The Future Of Managed Care Organization

PROLOGUE: For the past fifteen years the words “managed care” have been the shorthand label for a wide variety of health plans that, in one way or another, have combined the functions of delivering and financing medical care. Health plans have acquired and shed functions based on their calculations of how best to gain a larger share of the health insurance market. Initially, the not-for-profit group model, formed in the image of the Kaiser Permanente Medical Care Program with its closed physician panels, was dominant. As Americans demanded greater choice of doctors, broader network plans forged on a for-profit basis emerged rapidly. In this lead paper James Robinson, a professor of health economics at the University of California, Berkeley, discusses what he regards as the currently ascending model of managed care: the multiproduct, multimarket health plan. His research is distinguished by his preference for combining the methods of health services research and, through extensive interviews with executives of health plans and other stakeholders, journalism, to determine the nature of change. His thinking also was influenced by a small group (see acknowledgment on page 23) of chief executive officers, system analysts and consultants, and other recognized individuals who gathered under the aegis of the California HealthCare Foundation and Health Affairs last fall to discuss his conclusions. The foundation also supported Robinson's research. In previous issues Robinson has written on the financial and intellectual capital of physician practice management (July/August 1998) and on the use and abuse of the medical loss ratio (July/August 1997). ABSTRACT: This paper analyzes the transformation of the central organization in the managed care system: the multiproduct, multimarket health plan. It examines vertical disintegration, the shift from ownership to contractual linkages between plans and provider organizations, and horizontal integration—the consolidation of erstwhile indemnity carriers, Blue Cross plans, health maintenance organizations (HMOs), and specialty networks. Health care consumers differ widely in their preferences and willingness to pay for particular products and network characteristics, while providers differ widely in their willingness to adopt particular organizational and financing structures. This heterogeneity creates an enduring role for health plans that are diversified into multiple networks, benefit products, distribution channels, and geographic regions. Diversification now is driving health plans toward being national, full-service corporations and away from being local, single-product organizations linked to particular providers and selling to particular consumer niches.