David L. Hartenbower, M.D.

The interest, concern, anger or uncertainty in the future of managed care has increased in the last year. Some experts believe that managed care is in a death spiral while others expect it to continue, but in a modified fashion.

The initial impetus for managed care came from the purchaser, whether the employer or the patient. Health maintenance organizations (HMOs) significantly reduced health care costs. HMOs initially reduced premium costs and later were associated with smaller increases in premiums in comparison to traditional heath insurance programs.

The reaction to managed care varies in different parts of the country. In some areas of the country, especially in rural areas, there is very little managed care. Other areas of the country, like California, a majority of those people that are insured are covered through HMOs.

Managed care, when the provider accepts a fixed prepayment from the health plan and then assumes the financial risk for providing the health care has been the focus of concern. This concern has led many providers, especially hospitals, to no longer accept financial risk, demanding per diem or fee-for-service payments instead. Physician provider organizations, medical groups or IPAs, have continued to accept financial risk for those areas in which they have control and have tried to negotiate with the health plans to remove from the physicians provider organization the financial responsibility for pharmacy, injectable medications, chemotherapy drugs, some vaccines and out of area emergency care. There has been legislation introduced in the California Assembly, which would force the health plans to maintain responsibility for pharmacy and injectable benefits, unless the physician group wished to accept the risk.

The problem of financial responsibility is even more intense with managed care provided through Medicare. Currently, more than six million of the forty million people eligible for Medicare are in HMOs. Because of the financial concerns, approximately ten percent of those previously in Medicare HMOs have lost this option as health plans have cancelled contracts in some parts of the country. The health plans cite low payment in the areas from which they have withdrawn. Medicare payment for HMOs varies from state to state, county to county, by as much as $400 per person per month. In areas where the Medicare HMO plans remain, the health plans have made major modifications in the benefit structure to reflect the increasing cost of care.

All managed care plans, commercial and senior, have changed benefit structures to reduce the health plans costs for care. The health plans believe that these changes are necessary to be able to offer coverage to patients. These changes include increased monthly premiums, increased co-payments for doctors visits, pharmacy benefits and hospitalization. Pharmacy programs, especially for Medicare HMO patients have been severely restricted. Many plans in California have a $2000 annual benefit for medications. Once the patient has reached this limit, the benefit is either exhausted or is limited to only generic medications. The Medicare HMO plans have also introduced copayments for outpatient and inpatient care. These payments vary from $100 per admission and $50 per day for the first 90 days of hospitalization. These copayments are calculated to be less than the patient would be responsible for under regular Medicare.

As the costs of premiums increase and the level of benefits are restricted, many patients have become quite active in decisions about their health care. Patients question decisions by providers and health plans. They want be sure that they are not being denied a service or a medication that they feel they should get. More and more patients are appealing decisions that limit or deny a service. In those instances where one benefit or drug is denied, the patient often asks for other choices that will be covered. This willingness of the patient to accept a drug or treatment that was not their first choice is a clear shift from previous patient behavior in which they would continue to press for their first choice.

What will be the long-term effect of these changes in benefits? Will the addition of tiers to hospitals make a difference in patient choice? Several health plans have instituted a tier program for hospitals. Hospitals that are Tier One would have a lower or no co-pay for treatment while a hospital that is Tier Two would cost the patient more. Clearly, the addition of cost to hospital choice will force the patient to consider the site of their care. Because physician groups may only be associated with a Tier Two hospital, patient would also be making a choice about which physician to see.

The economic condition of the country will also affect managed care acceptance. Those employers that currently provide insurance coverage for their employees will look at the costs of this coverage and the employers' ability to pay. The options may exclude higher cost insurance coverage such as PPO and indemnity plans and leave only lower cost plans like HMOs. Hopefully, the economic condition will not lead employers to cancel health insurance coverage. At any level of financial concern, the employers will be looking for the least expensive heath plan. This will add more emphasis to the shift of financial responsibility to the patient.

Some health care experts have suggested that one way that health coverage issues may be handled would be through the Internet. Employers would agree to cover a basic, no frills insurance program. The patient would then have a menu of choices to consider. Each choice, whether it was which hospital or provider, what co-pay for services, or what type of pharmacy benefit (maximum coverage, generic or brand name) would have a cost associated with it. There have been several insurance brokers that have attempted to do an online offering of various choices for the consumer. The success of these programs has been minimal. However, if there is a significant pull back from employers as to the level of health care coverage that will be paid for by the employer, there may be a significant market for these Internet programs.

So the answer to the question as to the demise of managed care is not yes or no. For states like California managed care will continue. It will be modified as inputs from the patient, payer and provider are considered. Healthcare delivery system requires adjustments over time because of the dynamic changes that occur. These changes include new forms of treatment as well as new demands by the participants. It has been impressive to follow the changes that have occurred over the last 10 to 15 years. Until a more innovative plan for heath care payment is developed, it seems likely that all involved will demand input. The current system of managed care has continued to be refined so that such input does allow modification to occur.