Feature

Bureaucrats at your bedside

Like other American imports, managed care is being sold to Europe as the answer to problems we didn’t know we had. Geof Rayner examines the hard evidence behind the hype

Managed care remains a mystery to most of us. Yet this new way of organising healthcare is being touted as the answer to all our prayers. According to recent articles in the Financial Times and the New York Times, managed care is just the tonic for restoring to health ailing European healthcare. For us in Britain, managed care is merely the latest in a long line of US policy imports which have included flexible labour markets, facility outsourcing, the internal market, care management, privatised prisons, and so on. So what is managed care? How did it come about? Does it work? And why are BUPA and its mouthpieces saying that managed care is appropriate for the NHS?

What is managed care?

Managed care is essentially three things:

• Providers of medical care have a close, sometimes exclusive, contractual relationship with an insurer;
• The insurer exerts some control over the care that is provided;
• Patients face financial penalties for using services outside the plan.

That’s it. Enthusiasts in Britain talk about fancy things like referral processes and quality controls, but managed care is essentially about controlling (ie reducing) the cost of healthcare by minimising the freedom of doctors to make expensive referrals, and reducing the choices available to patients. To understand why managed care has caught on in the US we need to fill in the historical picture.

The origins of managed care

Since the 1930s, US presidents have made a habit of failing to bring in national health insurance (NHI) for American citizens. The latest attempt by Bill Clinton promised a healthcare programme based around the twin virtues of ‘managed competition’ and ‘managed care’. In the absence of NHI, a mixed system of private/public arrangements emerged, more or less expressing the needs of American Medical Association and the American Hospitals Association. Doctors and hospitals were paid on a fee-for-service basis, like private medicine in Britain, and to ‘usual and customary’ fees (known as ‘indemnity insurance’). Doctors operated as individual entrepreneurs, established themselves in better-paying specialties and general practice declined. Consequently medical care became the fastest rising item in the cost of living index for almost every year since the 1950s. It now occupies over 14 per cent of the GDP, at a cost of over $1 trillion. One in twelve of all Americans in work are employed in healthcare.

Managed care has been presented as the antidote to these spiralling costs. It began as ‘prepaid group practice’ (PGP), combining both insurance and provision through capitation. Unusually for American medicine the schemes focused on primary care. The AMA hated PGP and did its best to stop it. But from the early 1970s, aided by enabling legislation, health maintenance organisations (HMOs), the new name for PGP, made slow headway against doctor opposition and consumer suspicion.

Growth took off in the 1980s when employers began to balk at the rising costs of employee health insurance premiums. Insurance companies and others established new arrangements called ‘independent practice associations’ and ‘network plans’. Rather than building their own hospitals and hiring their own staff, like the original PGP, they established brokerage arrangements.

These new schemes have been composed of three main attributes (with some variation): first, the primary practitioner is a gatekeeper to other services; second, doctors’ decisions are continuously checked for unnecessary treatment; third, financial incentives are arranged to reward doctors who minimise use of resources. Public health insurance also sought to use this cost-restraining formula. Many states put their Medicaid schemes out for tender, theoretically allowing them to provide more medical care for less. The federal Medicare scheme for elderly people has enticed its members to use managed care to reduce its burgeoning costs.

Does managed care work?

According to the Congressional General Accounting Office, while there is evidence that managed care reduces healthcare resources used, there is little solid evidence that it has reduced the final bill for employers.¹ HMOs under Medicare cost almost 6 per cent more than traditional arrangements and the government actually loses money when people use them.² The evidence on Medicaid is similarly spotty.^{3 4 5}

The fact is that belief is more important than hard evidence. Since managed care does less, it seems obvious that it would cost less. In fact, the interesting question is: given that the volume of care is less, where do the savings go? One answer is that members of managed care plans often pay fewer ‘deductibles’ than fee-for-service schemes, but the main answer lies elsewhere.

One five-year study of managed care in Boston, Los Angeles and Philadelphia noted that while many management costs had been shifted down to the doctor, overheads of 20-34 per cent on top were normally claimed by the managed care plan. These costs covered contracting and administration, utilisation review, eligibility screening and authorisation of referrals. These mechanisms were supposed to ensure quality, but the economic success of these plans appeared ‘only weakly linked to quality of care provided. Plans with poorer reputations continue to grow. However all three markets lacked systematic information for purchasers or individual patients on the quality of care provided by plans and their comparative market performance’.⁶ In other words, ‘managed care’ was mostly used to cut costs rather than maintain quality, and most of the benefits accrued to the managed care company.

Further support for this view is given by opinion surveys. A Louis Harris Associates study of 3,000 managed care plan members last year showed that members of managed care plans were more likely to rate the following services as only ‘fair’ or ‘poor’ compared with another group using traditional insurance: the overall plan; the quality of their service; and the quality of their doctors. This trend continued in terms of access to services: ease of changing doctors; choice of doctors; access to specialist care; access to emergency care; and waiting time for a routine appointment. If the employer decided that the plan was too expensive, or if the employee changed job, their family doctor also changed. Half the people in this survey had been with their doctor for less than three years.⁷

Perhaps complaints could be set aside if, as claimed, managed care focused more on prevention. But a GAO study looked in detail at one managed care plan in operation since 1986. It found poor standards in preventive health, a fact it put down largely to the ‘substandard’ quality of medical staff.⁸

Who gains by managed care?

Managed care plans vary enormously, and it is not the case that they are especially worse than fee-for-service arrangements. The more important points are that the most profitable and most efficient managed care organisations are not necessarily those which provide the best service, and that people who use them have to put up with diminishing choice.

Managed care is resulting in ‘tiering’ of the treatment system: an upper level (fee-for-service) for the well-insured; managed care with some choice for employees; and managed care with little or no choice for public patients. Employers gain since they have far more discretion over occupational health arrangements, while managed care companies are engaged in a goldrush bonanza.

Managed care: the bottom line

Managed care cannot be understood simply as system for bureaucratising medical referral processes — even less is it about maintaining quality. Underneath the glitter of management-speak is the drive to turn healthcare into a MacDonalds-style industry where uniformity of product is paramount. But the consequences for already disadvantaged people can be considerable. Instead of public money directly supporting services to poor people through community health centres, public health programmes or public hospitals, these services have now gone out to tender. To give a recent example, The Med public hospital in Tennessee, which provided care to people spurned by private health schemes, saw its budget reduced by $42m to finance managed care.⁹

Applying just bits of managed care to Britain might seem ridiculous, but while the people in favour of managed care in Britain may be crass they are not stupid. They realise that if you want to break the public service tradition in healthcare you have to get across the argument that all that really matters is management efficiency and comparability of cost and quality information. It is unimportant whether health services are run by a water company from France or BUPA as long as a standardised set of referral and quality protocols are in place.

In fact, private patients would not put up with it and companies like BUPA are linked into a patient choice-driven fee-for-service system which is driving up their costs. But managed care may allow them to expand into the NHS and the brokerage model of ‘managed care’ is just one solution they are examining. The old dictum applies: beware of wolves in sheep’s clothing.