UC Berkeley

UC Berkeley Previously Published Works

Title

Medical Management After Managed Care

Permalink

https://escholarship.org/uc/item/4gd4z10s

Journal

Health Affairs, Web exclusive

ISSN

0278-2715 1544-5208

Authors

Robinson, James C

Yegian, Jill M

Publication Date

2004-05-19

DOI

10.1377/hlthaff.W4.269

Peer reviewed

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University of California

M edical Management After

Managed Care

Quality and health improvement programs are tailored to the diversity

in preference and willingness to pay across customer segments.

by James C. Robinson and Jill M. Yegian

ABSTRACT: Health insurers are under conflicting pressures to improve the quality and

moderate the costs of health care yet to refrain from interfering with decision making by

physicians and patients. This paper examines the contemporary evolution of medical man

agement, drawing on examples from UnitedHealth Group, WellPoint Health Networks, and

Active Health Management. It highlights the role of claims data, predictive modeling, notifi

cation requirements, and online enrollee self-assessments; the choice between focusing

on behavior change among patients or among physicians; and the manner in which medi-

cal management is packaged and priced to accommodate the diversity in willingness to pay

for quality initiatives in health care.

edical management, the population-based effort to monitor and

improve clinical effectiveness, risks being a principal casualty of the

backlash against managed care. During the 1980s and 1990s, health plans

struggled to transform themselves from passive third-party payers into organiza-

tions engaged in integrating provider networks, channeling enrollees to partici-

pating physicians, and influencing those physicians’ clinical decisions through uti-

lization review.

The subsequent resistance to limits on consumers’ choice of

providers and on providers’ choice of procedures eviscerated the core components

of insurers’ medical management programs, including narrow networks, primary

care gatekeeping, and prior authorization for admissions and procedures.

As the

industry abandons the mantle and mission of managed care in the era of health

care consumerism, it would seem that population-based medical management

would fade away in favor of a new definition of appropriate care as whatever the in

formed patient is willing to pay for.

Militating against the unraveling of clinical programs in the health insurance

industry is the accumulating evidence of serious and remediable deficiencies in

quality of care, coupled with a resurgence of cost inflation. Research studies, au

thoritative entities such as the Institute of Medicine (IOM), and the insurers’ own

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James Robinson (jamie@socrates.berkeley.edu) is a professor of health economics at the University of California,

Berkeley, School of Public Health. Jill Yegian is director, health insurance, at the California HealthCare Foundation

in Oakland.

Read related papers by: Victor Villagra, Alan Garber, Marjorie Ginsburg,

and a

conference summary by Jill M. Yegian

claims data reveal widespread overuse, underuse, and misuse of services, com

pared with evidence-based norms and clinical guidelines.

After a decade of rela

tively stable medical costs, insurers face rising prices and utilization rates for hos

pital, ambulatory surgery, and pharmaceutical services as excess capacity has

declined, provider consolidation has increased, and consumer resistance to limits

has intensified.

Some of the insurers’ customers—especially large firms and pub

lic employee programs—demand that insurers mount disease management and

quality improvement initiatives as a condition for contracting. State regulatory

agencies and private accreditation bodies mandate medical management pro

grams for those insurance products under their purview. Advances in information

technology (IT) and analytic capabilities offer the tantalizing possibility of being

able to predict which enrollees are at greatest future risk of adverse events,

thereby permitting a focus of medical management resources on those most likely

to benefit. Everyone hopes that early intervention and coordination of care can re

duce subsequent spending on the sickest patients, as a complement to cost-

sharing requirements that target spending by the healthy majority.

This paper provides a snapshot of medical management as the health insurance

industry seeks to balance the competing pressures to moderate costs and improve

quality, on the one hand, and not to intervene in health care decision making by

physicians and patients, on the other. It is based on case studies of the disease

management and related programs at the two largest U.S. health plans, United-

Health Group (UHG) and WellPoint Health Networks, and a freestanding quality

monitoring and improvement organization, Active Health Management, which

provides analytic services to numerous insurance plans. Emphasis is placed not on

the programs’ clinical efficacy but on the business strategy of which they are a

part: the manner in which candidate patients are identified and intervention pro-

grams are structured in the context of wide variation in purchasers’ willingness to

pay for medical management as part of health insurance benefits.

