Managed health care is a comprehensive term describing the system integrating delivery of health care services with resourcing and financing. It’s also an approach under which the healthcare services can be delivered with the best possible scarce resources allocation in order to optimize the patients’ outcomes (Navarro, Cahill). In a properly functioning managed care system, people get healthcare services that are appropriate and necessary, within set efficiency criteria, within defined timeframe, complying with the highest quality standards, and with “anticipated and measurable outcomes” (Linsley, Morton, 2014). Managed healthcare differs from so-called “liberal medical practice,” allowing physicians to choose methods of treatment, make decisions and bill for their services on their own (Deom, Agoritsas, et al., 2010).
There are several forms of managed care existing in the modern World, including various types of organizations as well as insurance options. The most common managed care organizations and components of managed healthcare are the following:
- health maintenance organizations (HMO), providing an extensive range of healthcare services on a prepayment basis;
- preferred provider organizations (PPO). This type of organizations consists of groups of hospitals, clinics, doctors who enter into contractual relations with an insurance company, employing company or other party to deliver health care to covered group of people;
- various service plans. For example, there are point-of-service plans. Under these plans the people can choose from PPO and HMO features. There are also self-insurance plans, where employers take the insurer’s responsibilities, and “indemnity or fee-for-service plans” (Tobin, 1997).
The main features of managed healthcare are the responsibility as well as accountability for quality healthcare of definite groups of people, along with acceptance of the financial risks coming from assuming the responsibility (Dorsey, 1995, p. 597).
Well-working continuum of managed care is ideally patient-centric (see figure 1).
Figure 1. Model of managed care. Source: Linsley P, Morton S. (2014) Managed care: a structured approach. Nursing Standard. 28, 19, 37-42.
Many researches state that managed healthcare emerged in 20th century. But the first U.S. healthcare program which can be associated with the managed care concept was launched in 1798 by a group of shipping companies and covered maritime workers (Liberman, Rotarius, 1999). The earliest managed healthcare plans of the beginning of the 20th century were episodic, isolated and often represented a form of employees benefit offered by some employers, for example, Western Clinic of Tacoma, WA, 1910; Blue Cross, 1930s; Greater New York health plans, 1944 (Navarro, Cahill). This period predecessing the World War II is known as a time of emergence of “proto-HMOs” (Fox, Kongstvedt, p.4) combining features of health care and insurance, delivering medical services on a prepaid basis.
Shortage of hospital facilities followed the World War II. The Hill-Burton Act, 1946, addressed this shortage and resulted in an expansion of healthcare facilities and much more easy access to healthcare services. The Stabilization Act, 1942, eliminating taxation on healthcare employee benefits, gave stimuli to health insurance penetration growth. McCarran-Ferguson Act, 1945, had withdrawn insurance institutions from supervision of federal authorities. Healthcare programs coverage of the employees grew from 10% before the War to 70% in 1955 (Fox, Kongstvedt, p.5). This time was also marked by emergence of major health maintenance organizations and plans (Health Insurance Plan of Greater New York, Kaiser-Permanente Medical Program, the Group Health Cooperative for Puget Sound and Minneapolis Group Health Plan).
The time between 1930s and 1960s was a time of coexisting and competing entrepreneurial medical practices and prepaid group practices, where doctor-patient financial relations were altered with arising the third party payers and management organizations. Under new circumstances within group-practice-based HMOs, the physicians were not able to sell unnecessary extra services to their patients to increase their earnings, because the clinical decisions were supervised, and payments were processed in a more organized way (Jackson, 2012).
In 1960-1970s, the role of healthcare maintenance organizations (HMO) in delivering and financing health care services was quite limited. In early 1960s, the President Kennedy and the Congress introduced some proposals that later became the basic elements of Medicare. In 1965, the Congress adopted two major healthcare programs – Medicare for elderly adults and also Medicaid for low-income groups of people (Fox, Kongstvedt, p.6). This combination of Medicaid, Medicare and private insurance resulted in sufficient increase in third-party-paid healthcare coverage. In 1970, only 33% of health care costs were paid on an individual basis, healthcare expenditures share in GDP increased to 7.4% (Fox, Kongstvedt).
