Managed Care

A general term that refers to health plans that attempt to control the cost and quality of care by coordinating medical and other health-related services.

The U.S. HEALTH CARE system has undergone major structural changes since the 1970s. The traditional way of obtaining medical care has been for a patient to choose a doctor and then pay that doctor for the services provided. This "fee-for-service" model, which has been financially rewarding for doctors, gives the patient the right to choose a physician. But the fee-for-service model underwent a rapid decline in the 1980s and 1990s as the concept of managed care took hold in the health care industry.

Managed care is a new term for an old medical financing plan known as the HMO, or health maintenance organization. HMOs are not insured plans. They are prepaid health care systems, offering services to which the member is entitled, as opposed to a dollar amount guaranteed by an insurance policy. Doctors are paid a set amount of money monthly for each patient regardless of the level or frequency of care provided.

HMOs emphasize preventive care. They became popular with employers who purchase health care coverage for their employees because they charged lower fees than insurance plans that reimburse patients for fee-for-service payments. Holding down the cost of medical care was one of the chief aims of HMOs.

The first HMOs were started around 1930. The Kaiser Foundation Health Plan of California was one of the first and largest HMOs. Another large HMO is the Health Insurance Plan of Greater New York. Both Kaiser and Health Plan also have their own hospitals. The federal government has promoted HMOs since the 1970s, enacting the Health Maintenance Organization Act of 1973, 87 Stat. 931, and other legislation that allow HMOs to meet federal standards for MEDICARE and MEDICAID eligibility.

A person who participates in an HMO deals with a primary care physician, who directs the person's medical care and determines whether he or she should be referred for specialty care. This "gatekeeper" function has drawn both criticism and praise. Critics argue that a person can be tied down to a physician not of his or her choosing, who has complete control over whether the person will be seen by a specialist or be given special drugs or treatments. Critics also argue that HMO physicians are not allowed to perform thorough testing procedures because of the demands of HMO management to limit costs, and that this ultimately leads to rationing of medical treatment.

Advocates of HMOs and managed care argue that it is an advantage to the patient to have one physician with full responsibility for his or her care. With few exceptions, these primary care physicians are trained as general practitioners, family practice physicians, pediatricians, internists, or obstetrician-gynecologists.

The debate over NATIONAL HEALTH CARE reform escalated during the first term of the Clinton administration. President BILL CLINTON sought to overhaul the U.S. health care system by guaranteeing universal coverage while simultaneously controlling costs. His plan, which emphasized the managed care model, died in Congress, yet managed care continues to grow. Medicaid, the state-operated, but federally and state-funded, health care plans for the poor, started in 1966 as a fee-for-service program. By the 1990s, the conversion of Medicaid to a managed care model of service delivery had grown rapidly, serving as many as 10 million people.

The early promise of HMOs has given way to deep concerns about the steady escalation of health care costs. By 2003, annual premium increases of almost 20 percent were hurting employers, employees, and small business owners who purchase their own health insurance. An average HMO family premium has risen from the $100–$150 range in 1993 to the $400–$600 range in 2003. HMOs defend the rise in costs by pointing to advances in medical technology that require the purchase of high-priced equipment, rising prescription drug prices, and a U.S. population that demands increasingly more services, in particular the aging "baby boomer" population. To manage costs and discourage frivolous visits, most HMOs now require members to make a co-payment for most types of medical visits. HMOs also point to state laws that undercut their management of costs by giving members the right to go outside of the HMO network of health providers for services. In addition, members can now take advantage of state laws that provide appeal rights when denied medical services.

HMOs and health insurance companies have challenged these state laws, arguing that the 1974 federal EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) preempted these state laws. ERISA seeks to protect employee benefit programs, which include PENSION plans and health care plans, through a lengthy set of standards, rules, and regulations. Health care providers have pointed to the comprehensive nature of ERISA as demonstrating the intent of Congress to maintain a uniform national system. However, the U.S. Supreme Court has been unsympathetic to these arguments.

In Moran v. Rush Prudential HMO, Inc., 536 U.S. 355, 122 S. Ct. 2151, 153 L. Ed.2d 375 (2002), the U.S. Supreme Court, in a 5–4 decision, upheld an Illinois law that required HMOs to provide independent review of disputes between the primary care physician and the HMO. Debra Moran had complained of continued numbness, pain, and loss of function and mobility in her right shoulder. A nerve conduction test revealed that she had braxial plexopathy, which involves compression of the nerves. Moran researched this condition and found a doctor in Virginia who performed microsurgery to correct this type of problem. Because the doctor was "out-of-network," Rush Prudential refused to pay for Moran's consultation with him. The doctor diagnosed Moran as suffering from a syndrome that could be corrected with surgery. Moran gave her Illinois primary physician the diagnosis, which was confirmed by two Rush-affiliated thoracic surgeons. Moran was not satisfied with the surgical methods offered by these two doctors. Even though Rush denied her coverage, Moran elected to have the operation performed by the Virginia surgeon. The surgery was a success, but Moran faced medical bills of almost $95,000. She took advantage of the Illinois independent-review law. A year later, the judge determined, based on an independent medical examination, that the surgery performed by the Virginia doctor had been "medically necessary." This conclusion led Moran to ask the state court to order Rush to reimburse her for the medical costs of the surgery. The U.S. Supreme Court upheld the Illinois review law, finding that the law was an insurance regulation rather than a benefit regulation.

Therefore, ERISA did not preempt the state regulation.

HMOs suffered an even greater defeat in their quest to manage services and costs when the U.S. Supreme Court upheld "any willing provider" laws passed by Kentucky. The laws permitted HMO members to obtain medical services from outside the designated list of HMO providers. HMOS again objected, contending that ERISA preempted the laws because they clearly dealt with health care benefits. The Court, in Kentucky Association of Health Plans, Inc. v. Miller, 538 U.S. 329, 123 S. Ct. 1471, 155 L. Ed.2d 468 (2003), unanimously rejected this argument. It again characterized the laws as insurance regulations, which are exempt from ERISA PREEMPTION.