Economic Terms and Healthcare History: Advent of Managed Care Theory

After years of schooling and hundreds of thousands of dollars in debt, doctors aren’t even able to work on their own terms. “Consumers allegedly have a “right” to what health care providers provide, a “right” to say what will be provided, when, and at what price” (Salsman 2012). Consumers shouldn’t have a “right” to what is provided to them or how much it costs. The government controls pricing and controls who can receive care and what kind. It’s not right that those who are actually working in the medical profession that they have lost control of their businesses.

"In the past two decades or so, health care has been commercialized as never before, and professionalism in medicine seems to be giving way to entrepreneurialism," commented Arnold S. Relman, professor of medicine and social medicine at Harvard Medical School (Wekesser 66). This statement may have a great deal of bearing on reality. The tangled knot of insurers, physicians, drug companies, and hospitals that we call our health system are not as unselfish and focused on the patients' needs as people would like to think. Pharmaceutical companies are particularly ruthless, many of them spending millions of dollars per year to convince doctors to prescribe their drugs and to convince consumers that their specific brand of drug is needed in

Health care spending in the United States of America as a percentage of the economy has reached astonishing heights, equating to 17.7 percent. This number is shocking when compared to other counties; in Australia health care is 8.9 percent, in United Kingdom 9.4 percent, in Canada 11.2 percent. If the American health care system were to hypothetically become its own economy, it would be the fifth-largest in the world. While these statistics sound troubling, they lead us to look for answers about the problems surrounding our system. The first health insurance company was created in the 1930s to give all American families an equal opportunity for hospital care and eventually led to a nationwide economic and social controversy that erupted in the 1990s and continued to be shaped by the government, insurance companies, doctors, and American citizens. In this paper, I will go in to detail about the various opinions regarding the controversy, the history behind health insurance companies, and the main dilemmas brought out by the health care crisis. Greedy insurance companies combined with high costs of doctor visits and pharmaceutical drugs or the inefficient hospitals all over America can only describe the beginning to this in depth crisis. Recently, the United States health care industry has become know for the outrageous costs of insurance models, developments of various social and health services programs, and the frequent changes in medicinal technology.

The payment system in the healthcare industry has appealed to specialty care providers, they make a higher income than the primary care physician. The physicians are attracted to specialty care, and the individual feels that specialty care is better. If physicians were all paid well, in order to pay for their education and then continued quality training, we would not be confronting the lack of primary care doctors who are available to treat the general needs of the population (Fisher, 2013). Just as the physicians seem to be treated differently in our health system so are the patients. Using a multi-tiered system of health care where some insurance gives out a higher payment to physicians, some patients seem to be wanted while others are less well received, this leads to an “everyone for himself or herself ethic” within our medical system (JAMA, September).” The design of the system is flawed in reference to the primary care physician and with the patient who has insurance which pays less, the way to reorient both is to make the pay scale more competitive for both. The primary care physician should be able to make money and cover this educational expenses and the patient should have insurance that will equate to

Critics believe that the present functioning of managed-care is degenerative to health care. Managed-care firms control costs by requiring patients to use a “network” of approved doctors and hospitals, and by reviewing the actions of doctors. Patients have to pay more to visit a doctor who does not participate in the “network.” Managed-care firms second-guess doctors, considering only the costs. Patients are often prevented from visiting specialists to reduce costs. A managed-care company might insist that its doctors prescribe inexpensive generic drugs instead of commercial products. Many patients must, also, receive the insurer’s approval before undergoing treatments or operations. HMOs have been criticized for refusing to pay when a patient goes

Regulations that prevent insurance companies from participating in interstate commerce have caused competition to grow stagnant in the United States. This lack of competition has allowed the adoption of wasteful procedures by healthcare providers, which in turn passes the increased expenses back to the insurance companies. Therein, insurance costs increase, crippling consumer’s cash flow and quality of life. While healthcare costs continue to rise, people must scrutinize the current healthcare system.

The timeline of U.S. healthcare history began with Early American medicine with Native Americans and common folk practices performed by settlers. Practices included herbal remedies, procedures such as “bleeding, blistering, and purging (Batnitzky, Hayes, & Vinall, (2014). Practices were based on theory and environmental contributors rather than diagnosis of treatment. The First Marine Hospital fund was signed into law in 1789,creating the beginning of organized medicine and facilities. The First Marine Hospital fund ensured military members and individuals with federal eligibility were provided medical treatment and preventive care. Funds in maintaining treatment facilities was acquired though payroll deductions. This treatment was provided at various hospitals and facilities. Through growth and expansion, treatment facilities were operated and maintained by military operations. In 1847, the American Medical Association (AMA) was founded by Dr. Nathan Davis. Standards and guidelines were determined for the education requirements for medical professionals, drug manufacturing, preventing disease, sanitation, and in providing higher standards of treatment and care (American Medical Association [AMA], 2015). In 1872, the American Public Health Association [APA] was formed in promoting prevention of communicable diseases. This was the next major breakthrough in reducing diseases such as smallpox, whooping cough, and other common diseases that highly spread. As advances in

In an attempt to understand the impact of managed care in the U.S, I look at the most commonly expressed complaints against the organization. In a survey of consumers, 60% said that managed care had not made a difference in health care cost or had actually been the cause of the increase of health care cost. Managed care has had an impact on slowing the rates of growth in the costs of two major health care producers: hospitals and physicians. Little evidence has suggested that the current reimbursement are inadequate to the care provided. The quality of care is a highly debated issue. Physicians are concerned that the quality of care in managed care organizations may reflect the loss of professional autonomy through pre-authorization procedures.

