Economic and Quality of Life Outcomes: Managed Care Perspectives

Economic and Quality of Life Outcomes: Managed Care Perspectives

ABSTRACT: A variety of economic factors have created a growing demand for health care reform and the rapid expansion of managed care plans. Absence of a clear, commonly accepted definition of managed care constitutes one of the major difficulties in constructing a useful dialogue about managed care and its likely effects. This paper defines basic managed care models and outlines for each the degree of financial risk and reward to the provider and of internal (vs external) control of care. This transfer of risk to the provider is a key aspect of managed care and brings with it an increase in the physician's freedom to choose appropriate care for patients. The potential impact of managed care on quality of life measures is also discussed. [ONCOLOGY 9{Suppl):111-119, 1995]


Managed care has expanded beyond an experimental process that
combined insurance and delivery of care to become a major component
of much of the health care service delivery market. Fundamental
changes in the incentives facing every participant in the health
care delivery process call into question the potential impacts
of managed care upon cost and quality dimensions of outcome. Even
if the incentives are ignored, the new organizational forms of
service delivery that arise around managed care organizations
make inadvertent lapses in quality a potential.

On the other hand, many have argued just the opposite [1,2]: The
integrated nature of the managed care organization makes for higher
quality care. Having physicians work in a group setting with constant
peer review creates the potential to identify poor quality practices
more rapidly. Because providers/insurers in the managed care system
have a strong incentive to "maintain health," they have
an incentive to examine how care is delivered, what care is delivered,
and which type of provider is "best" for providing that

The empirical evidence on quality of care within managed care
organizations is generally favorable [3], but the results contain
significant uncertainty. Managed care appears to use fewer health
care resources in treating patients (primarily hospital care),
to use more preventive services, and to have mixed results with
regard to outcomes. There are exceptions to these generalizations
in terms of special populations, and some managed care populations
and entities have yet to be competently studied. The results primarily
apply to commercial enrollees in health maintenance organizations
(HMOs). The nonclinical aspects of quality have been particularly
ignored. Patient satisfaction has received relatively little attention
as an outcome until recent years. Further, quality of life outcome
comparisons between managed care and fee-for-service medicine
have not been made.

As managed care organizations experiment with alternative organizational
forms to achieve favorable cost and quality outcomes, they impose
different levels of financial incentives and managerial controls
on providers. This paper examines the implications of these changes
generally and briefly applies them to quality of life and cancer
care. The paper will address three interrelated questions:

1. What are the economic, social, and political changes that are
motivating transformation of the health care system?

2. What are the fundamental characteristics of managed care that
influence the financing and delivery of health care services?

3. What are the economic and quality of life implications of managed
care for the care of cancer patients?

This paper provides a background of the managed care movement,
reviews the economic and political environments changing the health
care delivery system, defines managed care and discusses the economic
motivations causing its growth, discusses the transfer of financial
risk to providers under managed care systems, and explores the
impact of managed care on quality of life.

Setting the Stage

As we move into the era of managed care, it is important to understand
the current health care system and how that system has contributed
to the changes being proposed. This section describes selected
aspects of the health care financing and delivery system that
are particularly relevant to managed care, and then briefly highlights
problems or issues that we face that are motivating change in
the system.

Third-Party Payment

The financing and delivery of health care services in the United
States are characterized by a number of features that have contributed
to rapid cost increases in the system and, thus, have led to the
interest in managed care as a means of controlling those costs.
Figure 1 presents a simplified schematic of the relationships
among consumers/patients, providers (hospitals, physicians, and
others), and insurer. Unlike the relationship that exists between
the consumer and provider for most goods and services, health
care services are characterized by the presence of an active "third
party," the insurers. The demand for and effects of insurance
have been well documented [4]. The problem with having insurance
intervene between consumers and providers at the time that the
decision to seek and apply care is made is that the normal discipline
of the market is reduced.

From the consumer's perspective, health insurance is an important
and valuable product because the need for services is highly uncertain.
That lack of predictability and the financial risk consumers face
yield an important benefit of insurance [4]. However, once insurance
is purchased, the price of health care services to the consumer
(patient) falls and the "moral hazard" effect induces
individuals to consume more services than if they had paid full
price [5 ].Once heavily insured consumers become sick and need
services, the cost of those services is essentially zero. Therefore,
these patients have no incentive to demand an efficient quantity
of services from a social perspective. As long as additional services
generate some value to the consumer (no matter how small), those
services are demanded.

Similarly, providers have no financial incentive to limit or manage
care because they are generally paid based on the quantity of
services delivered. This payment system, called fee-for-service
for physicians and billed charges for hospitals, rewards providers
financially for delivering more, not fewer, services. Consequently,
the incentives of both providers and consumers (patients) are
in line. Naturally, professional ethics prohibit totally inappropriate
care, but if there is ever a question of the value of services,
both providers and patients have the incentive to order more services

The traditional role of the insurer is to collect premiums from
consumers (the patient, firm, or government) and pay the provider
for delivery of services. It would seem that insurers would be
concerned about the quantity and cost of services provided. However,
premiums adjust for the experience of the insured population to
minimize the risk to the insurance entity. Insurers can essentially
pass medical expenses on to purchasers. The passive role played
by insurers when paying for care and raising premiums to cover
their "average" cost facilitated the rapid expansion
of health care costs. Only in recent years have the purchasers
and, as a result, the payers begun seriously objecting to the
payment increases and looking for ways to control costs. These
relations have allowed some of the problems discussed below to
exist and form the basis for the proposed role of managed care.


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