Managed cost, mismanaged care

Original Reporting | By Meade Klingensmith |

Feb. 13, 2013 — Dr. Molly Droge is the chair of the subcommittee on access to care at the American Academy of Pediatrics. Growing up in West Texas, she lived next door to an old general practice doctor. She didn’t know him well, but, as she told Remapping Debate, “I did know his reputation in the town, and I knew what his patients thought of him.” He was known for doing everything he could to help his patients, and would often do it without any payment at all. “He got a bowl of tomatoes in the summer, or he got two chickens for whatever care that he had provided someone,” Dr. Droge said. “There was a trust there. And that’s the way I thought doctors acted.”

cost control Über alles

This is the first in a series of articles examining the phenomenon by which health care policy has come to be dominated by a single-minded desire for cost control, while concerns about maximizing the quality of care have been downgraded or ignored entirely.

Our research and reporting identifies three ideological underpinnings for this shift: (1) the selling of the idea that a competitive “free market” environment could work in the context of the provision of health care and health insurance;  (2) the promise that the interests of a for-profit industry were aligned with the interests of citizens who needed health care; and (3) the assumption that rising costs had to be constrained by reducing health care usage — an assumption made without asking the questions, “What is the highest standard of care that we can achieve?” “How far below that standard are we, and for how many?” “What would such a system cost?” or “How can we minimize the extent of deviation from the highest standard of care if we as a society decide that we prefer to have some of our fellow citizens go without that highest standard of care?”

This article describes the origins of the Health Maintenance Organization (HMO) model, the modern incarnation of that model, and the evolution of HMOs to the vehicles through which a for-profit health insurance industry came to dominate the market by the 1990s.

The next article in the series will examine the crucial role that Clinton-era “New Democrats” played in promoting the view that the principal problem to be addressed was cost control, and that the best and only solution to providing health care was through a for-profit, market-based system of insurance (albeit a regulated one), not a single-payer or not-for-profit HMO model.

— Editor

When Dr. Droge entered pediatric practice in the early 1980s, she joined a managed care organization in Dallas run by Cigna HealthCare and was surprised at how different it was from what she had imagined medicine to be. She found the managed care organization was “all about maximizing profit.” She had difficulty getting necessary referrals for patients. She was forced to try several different medications on patients before she would be allowed to administer the one she knew to be best from the outset, because the best medication wasn’t part of Cigna HealthCare’s list of approved drugs. “Physicians really had to work to make sure that our patients got the care that they needed. It was not a given,” she said.

Dr. Droge’s story is hardly unique. On the contrary, from interviews with health care experts and doctors, as well as in Remapping Debate’s own research into the history of managed care, it appears that the defining feature of the managed care era is a profound rhetorical and practical shift — politically and among health care advocates, observers, providers, and insurers — away from a focus on quality of care and towards an obsession with cost control.

How did this happen? Health care experts suggested the existence of two powerful forces working in tandem. First was the birth and development of the market-based, for-profit health insurance industry, built on the back of what was once a progressive model for how to maximize quality of care: the prepaid group practice, which was later adapted into “managed care.” Second was the spread of an ideology that subordinated quality concerns to cost control while asserting that both could be achieved — an ideology that held particular sway among the New Democrats of the 1990s.

Tracing these two forces requires starting at the origins of managed care: the prepaid group practices that appeared on the West Coast of the United States as early as 1929.


Origins of managed care

The prepaid group practice originated as an attempt to meet comprehensively the health care needs of specific defined communities. The first such practice, the Ross-Loos Medical Group, was created in 1929 by two doctors to care for employees of the Los Angeles Department of Water and Power. Kaiser Permanente, the most famous of the early prepaid group practices and the one most responsible for bringing the model to national attention, was founded by Henry Kaiser during World War II as a medical program for employees of his shipyards and steel mills. Kaiser opened the plan to the public after the war.

Members of these practices would pay an upfront monthly subscription fee, and in return would have all of their health care needs met. The practices were generally physician-led and multispecialty, with the intent of fostering collaboration among doctors and providing all health services under one roof — a plausible prospect for a relatively small practice in an era before the growth of advanced medical technology and countless specialties and sub-specialties. Physicians in such practices were often paid on salary rather than for services rendered.

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