A number of chapters in my book, The Healthcare Labyrinth (available at this site and through leading booksellers), tell the story of American healthcare’s conversion from a fee-for-service system to managed care. The truth is that the conversion has not yet fully matured. We still have an over-reliance on traditional transaction payments, which promotes a cost spiral as well as hurts quality attainment. So, the conversion is still in flight and so far I see four so-called conversion cycles of managed care, with the latest hitting just recently. With each cycle, we seem to make some progress toward a better system, but find major barriers still exist.
Let’s take a look at the four conversion cycles and where we are headed. I have put together a quick reference table to help illustrate managed care’s maturation over time.
Birth of Managed Care – 1970s to 1990s
Description/Challenges – The traditional, fee-for-service indemnity model was very costly and had little quality focus. The HMO Act of 1973 catalyzed adoption of managed care delivery. The adoption of managed care redefined healthcare in America. Managed care meant adoption of networks, comprehensive benefit designs, primary care gatekeepers, cost-sharing stratification, drug formularies, utilization management (UM) and prior authorization (PA), upfront care and prevention, and care coordination.
Transformational Pivots – The American healthcare system moved from a focus on transactional per-event payments to managed care, where health plans and physicians guided services through various incentives and disincentives. Managed care adoption reduced overall cost trends dramatically.
Managed Care Backlash – 1990s to 2000s
Description/Challenges – Managed care plans concentrated more on the negative cost controls and dictates than the positive comprehensive care and coordination. Thus, Americans grew tired of the lack of flexibility in terms of networks, tight utilization controls, Primay Care Physician (PCP) gatekeepers, and impacts to the doctor-patient relationship. Americans and employers wanted more balance between cost-savings and choice. Plans created Exclusive Provider Organizations (EPOs), open access HMOs, Preferred Provider Organizations (PPOs), and Point of Service (POS) benefits — while still offering strict gatekeeper Health Maintenance Organizations (HMOss. The evolution created combination in-network and out-of-network benefit plans. States also passed some consumer protections, including grievance and appeal processes, prudent layperson laws related to emergency care, some benefit mandates and UM/PA reforms (e.g., so-called “drive-through births” were substantially eliminated).
Transformational Pivots – Health plans reinvented themselves and moved from strict HMO managed care models to lighter forms of managed care. This made Americans and employers happier but also caused a return to fairly robust growth in healthcare spending.
Compliance, Accountability, and Quality Take Hold – 2000s to 2020s
Description/Challenges – Frustrated by ongoing spending increases and the lack of quality in the healthcare system, state and local governments developed an accountability, compliance, and quality regime for healthcare. The 2010s saw the adoption of new and evolving Medicare program audit requirements and the Star program. The mid-2010s saw implementation of the Medicaid Mega or Uber Rule, which sought to transform accountability and quality in the Medicaid program. The year 2010 saw adoption of the Affordable Care Act (ACA) by Congress, with significant regulatory and financial dictates and reform of benefit limits in all lines of business. Utilization management restrictions, strict quality programs (with quality ratings and bonuses), scrutiny of plan operations, the adoption of the minimum medical loss ratio (MLR), and other accountability measures all emerged. Employers also began to focus on quality outcomes for employees and greater accountability in their self-funded ERISA relationships with health plans.
Transformational Pivots — CMS, in tandem with other federal and state regulators, has become overall policy leader for all lines of business, seeking to guide the healthcare system even as the private sector innovates in delivery of services and care. Together, this was meant to guide the healthcare system to lower costs, higher quality, and fairness and equity.
Advent of Value-Based Care and Digital Healthcare – 2010s and Beyond
Description/Challenges – Compliance, quality, and accountability measures alone were not moving the needle. Greater transformation was desired. The ACA introduced the Center for Medicare and Medicaid Innovation (CMMI) and a Value-Based Care (VBC) focus. Pilots emerged on moving from FFS to VBC payments in all lines of business, including commercial and employer coverage. While risk arrangements existed before, the government (in Medicare and Medicaid) and health plans pursued greater proliferation of VBC payments in all lines of business (capitation with quality bill-aboves; partial and global risk; bundled and global payments; bonuses and penalties tied to cost-efficiency and quality performance; and outcome-based payments). States and the federal government sought to further clamp down on UM/PA, invest in quality programs, attack risk adjustment abuse, and target aberrant behavior of health plans and providers. There also were dictates and efforts to pursue interoperability and digital transformation.
Transformational Pivots — VBC and digital transformation efforts seek to move from an upfront gate-keeping UM focus and concentration on deriving revenue at health plans to a holistic approach to monitoring risks, costs, outcomes, care, and satisfaction on the part of consumers and providers. VBC payment arrangements align health plans and providers to create incentives to transform care delivery via data sharing and analysis to foster efficiency and outcomes. The safe and appropriate use of artificial intelligence (AI), machine learning (ML) and agentic AI holds great promise to provide unprecedented insights and to help health plans and providers scale analysis, evaluation, and intervention. This would reduce administrative costs and drive cost-savings via early identification of high risk and poor quality trajectories.
Conclusion
We are in the early stages of the fourth cycle of managed care. But it does require health plans and providers to begin to think about investments in interoperability, digital transformation, and ongoing and real-time data analysis and intervention to meet the demands of the VBC healthcare model. The nation has established a foundation for the transformation but understanding and investment across stakeholders are still somewhat weak and immature. Governments, health plans, and providers have a great deal of work to do to succeed in this managed care cycle.
#healthcare #healthcarereform #managedcare #healthplans #interoperability #digitalhealth #ai #providers #valuebasedcare #vbc #vbp
— Marc S. Ryan
