This paper traces the evolution of the American healthcare crisis, arguing that managed care — introduced through Nixon-era legislation in the early 1970s — fundamentally transformed the U.S. healthcare system from a patient-centered model to a profit-driven one. The paper examines how managed care eroded the physician-patient relationship, shifted costs to insured individuals, contributed to hospital closings and nursing shortages, restricted access to psychiatric care, and enabled record insurer profits. It also evaluates the Obama Administration's healthcare reform legislation, concluding that by failing to address managed care directly, the reform law cannot resolve the underlying crisis in American healthcare.
The current healthcare crisis in America is not one that happened overnight. It is one that has been building for more than a quarter century. There was a time in America when healthcare was a stellar institution — defined by research, cures, technological advances, and new treatments. The focus of healthcare was maintaining and improving the quality of life. Then, during the early 1980s, managed care became an entity inserted between the physician, the patient, and the healthcare provider of hospital services. It began subtly, but has today become one of the most aggressive and successful business ventures of our time — and it has been the unmaking of a once stellar and progressive American institution.
Managed care is a "distinctly American" product (Birenbaum, 1997). It was legislation introduced by the Nixon Administration with the intent to regulate healthcare and to maintain control over what were perceived as escalating healthcare industry costs (Conover and Wiechers, 2006). The Act successfully eliminated the barriers that health management organizations had encountered in state laws by "pre-empting . . . all state laws or regulations that posed a barrier to HMO formation (even if there was no direct conflict with the federal regulations)" (Conover and Wiechers, p. 1). At first, as managed care asserted itself, it was subtle, giving providers, physicians, and insured individuals the opportunity to acclimate themselves to a new industry entity that had auspices over access to care and services. It required pre-authorization of services, which meant that the insured had to contact a case manager — often not a physician or even a registered nurse, but a licensed practical nurse, and in the case of psychiatric care, a therapist or counselor (this changed as challenges to qualifications arose).
Arnold Birenbaum (1997), an economist and expert on healthcare, explains managed care this way:
"Managed care defies our common-sense understanding of value in the world of work and in the area of healthcare . . . Economists in the nineteenth century believed that all work can produce something of value. Usually, the more we do, the better off we are. Thus, more value is added to what we produce . . . Managed care is a unique form of healthcare delivery because it is premised on the idea that often, in medical care, less is more. What produces value in managed care is a good health outcome rather than medical intervention. Not every visit to a doctor is necessary; nor is every test conducted, every medication prescribed, or every placement in an intensive care unit going to produce an effective outcome. Ideally, medicine should be ruled by rationality and efficiency in the choice and implementation of evaluations and treatments (p. 14)."
The implication of the managed care model is that not every condition has a cure, and if the condition does not have a prognosis for full recovery, then the treatment offered the patient should be consistent with the degree to which the patient will fully recover. If there is no recovery, there should be no treatment. This philosophy was, and especially at the time of managed care's introduction, an abrupt departure from the philosophy that premised healthcare in America before its onset. Before managed care, the philosophy of healthcare was that physicians and healthcare providers would offer all available services to individuals to maintain and improve their quality of life. Managed care is not conducive to this philosophy.
It is clear that most Americans today do not understand the implications of managed care. Indeed, managed care is now more than a quarter century old, and most people insured under group benefit plans today have no experience with, or history of, healthcare in a pre-managed care environment. They do not know or understand how their healthcare is being manipulated for purposes of corporate profit. They do not know that healthcare in America was once a matter of decision-making between a physician and a patient, and that those decisions afforded a wide range of choices available through the patient's group benefit contract under an employer-based health insurance product. It is precisely those choices — and the physician-patient relationship — that have been eliminated in today's healthcare environment by managed care.
Most employer-based healthcare plans offer the same benefits and are legally required to provide certain products, such as mental health care, within the same payable limits as any other medical condition. Today, however, the cost of services and care has been dramatically shifted from the insurance company to the insured. Most people have a deductible, which they understand from other insurance products, but they also have copayments that were once limited and are today not. Where copayments were once general, they are now service-specific, meaning that every individual service — from lab tests to nuclear medicine to outpatient and inpatient care — carries individual line-item and unlimited copayments. Additionally, with managed care oversight, even though particular services are part of the employer-employee group benefit package, managed care pre-empts access to those services, often prohibiting access or denying payment for services due to failure to contact and follow up with managed care case workers. This effectively shifts the full cost of services directly to the insured patient, or penalizes the healthcare provider with nonpayment, forcing providers to absorb the costs of services rendered (Birenbaum, 2002).
The impact of managed care was felt almost immediately once it began operating in a business mode. Withholding and denial of payment for services rendered had an adverse impact on hospitals, other providers, and consumers alike. A U.S. Department of Health and Human Services, Centers for Disease Control and Prevention, and National Center for Health Statistics report (Bernstein et al., 2003, p. vii) describes this impact as follows:
"The growth of managed care and payment mechanisms employed by insurers and other payers in an attempt to control the rate of health care spending has also had a major impact on health care utilization. Efforts by employers to increase managed care enrollment, as well as major Medicare and Medicaid cost containment efforts such as the Prospective Payment System for hospitals and the Resource-Based Relative Value Scale for physician payment, created incentives to provide services differently; for example, the increase in capitated payment and the use of gatekeepers has been associated with a changing mix of primary care and specialty care. Numerous other factors also influence the type and amount of health care utilization that is provided in the United States (Bernstein et al., 2003, p. vii)."
The changes described above did not evolve in keeping with the payment systems instituted through managed care procedures and processes. Indeed, the healthcare system was slow to adjust to these new "incentives," and the provider response was multi-faceted: hospital closings, staff cuts, changes in support services and provider locations, the rise of corporate for-profit healthcare, the shift of service costs to the insured, and the directed routing of patients to specific providers and physicians aligned with managed care philosophies — thereby offsetting decreases in capitated and Resource-Based Relative Value Scale payments through increased patient volume (Birenbaum, 2002, p. 55).
These were, for the most part, negative impacts on patients and on the healthcare delivery system in America. Understaffing in hospitals was another response, and there are innumerable lawsuits and issues associated with the current practice of "flexing" staff with the patient census — that is, increasing the number of nurses on duty when the patient roster rises, and decreasing them when it declines. This practice led to creative hiring and payment schemes designed to enable such flexibility. When people invest time and money in education for a given profession and cannot count on consistent employment and financial stability, the result is that they leave the profession or take their skills to jobs not directly associated with patient care (such as school nursing or managed care case management). Creative scheduling and pay arrangements have thus created serious shortages in nursing. It is not uncommon today to find emergency medical technicians (EMTs) and licensed practical nurses staffing emergency rooms. As the demand for registered nurses and other professionals to serve as gatekeepers and case managers grew, the concurrent loss of nurses began to significantly impact hospital and provider operations.
"Restricted psychiatric care and outpatient treatment pressure"
"Record insurer profits as millions lose coverage"
"Obama-era reform fails to address managed care"
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