Managed Care

Obamacare by mandate, providing Medicare Advantage and Medicaid to uninsured Americans as an entitlement for the poor will enrich insurance companies and Big Pharma and bankrupt our economy.

Medical Informatics

Medical Computing


Healthcare Reform

Roger H Strube, MD


Health care costs became a noticeably larger and larger percentage of GDP during the 1960s. The curve comparing health care cost to inflation separated. Health care costs began running wild. Paul Ellwood, the father of the HMO, met with the Department of Health and Human Services to design the managed care legislation. During the Nixon Administration Congress passed the Health Maintenance Organization Act of 1973.

This legislation defined the business practices that separated indemnity insurance from HMO operations. It also provided federal grants and loans for development of new or existing plans. Federal certification of a plan lifted state restrictions. The legislation also required employers with 25 or more employees to offer an HMO if one was available. The legislation facilitated direct contracting with providers. Primary physician gatekeepers controlled utilization. The use of medical standards and criteria to make health care payment decisions became part of the health care system. The medical free for all was under control, for a time.

The acceleration of the cost curve flattened for a few short decades. In 1974, President Nixon introduced a more comprehensive health care bill than the legislation recently passed in 2010 by congress. The 1974 Nixon health care reform bill contained a public option. The Democrats, lead by Senator Kennedy killed the bill.

Twenty years would pass before President Clinton serious attempt at reform would die. The Democrats would self-destruct in the face of opposition from the Medical-Industrial Complex and conservatives in congress. In 1997, the federal mandate requiring employers to offer HMO plans expired. This happened near the peak of the HMO backlash fueled by the negative propaganda from the Medical-Industrial Complex.

The present Patient Protection and Affordable Care Act (H.R. 3590) and the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) are neither health care financing nor health care delivery reforms. They are additional indemnity insurance regulations that will not address our health care crisis and may bankrupt America. They are too little and too late to pull our economy out of the ditch. Our Second Great Depression will continue until we control health care spending.

I find the refusal of our federal government to address the real problems with our Medical-Industrial Complex disturbing. Even more disturbing is the present administration’s continued attack on managed care organizations. Their general statements about private HMOs indicate ignorance about managed care policies and procedures. Their politically motivated attack on Medicare Advantage will harm their attempts to control costs.

A Government Accountability Office report that compares the total cost of Standard Medicare to Medicare Advantage programs is required. Total cost must include beneficiary out of pocket expenses and dollars wasted through fraud and abuse. America needs to know. What is the total cost of our Medical-Industrial Complex accrued to the average Standard Medicare beneficiary verses the average Medicare Advantage beneficiary? Without this knowledge, sound fiscal decisions are not possible.

There are huge differences between the philosophy and business operations of indemnity medical insurance verses those of Health Maintenance Organizations (HMOs). For-profit risk managing indemnity insurance operates at a long arm’s length from health care delivery. Managed care administration and health care delivery are integrated.

The philosophy and business operations of managed care organizations (MCOs) focus on preventive care and health improvement to reduce the incidence and impact of disease. They use universally accepted standards of care to assure their members receive quality medical services. Quality care is appropriate, effective, efficient and accessible. Managed care addresses each of these pillars of quality health care.


Managed Care

Managed care comes in several flavors. In general, the term categorizes business entities that define: provider contracts; place of service; services covered; and, fee schedules for covered services. The business entities include staff model, group model and network model HMOs. Staff model physicians are salaried and work in HMO facilities. These organizations do not separate financial operations from the delivery of health care.

The group model provides one degree of separation between funding and delivery of medical care. The group model HMO contracts with a large multi specialty group to provide comprehensive medical services. For example, Kaiser Permanente is a captive group model HMO. It is a combination of Kaiser Foundation Health Plan and Permanente Medical Groups. The physicians are salaried employees of Permanente and serve only Kaiser Health Plan enrollees.

The HMO subsidiaries of large national indemnity insurance companies are usually network models. In the network model, the contracted large clinics treat HMO and private pay patients. Cleveland Clinic and Mayo Clinic are examples. They have multiple covenants with many insurance companies and their managed care subsidiaries. In the network model, the HMO subsidiaries may also contract with smaller clinics, Independent Practice Organizations (IPAs), and individual physicians.

