Managed Care Is still a Good Idea?
Editorial,Wall St Jour. Nov. 17,1999
Managed Care Is still a Good Idea
By Uwe Reinhardt, a professor of political economy at Princeton
University.
Is managed care dead? Some say yes, given the United Health Group's
decision last week to stop overruling doctors' decisions about treatment.
But in truth, managed care is a good idea, and it's here to stay. Only the
techniques of managing are being changed.
At its most general level, "managed care" simply means that those who pay
for health care have some say over what services they will pay for and at
what price. No health-insurance system can work for very long without
these prudent measures. True, America's health insurers did function
without them for several decades after World War II. Until the early
1990s, most group policies incorporated the philosophy that only the
physician and the patient should determine the treatment for a particular
illness. It was accepted that the insurer would pay each health-care
provider his "usual, customary and reasonable" fees, with few questions
asked.
This genteel philosophy rested on the belief that modern medical practice is
firmly anchored in science, that the providers of health care would do no
less, but also no more, than good medical science dictated, and that the
fees charged for health care would remain "reasonable."
Unfortunately, this open-ended social contract produced a track record
that gave the lie to these assumptions. Two decades ago, pioneering
research by Dartmouth epidemiologist and physician John Wennberg
showed that the use of health services and health spending per capita
varied widely across regions in the U.S. in ways that could not be
explained by health status or clinical science. In the most recent edition of
that research, Dr. Wennberg and his associates report that in 1996
Medicare paid a statistically adjusted $7,800 per elderly American in
Miami and $7,700 in Baton Rouge, La., vs. just $4,900 in Tallahassee,
Fla., $3,923 in Shreveport, La., $3,900 in Portland, Ore., and $3,700 in
Minneapolis.
Put on the defensive by such data, the medical profession pointed out that
medicine is both art and science and argued that the variations in cost
simply reflected differences in preferred practice style. This response
begged the question that has been one of the chief drivers behind the
managed-care movement: Which of the varied practice styles is the most
cost-effective? Managed care was further fueled by research during the
1980s in which clinical experts deemed unnecessary substantial portions of
health services actually delivered to patients.
It would be facile to blame physicians for their failure to control costs.
After all, the knowledge base of clinical science expands at a pace that
exceeds the busy physician's ability to keep up with the best medical
practices. Some mechanism must therefore be found to help them do so.
Managed care ought to be one such vehicle. It turns out that the
preauthorization and concurrent review of medical treatments--the
methods American managed-care companies have typically used during
the past few years--are not the best means to this end. These intrusive
tactics irritate patients, insult physicians and often cost more than they save.
Periodic, statistical profiles of individual physicians' practices promise to be
a more productive approach to cost and quality control. It is a common
method of cost control in other countries. That method grants the physician
clinical autonomy within some range of pre-established norms and
intervenes only when physicians deviate substantially from them. In
industry, the approach is known as "management by exception." The
development and updating of these practice norms is a perpetual search for
the best clinical practices. To be effective, that search should be conducted
in close cooperation with the practicing physicians to whom the norms
apply.
Much as patients and their physicians may dream of the unmanaged,
open-ended "golden age" of medicine, a return to that regime is
unthinkable. In the last years of that open-ended contract, the premiums
employers paid for their employees' health insurance rose between 15%
and 25% each year. Had the trend continued, half of the nation's gross
domestic product would have gone to health care by 2050.
As recently as October 1993, the Congressional Budget Office forecast
that in 2000 the U.S. would spend more than $1.6 trillion on health care
(or 18.9% of projected GDP), up from $675 billion (12.2% of GDP) in
1990. In its most recent forecast, the government projects total spending
of only $1.3 trillion next year, about $300 billion less than its forecast of six
years ago. The bulk of that saving must be credited to the ability of the
managed-care industry to exercise some control over both the fees and the
use of health services.
Economic theory and empirical research suggest that in the long run,
employees pay the cost of fringe benefits in the form of lower take-home
pay. It follows logically that the bulk of the health-care cost savings
achieved by the managed-care industry must have flown through to the
take-home pay of employees, especially in this decade's tight labor
markets. Alas, employees seem unaware of this standard economic theory.
That's why they stood idly by as the health system chewed up their
paychecks during the late 1980s, and why they now show no gratitude for
the savings that managed care has funneled back into their pockets.
Instead, they subscribe to the folklore that these savings flowed through to
their employers' bottom line and into the paychecks of managed-care
executives.
American workers have paid a high price for that ignorance, and they may
pay it again in the near future, as health-insurance premiums are rising again
at near double-digit rates. For American business leaders, one of the most
effective methods of health-care cost control would be to level with their
employees about who actually pays for health insurance. |
