Author: Vora Sadhna
Date: August 2002
Complaints about managed care hang thick in the health care atmosphere of the United States. Critics grumble that managed care, by virtue of the incentives it produces, stands at odds to the delivery of quality health care. Whereas traditional health plans pay on a fee-for-service basis, managed care health plans pay health care providers a capitative fee or a per-head payment for each patient.
In the first system, the incentives for health care providers are to give as much treatment as desirable or feasible. In this manner, the doctor maximizes profits and also addresses all of the patients' health concerns, no matter how small. The major criticism with fee-for-service health plans is that they often lead to many unnecessary tests and procedures, increasing the cost of health care.
An incentive to reduce spending per patient
In managed care plans, on the other hand, health care providers are given the incentive to reduce spending per patient. Whereas with a patient using a traditional health care plan, the physician may have ordered a test "to be on the safe side," her incentive in a managed care environment is to forego that test. Many people are uncomfortable with this manner of saving money and would prefer the precautionary, although more expensive, route.
Indeed, in five out of seven studies reviewed by Harold Miller and Ronald Luft in Health Affairs in 1997, enrollees showed less satisfaction with health maintenance organizations (HMOs) and managed care plans than with fee-for-service plans. However, it is important to note that quality measurements do not necessarily support the notion that fee-for-service outperforms managed care. Studies reveal that HMOs, which rely heavily on capitation, save money without sacrificing quality.
That HMOs effectively cut costs is not a point of contention. Miller and Luft compiled results of numerous studies on quality of health care delivered and satisfaction in managed and non-managed health systems. Participants in five of five studies were happier with the financial aspects of managed care plans, suggesting that these plans were more affordable. Paul Feldstein also notes in Health Policy Issues: An Economic Perspective that managed care, and the competition it inspires between competing plans, has had a dramatic effect on slowing down the rise in health insurance prices. In the financial aspects, therefore, it appears that managed care is performing up to expectations.
The true source of discontent
The true source of discontent is not the financial aspect of managed care, but rather the non-financial aspects. For example, an elderly man with heart disease in a managed care organization might not get the same medical treatment as his fee-for-service counterpart. However, Miller and Luft show the generalization that HMOs provide lower quality care cannot be made. While fee-for-service plans provide better care for the chronically ill, managed care outperforms these plans in other areas, such as cancer therapy and treatment in the intensive care unit.
Of the 15 studies they analyzed, roughly half showed that HMOs yielded, on average, similar results to their non-managed counterparts. Whereas the technical results of managed care are on par with those produced by fee-for-service plans, one might argue that the personal aspects of health care in HMOs are the roots of dissatisfaction. These aspects of health care are by nature difficult to measure. But certain informative gauges exist. Feldstein notes a high level of satisfaction with HMOs in studies that measure satisfaction using criteria such as waiting times for an appointment, referrals to a specialist, and travel times to a provider. Miller and Luft's results show that technical quality is not a reasonable source of dissatisfaction. According to Feldstein's observations, however, neither is the personal aspect of health care delivery.
One might view the above findings with incredulity. How is it that HMOs can save money without sacrificing quality? Managed care has been able to compete with non-managed care in performance because cost containment has led to several trends that improve health care outcomes. Miller and Luft note that managed care creates an incentive to catch diseases such as cancer early in the game, before they progress to the advanced stages that are more costly to treat.
In addition, managed care has introduced quality measurements in health care as well as standardization of procedures. Because consumers are making cost-conscious decisions, managed care health plans provide them with report cards. They also, according to Feldstein, establish clinical protocols so that patients are assured certain treatments for their conditions. These measures make health care more uniform. Furthermore, managed care promotes increased coordination between health care providers as they work together to cut costs. The result of this increased coordination, according to Feldstein, is improved health care delivery because of a "seamless" system. Information about patients' histories is more accessible to physicians and unnecessary tests are avoided.
Promoting the expansion of health coverage
Perhaps the greatest triumph for managed care, however, is not the quality improvements it has introduced, but rather the expansion of health coverage that it has promoted. By cutting costs and lowering premiums, it has made health coverage more accessible to people with lower incomes.
This is not to say that managed care is perfect. Indeed, as previously noted, there is much improvement to be made, especially in the area of treatment of chronic illness. Whereas acute illness can be cured in a relatively short amount of time, chronic illness requires long-term treatment. It is not necessarily "cured," but rather, "controlled," and is therefore often the most difficult and costly to treat. If managed care can innovate effective cost-reducing strategies for treatment of chronic illnesses, it will have achieved a major success in health care delivery.
Despite these shortcomings, managed care has performed on par or better than fee-for-service in the financial, technical, and personal aspects of health care delivery. The obvious question arises: Why, then, are Americans so dissatisfied with managed care? Perhaps it stems from a predisposition that patients possess. Specifically, patients in the United States have grown accustomed to a system in which they can obtain as many health care services as money can buy. They equate this type of health care system with quality. Uwe Reinhardt writes, "One can think of the managed care industry as the health care analogue of somewhat less-than-perfect parents trying to goad both the providers and the users of health care from the fairyland tale of the proverbial free lunch toward the mature realization that there really is no free lunch - not even in health care.
Perhaps the current dissatisfaction with health care has less to do with the performance of managed care than with coming to grips with the fact that resources are constrained.
Recommendations for Further Reading Administration on Aging: Managed Care Principles Agency for Health Care Research and Quality American Academy of Orthopedic Surgeons: Your Guide to Managed Care The American Journal of Managed Care Children's Medical Center: Managed Care Colorado Gerontological Society and Senior Answers and Services Consumers Organization: Questions and Answers about Managed Care Managed Care and Patient Rights Psychology Information Online: What are some complaints about Managed Care? References
Feldstein, PJ. Health Policy Issues: an Economic Perspective. 1999.
Miller, RH and Luft HS. "Does Managed Care Lead to Better or Worse Quality of Care?" Health Affairs 16(5)(1997): 7-25.
Reinhardt, UE. "The Predictable Managed Care Kvetch on the Rocky Road from Adolescence to Adulthood." Journal of Health Politics, Policy and Law 24(5)(1999): 897-910.