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Oct-Dec2001-9(4)
ORIGINAL ARTICLE
Managed care in the USA:
history and structure
Bashir Mamdani, Meenal
Mamdani
At the turn of the twentieth century, health care in the United States, as in the rest of the world, was a commodity: you could buy it and enjoy it if you could pay for it. The poor went hungry or received some care at municipal, governmental or charity soup kitchens. In the 1920s, liberal reforms in Western Europe, probably in response to the Communist revolution in Russia, led to state supported universal health coverage. Pressure started building in the US to adopt a similar reform. However, the American Medical Association (AMA), considering a state-run system tantamount to 'communist revolution', was opposed to this. But, a group of physicians fearing government-mandated reforms established Blue Cross, an insurance company to pay for hospital costs and Blue Shield, to pay for physician services (1). Over the next 20 years, this grew into the private indemnity insurance, fee-for-service (FFS) system that paid for a lion's share of health care expenditure for the middle class. Tax incentives encouraged all mid- and large corporations to provide free health insurance to their workers and their dependents as a benefit of employment.
In mid 1960s the Great Society program of President
Johnson created Medicare to pay for the health care of the elderly and Medicaid
to pay for the poor. As a result, spending by federal, state and local
government accounted for 46% of total health expenditure (2). So long as
hospital and physician charges were reasonable, either the insurance company or
the government paid up. Under the Hill-Burton Act of 1946 and its amendment in
1975, hospitals that accepted federal funds had to provide care for every one,
particularly the poor (3). Over three decades health care changed from a
commodity to an entitlement. Before the days of third party coverage, the cost
of health care restrained excessive consumption. Although organised medicine
opposed Medicare and Medicaid vehemently, hospitals and physicians reaped a
bonanza. As third party payers covered any charges considered 'usual and
customary', there was rapid growth in the number of hospital beds. Patients on
their part expected everything done because the direct cost to them was small.
As a consequence, health care expenditure almost doubled from 7.1% of GDP in
1970 to 13.9% in 1999 (4).
The health care debate in the US in the 1970s
focused on the twin problems of the double digit health care inflation and lack
of insurance coverage for the working poor and their families. Those who worked
for small businesses that did not provide health insurance benefits, part-time,
contract and temporary workers or those self-employed with income too low to
afford private insurance, were left out. Ironically the unemployed were covered
under Medicaid. Despite the colossal amounts being spent on health care,
national public health indices such as life expectancy, infant mortality rate
etc., showed that the US lagged behind most industrialized nations while
outpacing every one else in total health care expenditure, utilisation of
hospital beds and pharmaceuticals and high tab procedures (5). In this
environment, the Kaiser Permanante Foundation in California showed that health
maintenance organisations (HMOs), developed primarily to enhance health care
quality, could check the rising costs by reducing inappropriate utilisation of
hospitals and physicians while improving preventive measures such as
vaccinations, screening for breast and colon cancer etc.
In early 1970s, in an environment of rising prices,
President Nixon signed into law a bill promoting widespread Health Maintenance
Organisations (HMOs) with the ostensible goal of improving care with preventive
measures. While the original model was meant to improve quality, the intent now
was primarily to reduce costs. The next significant step followed the election
of President Reagan who signed the 1983 budget reconciliation act. This included
a provision granting immunity to HMOs, now directly providing health care unlike
insurance companies that just paid for care, from most malpractice law suits. At
the same time, the government initiated a push for close scrutiny of hospital
admissions and continued stay and the need for hospitalisation for most surgical
procedures. Regional Professional Standards Review Organisations (PSROs)
established minimum standards for admission. Each hospital had to establish a
Utilisation Review (UR) Committee to assess their physicians' use of laboratory,
radiology and other resources. The PSROs sent teams to the hospital to review
the admissions and continued stay. Those judged inappropriate were denied
reimbursement. Now a physician could justify an admission only if the patient
was very sick (temperature > 102° F, BP <80/60 or > 180/120,
Respirations > 30/min etc.), or the physician was planning to make the
patient very sick (major surgery, aggressive chemotherapy, etc.). Hospitals
quickly emptied out and many acute care facilities closed or drastically reduced
in-patient beds, converting the freed space into out-patient, same-day surgery
units or into intermediate and chronic care facilities. In a turbulent decade,
with aggressive marketing of lower priced HMO-type coverage and the rising costs
of FFS plans, most employers eliminated FFS coverage and offered their employees
only a variety of HMO options.
