By Barbara Bronson Gray, MN, RN
Illustrations by Malcolm Garris/PhotoDisc
January 12, 1998

Managed care—as we know it—is on its way out. It may sound like heresy, but industry experts are starting to seriously question whether the concept is working.

The signs don’t suggest managed care will completely fade into the sunset, but rather, that it will be gradually transformed into something that is far more palatable to the average consumer.

"I call the next phase of managed care ‘managed care lite,’ " said Russ Coile, a Plano-based senior vice president with Chi Systems, a healthcare consulting firm. "There will still be efficiencies in managed care, but it will be a lot more friendly. HMOs are going to reinvent themselves."

They may have to. In general, HMO stocks have sunk. Oxford Health Plans in Norwalk, Conn., has reported operating losses in the last six months that could exceed $200 million, and PacifiCare Health Systems, a large California HMO, has seen its stock decline 20 percent since Thanksgiving. Kaiser Permanente, the nation’s largest HMO, is predicting a loss of $50 million or more in 1997. It recently paid a $1 million penalty in Texas for denying benefits and some employers are complaining about enrollment rates.

What’s happening? Some say consumers have had enough experiences with the constraints of a cost-managed system, and now they are demanding more choice. Yet employers and the government are insisting on holding down health coverage costs. The two major pressures of more choice and less cost could be incompatible.

"There’s a backlash now against managed care," said Pauli Marr, MS, RN, chief nurse executive at St. John Hospital, Nassau Bay. "The competition is changing things."

Marr gives the example of a major insurance provider that received a large aerospace contract in her area, forcing enrollees to change providers and travel 30 miles to Houston for hospital care. "There were major complaints and lawsuits, and they were giving checks to providers for not giving care," she said. Now, the aerospace company has contracted with someone else. Competition—and consumer pressure—changed the benefits package.

]Pressure from all sides[

Consumer satisfaction—or dissatisfaction—is one pressure facing HMOs. A survey by researchers at the University of California, Berkeley, and the Field Research Corp. found that 1.6 million people reported recent problems involving denial or delays in receiving medical treatment, referrals to specialists, or what they considered to be appropriate care. Twenty-one percent said a problem with their health plans led to complications or more serious problems with their conditions.

Many of HMOs’ troubles are economic. "HMOs are under increasing pressure," said Molly Coye, MD, MPH, director at The Lewin Group in San Francisco. She said they’ve been merging fast and mergers don’t always make them more efficient. "The result will be a range of new types of products with new relationships between providers, insurers, and consumers."

HMOs are also facing reductions in their reimbursement for care from the government. Until recently, federal payments for Medicare HMO members have steadily risen, by as much as 10.5 percent a year. But Congress enacted tighter limits last year, allowing for just 2 percent annual increases in charges in the future. As a result, plans are likely to reduce benefits to seniors, which will make enrollment more difficult.

Experts say that the improving economy is also fueling worker expectations for better healthcare coverage. When unemployment looms large, workers feel lucky to have any health insurance. But as jobs become easier to get, pressure on employers to deliver flexibility and broader coverage rises.

]Politics, politics, politics[

Myra Snyder, EdD, RN, president of the California Association of Health Plans in Sacramento, predicts the quick evolution of other types of delivery systems that lack the oversight or the efficiency of managed care plans. "Politics may unravel the ability of today’s health plans to function," she said. The California Association of Health Plans has 40 HMO members that cover 18.2 million people in the state.

Snyder said part of what is squeezing managed care is a massive and increasing amount of state and federal legislation efforts at pruning the industry to make policies more acceptable to consumers. At least 40 states have passed managed care regulations, and Congress is considering wide-ranging legislation that will further limit managed care capabilities. "Health plans have become the political poster child; it’s almost pure politics at this point and very little policy," she said.

Many states are regulating everything from the length of a maternity or mastectomy hospital stay to the financial incentives offered providers for avoiding the prescription of expensive treatment. Some are specifying the precise disclosure language that must be included in plan descriptions. While some of these changes may be good for consumers, they may be limiting the ability of HMOs to shrink costs.

]So what’s next?[

"People’s expectations are growing and the resources to meet those expectations are not," said Edward Barlow Jr., MS, a St. Joseph, Mich.-based futurist. Barlow thinks that health plans will become increasingly flexible, but consumers will have to pay more for policies that provide more options. "You’ll have three choices with a cost related to each," Barlow said.

Leland Kaiser, PhD, a healthcare futurist in Brighton, Colo., thinks managed care rates will vary more depending on the specific coverage and flexibility options a consumer wants. He also predicts there may be increased premiums for those whose lifestyles are deemed higher risk, and lower rates—just as in auto insurance—for those who are living what is considered a healthy lifestyle.

Coye said the consumer revolution will affect managed care. "As baby boomers age into the chronic disease phase they are bringing with them twin demands for information and decision-making," she said. She thinks health plans may evolve into major providers of information on quality and best practices. Consumers are also increasingly using the Internet to become lay experts in their particular conditions, she said.

Snyder and others think provider-sponsored organizations (PSOs) may represent the new era in managed care. PSOs were signed into federal law last year, and they allow local providers to contract directly with employers without involving a health plan. The government is expected to release specific rules for PSO operations and financial solvency this spring. "I think that’s the way we’re going," Snyder said. "PSOs won’t be micro-managed the way health plans have been."

Will all these pressures converge to make a single-payer system likely? Coye says no, but thinks government will have an increasing role in regulating quality and access to care. She also predicts some version of the PSO plan will predominate in the next five years.

For all the frustrations with managed care, many say it has been a necessary and important stage in the nation’s healthcare evolution. "We needed a major kick in the fanny and that’s what HMOs did to us," Marr said. "If we hadn’t been through the HMO period we wouldn’t be able to accept what is happening now."