by Donald R. Lurye, MD Managed care is a system for delivering health care that blends the financing and delivery of care to a specific population. Unlike traditional American health care, under managed care, doctors and hospitals bear some financial risk for the consequences of their medical decisions. For example, a health plan may pay a doctor a fixed fee per patient per month, called a capitation, regardless of how often the doctor sees that plan's patients.

Began in the 1930s
Managed care is not as new as many people think. Rudimentary forms of prepaid care existed in this country in the nineteenth century. During the Great Depression, western industrial workers received prepaid care for five to ten cents a month each (!), a system that evolved into today's Kaiser Permanente plans.

Following World War II, the United States saw the proliferation of medical technology along with the growth of specialty medicine. Still, most routine care was funded by patients, with insurance providing partial protection against major expenses. There was no question that patients were ultimately liable for doctors' and hospitals' full fees.

Everything changed in 1965. With the birth of Medicare, Congress altered health care for the elderly in two significant ways.

Patients bore comparatively little financial responsibility for their health care decisions.

At first, provider reimbursement was structured to exceed provider costs for delivering care.

"Someone Else Was Paying"
Private insurance followed suit, and there rapidly developed among Americans a feeling of entitlement to consume whatever health care resources they or their chosen physicians deemed even marginally necessary. How could we all afford this? Simple. We figured someone else was paying.

We all know what happened to health care costs in the 1970s and 1980s. In my opinion, the key driving factors were and continue to be:

• Our aging population
• New technology, procedures and pharmaceuticals
• Rapid growth of medical facilities
• Areas of physician oversupply, particularly in procedural specialties
• "Defensive medicine," such as testing mainly to protect against lawsuits
• "Cost plus" reimbursement begun, and since abandoned, by Medicare
• Our national obsession with obtaining care ad lib at someone else's expense.

Health insurers simply responded by raising premiums, often at double digit rates. For a time, America's employers, who were paying for most commercial health insurance, simply absorbed the increases. Hundreds of dollars of the price of each American car went for auto workers' health care. A vicious cycle, in which we all paid for our "free" care with higher prices of consumer goods, had begun. This went on until employers had no more to give.

Employers Said "Enough!"
Beginning sometime in the 1970s and crescendoing through the 1980s and 1990s, employers effectively said, "We're mad and we're not going to take it any more. Health care is the only industry that regulates both its prices and the demand for its services, and the only direction is up. Enough!"

The health insurance industry initially instituted simple fixes such as retrospective review of claims and mandatory second opinions for certain procedures. These proved to be more irritating than effective. All health plans now monitor and regulate the efficiency of the medical services delivered to their members, a process known as utilization management. In doing this, marginal health plans focus solely on cost. Quality health plans also offer programs to improve the health of their membership. The challenge for today's wise health care consumer is to determine which health plan is which.