Growth of Managed Care that Began in the 1980s

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Explain the growth of managed care that began in the 1980s.  As a result, how has health care delivery evolved?  What role do hospitals have in advancing continuous quality improvement (CQI) health outcomes and modernizing U.S. healthcare delivery models?  Based on the literature, what does the future hold?

Health insurance without managed care is difficult to fathom for those born in the last forty years or so.  Managed care has been a prominent feature of health insurance now for decades, and is simply an established and unquestioned part of the healthcare landscape.  Managed care arose as the answer to unhindered and unrestricted utilization of health care resources and unquestioned payment of health insurance claims.

“Managed care was designed to slow down the growth in health care spending by limiting both the quantity of health care delivered and the amount of reimbursement given to providers” (Shi & Singh, 2019, p. 206).  Long gone are the days of providers being reimbursed at a price on which they decide is fair; they are now reimbursed based on a predetermined and ever subject to change fee schedule determined by the insurance via managed care.  “Managed care such as Health Maintenance Organizations (HMOs) started to become popular in the late 1980s” and the health care in the U.S. has not been the same ever since (Park & Town, 2014, p. 548).

Managed care plans first emerged with the extremely restrictive HMO plans, where patients were only allowed to see providers and utilize companies deemed to be ‘in-network’ per the plan – providers and companies with whom the plan entered into contractual arrangements for payment and provision of services.  This limiting of choice was seen as very negative, and still is; HMO plans have a strong negative connotation attached to them.   HMO plans must grow very large to offer patients an acceptable level of choice.

“Health insurance contracts may restrict consumers’ choice of medical provider in order to minimize moral hazard,” and indeed they do (Wedig, 2013, p. 1066).  The moral hazard idea is that without restrictions and limitations, consumers may just wastefully and unnecessarily use health care resources with reckless abandon because they have an unquestioning party willing to pay the bills as they accrue.  The idea of and growth of managed care has put this questionable theory to rest, and made often very medically necessary and timely treatments more difficult to obtain in the way desired and in the timeframe desired.

Providers must routinely change which brand names of certain drugs they prescribe as preferred drug lists change quarterly and annually, and patients must go along with these changes as well, as a previously favored drug (aka the one who gives managed care the largest rebate behind the scenes) falls out of favor for another (someone who got more competitive and offered a larger rebate to buy their way onto the formulary).  Patients do not win from these shenanigans; it simply pads the profits of middle men and insurance companies and at the same time actually contributes to the high cost of prescriptions.  Patients who need a medicine that is non-preferred must prove that they have tried and ‘failed’ the preferred brand names and work through difficult and lengthy appeals for special consideration.

Managed care has created countless layers of bureaucracy and middle-men creating boundaries for accessing care in the name of cutting costs.  The textbook praises managed care as being wildly successful, but is that praise appropriately placed?  Is this system actually saving anyone money?  It was very interesting to read that a nationwide study found “that shifting Medicaid recipients from fee-for-service models into managed care (more restrictive HMO/CMO Medicaid plans) did not reduce Medicaid spending” (Shi & Singh, 2019, p. 219).  These new plans created huge changes and new restrictions for Medicaid patients, forcing many to change doctors, prescription drugs, pharmacies, and so on, disrupting their lives and medical care, and in the process saved no money.  How many other such results might be found if studied?  How much are insurance companies spending requiring and processing prior authorizations for medications to prevent misuse versus how much they are saving by denying coverage in cases where there is no true need?   Managed care may have a place and be beneficial to all to a point, but it has possibly overstepped and could actually be spending more money in bureaucracy, middle men, and layers of complexity and confusion than actually accomplishing the mission of saving money.

Hospitals are on the front lines of continuous quality improvement efforts as their reimbursements continue to shift into outcomes-based models.  Hospitals, like many other businesses, are being asked and expected to do more with less.  Their reimbursements are being cut in order to supposedly force more efficiency, while they are also being tied to outcomes to ensure patients are thoroughly provided for.  Hospitals are currently navigating these tricky waters of mixed-messaging and penalties for erring on either side of this equation.

The future likely holds more of the same in terms of seeking new and innovative ways to both improve care and control costs, a tall order indeed.  Health care is somewhat of an experiment ground where ideas are introduced and tested, they evolve and change and either take root or become replaced by something else.  The fragmented private and public sector nature of health care will see incremental but seismic shifts and key moments take place that change the landscape for years to come, as even now shockwaves from the ACA are still being felt.  Health care professionals and businesses must be nimble and ready for changes that will certainly occur in the years ahead.  2 Timothy 4:2 says “preach the word; be prepared in season and out of season; correct, rebuke and encourage—with great patience and careful instruction” (New International Version).  Preparation will continue to be key for survival in healthcare.


Park, M., & Town, R.  (2014).  Industry shock expectations, inter industry linkages, and merger   waves: evidence from the hospital industry.  Journal of Economics & Management Strategy,   23 (3), 548-567.

Shi, L., & Singh, D.  (2019).  Essentials of the U.S. Health Care System.  Jones & Bartlett Learning.

The NIV Study Bible (K. Barker, Ed.; 10th Anniversary ed.).  (1995).  Zondervan.

Wedig, G.  (2013).  The value of consumer choice and the decline in HMO enrollments.  Economic Inquiry, 51 (1), 1066-1086.

Discussion 6


Top of Form

The concept of managed care has been around for quite some time now. What exactly is managed care? Managed care can be described as when one single organization has control and management over the financing, insurance, delivery, and payment during the process of providing health care services (Shi & Singh, 2019). When it comes to the financing component of managed care, there are premiums that are settled amongst employers along with the managed care organization. There is, normally, a fixed premium that includes all health care services.

When it comes to the insurance component of managed care, the managed care organization accumulates premiums for insuring groups of enrollees. Then, this managed care organization acts like an insurance company, due to their assuming all risk and taking any financial responsibility. If the total cost of services provided is greater than the revenue from fixed premiums, then the managed care organization takes the financial responsibility. Next, when it comes to the delivery component of managed care, the managed care organization is preparing to provide health care to its enrollees by establishing contracts with hospitals, physicians, clinics, as well as medical systems.

Lastly, when it comes to the payment component of managed care, the managed care organization will use three different types of payment arrangements alongside providers. These main payment arrangements include capitation, discounted fees, as well as salaries (Shi & Singh, 2019). The concept of managed care has come a long way since the 1980s. In the beginning, managed care was observed as a complete abnormality.

Later on, however, managed care became the main way of delivering health care, due to private employers realizing that there was a chance to halt the progression of Medicaid and Medicare expenditures. Even though the progression of managed care was quite slow during the 1980s, some states, such as Minnesota and California, had a faster progression of growth of managed care. During this period of slow growth, the cost of health care were elevating quite rapidly (Shi & Singh, 2019).

There are many other different countries, as well, that integrate some components of managed care into their health care delivery system, including European countries, such as Switzerland, due to its evidence of proven success in the United States. With managed care, this calls for the lessening of excess consumption by patients, as well as the overstock of supply by providers (Kauer, 2016).

Kauer, L. (2016). Long-term effects of managed care. Health Economics, 26(10), 1210-1223. doi:10.1002/hec.3392

Shi, L., & Singh, D. (2019). U.S. Health Care System (Fifth ed.). Burlington, MA: Jones & Bartlett.

Last Updated on May 1, 2021 by EssayPro