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

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

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

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