Identification And Intervention

Identification. The epidemiological driver of insurers’ medical management

initiatives, source of both the opportunity and the challenge, is the concentration of

spending in a small subset of the enrollee population. The sickest 10 percent of en

rollees account for 70 percent of spending in any one year, with the vast majority us

ing only modest amounts of preventive and primary care services.

Because of the

prevalence of chronic conditions, enrollees incurring the highest costs in one year

also incur a disproportionate share in the subsequent year, although the correlation

is not perfect. For example, one health plan finds that the sickest 5 percent of en

rollees account for 45 percent of costs in one year but only 18 percent in the next.

The concentration of spending enables medical management programs to minimize

their costs and maximize their benefits to the extent that they target current and

prospective high users. Health plans are severely limited, however, in the informa

W4-270 19 May 2004

Medical Management

tion at their disposal for identifying candidates for intervention, with claims data

and notification requirements providing only partial insights into what was done to

the patient and even less insight into the patient’s underlying clinical condition and

future need for care. The diversity in health status and care-seeking behavior implies

that intervention programs should be tailored to the distinct needs of patients with

catastrophic conditions, those suffering from chronic illnesses, those with acute but

temporary needs for services, and those who need to be reminded to take advantage

of preventive and primary care services.

Health plans are at the center of the flow of reimbursement claims and can ob

serve patterns of physician, hospital, laboratory, and pharmaceutical care better

than anyone else in the fragmented delivery system. If successfully captured,

cleaned, integrated, warehoused, analyzed, and interpreted, claims data consti

tute a powerful tool for the identification of patients with current and future

needs, the comparison of existing patterns of care with clinical guidelines, the

stratification of providers according to quality and efficiency, the underwriting

and pricing of insurance products for particular purchasers, and myriad other

uses. All of the major health plans have invested heavily in data and analytic sys-

tems in the effort to develop and exploit this asset. However, claims data as a

means for identifying disease management candidates suffer from important limi-

tations that are yielding only slowly to efforts at refinement. The data are incom-

plete, often lacking claims for services provided by carved-out pharmaceutical

benefit managers (PBMs), carved-out managed behavioral health organizations

(MBHOs), and capitated physician practices. Diagnostic coding is weak on physi-

cian claims, clinical values are missing for tests performed in small local laborato-

ries, and the many tests and procedures done during a hospital stay may be rolled

up into a terse account. Claims often come in through multiple transmission sys-

tems and reside on multiple computers that communicate with each other imper

fectly, especially for health plans that have grown through mergers and acquisi

tions. Claims are entered into the data warehouse only when they are paid;

complex and contested claims must wait for the resolution of disputes over cover

age, coding, pricing, and medical necessity.

Intervention. The principles underlying intervention are the same as those un

derlying identification. The skewed distribution of spending, opposition from phy

sicians, skepticism among patients, and diversity among purchasers drive health

plan intervention programs to focus their attention on a small number of conditions,

limit resources, measure impacts, and structure programs into a core set of services

with buy-up options. The salient feature of most health plan initiatives is their em

phasis on changing the behavior of patients, rather than that of physicians. Efforts to

change physicians’ behavior require expensive peer-to-peer contact by health plan

medical directors, and they run the risk of further antagonizing the targeted practi

tioners. Patient-oriented programs are managed by nurses and nonclinical staff, tar

get chronic conditions where self-care is important, and are consistent with the

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philosophical shift in insurers’ attention away from the supply side toward the de

mand side of the medical market.

UnitedHealth Group

UHG, the nation’s largest health insurance, benefits administration, informa

tion, and services firm, is a holding company with distinct divisions focused on in

surance products; management of self-insured corporate accounts; services for se

nior citizens; health data and analytic software; and a spectrum of specialized

clinical services such as organ transplantation, dental care, vision care, and behav

ioral health care. Several years ago UHG extracted the medical management pro

grams from the insurance products in which they had been embedded and col

lected them into a stand-alone Care Management business unit that designs and

markets wellness, disease management, catastrophic case management, and re

lated programs to UHG insurance and benefit administration subsidiaries and to

outside customers. Care Management works in close collaboration with Ingenix,

the UHG subsidiary that captures, warehouses, and analyzes claims data and that

has developed predictive modeling techniques to prospectively rank health care

risks. Claims-based risk rankings are supplemented by prior notification sources

to identify candidates for intervention programs, each of which is targeted at a

particular point in the process of care.

