Back to the Future: The Managed Care Revolution

I INTRODUCTION Revolutions that result in sudden and radical change to a society's essential attributes are rare occurrences. Rather, from biology to social policy, the present is the result of an evolutionary progression of interrelated phenomena. The forces that prompt a period of rapid evolution are often not apparent, except in hindsight. The evolutionary process, once begun, is difficult to orchestrate, and the results hard to predict. The evolution of the managed care industry is a case in point. Initiatives by the private sector and government to make medical care accessible to a larger percentage of the population exacerbated, rather than ameliorated, the costs of health care services. The market-based reforms that followed were intended to provide consumers with information and financial incentives to make wise economical choices, but instead gave rise to a clamor of consumer complaints, while posting only temporary gains in controlling health care costs. The nation is once again faced with calls for reform of its patchwork system of health care delivery and financing. This article provides an overview of the interrelated events that led to the present-day managed care system. We begin with the stimuli for change to the longstanding medical model status quo. A paradigmatic shift from a physician-dominated professional model to a market-based system characterized the revolutionary period that followed. Before that shift could occur, however, Congress had to abandon its regulatory zeal to create a political climate in which policy-makers perceived market-based reform as a viable alternative to both regulatory fiat and professional control. Equally important to legislative willingness was the elimination of systemic impediments to market reforms, principally the organized resistance of the professionals who controlled the system. These events opened the way for suggestions about the direction that market-driven evolution should follow and the translation of scholarly insight into political reality. In this article, we revisit these events, describe the system that evolved, and conclude with some suggestions for future directions. II THE PAST AS PRELUDE The story of the pre-managed care era is one of miscues and well-intentioned missteps. Although the stirrings of the health care revolution became readily apparent shortly after the enactment of the Medicare and Medicaid programs, both the events that gave rise to the need for change and the form that change took had much earlier origins. The years that preceded the managed care era were remarkable for the juxtaposition of the relative stability and lack of diversity among the organizational arrangements for the delivery and financing of health care services, and the rapid changes in society and medical science. As third-party financing grew and physicians expanded their sphere of influence to include payment mechanisms as well as health care delivery, attempts to expand access to health care services without fundamentally changing highly prized practice patterns led to unsustainable levels of health care spending. The health care delivery system had long been static. Most physicians were self-employed, predominantly in solo practice, and the ratio between capital and labor in the typical practice was low. (1) Vertical integration of individual and institutional providers was rare. The result was a non-system of independent small business bereft of any means to coordinate the delivery of medical services to ensure their continuity, quality, or cost-effectiveness. The efforts to finance health care services exhibited only slightly more variation. In the early years of the twentieth century, medical services were a market good. As with all market goods, an individual's access to health care services was based primarily on her ability to buy them. …