Health Economics & Policy 3 rd Edition James W. Henderson Chapter 7 Managed Care

A New Paradigm l Managed care l Prospective payment l Incentive to limit care

HMO Enrollment,

Percentage of American Workers in Managed Care

History of Managed Care l Roots –Kaiser –ClintonCare –Emphasis shift l Managing care l Managing cost l Current practices

Types of Managed Care Plans l Health maintenance organizations l Preferred provider organizations l POS plans

The Theory of Managed Care Cost Savings l Easy access to primary and preventive care –Childhood immunizations –Female and reproductive services –Chronic illness management l Incentives for providers to practice cost effective care

The Practice of Managed Care Cost Savings l Selection of providers l Cost sharing arrangements –Capitation for general practitioners –Risk-sharing contracts l Practice guidelines and utilization review

Premium Allocation Under Capitation: An Example

Impact on Providers l Patient load l Time spent with patients l Use of physician extenders l Specialty referrals –Limits –Special panels l Patient turnover –Patient dumping

Mechanisms Leading to Reduced Cost l Patient selection l Underutilization of services l Lower quality of care l Cost-saving guidelines

Studies Examining Impact of Managed Care l Natural experiments l Randomized trials l Same-disease studies l Same-physician studies

Evidence of Managed Care Cost Savings l RAND (Manning et al,. 1984): per capita costs 28% lower under HMO due to fewer hospital admissions and shorter stays l Miller and Luft (1994, 1997): HMO cost savings of 10-15% due to shorter hospital stays, fewer tests, less costly procedures l Glied (2000): overall evidence inconclusive since managed care attracts healthier enrollees

Evidence of Managed Care’s Impact on Quality of Care l Miller and Luft (1997) and Robinson (2000): found mixed evidence on overall quality differences l Ware et al. (1996), Robinson (2000), and Hellinger (1998): poorer outcomes among members of vulnerable subpopulations—sick, elderly, poor

Managed Care and Its Public Image l Considerable economic success l Cultural and political failure l Patient/Provider Backlash l Patient rights l Humana law suit l UnitedHealth decision

The Future of Managed Care l Patients – Model too restrictive l Employers – Concerned over litigation prospects, disgruntled employees l Payers – Discovered cost control is unpopular and dangerous to corporate survivability l Providers – Risk sharing is risky. Balking at dual role of agent of patient (associated concern with quality) and agent of society (associated concern with costs)

Risk Averse Politicians l Lack political will to make managed care work l It takes willingness to –Impose limits on number of specialists, availability of technology, pharmaceutical R&D, prices paid providers –Stand at the center of the debate and defend set limits

A New Direction l Consumer driven health care – build on tradition of individual autonomy and cost conscious consumers –Complementary medicine –Informed consent –Expanding use of Internet –Direct-to-consumer advertising l Employer desire to get out of the health care business l Public distrust for government-run programs