Claims data as economic asset. UHG has committed to transforming itself

from an insurer to a diversified health data and services firm, and it interprets the

claims flowing in for its eighteen million covered lives as a core asset to be exploited

for multiple purposes and multiple distinct customers, including insured United-

Healthcare products, self-insured Uniprise Solutions accounts, pharmaceutical

manufacturers interested in practice patterns and clinical benchmarks, independ-

ent insurers and third-party administrators (TPAs) engaged in underwriting and ac

tuarial pricing, and clinical initiatives of every description. The data are managed by

Ingenix, allowing that firm to specialize in developing tools to integrate, analyze,

and price information services, while the clinical programs are operated by Care

Management, which purchases the data and analytics from Ingenix, develops pro

grams for patients at risk, and sells these intervention programs.

Ingenix obtains physician, hospital, pharmacy, and laboratory claims from

UnitedHealthcare, Uniprise, and other health plans and benefit administrators

and works to transform the raw data into clinically meaningful indicators of un

derlying disease and risks. Effort is devoted to the grouping of disparate claims

into episodes of care, separation of relevant from miscellaneous diagnostic and

procedure codes, and application of linear regression and artificial intelligence

methods to predicting future risk from past use. The importance of data complete

ness underlies UHG’s avoidance of capitation as a form of provider payment, since

diagnostic and procedure coding is never as detailed on the encounter data re

ceived from prepaid group practices as on claims data from fee-for-service provid

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Medical Management

ers. For similar reasons, it discourages customers from carving out mental health,

drug benefits, disease management, disability insurance, and ancillary services.

The most important challenge to claims data is carved-out pharmacy services,

given the central role of drug claims both in identifying candidates for interven

tion and in monitoring for gaps and overlaps in care processes. UHG outsources

the administrative dimensions of pharmacy benefit management but retains the

drug claims data in Ingenix and works to integrate drug claims from outside

PBMs. Ingenix uses the drug and physician claims data to generate a risk ranking

on each UHC and Uniprise enrollee and transfers the rankings and the underlying

claims data to Care Management for the 5 percent of members with the highest

rankings.

Care Management focuses one-third of its interventions on patients identified

through the predictive model and two-thirds on patients identified through prior

notification requirements and, to a much lesser extent, online self-administered

risk assessments, physician referral, and patient self-referral. UHG led the health

insurance industry in dropping prior authorization and precertification require

ments in 1999, arguing that the cost of administering barrier methods to utiliza-

tion management exceeded the financial benefits, but it retained the requirement

that providers notify the health plan prior to hospital admission, major outpatient

procedures, physical therapy, home health care, and use of high-cost durable medi-

cal equipment (DME). The principal function of these notifications is to identify

patients for disease management and care coordination, but they also underlie

some initiatives with a cost control focus. Care Management screens for non-

covered services, such as cosmetic procedures, investigational drugs and devices,

and custodial care, and a few large self-insured employers insist on (and are will-

ing to pay for) review of services for medical necessity.

Care coordination. The various mechanisms for flagging high-risk patients,

including predictive modeling, prior notification, and online patient self-assess

ments, all feed into the same core process at Care Management, which consists of a

nurse’s telephone assessment of the enrollee. These assessments supplement the

claims and notification data with additional information on the patient’s condition

and seek to identify gaps or overlaps in care where subsequent intervention might

prove beneficial. As with identification, the intervention initiatives at Care Manage

ment are structured as discrete services that can be monitored, evaluated, and mar

keted individually or in combination with other UHG services. Care Management

packages several interventions into a core portfolio that is included with all insured

UnitedHealthcare products and is available à la carte and with buy-up extensions to

the self-insured Uniprise clients and external customers who do not contract with

UnitedHealthcare or Uniprise.

Care Management tailors interventions to address key points along the contin

uum of care, including preventive services, ambulatory surgery, hospital admis

sion and discharge, and maintenance for ongoing chronic conditions. Preventive

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service reminders are the cheapest interventions, as they derive from the claims

data rather than personalized nurse assessments, and hence constitute the numer

ically greatest portion of activities, going out to more than 2.3 million enrollees per

year. Enrollees scheduled for elective surgery or inpatient admission are contacted

prior to the event with information on what to expect and what form of follow-up

care to request. During a hospitalization, the focus of Care Management is on dis

charge planning, seeking to obviate delays in care that extend length-of-stay be

yond clinical norms. These interventions usually are via telephone to the hospital

discharge planning nurse and, on occasion, from a UHG medical director to the at

tending physician. They are consultative and advisory in nature, as UnitedHealth-

care and Uniprise do not deny payment for extra days based on medical necessity.

