Managed Care and HMOs


“Managed care” refers to that type of health care system under which medical care and treatment is managed by the entity paying the bills, and not the medical care or treatment provider (physician, hospital, etc.). It is a system dominated by acronyms that identify different services or components (e.g., HMOs, PPOs, EPOs). It is also a system that has become so complex that many believe it has lost sight of its original objectives.

Prior to the proliferation of managed care plans, medical services and treatments were traditionally provided under what is now referred to as “fee-for-service” plans. Under fee-for-service medicine, the health care provider (physician, hospital, etc.) decided what treatment or procedure was necessary for the patient. However, insurance companies often engaged in semantic battles with health care providers over what treatments were considered “necessary” and how much they would cost. Often stuck in the middle were the patients, who had to choose between waiting for a decision or paying for the treatment themselves.

Managed care organizations (MCOs) began to proliferate during the 1980s, when the industry began to court employers (who pay the bulk of the nation’s health insurance premiums). There had been reports of hospitals and doctors under traditional medical insurance plans performing unnecessary diagnostic tests or prolonging treatments (especially rehabilitative therapies) to maximize their incomes/profits. Employers saw the MCO industry as a way to cut costs for employee health insurance.

The MCO purports to control the cost, quality, and availability of medical care by limiting access to care providers and shifting focus to wellness rather than illness. MCO plans typically employ doctors and statisticians to assess computer-generated data, such as how long a heart attack patient should be hospitalized or what treatments are most effective for a particular illness or injury. These data are then developed into industry standards that are referred to as “best practice” guidelines or benchmarks. The MCO, and not the treating doctor, then decides what treatments will be authorized and how much will be paid for the treatments/hospital stays, etc. In return, the MCO purports to offer lower insurance premiums for subscribing members.