balancing quality, cost, and access.

The Rise of Managed Care

Between the end of World War II and the early 1980s, there were a few health maintenance organization (HMO)-precursor and healthcare cooperative arrangements in the United States in which individuals pooled their resources to assure themselves and their families access to medical care. In these arrangements, physicians usually settled for salaries for managing the care of their enrolled patients and population within a budget. The 1973 HMO Act created economic incentives for the creation of federally qualified HMOs. In essence, the act allowed for competition on cost and quality between HMO and fee-for-service arrangements. In the early 1980s, a major shift in the financing of healthcare began occurring in the United States. As a result, the financing and delivery of healthcare came to be integrated in a new way known as managed care. This shift also represented a significant change in the balance of power between the providers (physicians, hospitals, and delivery systems) and the financiers of healthcare private and public insurers.

In 1983, with the imposition of Medicare diagnosis-related groups (DRGs) the federal government took a major step to institute financial constraints on healthcare delivery. DRGs, which then applied only to hospitals, required hospitals to manage the care of a patient with a particular diagnosis for a set dollar or reimbursement amount. Hospitals, of course, began facing new economic threats under this arrangement. A critical unmanaged element in the healthcare delivery equation remained the physicians' accustomed approaches to ordering patient care. A hospital's failure to manage care within the Medicare reimbursement amount meant incurring a financial loss that needed to be recovered elsewhere. It also meant that surplus funds that used to be available through overpayments by Medicare could no longer be cost-shifted and used to support education, medical research, and charity care. Initially, this led to raising the costs for services to the privately insured, which translated into higher insurance premiums for employers and individuals. When employers or individuals could no longer afford premiums, the number of uninsured rose.

For physicians, as it had for hospitals, managed care arrangements represented a decisive change in the relationship between dollars and decisions to order healthcare services for patients. Physicians had historically been the directors of care, unconstrained by the payers in fee-for-service arrangements. Now the payers had achieved sufficient power to financially constrain physicians' ways of practicing medicine. Cost ceilings were created for the provision of specific services; physician utilization patterns became targets of payer scrutiny and additional financial controls; physicians were required to enter into risk-sharing arrangements in exchange for access to patients in insured networks; financial incentives like bonuses and withholds were instituted to control physicians' utilization of services; and physicians were encouraged to follow practice guidelines developed from a population perspective and focused on cost-effectiveness to manage patient care. In many ways medical practice had been absorbed into the insurance side of healthcare. Thus arose managed care: a way of integrating the financing and delivery of healthcare so that the former drives, rather than is driven by, the latter. Managed care includes various organizational arrangements, approaches, tools, and strategies. It is not a single definable practice. Common threads are fiscal incentives concerning healthcare service delivery.

At the same time that the economic struggle was going in progress who would control the price tag and reap the profits of healthcare, important efforts were underway to raise the quality of healthcare by encouraging a transition to medicine as an evidence-based practice, not simply an individually-practiced art. One way to manage healthcare dollars is to restrict payment to what we know works, that is, to pay only for healthcare that has been proven to generate valued patient outcomes. Managed care reasonably declared itself to be focused on payment for medically necessary, cost-effective care.

The Managed Care Backlash

Managed care ran into significant public opposition in the imposition of policies such as twenty-four hour hospital stays for new mothers and the refusal to pay for unproven interventions for patients with life-limiting diagnoses. (Interestingly, though it is managed care organizations that have been assailed for excluding coverage for experimental treatments, this exclusion is a carry-over from fee-for-service days. Traditionally fee-for-service insurers also refused to cover unproven interventions.) What was rational to a managed care mind was fundamentally irrational or uncaring to the public's mind. Disconnected from the growing cost crisis in healthcare, the public was deeply at odds with the ethic inherent in the workings of managed care. This sentiment should have led the managed care industry to assess the ethical difference and adjust its coverage and pricing accordingly, or engage the American citizenry in a deeper discussion of these important issues in the interest of managing healthcare costs. A few managed care organizations chose to acknowledge the difference between their ethic as the manager of healthcare for a population within a defined budget and the ethic of their individual constituents and to work toward a resolution. Many if not most others ignored the fundamental tensions between individual and population good and the even larger tensions associated with for-profit healthcare payers displacing providers in the healthcare driver's seat. To date none of the significant health system stakeholders has prioritized an effective, rational public conversation around the polarizing goals of improving access, improving quality, controlling spiraling healthcare inflation, and enhancing patient and physician autonomy.