After discharge, high-risk patients are again contacted to help coordinate home

health care, access to DME, and follow-up office visits with their physicians.

Patients with severe chronic conditions, independent of hospitalization or ma-

jor procedures, are contacted with the intent of ensuring compliance with medi-

cations and other physician recommendations, encouraging appropriate diet and

self-care, promoting better understanding by the patient of the illness and clinical

options, and coordinating with family and community resources outside the scope

of insured benefits. The chronic disease interventions are structured around the

needs of patients with any of twenty prevalent conditions. For example, of the 5

percent of high-risk patients flagged for Care Management, 31 percent have hy-

pertension, 19 percent diabetes, 18 percent hyperlipidimia, 13 percent coronary ar-

tery disease, and 12 percent depression; most have multiple chronic conditions.

The focus on the patient rather than the physician is evident in the distribution

of interventions by the Care Management system, whose nurses contact more

than 600,000 patients each year, compared to 22,000 medical director interven

tions with practicing physicians. In 2002, 45 percent of the interventions centered

on medication compliance and use of incompatible drugs; 22 percent on opportu

nities to promote self-care such as monitoring blood sugar; 11 percent on mental

health and behavioral problems that interfered with the patient’s ability to man

age his or her own care; 21 percent on a variety of educational, socioeconomic, and

care coordination needs; and 1 percent on efforts to change clinical practices that

were inconsistent with evidence-based guidelines.

When Care Management sells its services to self-insured employers and non-

UHG health plans, the core set of interventions can be extended through buy-up,

in several dimensions. The predictive modeling can reach further into a particular

employer’s workforce by applying the analytics on a single firm’s population only,

rather than as pooled with the entire UHG enrolled population, and by raising

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Medical Management

“The focus on the patient rather than the physician is evident in the

distribution of interventions by the Care Management system.”

trigger points for intervention from 5 percent to 7 percent or higher, for all condi

tions or for conditions specified by the purchaser. Criteria for patient preadmis-

sion counseling can be extended from cardiac conditions and orthopedic proce

dures to a wider set specified by the purchaser, while criteria for postdischarge

coordination can be extended from pneumonia, cardiac conditions, diabetes, and

more than two unplanned admissions per year to a broader set of indicators. Large

self-insured customers can support their own dedicated Care Management units,

with higher levels of physician and nurse staffing and hence more intensive out

reach and contact with employees. Of the 14.2 million UnitedHealthcare and

Uniprise enrollees served by Care Management, all but a half-million obtain the

basic portfolio of identification and intervention services, and the remainder are

covered by buy-up options that cost two to three times the amount charged for the

core. While some employers are willing to buy up to more intensive care manage

ment services, others want to buy down, minimizing the administrative expense

of identifying and intervening in the process of care. Approximately one million

enrollees served by UHG, mostly from labor union trusts and other programs us

ing TPAs, contract for network access but do not purchase analytic services from

Ingenix or intervention services from Care Management.

WellPoint Health Networks

WellPoint evolved out of Blue Cross of California, an indemnity insurer whose

enrollment was concentrated in the price-sensitive individual and small-group

market segments; a decade of rapid expansion has made the firm a major player in

the midsize- and large-group sectors, in Medicaid managed care programs, and in

the Midwest and Southeast through the acquisition of Blue Cross Blue Shield

plans in Georgia, Missouri, and Wisconsin. It has announced its intention to be

acquired by Anthem, which would create the nation’s largest health plan, with

twenty-six million enrollees, $36 billion in annual revenues, and Blue Cross Blue

Shield licenses in thirteen states.

The heterogeneity in customer demand, practice patterns, and corporate cul

tures brought to WellPoint a commensurate but confusing heterogeneity in medi

cal management. Four years ago the firm extracted medical management activities

from its geographic regions and market segment units and consolidated them in a

single management structure, seeking to develop a unified mission and method.