Health care inflation now seemed to be under
control and the next major issue was universal health care. Mr. Clinton in 1992,
in one of the earliest initiatives of his presidency, appointed his wife to head
a commission to develop proposals for expanding health care coverage. The
Clinton plan (6) proposed universal health care coverage, expanding the range of
services including preventive care, patient rights protection, nominal
co-payments for services and pharmaceuticals, elimination of life-time limit on
coverage characteristic of most FFS plans, guaranteed equality of premiums and
portability of coverage. It gave the worker and not the corporation the choice
of selecting coverage. But big business and organized medicine successfully
campaigned to block its passage. The extreme complexity of the final 1000+
page report, concerns about how this expanded coverage would be paid for and the
antipathy of business to any plan that they perceived as restricting their
actions while expanding the role of government, were reasons enough. Corporate
America launched a media blitz reminiscent of the 'Willie Horton' campaign of
candidate George Bush. The campaign aimed to generate fear in the public
emphasizing the weak points of another universal health model, namely the
National Health Service of Britain. The TV ads hammered at long waiting times
for procedures, lack of choice about physicians and denial of expensive
treatments. It worked so well that Universal health coverage was not even in the
platform of the Democratic Party in the 1996 and 2000 campaigns. However some
elements of the Clinton plan were adopted as separate bills over the next eight
years including children's health insurance program (CHIP) that extends coverage
to millions of previously uninsured children, health insurance portability and
accountability (HIPAA) and many patient rights provisions. Prescription drug
coverage is currently being debated and is likely to be adopted (7). In the
absence of legislative direction and debate for universal health care, market
forces took over and went about implementing what was recognized by all as
essential: cost controls. Managed care seemed to be the best alternative at the
time to achieve this (8).
What is managed care?
Managed care combines financing and delivery of
health care in a single entity with the aim of improving quality of care while
controlling costs. In the traditional system, the employer pays a fixed premium
to an insurance company. A patient with insurance coverage can go to any
physician or hospital and the insurance company pays 80% of the charges and the
patient the rest. In Managed Care, the employer negotiates with a Managed Care
Organisation (MCO) to provide for the health needs of their employees and their
families. The MCO hires physicians, or contracts with physicians to provide
care. It also owns or contracts with hospitals. A patient covered by an MCO may
receive care from only those physicians/hospitals on the MCO's list. The intent
of the MCO is to reduce demand for health care and at the same time to reduce
the cost of care.
To reduce demand, a gate-keeper, usually a nurse,
screens the patient's complaint and approves or denies access to a general
physician who is expected to handle a far greater range of services than under
the FFS system. A patient may consult a specialist only after a referral from
the general physician (9). Patients may use only plan physicians and hospitals.
Emergency room visits are discouraged by denying payment for 'inappropriate'
use. Hospitalisations require pre-certification and many procedures require
mandatory second opinion. Pharmaceutical cost containment is achieved by a
restricted formulary (10). MCOs use case managers, usually nurses, to oversee
care of high cost chronic diseases such as asthma, congestive heart failure and
diabetes. Credentialing of physicians by MCOs extends beyond verification of
training and certification to review of practice patterns, use of diagnostic
tests, rates of subspecialty referrals etc. A system of incentives and penalties
based on utilisation review 'encourages' physicians to regulate their use of
tests, procedures, and specialty consultations (11, 12). Before laws prohibiting
their use, many MCOs included 'gag rules' which restricted physicians to
discussing only MCO-sanctioned treatments. Physicians are required to follow
specific protocols limiting their clinical autonomy and are monitored for their
compliance with practice guidelines. An MCO may also transfer some of the risk
to the physician through a capitation arrangement under which the physician is
expected to provide total care irrespective of the resources/effort required.
This system came to be called 'managed care' as every aspect of medical care is
managed.
To reduce costs, MCOs recruit younger healthier
patients ('cherry-picking'), negotiate lower charges from hospitals and
pharmaceutical companies and force physicians to accept lower fees. Costs are
also shifted aggressively to other payers such as the Veterans Hospital
Administration, and other insurers.
Types of managed care
Managed care plans include: Health Maintenance
Organisations (HMOs), Preferred Provider Organisations (PPOs), Exclusive
Provider Organisations (EPOs) and Point of Service (POS) plans. Although there
are important differences between the different types of managed care plans,
there are similarities as well. All managed care plans involve an arrangement
between the insurer and a selected network of health care providers (doctors,
hospitals, etc.). All offer policyholders significant financial incentives to
use the providers in that network. There are usually specific standards for
selecting providers and formal steps to ensure that quality care is delivered
(13).
HMO members pay a fixed monthly fee in return for
which they receive comprehensive medical services, from office visits to
hospitalisation and surgery. There are no co-payments. However, HMO members must
receive their medical treatment only from physicians and facilities within the
HMO network. When a person joins an HMO, he chooses a network primary care
physician (PCP) who is the first contact for all medical care needs. The PCP
provides all general medical care and must be consulted before a member can see
a specialist.