Managed care grew out of a serious need and effort to reduce healthcare spending. There were also serious concerns about quality in healthcare that were being pursued in tandem with and as part of the move toward managed care. If fee-for-service encouraged a culture of over-utilization, it also promoted harm through over-treatment; unbridled access to specialists undermined primary care and the coordination of care; and patients were subject to care recommendations that reflected the experience of the individual physician rather than systematic empirical information about patient outcomes. If the quality improvement movement rather than the struggle over wealth between providers and payers had led the managed care evolution, and communication with the public had been deliberate, things might have gone very differently.

And yet, who could take seriously discussions on such issues instigated by huge for-profit healthcare organizations that have come to dominate the healthcare marketplace? The public was never a real player in considering the big issues and has yet to be educated to understand the deeper questions that face the American healthcare system. The next evolution of our system will see a new group—or groups—in control. The options are: providers (who do not organize well); healthcare financing companies (the payers that have amassed incredible economic and political power along with potentially insurmountable public relations crises); medical manufacturing industries (the pharmaceutical and technology companies that are currently able to pass largely unregulated costs onto payers); group purchasers of insurance (employers, unions, and government that increasingly search for ways to cap their own financial risk and empower individual decision making and choice); individual purchasers of insurance (who have no market clout whatsoever and poor options for affordable insurance); patients (who are divided up into a myriad of insurance arrangements in ways that undermine their ability to organize and who feel entitled to all beneficial care); and the uninsured (40 million residents of the United States and growing).

The public backlash has been too significant to ignore: The public is now called upon to spend more for healthcare, while still facing threats to their felt entitlement to all beneficial care. Managed care organizations are assailed for failing to control costs, even as legislatures, courts and the court of public opinion prohibit them from implementing many of the tools that constrain costs. For-profit healthcare conglomerates now dominate the health system as a whole, and are among the only good bets on the stock market in 2003. Clearly, there is money there, but patients are not happy, providers are not happy, purchasers are not happy, and costs continue to rise exponentially.

In principle, managed care offers the major purchasers of healthcare (employers, unions, and government) competitively priced insurance, institutes quality-control measures to determine and encourage cost-effective care, and provides enrollees (the insured) fair access to quality healthcare from credentialed providers within a finite budget. If one assumes that effective cost control will promote a lower percentage of uninsured, managed care has the potential to serve the goals of quality, cost control, and access in a manner far superior to fee-for-service.

Yet between the principle of managed care and its implementation have fallen the shadows of public discontent and the ongoing struggle among stakeholders for economic ascendancy. The assumption has been that the market-guided evolution of managed care would issue in cost-contained, accessible, high quality healthcare for a larger share of Americans. That assumption has not been true at the beginning of the twenty-first century.

Many analysts believe that managed care is here to stay, although in forms rather markedly different from the classic HMO model of the 1980s. It is now best thought of as multiple arrangements that use selected elements of a managed care toolkit, the defining elements of which include definitions of medical necessity, practice guidelines, risk-sharing arrangements, financial incentives, and coverage policies.

