The Changing Face Of Managed Care

Abstract

Managed care plans-pressured by a variety of marketplace forces that have been intensifying over the past two years-are making important shifts in their overall business strategy. Plans are moving to offer less restrictive managed care products and product features that respond to consumers' and purchasers' demands for more choice and flexibility. In addition, because consumers and purchasers prefer broad and stable networks that require plans to include rather than exclude providers, plans are seeking less contentious contractual relationships with physicians and hospitals. Finally, to the extent that these changes erode their ability to control costs, plans are shifting from an emphasis only on increasing market share to a renewed emphasis on protecting profitability. Consequently, purchasers and consumers face escalating health care costs under these changing conditions.O n multiple fronts-consumer, purchaser, provider, and regulatory-managed care plans are facing mounting pressures to change. Consumers are becoming more active health care participants and are demanding more choice, greater flexibility, and fewer restrictions on access and service delivery. Employers (purchasers) are demanding less restrictive managed care to appease employees and at least so far have been willing to absorb most of the higher ensuing costs. Consumers' and purchasers' preferences for broad and stable networks give providers the upper hand in contract negotiations with plans. Also tipping the scales in favor of providers is consolidation among both physicians and hospitals and the reappearance of capacity constraints for many hospitals. With their new clout, these providers are pressuring plans to pay more and reduce the scope of risk in risk-contracting arrangements; others are pressuring plans to replace risk payment

Hospitals' Negotiating Leverage with Health Plans: How and Why Has It Changed?

“…Less Risk. In general, hospitals pushed risk (e.g., global, shared) back to plans and sought to maintain payment mechanisms they believed were more favorable (e.g., per diem, case rates) (Hurley et al 2002). Hospitals also sought to exclude benefits and services that were costly or they felt they had relatively less control over (e.g., out of area services, pharmaceuticals).…”

Is Managed Care Still an Effective Cost Containment Device?

“…Managed care plans had traditionally adopted strategies that allowed them to aggressively control health care costs, including the use of primary care gatekeepers, negotiating deep discounts with providers, and restricting access to providers outside of the network (Bamezai et al 1999;Draper et al 2002). However, such aggressive strategies created a deep mistrust in consumers in the later part of the 1990s (Swartz 1999, Robinson 2001.…”

“…The negative portrayals of managed care plans in the media further created a chasm between managed care and consumers/providers, even when a consumer might not have felt dissatisfied with his or her own health plan (Blendon et al 1998). Several studies found that managed care plans, in order to retain customers and to mitigate negative media exposure, had relaxed their many once restrictive network requirements and deep discounting (Draper et al 2002;Mays et al 2003Mays et al , 2004Marquis et al 2005). At the same time, consolidation had increased the hospital's market power in local provider markets Gertler 2003, 2005).…”

Reinvention of Health Insurance in the Consumer Era

“…The contemporary industry perspective is that network contracting plays an important but secondary role, after benefit design, in overall health plan strategy. Consumer desires for choice of physician and hospital at the time of care undermine narrow network products, 20 which are built on the principle that choice of network at time of insurance enrollment will determine choice of physician subsequently at time of care seeking. 21 Moreover, the consolidation of specialty groups and hospital systems and the reduction of excess capacity have sharply limited the ability of insurers to extract fee discounts and influence practice patterns under the threat of network exclusion.…”