A PPO is a group of doctors and/or hospitals that
provides medical service at discounted rates and may set up utilisation control
programs to help reduce the cost of medical care. Members are not required to
sign up with a PCP. Rather than prepaying for medical care, PPO members pay for
services as they are rendered. A co-payment is required and the member may
consult out-of-plan facilities at a higher co-payment. A Point of Service (POS)
plan combines characteristics of the HMO and the PPO. Like an HMO, members pay
no deductible and usually only a minimal co-payment when a healthcare provider
within the network is involved. However, the member must choose a primary care
physician who is responsible for all referrals within the POS network. If the
insured opts to go outside the network, POS coverage functions more like a PPO.
She/he may be subject to an annual deductible (around $300 for an individual or
$600 for a family), and the co-payment may be a substantial percentage of the
physician's charges (usually 30-40%). An EPO is similar to PPO but the
physicians consulted must be part of the plan.
Conclusion
Historically, health care had been a commodity.
Progressive forces or enlightened self interest saw its transformation into a
right. The marketplace of American style laissez faire capitalism responded by
driving up prices. When health care became almost unaffordable, Big Business
stepped in and imposed its brand of rationing called 'Managed Care'. In future
articles, we will assess the efficacy of managed care and the impact of
corporate management on health care ethics.
References
1. Wardwell, WI. Book Review. The Blues: A history of the Blue Cross and Blue Shield System. JAMA URL www.jama.ama-assn.org/issues/v29n9/ffull/jbk0304-2.htm
2. Iglehart, JK. Expenditures N Engl J Med 1999; 340: 70-76.
3. The Hill-Burton Free Care Program. URLhttp://www.hrsa.dhhs.gov/osp/dfcr/about/aboutdiv.htm
4. Brown, MB, Brown, GC, Sharma, S, Hollands, H, and Smith, AF. Physician manpower and health care expenditure in the United States: A thirty year perspective. J Health Care Financ 2001; 27: 55-64.
5. Harris GF, Ripperger MJ, Horn HGS. Managed care at a crossroads. Health Affairs 2000; 19: 157-163
6. Clinton Health Protection Act. URLhttp://www.ibiblio.org/nhs/NHS-T-o-C.html
7. Levin-Epstein, M. How we got it anyway: The Clinton Health Plan never died. Managed Care URL http://www.managedcare.org
8. Blumenthal, D. Health Care reform at the close of the 20th century. N Engl J Med 1999; 340: 1916-1920.
9. Iglehart JK. The American Health Care System - managed care. N Engl J Med 1992; 327: 742-747.
10. Relman, AS. Controlling costs by 'Managed Competition' - Would it work? N Engl J Med 1993; 328: 133-135.
11. Kassirer J.P. Managed care and the morality of the marketplace. N. Engl J Med 1995; 330:50-52
12. McEldowney R., Murray WL. Not just for bureaucrats anymore. Administration and Society, 2000; 32: 93-110.
13. Managed Health Care Plans. URL.www.americanheart.org/Heart_and_Stroke_A_Z_Guide/manhc.html
1. Wardwell, WI. Book Review. The Blues: A history of the Blue Cross and Blue Shield System. JAMA URL www.jama.ama-assn.org/issues/v29n9/ffull/jbk0304-2.htm
2. Iglehart, JK. Expenditures N Engl J Med 1999; 340: 70-76.
3. The Hill-Burton Free Care Program. URLhttp://www.hrsa.dhhs.gov/osp/dfcr/about/aboutdiv.htm
4. Brown, MB, Brown, GC, Sharma, S, Hollands, H, and Smith, AF. Physician manpower and health care expenditure in the United States: A thirty year perspective. J Health Care Financ 2001; 27: 55-64.
5. Harris GF, Ripperger MJ, Horn HGS. Managed care at a crossroads. Health Affairs 2000; 19: 157-163
6. Clinton Health Protection Act. URLhttp://www.ibiblio.org/nhs/NHS-T-o-C.html
7. Levin-Epstein, M. How we got it anyway: The Clinton Health Plan never died. Managed Care URL http://www.managedcare.org
8. Blumenthal, D. Health Care reform at the close of the 20th century. N Engl J Med 1999; 340: 1916-1920.
9. Iglehart JK. The American Health Care System - managed care. N Engl J Med 1992; 327: 742-747.
10. Relman, AS. Controlling costs by 'Managed Competition' - Would it work? N Engl J Med 1993; 328: 133-135.
11. Kassirer J.P. Managed care and the morality of the marketplace. N. Engl J Med 1995; 330:50-52
12. McEldowney R., Murray WL. Not just for bureaucrats anymore. Administration and Society, 2000; 32: 93-110.
13. Managed Health Care Plans. URL.www.americanheart.org/Heart_and_Stroke_A_Z_Guide/manhc.html
Dr Bashir Mamdani,
Associate Chairman (retired), Department of Medicine, Cook County
Hospital, Chicago,USA.
Dr Meenal Mamdani,
Assistant Chief (retired), Department of Neurology, VA Hospital, Hines,
IL, USA. 811 N. Oak Park Avenue, Oak Park IL 60302 USA.Email:bmamdani@home.com.