Ethical Issues Raised by Managed Care Arrangements, Strategies, and Tools

From an ethical perspective, the most serious concern with managed care is that it threatens the fiduciary or trust relationship between physician and patient. Many have argued that the special covenantal relationship between the physician and patient necessitates a nearly absolute freedom from financial constraints on the part of the physician. While the physician–patient relationship has never been free from financial conflicts of interest, it has been argued that conflicts that induce under-treatment rather than overtreatment more seriously threaten the fiduciary quality of the relationship. In either case, however, the fiduciary character of the relationship appears sorely threatened. Despite this, the public seems to fear the withholding of necessary care more than overtreatment, and sees the physician's integrity to be more easily undermined by risk-sharing arrangements with insurers than by a more traditional forprofit practice arrangement. Ultimately, those who pursue the fiduciary profession of medicine are the last, best strongholds of the values we all hold concerning this vital human relationship. Both forms of financial conflict threaten the fiduciary role, and it falls to the moral character of the physician and other clinicians to hold the line against the compromising of that role.

Perhaps the truth is that it is easier to summon the moral courage and fortitude this requires under fee-for-service than under managed care. After all, if risk-sharing and financial incentives/disincentives and other threats are too onerous and direct, physicians will be hard-pressed to avoid the influence of the dollar on their decisions to order services. It seems clear that in the interest of maintaining the fiduciary quality of this professional role, some managed care tools for constraining physician utilization are themselves unethical and must be regulated.

It also seems clear that in addition to the responsibilities physicians have to their individual patients, physicians have obligations to the population of patients they serve—not only the patients in the same enrolled population, but all of the patients they might be called upon to serve (including patients requiring pro bono services due to being uninsured). The ethical tension in this role is unavoidable: Physicians must, at the same time that they seek to provide for their patients' needs, assume a resource management attitude. Physicians do not have the option of arguing that they should be able to practice without concern for cost. Somehow, in their everyday practice, they must manage this tension with an ethic of proportionality: The most serious of patient needs must be met with an appropriate outpouring of human and financial resources, while lesser needs are addressed proportionately.

This raises another issue as well: Some patients and groups of patients are much more expensive to treat than others. In short, there is a financial disincentive that automatically attaches to treating the neediest patients, unless risk-adjustment enters into the picture to protect providers. The very fact that an epidemic of service line closures is affecting the most vulnerable and costly patients (e.g., behavioral healthcare) suggests that very different solutions to the provision of certain healthcare services are needed where the market-based effort to control healthcare costs has collapsed.

The fact that resources are to be managed to deliver quality care to individuals based on their medical needs and to fairly distribute healthcare resources throughout a covered population represents a series of ethical quandaries. Managed care tools designed to manage the extreme ethical tension created by this dual goal include definitions of medical necessity, practice guidelines, and coverage policies. In managed care arrangements, evidence gathered about what works (i.e., improves the level of health from a population perspective) is captured in practice guidelines and coverage policies, that are then applied to coverage determinations for individuals.

One of the reasons medicine has always been considered an art is that it requires a depth of attention to the patient as a physical body and also as a person. While there may be algorithms to assist in determining care options when diagnoses are clear, when they are not clear, or the patient is outside clear diagnostic parameters, populationbased formulas may well be off the mark. If medicine is both science and art, and contributes to healing and/or comforting through both intellectual and personal power, then clinical autonomy remains an essential feature of the practice of medicine that must somehow be blended with the power of population-based practice guidelines and coverage policies.

Further, one of the great fears must be for patients with conditions for which there are little or no practice guidelines and for which medical research has yet to find good options— and may even have few incentives to seek options. Vulnerable populations have been historically neglected in research. Mental and physical rehabilitation, crucial to quality of life, in some cases lack good evidentiary bases. Coverage for such interventions should not be denied when they may well represent a best chance for a functional life.

This leads to the issue of managed care's assumption that coverage be determined by a standard or set of criteria of medical necessity. What constitutes medically necessary care? Care that may restore function? That is known to restore function? Care that will enhance function beyond the normal range? Here again, the managed care disconnect from public sensibilities has been extreme. For the public, if something stands a chance of improving function or extending life, however small that chance, it is medically necessary care. For managed care organizations, there must be evidence that an intervention will improve function, as expressed in coverage policies and practice guidelines.