Healthcare spending aceleration in 1970s (due to inflation, technology’s development, longer lifespans, etc.) led policymakers, employers and insurance companies to look for cost control strategies. Inorder to gain control over rising costs, policymakers and insurers shifted from traditional fee-for-service plans to managed care” (Saunier, 2011).
The HMO Act, passed in 1973, paved the way for the HMOS to “the employer-based insurance market” (Fox, Kongstvedt). Under this Act, all employers with headcount over 25 people, were obliged to provide two HMO programs, each belonging to one of the federally qualified types (“the dual-choice mandate”). The first type was open panel or network model; the second was group model (the closed panel). HMOs competed for inclusion in employer-based health care programs, and obtaining federal qualification was one of the methods to reach this profitable segment. Later, the federal qualification was cancelled. In 70s, health maintenance organizations focused on optimizing utilization and payment procedures. Group HMOs involved mostly salaried physicians (Fox, Kongstvedt) and controlled the length of stay, in-place medical procedures in order to eliminate unnecessary utilization. It was a time where hospitals start offering discount programs for HMOs re-directing clients flow to those facilities. New contractual payment schedules emerged (case rates, capitation, diem payments, etc.). HMO plans replaced the old, traditional healthcare plans.
The Tax Equity and Fiscal Responsibility Act, 1982, enabled HMOs to participate in Medicare programs. It increased the range of benefits offered under Medicare programs. Managed care “was an evolutionary step beyond indemnity insurance” (Navarro, Cahill), and the penetration of managed healthcare programs continued to increase over 1980s. Managed care movement facilitate communication in the healthcare market and promote health through offering prevention and wellness programs to the clients. According to Liberman (1999) managed care didn’t arise from the single initiative of policymakers, it “represents the market response.”
In early 1980s, there was also an evolution of PPOs - preferred provider organizations. This model enabled lower cost-sharing for people visiting a “preferred provider” (a provider entered the discount network) than those who decides to be served by another provider.
Another “step forward” in 1980s was spreading the special programs for managing of large cases (severe trauma, accidents, expensive conditions under chronic diseases, etc.), introducing well-managed coordination of various providers, a second opinion encouraging, etc. (Fox, Kongstvedt, p.9).
In general, HMOs put a significant competitive pressure on traditional healthcare service providers (Luft, 1991). Under Reagan’s presidentship and further, commercial HMOs almost replaced non-profit HMOs. According to Rodwin (2010, p.357), “for-profit HMO enrollment grew from 12% in 1981 to over 63% by 2000.” Besides commercialization, one of the dominant trends of that time is diversification of programs, including those emerged under the Employee Retirement Income Security Act. In 1990s, over 50% of employed population were covered by ERISA healthcare plans (Rodwin, 2010).
The period of 1985-2000 is characterized by growth, restructuring, consolidation and innovation. Growth in penetration of HMO and PPO, “maturation of external quality oversight activities” (Fox, Kongstvedt, 2007), introducing prominent performance management tools, more sophisticated approaches to costs management were the evidence of the managed care entering its palmy days.
Restructuring trends manifested in the emergence of hybrid products, combined HMO offerings including PPO and point-of-service components, etc. Consolidation of HMO ownership resulted in domination of oligopolies in the market. By 1986, “62% of HMOs and 73% of all enrollees were in national organizations” (Rodwin, 2010).
Emergence of computer technologies and their rising role in processing claims created the foundations for future virtual revolution (Fox, Kongstvedt, 2007). Besides technological innovation, attributing to information technology’s development, there were some organizational and processing innovations. Integrated delivery systems were the good example of that trend. Integrated systems were implemented in two different types of organizations - physician–hospital organizations and carve-out companies, uniting providers of specific groups of services.
Another trend in managed care is standardization and public management. In late 1990s and early 2000s, almost all the states issued a set of regulations concerning managed health care (Patient Protecting Laws, Patient’s Bill of Rights), defining standards and rules for covered hospital stay, disclosure of information, etc. Some of the provisions were controversial. The people could complain if their HMO denied in service provision, but each complaint was treated as a private case, without its projecting to an organizational or public level.
