by Marc A. Rodwin

Promoting Accountable Managed Health Care (continued)

Chapter I:
The Interplay of Consumer Voice and Exit in Managed Care

I. How Consumer Voice Became an Issue

Once called "an alternative delivery system," and considered a means of reform, managed care has now become the predominant vehicle through which the public receives health care services. Yet the public now views managed care organizations (MCOs) as a source of problems to be addressed, and the issues surrounding MCOs figure prominently on the national political agenda. In the last five years there have been successive waves of state and federal legislation and regulation of managed care which aim to protect the public and bolster the authority of doctors and other providers in relation to MCOs. 7

Take, for example, recent legislation for a "bill of rights" for managed care consumers. 8 These include several items: the right to appeal decisions not to provide services, the ability to sue MCOs for medical malpractice, easy access to specialists, coverage for emergency care, an accessible network of providers, access to out-of-network providers, and prohibitions on MCOs restricting communication between doctor and patient.

Step back from these issues. Underlying all these legislative provisions lies one question. Which issues should be left to the market and which should be decided by public policy through some kind of representative process? The spate of current regulation represents political backlash against the policies and practices of MCOs. 9 The public has used the political process to achieve what it could not through the market. This is in sharp contrast to conventional ideas about how consumers affect the behavior of firms: namely that consumer choice in the market will force health care providers to cater to their wishes. The fact that there is a political backlash suggests that at least in certain situations the market does not work on its own and that the public relies on an alternative-exercising its voice. 10

Health care represents an unusual case for testing the efficacy of markets, government regulation, and democratic means of exercising public control over firms. 11 U.S. policy has shifted, sometimes intervening in health care markets, other times leaving them alone.

From World War II until the mid-1970s, medical care was viewed as different from most other goods and services. The federal government subsidized the growth of medical schools and in 1965 created Medicare and Medicaid, publicly financed insurance programs for the elderly and the poor. Most people did not believe that the market alone could perform these functions. The government also subsidized health insurance for the middle class through tax subsidies for employer-provided health insurance and health insurance provided by nonprofit insurers and hospitals. 12 Even economists, led by Nobel laureate Kenneth Arrow, believed that markets could not work in health care as in other sectors of the economy because of imbalances of information between providers and patients. 13 This skepticism regarding health care markets was used to justify professional licensure, regulation of hospital construction using certificate-of-need, and community health planning. It is also supported by an ideal of professionalism which ceded authority to doctors to regulate themselves and act in the interest of patients, and which provided little external oversight.

Health planning in the U.S. was bolstered by the passage of the Comprehensive Health Planning Act in 1966, which required localities to survey and produce health plans.14 The trend was continued by 1972 legislation creating Professional Standard Review Organizations, which were charged with assessing the appropriateness of hospital care that patients received under Medicare. 15 Hospital expansion was regulated by legislation in 1972. 16 The trend was solidified by enactment in 1974 of the Health Planning and Resources Development Act, which created Health Systems Agencies with consumer representation to implement health planning. 17

Yet while health care regulation grew in the 1970s, at the same time other trends emerged that promoted a market-oriented approach to health care. The tide shifted in the late 1970s and early 1980s, and for the next 25 years many restrictions on markets were chipped away. Courts, economists, and critics suggested that regulation of health care was fueling health care spending and stifling innovation. There was a steady flow of proposals to promote health care markets followed by changes which treated medical care services more like other goods and services. The professional exemptions from anti-trust laws were removed by lawsuits in 1975 18 and 1982. 19 Federal certificate-of-need regulation of the growth of medical facilities was dismantled in the 1980s. Starting in 1978, Alain Enthoven proposed managed competition to control health care spending and improve quality. 20 The 1980s and 1990s were also characterized by the rapid growth of the investor-owned for-profit health care sector and conversion of not-for-profit providers and insurers to for-profit status. 21 In 1997 62% of MCOs were for-profit, up from only 12% in 1981. 22