Just as is the case with indemnity insurance, the funding of a managed care benefit plan is through premiums ultimately paid by employees and taxpayers. The employer handles health care plan premiums using tax-exempt employee dollars. For most employers, health care benefits are a cost of labor. The worker should not forget this money is coming out of her pocket.

MCOs and indemnity insurance use similar plan design financial disincentives to control costs. Unlike the intense focus on claim adjudication by indemnity insurance companies, the health improvement managed care industry is more involved in risk management through medical loss control. Prevention of illness and quality care when illness occurs are the central focus. Managed care organizations use claims, referred to as encounter data, to assess and improve quality of care. MCOs control cost through several unique managed care functions.

A provider relations department administers network management. A medical department administers utilization review (UR), case management (CM), disease state management (DSM) and quality assurance (QA) programs. These operational functions have corporate interrelationships that depend on the genealogy of the MCO. The organization chart of a MCO started by an indemnity insurance company will differ significantly from that of a staff model HMO.


The Decline and Fall of Managed Care

The market place reacted to effective managed care by pushing back against cost containment techniques. Very few folks understood the HMO focus on quality care and quality improvement. The managed care industry was not blameless.

Managed care was not immune from the avarice, self-interest and profit motivation infecting all American corporations. We are a capitalistic free market system and making profit is what corporations do. Some in the managed care industry pulled the industry toward self-destruction. Public opinion turned against managed care.

Propaganda and lobbying efforts of the Medical-Industrial Complex pushed regulations that decreased the effectiveness of managed care. This negative political environment continues to this day. Ever more restrictive regulation and legislation was enacted through the decade of the 90s that essentially de-tuned HMOs so they were less effective and less competitive. Over time, the business operations of the industry began to function more like for-profit indemnity insurance companies.

The slope of the medical care cost curve flattened during the hay day of managed care and HMOs. Politics and public opinion, driven by the Medical-Industrial Complex, put an end to common sense and moderation. When politicians hobbled managed care, medical costs began to skyrocket. The result is a health care system that costs $2.2 trillion dollars per year and fails to deliver quality.

Consequently, the quality of care delivered to Americans has suffered. Our health care system does not compare well with the rest of the industrialized world. We are now experiencing the Second Great Depression partially because of the cost of the Medical-Industrial Complex to our economy.

Do not get me wrong. I love American capitalism, and would not be in my present position without the opportunities our system offered. Our founding fathers created the best system of governance the world has ever seen. However, that was over two hundred years ago. Our founding fathers traveled on dirt roads and experienced medieval level health care. The American public does not want to go back to that.

Government protects rights of the people and provides essential goods and services. Some needs only government can provide or manage. Taxpayer financing of health care may be a matter of public debate, however, I believe access to health care is a right of every American. Realization of this right is more than a progressive goal. It is an economic necessity. It eliminates most of the problems created by our employer accessed for-profit indemnity insurance industry. A single purchaser methodology is the most cost effective system to attain the right to health care and secure our economic future.

Fiscal conservatism is a core value of my Republican Party. Believing health care is a right of all Americans is consistent with being a compassionate, centrist Republican. Reducing the cost of labor (by lowering health insurance premiums) is consistent with being a fiscally conservative Republican.

Such a major labor cost reduction is better for business than any small tax cut Congress could enact. Only American business can get us out of our financial ditch. Balancing a fiscally responsible, pro-business ideology, with the belief quality health care is a right, is the essence of Republican compassionate conservatism.

Demonizing over paid executives and the companies they manage may offer a catharsis for the masses (and votes for populist politicians), but will not provide a solution to either our health care crisis or economic Depression. If we are to save our economy, a resurrection of managed care principals applied to the financing and delivery of medical goods and services is required.


For a more complete understanding of Managed Care, why it is at the core of health care reform and how it will improve the quality of care, reduce the cost of care and save the American economy, read my book, Discovering the Cause and the Cure for America’s Health Care Crisis.

You may purchase a copy on line at Amazon or at your local Boarders Book store.

[HEALTH CARE REFORM] [Book Cover] [Roger H Strube MD] [Author Biography] [Discovering the Cause] [Press Kit] [Designing Reform] [Glossary] [Self-Publishing] [Medicine in Crisis] [Managed Care] [Population Management] [Obamacare] [Other Financing Systems] [Electronic Medical Records] [Medical Decision Support] [Patient Centered Medical Home] [Good Life-Good Death] [Internet Links] [Resources] [Book Reviews]