Managed care

Managed Care 1020
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Managed care is a generic term for various health care payment systems that attempt to contain costs by controlling the type and level of services provided. Health maintenance organization (HMO) is a term that is often used synonymously with managed care, but HMOs are actually a particular type of managed care organization.


Health care reform has been an increasingly urgent concern in the United States over the past 40 years. Until recently, the primary source of health care coverage was indemnity insurance, which pays or reimburses the cost of medical services in the event of a person's illness or injury. Indemnity insurance gives health care providers few reasons to use less expensive forms of treatment— the insurance companies generally pay for any treatment deemed necessary by a physician. Presumably, this type of system encourages providers to overuse expensive, unnecessary treatments and diagnostic procedures. Patient co-pays and deductibles attempt to limit excessive use of medical services. Yet costs continue to rise, resulting in insurance companies' frequently raising premium prices.

The primary intent of managed care is to reduce health care costs. Emphasis is placed on preventive care and early intervention , rather than care provided after an illness or injury has occurred. The responsibility of limiting services is placed on the service provider rather than the consumer. This limitation is achieved by (a) "gatekeeper" policies that require individuals to get referrals for specialized treatment from their primary physicians;(b) financial incentives (either bonuses or withholding money) for providers to restrict services and contain costs; (c) guidelines requiring adherence by providers at the cost of being dropped from the plan for noncompliance; (d) review of services by the managed care organization and denial of payment if services are considered unnecessary.


Health maintenance organizations have been in existence in the United States since the late 1800s. It was not until the 1950s, however, that the government began to encourage the development of HMOs. In 1973, the Health Maintenance Organization Act was passed; and in 1978, a Congressional amendment increased federal aid for HMO development. From 1980 to 1989, enrollment in HMOs increased from 9 million to 36 million Americans. By 1990, 95% of private insurance companies used some form of managed care. In the 1990s, managed care was incorporated into Medicare and Medicaid plans as well.

Managed care organizations frequently contract with a group or panel of health care providers. HMOs and PPOs (preferred provider organizations) are examples of these types of contracts. Individuals insured under an HMO or PPO may receive care only from providers on the panel. These providers are expected to deliver services according to specific stipulations. Payment is often subject to utilization review, in which delivery of medical services is scrutinized to determine whether the services are necessary. The review may occur with each episode of treatment, or may be ongoing through the use of a case manager. If the managed care organization thinks that the services were unnecessary, payment is denied.

Payment arrangements between managed care organizations and care providers are often made in advance. Capitated payment systems are typically used with large health care facilities that serve many people. The health care provider receives a set amount of money each month based on the number of individuals covered by the plan. The provider may or may not serve that many people in one month. Capitation systems provide a steady, reliable cash flow, but involve some economic risk because the services provided may exceed the dollar amount allotted. Another type of payment system uses case rates. The provider receives a predetermined amount of money per individual on a case-by-case basis. The amount of money reflects the estimated service costs to treat the individual patient's condition. Again, the provider takes the risk that unanticipated services will be required.

In the past, mental health services (including substance abuse treatment) were routinely excluded from managed care plans. In the 1970s, some mental health care coverage was required in order to meet federal qualifications. Carve-out plans were developed in the 1990s. These plans essentially create a separate managed care plan for mental health services. Mental health services tend to be covered at a lower rate than general health services and have also been cut back more severely. From 1988 to 1997, mental health care spending decreased by 54%, which reflects cutbacks 670% higher than those for general health care benefits. Mental health care providers are also subjected to higher levels of utilization review than medical care providers.

Ethical concerns

Managed care has been successful in fulfilling its primary purpose of lowering health care costs in the United States. Statistics show drastic decreases in the use of inpatient care and accompanying overall reduction in costs. Many observers, however, would argue that the quality of care has suffered as a result. Individuals have fewer choices regarding the locations where they can receive treatment. If a managed care organization closes, individuals under that plan must switch to other care providers under a new plan, which disrupts ongoing treatment. Care providers often feel that their clients are denied essential care in favor of saving money. Employers have become disillusioned because of increasing disability claims due to employees having received inadequate treatment for illnesses or injuries. In addition to disability claims, inadequate treatment results in hidden costs to employers in terms of lost productivity.

Another factor in decreased quality of care involves conflicting loyalties for health care providers. On the one hand, providers want to ensure quality care for their clients. On the other hand, they are encouraged to provide the least amount of care possible in order to receive financial benefits. Just as dishonest practice was suspected in conjunction with indemnity insurance, managed care creates a powerful potential for inappropriately addressing patients' needs.

Future directions

Due to growing popular discontent with managed care organizations, many critics believe that the system will not continue in its current state. No one, however, expects managed care to disappear completely and indemnity plans to rise to their former prominence. Changes are expected to occur as managed care programs begin competing among themselves. Cost and efficiency will no longer be the main selling point; quality of services will take precedence. One researcher has suggested that along with new systems of managed care and continuing systems of indemnity plans, health care providers may even organize and offer services directly to employers, thus eliminating the middlemen. This development would be beneficial to all involved: employers would pay less; providers would be better compensated; and clients would receive better care.

See also Case management



Horwitz, Allan V. and Teresa L. Scheid, eds. A Handbook for the Study of Mental Health. New York: Cambridge University Press, 1999.

Sauber, S. Richard, ed. Managed Mental Health Care: Major Diagnostic and Treatment Approaches. Philadelphia: Brunner/Mazel, 1997.

Tuttle, Gayle McCracken and Diane Rush Woods. The Managed Care Answer Book for Mental Health Professionals. Bristol, Pennsylvania: Brunner/Mazel,1997.


Gottlieb, Michael C. and Caren C. Cooper. "The Future of Mental Health Care Delivery: Ideals and Realities." Counseling Psychologist 28, no. 2 (2000): 263-266.

Reed, Geoffrey M., Ronald F. Levant, Chris E. Stout, Michael J. Murphey, and Randy Phelps. "Psychology in the Current Mental Health Marketplace." Professional Psychology: Research and Practice 32, no. 1 (2001): 65-70.


American Association of Health Plans. 1129 20th Street NW, Suite 600, Washington, DC 20036-3421. <> .

Department of Managed Health Care. California HMO Help Center, 980 Ninth Street, Suite 500, Sacramento, CA 95814-2725. <> .

Medicare. 1-800-MEDICARE. <> .

Sandra L. Friedrich, M.A.

Also read article about Managed care from Wikipedia

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