Managed Care

Managed care may be defined as a comprehensive attempt to control care and costs in the health care industry by controlling access to care. Thus both dimensions of the cost of care and access to care need to be understood.

Many would argue that the root cause of managed care has been the accelerating costs of health care. Those costs have outstripped the general rate of inflation in the United States for many years. Indeed, in the early 1990s and in the early years of the next decade, many employers saw their health care costs increase between 10% and 20% per year. On a national basis, such increases led to forecasts that health care costs would represent 18% of the entire U.S. economy, and $3 trillion in expenditures, by the year 2012. In an attempt to control those nonsustainable cost increases, many employers joined forces with insurance companies to rein in the cost of care.

That attempt to manage cost by reining in the use of care became known as managed care. In the old fee-for-service or cost reimbursement model, providers were paid fees for health care services and the providers decided what services were needed. Under that model, there were allegations of overutilization of health care services. Access to health care services was almost unlimited for those with fee-for-service health insurance coverage. Partly in reaction to allegations of overutilization of health care services, the initial theme of managed care was controlling cost by controlling access to health care services.

One way to control access was through a gatekeeper model. In some cases, the gatekeeper was a nurse at a health[Page 338] insurance company who precertified the need for referral to a specialist, for a pharmaceutical product, or for a health care procedure. Such a precertification process by a nurse angered many physicians, who viewed the process as curtailing their autonomy to practice medicine.

Controlling access also took the form of limited panels of providers with a requirement to see a designated primary care physician such as a pediatrician or family practitioner on the panel of preapproved providers. Such approved providers on a panel often accepted lower fees, because they anticipated higher volumes of patients or because the providers feared the negotiating power of the insurance companies. A visit with an approved panel primary care physician may have been required before seeing a specialist or before requiring detailed tests or diagnostic procedures. Thus, only physicians designated on the panel of providers given by the insurance company could be used if reimbursement was desired. Certain pharmaceutical products were also denied if they were not on the approved list or formulary. In some instances, the pendulum may have swung from overutilization to underutilization of health care services. This limited choice of physicians, hospitals, and pharmaceutical products angered many patients, because they wanted the choice of providers and pharmaceutical products. These practices were implemented fully by organizations known as health maintenance organizations, or HMOs.

Given the dislike among physicians, other providers, and patients for the strong gatekeeper or HMO model, and a dislike for the precertification process among providers, patients expressed a need for choice among providers and for authorization of procedures by their physician. Thus, a health plan with broader panels of providers and more liberal reimbursement for out-of-panel providers and pharmaceutical products became known as a preferred provider organization (PPO). A point-of-service (POS) plan was a compromise between an HMO and PPO in terms of how narrow to make the approved panel of providers and the precertification process.

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