Health Reform: A Return to Managed Care?

A New York Times op-ed today by Tyler Cowen argues that whether a health reform bill passes or not, whether health care is public or private, we face more managed care. The medical cost trend is unsustainable, and therefore the system will need to say no to more service requests, essentially rationing care. Managed care to Mr. Cowen means managing the over-use of services.

While this may be true for Medicare because it does little to address over-utilization, many commercial health plans actively manage the way services are used and do not view over-use as a key factor in the trend problem. Far more important is the insistence of purchasers and consumers on products that include every hospital and physician, the result of which has been a relentless increase in the price, not necessarily the use, of services.

Why? Consider: When limited hospital and physician networks were tolerated by buyers, a health plan could negotiate a reasonable price with even the largest, heavily branded hospital or physician group because it was understood that the plan might be able to live without them. Now the same hospitals and physician groups understand that the health plan cannot live without them or lose customers to a competitor. This realization alone is enough to unbalance negotiations, overly strengthen already strong brands, hasten provider market consolidation, and raise prices.

In addition to more managed care in our future we should expect efforts to control the unit price of services. These may take the form of a renewed willingness on the part of employers and individuals to live with limited provider networks, more aggressive enforcement of anti-trust laws, and/or government rate regulation