Managed Care

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The U.S. health care system consisted of hospitals and doctors, organizations of prepaid medical care, insurance companies and customers for their services, the role of which was quite passive. Insurance organizations unite risks; pay insurance indemnity to a patient upon receipt of medical services and get profit from the difference between the premiums received and the cost of insurance compensation. In this case, the insurance organization takes a passive function and does not play any role in the actual management of the process of care to insured patients. It is only a mechanism for collecting premiums and insurance claim. “This economic problem in the health care sector is immeasurably complicated by the presence of insurance, which pools resources and thereby brings with it an important element of collective decision making. We spend other people’s money in ways different from how we spend our own, and therein lies the tale” (Robinson & Ginsburg, 2009).

However, the strengthening of market relations has led to intense competition among the organizations involved in health care, based on the difference in prices, the growing demand of large customers and the desire of patients to receive better care. Nowadays private medicine does not correspond to the old model. It provides medical care by a GP (general practitioner) working individually or in a small local hospital, chosen by the patient, as well as payment by insurers and individuals, the number of procedures and manipulations for patients.

The model of honorarium payment system (i.e. pay-for-service) is outdated and leads to an increase in health care costs. A new model characterizes complete freedom of choice of health care provider, with a fragmented and unaccountable system of care. A managed care rapidly grows, which is based on the principles of competition, integrity, accountability, and an integrated approach. These changes, that are generally common in the United States, do not occur in connection with the public policies though the state supports these initiatives.  The main driving forces in this process are powerful market forces in the private sector where consumers make choices as well as many employers. “The idea of proportionate control is not a traditional one in Health Care Organizations or any other corporate structure, nor is “customer” participation in governance. Control of a traditional corporation is vested in a board of directors, which is chosen in a variety of ways, including by shareholders in a for-profit corporation” (Correia, 2011).

In other words, there is greater centralization and strengthening of market mechanisms in health care where, in contrast to the European approach, the sphere of public health is estranged from public interest and state responsibility. “However, the same survey also confirmed earlier findings that a majority of Americans favor government regulation of managed care, even if it raises costs” (Blendon et al., 1998). In 1997, only 10% of the Medicare program and 12% of Medicaid users (i.e. programs implementing function in health care throughout the state) joined health maintenance organizations (HMOs). That confirms the self-regulating development of health care and the lack of any government influence on this process. Thus, health care processes into a system that consists of a large managed care networks and groups attached to them. This leads to more complex procedure of calculating the cost of care for each person. Therefore, it is possible to reduce the costs and improve the manageability of these large complexes. Such associations partly overlap with the state interests, because they focus on improving health care quality concurrently to reducing the cost of care.

The system of pre-paid managed care implements the form of various models. One of the most common and advanced models is the HMO (health maintenance organization). The basic principles of managed care are the following: increasing the responsibility of institutions providing medical services of the managed care to definite attached group; report of responsible organization for the quality of care, for the costs of its provision and payment for each standard, the amount of which does not depend on the amount of assistance provided.

Encouragement of managed care organizations to reduce the amount of medical services rendered unreasonable by the profits in the form of savings by reducing the amount of unnecessary services.

It is possible to define another three principles considering the managed care in somewhat different context:

Selective contracting with providers. The insurance company has the right to choose doctors and hospitals considering quality and cost of care. The employers (or unions) are generally interested in the health and satisfaction with the help of their employees. The insurers are concerned about their reputation, as irresponsible doctors may cause financial losses for them.

The management of the service. Several managed care organizations hire a special consulting firm to develop standards for admission (as the most expensive type of care) for different groups of patients, recorded as the limits of insurance. Many organizations use general practitioners, limiting the flow of referral to specialists or hospitals. Several organizations in the direction of the GP patient hospitalization require from him detailed directions with justification, which is then subjected to a test examination. Some HMOs special nurses have control of the duration of patients’ treatment in the hospitals and accounting schedules discharge. In general, all this purports to reduce traffic to the experts, the level and duration of hospitalization. Moreover, there are often financial interests come into conflict with the quality of care and patient’ health. To find effective ways is not as difficult as medical and economic problem which solution is not always unique.

Specified payment. The main idea is to increase the number of patients receiving medical care through the establishment of a more reasonable price. It often provides the grouping of services, for example, based on one of outpatient or inpatient that by providing controlled health care can lead to savings of up to twenty and sometimes even forty percent. Here, instead of managed health care market, the outlines of normal market appear where one can bargain hard with the seller of goods to be satisfied with the prices or go to another dealer.