Managed care was born out of necessity. It involves plans, members, providers, and payments intertwined, one not working without the other. With managed care came rising health care costs. Utilization management and quality initiatives were introduced to help control these costs. Medicare and Medicaid were also helpful in setting standards of care which reimbursement is based on as well as providing access to health care for more people. Health care costs continue to rise but with passage of the Patient Protection and Affordable Care Act (ACA) the goal is more people will have access to affordable, quality health insurance while reducing the growth in our healthcare spending.

The healthcare system in America is a market based system that functions by relying on the structures of an efficient market. The principles of demand and supply are instrumental in determining the functionality of the healthcare system in USA. One of the factors that has contributed to this reality is the fact that healthcare in the US is provided by various distinct organizations which are largely owned by private businesses. Indeed, 21% of hospitals in USA are owned by the government while another 21% are owned by private businesses operating for profit. 58% of hospitals in USA can be described as not for profit organizations. Indeed, the American healthcare system is a leader in medical innovation when compared to its impact on the health status of people. However, the nature of the entire unit as a whole leaves a lot to be desired since accessibility to these medical marvels remains a fundamental problem for a majority of the US population (Davis, Stremikis, Squires & Schoen, 2014).

According to Gawande’s investigation, McAllen is an outlier in terms of U.S. health care data; this city has the highest spending of health care in the country. Its neighboring city, El Paso, shares similar demographics and provides a similar level of care but oddly enough, the average cost of receiving health care in McAllen was double of that in El Paso. Gawande later finds that the high cost of health care in McAllen provided more of everything: diagnostic testing, hospital treatment, surgery, and home care (Gawande, 5). Indeed, we cannot point fingers at the doctors if the procedures were deemed necessary. However, there are some doctors who saw their practice primarily as a stream of revenue. Gawande held Hospital Renaissance largely responsible for the high cost of health care in McAllen. This particular hospital has a reputation for aggressively recruiting high-volume physicians to become investors and send the patients there. In return, they would receive their fee for service and a

One of the greatest changes in healthcare in the past ten years has been the rise of managed care, much to the displeasure of many patients and physicians alike. Managed care arose out of concern about spiraling healthcare costs and was designed to encourage physicians to give patients treatments that were cost-effective out of their own financial interests. "The consumer strategy was directed at imposing some barriers to use by levying various forms of co-insurance. The most common approaches used either deductibles (where the consumer paid the first portion of the bill a technique familiar in other types of insurance) or co-payments (where the consumer paid a portion of the bill and the insurance company the rest) or a combination of both' (Kane et al 1994). Managed care has given health insurance companies an increasingly significant voice in how treatment is administered and allocated. Managed care has proliferated in the past decade despite considerable criticism of the practice of 'nickel and diming' patients as well as the considerable bureaucratic red tape it is has generated. Also, research indicates that healthy, well-insured patients tend to over-consume care without meaningful co-pays but poorer, sicker patients can be deterred even by moderate co-payments and suffer negative health consequences (Kane et al 1994). However, managed care has not gone away and is a reality that all healthcare

1A. Market failure is a situation in which the allocation of goods and services is not efficient. In any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium.

Healthcare in the United States is rooted in the private sector. The private sector directly funds 56% of the expenditures through private health insurance, household expenditures and copays, and other private expenditures. (CMS, 2014) The US healthcare system can thank the private sector for providing much strength such as new diagnostic technologies, innovative treatments and procedures, and dynamism. American hospitals and physicians are regarded internationally as being of high quality. Americans can also be proud that the physician- patient relationship is among the most trusted and valued relationships in the country. By allowing the private sector to take a lead role in the healthcare system, the United States values

Another group often blocked is complementary or alternative health care practitioners. These restrictions and the insurance industry unwillingness to pay for these services, gives the physicians an almost monopolist control over health care. Providers must be able to enter the market for competition to work and there must be many providers vying for the patient. To get the most out of health insurance plans Consolidation of hospitals and multispecialty group practices increases the negotiating leverage of the group but in certain areas of the US a single large medical system has become the sole provider of major health service thereby restricting competition (Shi & Singh, 2008). This consolidation while giving the hospitals and group practice leverage when negotiating prices of supplies and services tends to increase the price of health care to the patient because there is no longer any competition (Shi & Singh, 2008). For these reason “competition will remain less effective in most health care markets, because the prerequisite for fully competitive markets are not fully met” (Federal Trade, 2004, p. 20).