Under the President Bush administration, Medicare program was restructured into a program offering a fixed money contribution that covered people could use to purchase the medical benefits (Rodwin, 2010). During these years, penetration of managed care continued to grow. According to Duggan and Hayford (2013), the share of Medicaid beneficiaries enrolled in various forms of managed health care increased from 11 percent in 1991 to 71 percent in 2009. The growth pace of Medicare populations using managed are programs exceeded the total growth pace of Medicaid recipients (Ae-Sook, Jennings, 2012).
Employer-based segment in late 1990s-early 2000s was strong due to economy growth, low unemployment levels and stable corporate profits. But in 2004 the market size of managed care decreased due to anti-managed care political campaigns accompanying with worsening media image of managed healthcare programs (often referred as “he “managed care backlash”). The managed care institutions were accused in denying coverage of necessary services in order to maximize their profits and in limiting choice of healthcare providers.
In two years the market recovered again and reached the volume of around 80 million dollars in 2006 (Fox, Kongstvedt, 2007). The healthcare spending acceleration returned driven by the set of factors: richer employer’s benefits, growing number of outpatient treatments, rise in operating expences, population aging and the consequent increase in elderly population healthcare needs, necessity to meet rising customers’s expectations, etc.
The modern managed healthcare is highly dynamic. Over 200 million of Americans are covered with various managed care programs in different economy sectors (MCOL, 2012, see table 1) and receive their preventive, primary and also acute medical services (NCD) under these plans.
Source: MCOL Research (2012). Retrieved from http://www.mcol.com/managed_care_penetration
In the structure of managed care enrollment, preferred provider organizations dominate (see figure 2).
Figure 2. National Managed Care Enrollment 2012.
“The total enrollment exceeds the eligible population due to double counting of A) spouses and dependents who have dual coverage, and B) HDHP plans that are also classified as PPO, HMO or POS” (MCOL, 2012).
Source: MCOL Research (2012). Retrieved from http://www.mcol.com/current_enrollment
The figure above confirms the fact that majority of the U.S. people receive the healthcare services under the mixed models (PPO, HMO, POS, etc.) combining different financing structures (Jackson, 2012).
Modern managed care is a comprehensive system comprising tools for utilization management, network management, financial management and selective contracting (Deom, Agoritsas, Bovier, & Perneger, 2010) as well as built-in mechanisms for innovation based on internal and external learning. But patient-doctor relations continuity is gaining importance as the patients are willing to invest in maintaining this continuity in order to keep the trust and increase efficiency.
There are several modern trends in employer-based insurance, such as sharing financial responsibility with the recipients (employees), narrowing providers networks, emphasizing prevention and wellness efforts rather than primary care, increasing participation in state health care plans.
Affordable Care Act, passed in 2010, made the fundamentals for future change in managed health care, obliging companies with over 50 employees to guarantee affordable healthcare insurance plans. Starting from 2014, all people not eligible for public care programs should acquire health insurance (Keckley, Copeland & Scott, 2013).
According to William Fera (2013), the society is going through transition to the next generation of healthcare system, also known as the “Managed Care 2.0.” The successful shift assumes overcoming challenges in leadership, care management, cost control and managing quality of care.
In a managed care of new generation effective leadership and management structure playing important role, defining the strategic vision, partnership development framework, information sharing strategies, etc. New paradigm of managed care transforms an approach to manage the patients care towards more comprehensive design and architecture, involving various organizations and data networks. Cost management and quality management should be integrated in order to optimize the cost-quality balance and to improve the clinical outcomes. Managed care 2.0. gives a roadmap for service providers “to compete in the value-based system of health care that is quickly becoming a reality” (Fera, 2013).
The managed health care in the United States is a unique model, with deep roots in both market specific requirements and legislation trends, and this model tends to globalize nowadays. There are many drivers of managed care evolution and growth, including demographic challenges, macroeconomic trends, healthcare technologies evolution, information technology boom, customer requirements, regulatory trends and other forces. All these factors change the landscape of the U.S. managed healthcare along with increasing impact of global healthcare trends.
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