Healthcare Management

In this introduction, the development tendencies that aid and impede managed care will first be discussed and subsequently, a definition framework developed. This framework will address in more detail the instruments and organisational forms, as well as the consequences that result. The so-called called “managed care backlash” that first manifested itself almost 20 years ago after a period of significant growth will also be addressed.

In the following section the main features of the highly complex American healthcare system will be exhibited. The section will focus on the multiple payers for healthcare services existing in the United States and borrow heavily from various authors (see Niles 2011; Sultz and Young 2010; Davidson 2010; Greenwald 2010; Shi and Singh 2013; Jonas et al. 2007; Katz 2006; Kovner and Knickman 2005; Haase 2005; Anderson et al. 2003; Hsiao 2002; Dranove 2002).

The following section is particularly directed at readers who are interested in theory. Using the two main approaches of the new institutional economics (Schauenberg et al. 2005; Coase 1988, 1993; Demsetz 1967, 1968, 1988; North 1991; Jensen and Meckling 1976; Hart and Moore 1990; Furubotn and Pejovich 1974; Alchian and Demsetz 1972; Sloan 1988), certain fundamental ideas will be introduced about the design of institutions as well as incentive and monitoring systems. The transaction cost theory (Williamson 1975, 1985, 1986, 1993; Windsperger 1996) offers a method for analysing the assessment of vertical integration along the value chain and, thus, for evaluating integrated care systems, among other things. The principal-agent theory (Pratt and Zeckhauser 1985; Pauly 1968; Mooney 1993; Akerlof 1970; Arrow 1963) is concentrated on delegation relations and their inherent information asymmetries. There is hardly another field in which the considerable information asymmetries are so clear between those who delegate tasks (e.g. the patient) and those who carry out the tasks (e.g. a physician). The principal-agent theory investigates how contracts can best be designed in such a configuration.

An organisation may be referred to as a managed care organisation (MCOs) if, (a) it implements management instruments, (b) integrates the function of insurance, (c) at least partially provides of healthcare services, (d) aids in the development and implementation of managed care instruments, and/or (e) offers consultation services in dealing with managed care instruments. As previously mentioned in the introduction on the American healthcare system, this does not only include new forms of organisation, as their roots go back to the 1920s and 1930s. The more differentiated organisational forms and products are, the more competitive the healthcare environment. The terms managed care organisation and health plans are often used interchangeably to describe a managed care delivery system.

The Blue Cross and the Blue Shield health plans were the first health insurance plans in the United States. Together with these insurances, the first health maintenance organisations (HMOs) were also formed in the midst of the Great Depression. Some of the pioneering HMOs include the Kaiser Foundation Health Plans (1937), the Group Health Association (organised by the Home Owner’s Loan Corporation in 1937), the Health Insurance Plan (1944) and the Groups Health Cooperative of Puget Sound (1947). The basic structure of independent practice association (IPA) model HMOs was developed as competition for the group-practice-based HMOs in 1954.

Managed care allowed for the penetration of a variety of organisational forms instituted by providers of healthcare services. On the one hand, there are the traditional models such as Independent Practice Associations (IPAs) that defend the physicians’ interests as well as Preferred Provider Organisations (PPOs) that look after the interests of sales cooperatives. These exist beside other conventional network structures. In addition, two new organisational forms have developed. Accountable Care Organisations (ACOs) take charge of the healthcare provision for a specific population while Patient Centered Medical Homes (PCMHs) focus on care delivery on the General Practitioner’s level. This chapter will be dedicated to discussing this organisations and products.

Since “Wall Street discovered healthcare” a long time ago, not only is the age of peaceful coexistence between service providers and payers is over, but an entirely new consulting market has developed. However, the types of products differ widely. The products can be broken down into three categories. First, there are consultation products that are meant to increase the efficiency of the provision of services. Among these, the following are particularly relevant: Management service organisations (MSO), physician practice management companies (PPMC) and pharmacy benefit management organisations (PBM). The second type of consultation products concentrates on the individual managed care instruments. Therefore, consulting services have partially specialised in conducting utilisation reviews or developing guidelines. These forms of consultation will not be explained in more detail here because individual instruments will be extensively discussed.

Managed care leads to a considerable increase in the number of different institutional arrangements. The former “cottage industry” of healthcare has transformed into a differentiated service industry with diverse providers. There are several reasons for the development from the simple division of the delivery and purchasing of services to this variety of different organisational forms. In the following section the most important objectives will be outlined and explained with concrete examples:

One of the most important preconditions for high-quality and economically effective treatment results is a selection of suitable service providers with whom an MCO concludes supply contracts (selective contracting). The conclusion of selective contracts is so significant for managed care and healthcare management that it is considered crucial to the definition of managed care by not only the authors of this book, but the literature supports this claim as well.