Large medical groups were the first who used managed care principles. They accepted payment in the form of insurance premiums and provided, either directly or through contractors’ medical organizations, the full range of health care to insured patients, attached by their right.

There are several sources of managed care in the U.S. One of them is a group movement, established after 1945, which used practice of pre-paid assistance based on pre-established and agreed rates. A typical representative of this movement is "Kaiser Permanente"  program of care, formed on the basis of medical programs for factory workers in the 30's - 40's. Groups of various specialists worked in these non-profit organizations with the principle of prepaid payment for care with responsibility for the help quality of a doctor. Another source is a group practice, as opposed to individual associations of practitioners who continued to work in the office with patients with traditional insurance, but with payment at a predetermined price. In the mid-1980s, managed care “stepped” over the boundaries of the group model. To achieve the best health care, insurance companies combined into a network of large medical practices and hospitals, using the contractual relations with all members of the network. “A few traditional HMO-based health plans——Kaiser Foundation Health Plan in Orange County, Group Health Cooperative in Seattle, and AvMed Health Plan in Miami——have resisted the movement away from comprehensive benefit designs, arguing that such changes threaten to compromise clinical quality and patient satisfaction by creating financial barriers to care. All three plans reported that they scored higher than their local competitors on measures of quality and satisfaction” (Mays, Hurley, & Grossman, 2003). Physicians, by materialistic incentives, compelled to reduce unnecessary services and, therefore, unnecessary expenses. Medical treatment protocols and preliminary analysis of each medical case introduce the solution of the contentious issues before the admission. Gradually, large organizations of managed care started to gain medical practices in order to have more control over the flow of patients.

The new model of managed care, implemented either as HMOs small hospital or in another form, is more effective than the previous versions, since it integrates both the financing of health care and its provision. In fact, the insurance business has own hospital and doctors. This option is more economical and productive than the previous one when the insurance organization concludes treaties with outside hospitals and physician practices. Moreover, the previous insurance organization did not have any influence on the process of treatment and examination. Thus, the new managed care model featured the following: alignment of individual units of care through common economic interests; integration of all financial assets and the formation of normative per person; establishing contractual relations between all participants of managed care; determination of the share of each link in the standard pre- and not retrospective payment; contractual allocation of the savings (profits).

There are several processes conducted in managed health care: activity analysis of each link, each service; definition of rational patients’ routes; search resource saving technologies and appropriate incentives; benchmarking figures, i.e. goals in terms of health care; development and implementation of protocols (guidelines, standards) of treatment; evaluation of the financial plans, implementation and incentives for savings.

Thus, medical care forms are planned. For example, a general practitioner for patients planning to have inpatient care and ordered a number of patient days.

Managed care system has experienced rapid development. For example, the number of people involved in the activities of HMOs in the decade from 1984 to 1994 has more than tripled, from 15 million to 49 million. “Despite an overall lack of confidence in managed care, Americans appear to be receptive to specific managed care practices” (Schur, Berk, & Yegian, 2004). Currently, minimum two-thirds of Americans who have insurance at work receive medical care in the organization that works on the principle of managed care. Only in the Medicare program, as noted above, the proportion of patients that are attached to such organizations is low (only 10-12%), but it gradually increases. Some HMOs are operating on a "group model", which includes doctors and some general hospitals, where doctors are paid a fixed salary. Others work on the model of "independent practice association," in which physicians have their own private practice but work with HMOs as companions.

Dr. Paul Ellwood first introduced the term “HMO” in 1970, especially for organizations formed with the interests to reduce the uncontrolled growth of medical costs, creating a system of financial accountability. In 1973, Congress passed a law on HMOs as a species group or individual practice. According to the law, non-profit HMOs grants and loans had to be present; the employers with 25 or more employees were required to choose any HMO as an alternative to traditional insurance. Business struggle was growing; those states which hampered the development of HMO did not accept the advantage of the law. Some states were not aware of the benefits of advance (pre-, prospective) payments per capita in HMOs compared with practiced before honorarium system.