The 1960s skepticism about markets in health care gave way to celebration of markets in later years. The language of markets, management, and money became integral to discussions of health care. 23 Health care institutions also changed. The most prominent development was the rise of MCOs, which combined prepaid health care insurance with the delivery of health care services, frequently with financial and managerial controls over the provision of health care services. These organizations had their origins in the 1930s as experiments to deliver health care through nonprofit prepaid group practice that increased access to services and lowered costs. Initially viewed as something of a "socialistic" experiment, medical societies fought them. Yet a few such prepaid group practices thrived, including Kaiser Permanent in California and Group Health Cooperative of Puget Sound in Washington state, Group Health Association in Washington, DC, Harvard Community Health Plan in Boston. 24 They served as a model for President Nixon's Health Maintenance Organization (HMO) Act of 1973. And since the 1980s it has been for-profit variations of such prepaid group practice that have grown most rapidly. As they grew, so did the ways in which insurance and health care services could be organized, financed, and marketed. Somewhere around the late 1970s, the term "managed care organization" was coined to describe a wide variety of such organizations that were not organized as the original HMOs were, i.e., as individual organizations integrating both the insurance and delivery of medical services, and with physicians as salaried employees.

During this time, there was also a shift in how the public viewed the users of medical services. Traditionally, they were called patients and were usually treated paternalistically by doctors. But patients' rights, women's health, and disability rights movements helped change the way patients were viewed. Patients' rights advocates argued that doctors should respect the autonomy of patients, obtain their informed consent before providing medical treatment, and allow patients to participate in medical decision-making.25 Their intent was to foster the autonomy and rights of women and people with disabilities and patients in general. They engaged in concerted political activity to change our health care system. 26 However, in the process, they encouraged market trends. If people that were ill could make more decisions themselves than doctors had traditionally accorded, then it was easy to conceive of them as medical "consumers" rather than patients. 27 And indeed, that is what happened. Soon the focus shifted from patients' rights and informed consent to consumer choice and consumer rights. 28 While these changes eliminated a great deal of physician paternalism, individuals were left to the vagaries of the market with the assumption that they could be better off with unrestricted consumer choice.

The Flaw in Current Policy

For the past two decades public policy treated MCOs as if they were providers of most other consumer services, and that with the right market conditions, they would cater to consumer preferences. Major efforts were channeled into providing consumers with information and eliminating other obstacles to health care markets functioning well. 29 Employers and other purchasers also began to use their purchasing power to obtain better value for their money. While admitting that MCOs were not perfect, many people saw increased market competition as the main way to improve managed care.

This conception of managed care is flawed. Managed care is not a traditional service, and individual patients and MCO members-what I will call consumers for short-are very different from purchasers or users of most other services. These differences, often ignored by those who advocate consumer choice among alternative MCOs, limit the effectiveness of market approaches as a means to promote accountability of MCOs to the public.

MCOs, unlike providers of most private services, exercise authority over those who receive their services, much the way that governmental institutions exercise authority over citizens who are beneficiaries of their social programs and policies. There are four key reasons.

First, participation in MCOs is often not voluntary. For many privately insured individuals, being a managed care subscriber is not their own choice. Most employers do not give employees a choice of more than one health plan. Thirty-five percent of covered employees were offered only one plan and only half of employees were offered three or more plans. 30 In 1998, 54% of Medicaid recipients were enrolled in managed care plans. 31 And, once an individual is enrolled in an MCO, their choice is more restricted than otherwise.

Second, a major distinction between managed care and indemnity insurance is that indemnity insurers don't judge the necessity for medical care or control its use of services while MCOs do. MCOs mediate what services to provide members and decide what services are medically necessary and how to provide them. MCOs make these choices subject to a limited budget and so effectively ration resources. 32

Third, MCOs also collect approximately equal funds from a large number of individuals and provide differing levels of benefits based on their criteria of need, thereby redistributing resources among individuals.
| back | next | notes |