THE ORIGINS OF MANAGED CARE

THE ORIGINS OF MANAGED CARE

There has been phenomenal growth of managed health care over the past 25 years. This growth is an important part of the changes that occurred in the 20th century.
Transformation from rural to urban society
Transformation from an agricultural to a manufacturing economy
Transformation from a self-employment (Mom and Pop shops) to large corporations
Transformation from medical practices (e.g. from a generalist to a specialist physician environment, from solo to group practices, to corporate management of medical care)

I. MANAGED CARE: THE EARLY YEARS (PRE-1970)

From the 1930s to the 1960s, Prepaid group practices developed across the country.
A. The Western Clinic in Tacoma, Washington, 1910
1. Began to offer through its own providers a range of medical services to lumber mill owners and their employees for 50 cents per month.
2. Ensured a flow of patients and revenue to the clinic.
3. A similar program began in Tacoma and expanded to 20 sites in Oregon and Washington.

B. Dr. Michael Shadid, Elk City, Oklahoma, 1929
(The Great Depression Era)
1. Established a rural farmers cooperative health plan
2. Farmers purchased shares for $50 each to raise capital for a new hospital and received medical care at a discount.
3. The medical community opposed this concept, and Shadid was threatened with suspension of medical license.
4. Was vindicated 20 years later through out-of-court settlement. By that time, the Farmers Union controlled both the hospital and the health plan.

C. Baylor Hospital, Texas, 1929
1. Agreed to provide 1500 teachers with prepaid care at its hospital.
2. Represented the start of Blue Cross.
3. Program expanded to include other employers and hospitals.
4. In 1939, state medical societies created Blue Shield health plans to cover physician services. All in an attempt by providers (physicians and hospitals) to maintain and/or increase patient revenues ($$$).

D. Formation of Blue Cross/Blue Shield plans and HMOs,
(The Great Depression-Era)
1. Developed because providers wanted to maintain and enhance patient revenues.
2. This concept was threatening to organized medicine, and the AMA was in opposition.
3. Did not develop due to consumer demand for high medical expenses or for nonmedical entrepreneurs to start businesses.

E. Formation of HMOs representing diverse origins World War II era
1. Came from employers seeking benefits for their employees
2. Came from providers seeking patient revenues
3. Came from consumers seeking access to improved and affordable health care
4. Came from a housing lending agency seeking to reduce foreclosures

F. Examples of early HMOs
1. Kaiser Foundation Health Plans 1937 to finance medical care for builders and construction workers.
2. Group Health Association 1937 organized Home Owners Loan Corporation as nonprofit consumer cooperative to reduce mortgage defaults by homeowners who had high medical expenses. Was opposed to by DC Medical Society, leading to antitrust suite which was ruled in favor of GHI by US Supreme Court. Now has evolved into Kaiser Foundation Health Plan of the Mid-Atlantic.
3. Health Insurance Plan of NY (HIP) 1944 formed in response to needs of NYC seeking coverage for city employees.
4. Group Health Cooperative of Puget Sound (Seattle, WA) 1947 formed by 400 Seattle families who contributed $100 each. Was opposed by county Medical Society.

G. For-Profit HMOs
1. Only in later years did non-provider entrepreneurs form for-profit HMOs in significant numbers.
2. Used Independent Practice Association (IPA) model HMOs, which contract with physicians in independent fee-for-service practice, and competed with group-practice based HMOs.
3. IPA model created in 1954 by San Joaquin County Medical Society in CA to form San Joaquin Medical Foundation in order to successfully compete with Kaiser Foundation Health Plans.
4. Established relative value fee schedule for MD payments, heard grievances, monitored quality of health care, got license from state to accept a set monthly fee (such as a capitation payment) to provide care for all services for each person enrolled.
5. HMOs played a modest role in the financing and delivery of health care in the 1960s.

II. MANAGED CARE: THE ADOLESCENT YEARS (1970-1985)

A. In 1970, the number of HMOs was about 30.

B. 1973 Federal Health Maintenance Organization Act
**A major boost to the HMO movement
1. Dr. Paul Ellwood
The Father of modern managed care
Was consulted by the Federal gvt (Dept. of Health, Education, and Welfare) to create/develop ways to constrain increases in the Medicare budget.
Laid the groundwork for the HMO Act of 1973
Developed the capitation system evolution
i. The Federal government authorized start-up funding for HMOs through availability of grants and loans as well as for service area expansions for existing HMOs.
2. Enabled managed medical care plans to increase numbers and expand the enrollment through health care programs
3. Ensured access to the employer-based health insurance market by requiring employers with 25 or more employees that offered indemnity coverage to offer also two federally certified HMO options if the HMOs made a formal request.
4. Overrode state laws restricting HMOs if they met federal requirements for certification.
5. Federal certification requirements include:
a. demonstrating adequate provider networks
b. quality assurance system in place
c. complying with standards of financial ability
d. establishing an enrollee grievance system

C. Implications of HMO Act
**There was strong support for what we now know is the HMO concept–after the passage of the Act
1. Requirements imposed on HMOs but not indemnity carriers reduced HMOs abilities to compete.
2. Requirements included:
a. restrictions on premium rates which could be charged
b. enrolling any individual regardless of health status (open enrollment)
c. richer benefits package
3. This act was amended in 1995 to eliminate some of these disparities.
4. In 1997, the HMO Act regulations became a priority, and rapid growth of HMOs began.
5. Bipartisan political support for managed care proliferated in several states (especially California and Minnesota) based on the concept that medical care within an HMO would decrease costs and increase quality of care.