Generally, the HMO is an insurance company that covers comprehensive medical services, including hospital and outpatient care, diagnostics and laboratory tests, dispensing prescription. Insurance provides payments from personal funds as well. HMO contracts with employers and individual customers on advance payment at a predetermined price, and, as noted above, regardless of the actual use of medical services. It follows that the HMO assumes all risks of health care costs, although the risks share with service providers in an neither explicit nor implied. This is reflected directly in the contracts with a group of doctors, and indirectly - in controlling the cost of services per physician for each patient group determined by age, sex and diagnosis.

There are different variants of the HMOs functioning. First and the main category of HMO is a group practice and full-time engaged staff model. Physicians who work in-group contract with HMOs and carry risks of the treatment cost. There is a cost saving if cost is successfully controlled, and the partners have compensation. Often there are savings due to the reasonable and unreasonable failure cases in referral or hospitalization. In the stuff model, physicians are employees who work in the insurance company and receive salaries. Both options can be set individually as well as combined.

The second category includes the OPP Association of individual practitioners. They sign a contract with the insurance company (HMOs) but continue to work with patients on Medicare and Medicaid programs as well as with uninsured people. According to the standard contract, GP can receive up to 80% of the fee soon after delivery, and 20% is held as a guarantee of medical risks. Therefore, the fund has enough money. At the end of the year, the doctors receive additional charge from the fund, which is proportional to invoices, if there were no violations and lawsuits. The same fund receives money saved by reducing referrals to specialists and hospitals. Methods of interaction of all participants’ debugged care are not based on science but are, as a rule, empirically.

The third category of HMO, which emerged only in recent years, is the medical-hospital organization. Association of doctors and hospitals offer a full range of insured health services based on advance payment per person and are in contrast to commercial HMOs that get too high profit. This option reflects the desire of providers to work independently, but not with the insurance company. Of course, the medical and hospital organizations need to develop some functions that are specific to insurance companies. These include attracting new customers, collection of premiums, pricing, valuation and quality of care, provision of services that they cannot afford by themselves, reinsurance of extremely high medical expenses, reserve funds for emergencies. Therefore, the medical-hospital organization has either to create own insurance company, or become a partner in existence.

In a free market zone, managed care has another category of HMOs, which among other services includes insurance program with a recommended provider (for example, well-known regional or national medical center). Nevertheless, the patient should pay insurance and part of the cost of each procedure.

There are seven methods of integration based on the contractual relationship in order to obtain maximum economy and quality uses:

The integration of financial accountability and service delivery. In this case, special care is to focus on the costs, and success suggests lack of patients in hospitals.

The integration between health care providers and the public. This integration is executed by means of educational and preventive work in order to reduce the number of clients who are insured.

The integration across the spectrum of health care services, including nursing, hospital and outpatient care, physician offices, laboratories, medical facilities, etc. Resources directed to prevention and the development of outpatient care, more than to justify the sharp reduction in the cost of hospital care.

The integration between physicians and other health professionals. In this case, there is an adequate number of staff and specialization, division of labor and responsibility between doctors and nurses, general practitioners and specialists.

The integration between physicians and hospitals, through which physicians are significant incentives for reducing costs of hospitals. Physicians are more interested in this integration than hospitals, in which the help of aid is declining.

The integration between hospitals. This process allows reducing administrative costs, improving the use of frames, beds and equipment, to consolidate a number of clinical services, to specialized hospitals and enlarge the department.

The integration of patient information. If earlier information on the diagnosis, treatment, costs, etc. was fragmented and stored in different locations, integrated systems concentrate on the patient data. This helps to avoid duplication of various actions and manipulations, to investigate the relation between the diagnosis, treatment, and the results that previously were not possible.

However, one of the most common reasons for criticism of the presented system is the fact that within its framework doctors beneficial is not even necessary for medical treatment to increase its income or reduce the number of expensive procedures. Managed care ambiguity caused its rapid growth; although there is lack of serious research, as in previous managed care model. In the process of their development, part of the market, and hence the explicit or implicit mechanisms are profitable when there are direct and indirect profits even being in conflict with the availability, accessibility, quality medical care. Doctors who work for salary in the managed help field are not very interested in reducing or increasing the volume of aid. Nevertheless, if they involve a system of incentives for minimizing the cost of care, then the issues appear as mentioned above. Another major cause for criticism is dramatically increased administrative costs (up to 15%) as well as large contributions to the founders and investors, since health expenditures per capita are great.  Even a small percentage across the country turns into a huge profit. However, the main drawbacks of the proposed system are further commercialization of health, the complete departure from the state health system, and the monopolization, i.e. desire to concentrate all aid on the private and commercial basis.

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