Is Managed Care Dead?

Is Managed Care dead?  This is a fair question when we look at the performance of the largest carriers in our industry over the last forty years.  Have they delivered on the promise of better care and lower costs?  Is the status quo still a realistic option for employers who are trying to attract great talent by offering benefit packages that are both expensive and unsustainable?   

The recent contract dispute between Baylor Scott and White and Blue Cross and Blue Shield of Texas led me to ask all of these questions.  This is just one example of hundreds of disputes between healthcare providers and healthcare payors every year.  The result of these disputes is that either insureds lose access to a specific provider in the market or the payor compromises and is forced to pay more for the services provided.  These disputes are a very public example of how the major carriers and healthcare providers have established an adversarial relationship in which, for one side to win, the other side must lose. How has the healthcare financing system, dominated by four giant companies worth billions of dollars, been broken? More importantly, how can we fix it?   

We need to start by defining what managed care was initially designed to accomplish.  There are many different definitions of managed care. Still, in its simplest terms, managed care is a program that partners with a smaller group of healthcare providers with the goal of delivering higher quality care at more competitive costs.  This model became popular in 1973 when the Health Maintenance Organization (HMO) Act was passed.  This act provided government subsidies for companies to offset the costs of setting up some of the first HMOs.  The initial goal of these managed care organizations was to align providers and payors around the goal of delivering better quality care and improving health outcomes.  While the early results were positive, they did not last for long, and medical trends began to outpace inflation again in the 1980s. The reason these early HMOs failed was that they were set up to limit access or delay care.  Doctors were rewarded for withholding care and penalized when their patients required hospitalization or surgery. In an effort to maximize profits, the industry lost sight of its most important mission, which is to deliver better health outcomes. 

After the death of the HMO, the major insurance carriers abandoned managed care and began to build large national preferred provider organizations (PPOs).  While these networks were branded as “preferred provider,” they were actually any willing provider networks.  Employers were demanding more choices, and carriers sacrificed quality to deliver broad networks that included almost every licensed provider in any given market.  This strategy limited the carrier’s ability to credential and negotiate lower costs for care effectively.   The result of this strategy was accelerated medical trends, increasing premium costs for policyholders, and ultimately deteriorating benefits for insureds.  Traditional carriers had abandoned managed care, and the result was skyrocketing healthcare costs. 

Over the last decade, the traditional carriers have consolidated through either mergers or acquisitions, and the market is now dominated by four major carriers.  This consolidation has forced many smaller regional carriers out of the market and left policyholders with a less competitive market that has very little innovation.  The strategy behind this consolidation is the belief that size will deliver administrative efficiencies and lower unit costs.  These carriers now leverage millions of policyholders to strong-arm healthcare providers into providing services at lower costs.  But is this strategy working?  The underlying flaw in this strategy is that it is one-sided and does not bring all stakeholders to the table.  Healthcare negotiations often deteriorate into news headlines, and the end result is that policyholders experience a disruption in care.  In order to fix our broken healthcare financing system, we need to bring payors, providers, employers, and policyholders to the table to build a solution that works for everyone. 

By aligning all stakeholders, we can begin to identify what works and does not work in our current system and begin to build a better solution.  Looking at our past mistakes is the beginning of this process.  Here are some key takeaways: 

1. Our current managed care system has driven less efficient care and higher costs for over forty years.
2. Putting profits ahead of health outcomes is a losing proposition. 
3. Broad networks may appear to be a simpler or more attractive solution, but they undermine quality and cost. 
4. Adversarial relationships between healthcare providers and payors do not yield lower costs and result in greater market disruption. 
5. Bigger does not mean better.  Large insurers are more concerned with stock prices than delivering solutions that work. 

 Learning from our mistakes, we can begin to ask the hard questions that need to be answered before we begin to fix the healthcare system: 

1. How do we ensure that policyholders have access to efficient and quality care?

2. How do we remove waste from the system on all sides? 

3. How do we improve the health of policyholders?
4. How do we control costs in a way that will deliver affordable and sustainable benefit solutions? 

These are not easy questions to answer because they require collaboration and compromise.  All stakeholders need to be involved to deliver better health outcomes and lower costs. Is your consultant or third-party administrator bringing all parties to the table when exploring solutions?  

This is the beginning of a multi-part series in which we will ask some hard questions and attempt to find answers that will contribute to fixing our broken healthcare system. If this article made you think differently about healthcare, drop me a note.  We all need to be a part of the conversation if we are going to fix healthcare. 

Tom Silliman 

Senior Vice President, Public Sector at Healthcare Highways