D. Other Managed Care Developments
1. Creation of the Preferred Provider Organization (PPO), which contracts with a limited number of independent providers to obtain services for its members at a discount (no capitation) with relaxed utilization and case management procedures.
2. Evolution of utilization review services
a. 1972 Social Security Amendments authorized the federal Professional Standards Review Organization (PSRO) program to review the appropriateness of care provided to Medicare and Medicaid beneficiaries.
b. Large corporations initiated programs for preauthorization and concurrent review of inpatient care services.
3. Developments in indemnity insurance during 1980s
a. Second opinions before surgery
b. Adopting large case management, involving the coordination of services for people with conditions requiring expensive care such as cancer patients.
c. Worksite wellness programs including screening, exercise promotion, stress reduction, classes, nutrition, weight loss, mental health counseling.

III. MANAGED CARE: AS A MATURE CONCEPT (Managed Care Grows Up :1985-2000)

The 3 major forces that shaped managed care were: Innovation, Maturation, and Restructuring
A. Innovation
1. Provider Risk Contracting and Provider Mergers
a. Formation of IDS (Integrated Delivery Systems) and Physician Hospital Organizations (PHOs) were formed whereby physicians and the hospitals collaborated to contract with managed care organizations.
b. Because their reimbursement systems did not support the main goals of cost containment and efficient care, as well as lacking adequate information systems, investment capital, or experienced management, they did not achieve importance in the managed care environment.
2. Carve-Out Companies
a. Are organizations which have specialized provider networks that offer specific services such as diabetes management, mental health care, or dental services.
b. Market to HMOs and large self-insured employers.
3. Advances in Computer Technology
a. Made other innovations possible
b. Internally used to generate statistical profiles of services rendered, which assess efficiency, quality, and serves as the basis for adjustment of payment levels under capitation.
c. Responsible for revolution in claims processing for medical and drug claims to lower administrative costs and provide superior information for patients, such as drug interactions.
d. Health Insurance Portability and Accountability act of 1996 (HIPAA) will promote electronic interchange for managed care transactions including claims, claims status, eligibility checking, and payment.

B. Maturation
1. Evidenced by enormous growth in MCO enrollments through 1990s followed by slight decline and managed care enrollment by Medicare and Medicaid.
2. HMOs thought they needed to participate in Medicare+Choice HMOs, which peaked in 2000 and is on decline.
a. Decline Medicare+Choice HMOs with capitation contracts from Centers for Medicare and Medicaid Services (CMS) due to Balanced Budged Act (BBA) of 1997 which reduced payment levels and increased administrative burdens.
b. Budget Act requires adjustments in payment levels to reflect health status of enrollees, and decreases payments to health plans.
3. State Medicaid programs turned to managed care and are removing fee-for-service option.
4. Medicaid beneficiaries not in an HMO chose a primary care physician who must approve referrals to specialists and other services (Primary Care Case Management PCCM). Providers paid a fee for service, and primary care physicians receive a monthly case management fee.
5. Very few beneficiaries who are eligible for both Medicare and Medicaid are in managed care programs because of the barriers in the Medicare program.
6. Increase in external quality oversight activities indicate maturation.
a. National Committee for Quality Assurance (NCQA), launched by HMO industry in 1979 and became independent in 1991.
b. Accredits HMOs, which many employers demand.
c. Developed performance measurement systems, such as the Health Plan Employer Data and Information Set (HEDIS).
d. Ambulatory care is under increased scrutiny for prescription drugs, diagnostic tests, and visits to specialists.

C. Restructuring
1. Development of hybrids among managed care and the health care delivery systems, such as some HMOs offering preferred provider organization and point of service plan products.
2. Leads to increased complexity of managed care environment.
3. Consolidation among managed care providers such as mergers between Aetna and US HealthCare, CIGNA and HealthSource, etc.

IV. MANAGED CARE IN RECENT TIMES (2000-2007)
A. Negative public sentiments about managed care, even though most consumers like their own health plans.
B. Negative perceptions caused changes in traditional managed care plans toward less managed types of health plans (e.g. growth of PPOs) despite higher costs.
C. More emphasis on management of high cost chronic conditions and less on management of routine care.
D. Weakened economy has coincided with higher benefits costs, leading to higher payroll deductions and copayments.
E. Increases in consumer choice due to demand, but also comes with greater costs.
F. Consolidation of payer companies

v. MANAGED CARE BACKLASH
Increased portrayals of managed care in a negative light for several reasons:
People/employees (via their employers) were forced into managed care (as the only type of coverage offered at work) to save their companies money
Mistakes in paperwork (e.g. enrollment, coverage denials, authorizations and referrals, and claims payment/processing errors, etc.) making its way to media and major television network news.
The HMO companies inability to manage increase growth in membership and enrollment (e.g. Oxford Health Plans)
Inconsistent and inflexible UR/UM coverage interpretation
Accusations that HPs deliberately refused to pay for necessary care to generate profits and make executives rich

The Return of Health Cost Inflation

VI. MANAGED HEALTH CARE TODAY
Health care costs continue to rise, economy remains in recessionary times, and U.S. companies are confronted with competition from abroadhave led to:
Foreign competition
Increase consumer/employee cost sharing (through higher payroll deductions and changes in benefits), higher copays and deductibles
The development of Consumer-Directed Health Plans (CDHPs), HSAs, HRAswith the use of pre-tax dollars, and other types of high-deductible health plans (HDHPs)
The passage of the Medicare Modernization Act of 2003 (MMA) that created new forms of Medicare managed care plans (called Medicare Advantage), new drug benefits, etc.

Conclusion
The health care sector in the United States is highly dynamic.
The continued growth and evolution of managed health care is affected by:
1. the health sector economy
2. marketplace needs
3. legal and regulatory requirements
4. changes in health care delivery
5. consumer demands
6. politics
7. many other forces

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