The Rise (and Partial Fall) of Managed Care

By the 1980s, the amounts spent by government and insurers on health care had soared. This led to the explosive growth in managed care. The term managed care refers to any system that controls costs through closely moni- toring and controlling the decisions of health care providers; HMOs are one form of managed care organization (MCO). Most commonly, MCOs control costs in three ways. First, MCOs may negotiate prices with doctors and require consumers to use only doctors who accept their price schedule. Second, MCOs may offer bonuses to doctors who keep costs down and may require doctors to obtain ap- proval before hospitalizing a patient, performing surgery, ordering an expensive diagnostic test, or referring to a specialist outside the MCO’s “network.” This sys- tem is known as utilization review. Finally, MCOs may rely on expert advice to create lists (known as formularies) of the most cost-effective drugs for treating specific conditions. Doctors who work for an MCO must get permission before prescribing any drugs not on the MCO’s formulary. Most insured Americans now belong to some form of managed care plan.

Despite evidence suggesting that managed care makes little difference in access to care, quality of care, or patient satisfaction, it generated substantial backlash. A string of legislative and legal moves—often framed as “patients’ bills of rights”—have pressed insurers to drop some of the less popular aspects of managed care. For example, legislators opposed the early release of women from hospitals soon after giving birth (labeled “drive-by deliveries” by the media), even though early release typically is safer because it reduces women’s chances of contracting infections in the hospital. Similarly, legislators have fought to get patients access to experimental treatments, although patients are more likely to be harmed than helped by these treatments. In addition, even in the absence of legislative pressure, the need to keep both consumers and doctors happy has led insurers to scale back the use of formularies and utilization review and to increase consumers’ access to doctors outside of the MCO’s network.

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Why has this backlash been so effective? Two important reasons can be found in American culture. First, a central theme in American culture is an emphasis on individual autonomy and independence. By its very nature, managed care reduces individual choices for both consumers and health care pro- viders, which left it vulnerable to political attack. Second, Americans typically believe that more health care is always a good thing. Yet overtreatment can be both dangerous and costly. For example, mortality rates are higher in geographic regions where Americans receive more extensive medical care, apparently because the extra medical treatment often is more dangerous than helpful. Because of this cultural belief in treatment, however, Americans less commonly fear the pressure to overtreat built into a fee-for-service system than the pressure to undertreat built into managed care. These cultural factors made managed care an easy target.