The Future of Managed Care

Posted by John

The recent Supreme Court decision on the Medicaid expansion gives us occasion to reconsider our approach toward Medicaid moving forward. Through recent years, states of widely varying fiscal situations and political orientations have embraced a managed care model, and as certain states choose to accept the new expansion, roles of patients in MCOs will likely continue to grow. As we reevaluate our approach toward Medicaid, an evaluation of the future of managed care also seems appropriate. In the age of cost-cutting healthcare reform, it has become common to see public sector managed care as a harbinger of future private sector reforms. As we will discuss, though, allowing managed care to infiltrate the private sector could do more harm than good.

Managed care in Medicaid has been very effectively sold to political conservatives based on its clear fiscal benefits. There is little doubt in the mind of a prudent economic thinker that giving a for-profit company financial responsibility for a patient’s health will lead to more affordable healthcare and value than a pure entitlement program. In many cases, it has indeed turned out that way – Medicaid patients enrolled in managed care tend to use the emergency room less, and cost less on overall care than those in traditional Medicaid. Though some have expressed concern over the fact that participants self-select into managed care plans, thereby skewing the population, it is generally agreed that managed care programs can be a financial win for state governments and Washington.

In assessing the results of managed care and particularly its possible future applicability to the private-payer healthcare market, it is necessary to be far more cautious. By and large, managed care has led to better health outcomes for Medicaid patients than traditional Medicaid. This is not surprising since MCOs provide an easy-to-navigate and small network of providers that delivers care quicker than a patient on traditional Medicaid can find a doctor who will treat him. Regular Medicaid presents the unique challenge of providing little incentive for beneficiaries (who normally pay little taxes) to keep costs down. Economically, outsourcing the management of Medicaid costs to a financially responsible third party makes sense.

However, the efficiency of managed care plans, so lauded in the health-policy community, is regarded by physicians with far greater trepidation. There are a number of reasons for this:

• It is easy for a number-cruncher reviewing millions of cases from all over for patterns to come up with appropriate ‘quality standards for treatment’ and appropriate capitation payments for certain conditions. It is impossible, though, for the top of a hierarchical organization to know exactly what is going on at the bottom. Geographical differences, different customs, and different values create differing health needs all over a diverse nation.
• Managed Medicaid, aside from glossing over the diversity and messiness of human heath, has to work within the confines of a healthcare system that makes things even messier. Doctors under managed care will have less incentive to order extra (usually unnecessary) medical tests while still having to deal with the persistent threat of a medical malpractice lawsuit.
• Managed Medicaid, while delivering greater value to the taxpayer, incentivizes providers to, in questionable situations, err on the side of providing less.

The virtue of free-market economics is not only that it creates value, but that it creates a unique recipe for value to fit the needs of every individual. Managed Medicaid, rather than charging individuals to be involved in their care decisions, instead gives these responsibilities to a third party. Perhaps, for an underprivileged population like that served by Medicaid, an outsourced free-market policy like managed care is the only solution for bringing value to an inadequate government system. However, we should be very careful about projecting the positive results of managed care as compared to fee-for-service Medicaid onto the rest of the American health system, as is persistently suggested. Medicaid has very little to lose as far as quality of care. We should not treat private insurance as if it were Medicaid. While it is undeniably progress to hold providers financially at risk for patient care, we should never treat managed care as a valid replacement for individual risk and responsibility in the private market. It is a temporary value-providing solution which does not address the real cost problem: our distance from our healthcare choices.

The reason why it is inadequate is abundantly clear: while surely a doctor is more qualified than we are to explain to us why we’re sick, no one is more qualified than we are, properly informed, to decide what sort of interaction we’d like to have with the health system. Healthcare is an industry, geared toward satisfying the customer, not just keeping him healthy. The purpose of private insurance is to give us, in exchange for our resources and our desire to make use of them, the best advice, attention, and innovation that our money can buy. In the traditional, appropriate doctor-patient relationship, a doctor (and, by extension, insurance plan) molds his professional expertise to the individual needs and desires of the patient. While managed care has great potential to give us value in exchange for the type of ‘quality’ government and insurers would like to give us, its trend toward centralized rules and ‘evidence-based’ measures puts it on a collision course with the doctor-patient relationship.

Of course, many of the ways in which managed care restricts choice don’t reach the sphere of the patient at all but are painfully apparent to the provider. Doctors involved in MCOs experience the pressure of having to refer a patient within a tight MCO-sanctioned network against their better judgment, or needing to limit the scope of care in order to break even on a capitated payment. While these organizations go a long way toward instilling some sense of responsibility for medical costs and overall health, they don’t attack the root problem of a lack of personal accountability.

While many innovative solutions have been generated to increase patient involvement and responsibility in the private sector, such reforms are far more difficult in the public sector, where Medicare and Medicaid patients are even farther removed from the value choices in their care. This makes managed care a good fit for the public sector. While its benefits in the public sector are clear, the only way managed Medicaid seems like a good option for the future is if it confines itself to Medicaid.

An entire managed healthcare system is looks wonderful to professional health policymakers. However, policy analysts have trouble factoring into their calculations those unquantifiable things that make American medicine unique. Though we see very clearly the problems of a lack of integration in American healthcare, very rarely do we laud it for allowing us to focus on every patient individually, factoring in each patient’s aspirations with the individual expertise of his doctor. American healthcare’s focus on diversity in needs is what makes us remain, amid soaring costs and innumerable problems, world leaders in health, biotechnology, and medical device innovations. The problems of cost and uncoordinated delivery can be addressed without establishing a new hierarchy in the American medical system. HMOs failed in the 1990s, and an extension of managed care methods outside of public sector charity care will fail today.