An Ethical Framework for Managed Care

The cornerstone of the traditional clinical ethics framework was, of course, patient autonomy or self-determination. The additional principles were beneficence, nonmaleficence, and justice. Can this framework be exported from clinical settings to organizational situations in which financing constrains patient care decisions and arrangements, or is a new ethical framework needed?

A novel framework seems to be required. One could say that the justice principle of the clinical ethics framework could be extended to guide the resource management responsibilities of managed care arrangements for their covered populations. But the principle of justice of the clinical ethics framework was always more individually than communally focused. It concerned the primacy of individual claims to benefits and individual rights not to be unfairly burdened for the sake of others, not communally beneficial distributions. Because managed care arrangements manage healthcare access and serve both populations and individuals, they have duties of stewardship and of protection of the fiduciary quality of clinical relationships. Because the personal good of healthcare is now available to individual patients through complex insurance businesses, advocacy supporting patient autonomy in clinical decisions and rights as an insured member of an enrolled population becomes an additional ethical imperative. Neither the patient-population tension nor the dependent relationship of care to coverage can be eliminated. The ethical tensions inherent in managed care must be named in a new healthcare organizational ethical framework, just as the tensions in clinical care were named in its ethical framework. If stewardship, autonomy, and advocacy should be included in the new framework, so must be principles of truth telling (both about clinical options and coverage), and confidentiality. Additional ethical principles, carryovers from the clinical ethics framework, are beneficence and nonmaleficence. Each of these principles must be interpreted for the financing and delivery arrangement that currently dominates the U.S. healthcare system: namely one in which financing constrains delivery.

Because managed care arrangements and tools provide the context for clinical relationships, a broader ethical framework for the analysis of ethically problematic situations is required. In addition, guidelines for the protection of essential features of clinical relationships are required. In the absence of these ethical principles and guidelines, there is no disciplined way to identify and remove unjustifiable threats to individual patients, or for that matter, to the population.

The ethical responsibilities of managed care organizations arguably extend to the broader community and society. They control distribution of healthcare resources, and as explained above, have compromised the capacity of provider organizations to cost-shift to support education, research, and charity care commitments. Society has yet to come to terms with the obligations of managed care organizations to support community needs such as these. This issue is even more problematic when one draws the distinction between nonprofit and for-profit health systems. Due to their tax-exempt status, the former are required to provide community benefit. Due to the fact that they pay taxes, the latter have no parallel requirement; they may operate like any business, supporting community interests as they deem conducive to their own interests, despite that they exert substantial control over the healthcare resources available to their community. It is essential to determine, from an ethical perspective, the stewardship responsibilities that exist for these organizations to support the health of the broader community.

karen g. gervais

SEE ALSO: Healthcare Resources, Allocation of; Health Insurance; Health Policy in the United States; Justice; Professional-Patient Relationship; Profit and Commercialism

BIBLIOGRAPHY

Dudley, R. A. and Luft, Harold S. 2001. "Managed Care in Transition." New England Journal of Medicine 344: 1087–1092.

Eddy, David. 1996. Clinical Decision Making: From Theory to Practice. Boston: Jones and Bartlett Publishers.

Gervais, Karen G.; Priester, Reinhard; Vawter, Dorothy E.; et al. 1999. Ethical Challenges in Managed Care: A Casebook. Washington, D.C.: Georgetown University Press.

Journal of Health Politics, Policy and Law 24(5). 1999.

Journal of Health Politics, Policy and Law 24(6). 1999.

Randel, Lauren; Pearson, Steven; Sabin, James; et al. 2001. "How Managed Care Can Be Ethical." Health Affairs 20(4): 43–56.

Robinson, James C. 2001. "The End of Managed Care" Journal of American Medical Association 285: 2622–2628.

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Notes:
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  • In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.