The design of compensation systems for service providers is an essential control instrument in managed care. In order to better understand this instrument and its effects, the basic principles of compensation systems will first be generally described (see Fig. 10.1) so that the managed care compensation systems can be outlined in more detail.

In healthcare, a variety of different measures and instruments can be applied to manage the quality of healthcare. The following chapter will discuss the usefulness and effectiveness of guidelines and clinical paths, disease management and chronic care, case management, patient coaching and quality management as specific instruments for quality management.

In healthcare, a variety of different measures and instruments can be applied to manage the cost of healthcare. The following chapter will discuss the usefulness and effectiveness of gatekeeping, formularies and utilization reviews. These three cost management tools are especially relevant to Managed Care. In gatekeeping, most treatment episodes begin with a visit to an individually selected physician, the gatekeeper, who ensures a coordinated and cross-sectorial treatment process. Formularies are used to explicitly define which services are paid for and apply utilisation reviews as a key instrument.

In health science evaluation refers to a comprehensive assessment and evaluation of the benefits and costs of healthcare technology. The term “healthcare technology” is very broad and includes the following processes and products:

“After a turbulent decade of trial and error, that experiment can be characterized as an economic success but a political failure”, stated Robinson (2001, p. 2622), for the United States some years ago. In particular, the question was raised of whether MCOs used “managed care” or “managed costs”. Critics emphasise that MCOs focused more on managing the cost of care and less on managing healthcare. Minimal attention was given to the preferences and expectations of the insured as well as those of service providers. This led to the situation that although managed care was considered to be useful in theory, there are considerable problems in its implementation. There is hardly clarity on the instruments and organisational forms that belong to managed care while fully accepted methods, such as working according to guidelines or disease management, are not seen as connected to managed care. In general, the following four main objectives and expectations are associated with managed care will be discussed: (a) the cost of managed care, (b) quality effects of managed care, (c) access effects of managed care, (d) acceptance of managed care.

The influence of managed care on the cost of care is difficult to assess. Only few studies compare the entire cost of MCOs with those of the traditional fee-for-service insurances. Often only certain aspects are investigated, since the complexity would otherwise be impossible to address. Thus, the expenses of hospital services, the use of service providers and the influence on the prices of health services are examined. Due to higher economic efficiency and lower purchasing prices it is also difficult to separate the cost reductions in managed care from the selection effects. At least a portion of the cost advantages of MCOs seems to be due to the more favourable risks in the structure of insured persons in HMOs (Kühn 1997). Shimada et al. (2009) found similar results in their study. They identified that the insured in MCOs demonstrate a better state of health than those in fee-for-service insurances. However, this effect is put into perspective in regions with more competition. In general it must be stated that there is still a lack of established studies (see Sullivan 2000) and, to be fair, it must be assumed that such studies will not be available in the near future.

Linking managed care with poor quality sometimes goes hand in hand. This particularly raises the question of how MCOs may act in extreme situations when a patient is seriously ill. However, what people pay less attention to is how MCOs act in the large amount of normal cases (Reschovsky et al. 2002). This once again documents the considerable difficulty of MCOs to build up confidence, also in respect to the general meaning of confidence in healthcare.

A main point of criticism of managed care is based on the argument that it worsens the care of certain population groups. Robinson and Steiner (1998) also attempted to answer this question in their evaluation of empirical studies. Study results analysing the care of children, women with low income and the elderly showed that the treatment of children by MCOs was just as good as or better than that of fee-for-service insurances. Only one study found that children from low-income families had a lower chance of seeing a physician than in the traditional insurance system. In more recent studies no clear results were found. Mitchell et al. (2008) showed that children in MCOs receive a more strongly guideline-oriented treatment than those in traditional insurances. Such results are not unanimous. For instance a study by Davidoff et al. (2008) reported that chronically ill children in MCOs received fewer prescriptions than those in fee-for-service insurances, while Garrett and Zuckerman (2005) found no difference between fee-for-service insurances and managed care.

The insured and patients tend to be sceptical of healthcare through managed care. Managed care limits the patients’/insured’s freedom to choose physicians and possible treatments as well as requiring patients to assume greater responsibility for their own health, which perhaps they do not want. Robinson (2001, p. 2623) aptly remarked: “Consumers experience managed care’s cost control strategies in form of barriers to access, administrative complexity, and the well-articulated frustration of their caregivers.”

It is no surprise that managed care is met with criticism from physicians as well as insured/patients. The traditional system is convincing particularly through its generosity with the available funds and the freedom to choose as well as the decision-making autonomy which it grants. The physicians’ and patients’ fears regarding a deterioration of quality, however, do not coincide with the empirical studies. Overall, managed care does not represent a lower quality of care. But the expectations of a better quality of care through instruments such as disease management, quality management or the orientation on guidelines have not yet been fully confirmed. However, more recent evaluations of disease management programs have shown promising results (van Lente 2011).