Managing Managed Care

VICTOR FUCHS, Ph.D.

Managed care is the organized attempt to influence physician decisions in order to reduce expenditures and possibly improve the quality of care. It spread rapidly in the �90s in response to the growth of health care expenditures in the �80s. By the end of that decade, real (i.e., adjusted for inflation) medical costs per capita were growing at more than 6% per annum, while the real gross domestic product per capita was growing at less than 2%. In response to pressure from payers, insurers began to contract selectively with physicians and hospitals, to negotiate fees and prices in advance (described in detail in “Who Pays for What,” page 30 of Acumen, Volume II, Issue 1), to slap patients with financial penalties if they sought care “out of plan,” and to review some physician decisions.

As a result, the rate of growth in real health care expenditures decreased rapidly, falling to about 2% per year by the mid-�90s, by far the lowest such rate in many decades. Although there were anecdotal accounts, no systematic evidence of deterioration in the quality of care appeared, and age-adjusted mortality fell as rapidly in the �90s as it had in the �80s. Nevertheless, complaints about managed care proliferated. Physicians resented the loss of autonomy and the pressure on their incomes. Employees resented managed care because it replaced traditional fee-for-service policies with coverage that limited choices and reduced services. They didn�t realize that huge increases in health insurance premiums in the �70s and �80s held down real wages and that the slowing of premium growth in the �90s released money for pay increases.