An important secondary purpose was to raise the visibility of medical manage

ment and quality improvement within the larger corporation. WellPoint seeks to

distance itself from the imagery of gatekeeping and position itself as an entity that

supports rather than frustrates consumer choice. It is intrigued, however, by the

potential value residing in its claims data concerning the needs and preferences of

millions of customers in an industry that is shifting from wholesale to retail pur

chasing. The balance point between desires to disassociate from managed care, on

the one hand, and intervene to moderate costs and quality deficiencies, on the

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other, lies in disease management initiatives with strict patient targeting and at

tention to minimizing administrative costs, combined with ongoing efforts to

evaluate the information that can be derived from the data.

WellPoint has largely eliminated capitation for hospital services, retaining the

claims-paying authority that accompanies fee-for-service payment, and has

pushed for more complete encounter data for capitated physician services. It has

chosen to retain prior authorization for some products and market segments,

given their modest cost-reducing effect and their ancillary benefits for identifying

disease management and case management candidates. However, the health plan

abandoned prior authorization in the California individual market; the levels of

consumer cost sharing are now so high in the individual market (more than half

the plan’s members are enrolled in products with deductibles of $2,500 or more)

that patients limit their use of any service that would be flagged by utilization

management. The plan finds that employers in the small- and, especially, the

large-group markets continue to expect utilization management, and interest has

been rekindled in the most recent period of cost inflation and publicized in-

stances of unnecessary surgery.

The disease management initiatives at WellPoint emphasize changes in pa-

tients’ behavior rather than physicians’ behavior; they target asthma, diabetes,

congestive heart failure, and perinatal complications through information, re-

minders, and counseling. Programs for cardiovascular disease, orthopedic condi-

tions, and oncology support have been developed but will not be rolled out until

the effectiveness of the core programs has been evaluated. The disease manage

ment programs are uniform across states and market segments, in contrast to the

utilization management and notification systems. The disease management pro

grams center on helping patients with chronic conditions understand their dis

ease; comply with their physician’s recommendations (especially with prescribed

medications); and make needed changes in diet, exercise, and other lifestyle fac

tors. Case management programs target patients with complex and nonroutine

needs, with a focus on coordination of services, discharge planning, and managing

benefits. Candidates for case management are typically identified as part of an

acute hospitalization, with the exception of patients needing organ transplanta

tion or oncology services, where diagnosis is sufficient.

Until convincing evidence of effectiveness and cost-effectiveness becomes

available, WellPoint’s disease and case management programs accommodate mod

est expectations with modest expenditure of resources. The firm sees greater po

tential impact from channeling enrollees to physicians with efficient practice pat

terns than from efforts to change practice patterns. WellPoint is rolling out a

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Medical Management

“Efforts to influence physicians’ behavior must be handled

delicately to avoid antipathy to third-party monitoring.”

national preferred provider organization (PPO) product with a prior authoriza

tion structure targeted at patients rather than providers, with the lowest coinsur-

ance required if patients obtain authorization from the health plan for specialty

referrals and procedures, an intermediate level of coinsurance if services are ob

tained from network providers but without prior authorization, and the highest

coinsurance required if services are obtained out of network. The health plan

hence replaces the primary care physician as the gatekeeper from which the pa

tient seeks a referral to specialty services. WellPoint is extending centers-of-

excellence principles from organ transplantation to coronary artery bypass and to

bariatric surgery, the former based on state-sponsored data on risk-adjusted out

comes by hospital and the latter because of the surge in the procedure among en

rollees who have not attempted less radical weight-loss methods.

Active Health Management

Patients’ understanding and management of their own conditions clearly is an

important component of any therapeutic process, but many of the most important

decisions are in the hands of physicians, not of patients themselves. Some health

plans therefore are seeking to use their claims data systems to identify divergence

between the care actually being delivered to individual enrollees and the care that

should be delivered, based on the scientific literature and guidelines developed by

authoritative sources. Improved patient compliance with a therapeutic regimen

does not improve outcomes if the regimen itself is inappropriate. Efforts to influ-

ence physicians’ behavior are expensive, need continual verification that identi-

fied divergences are not due merely to incomplete data, and must be handled deli-

cately to avoid further inflaming physicians’ antipathy toward third-party

monitoring.

WellChoice, the parent company for Empire Blue Cross Blue Shield in New

York, incubated and then spun off Active Health Management (AHM) with the

mission of combining claims data with algorithms that search for patterns of over-

and underuse of services and then reaching out directly to practicing physicians.

AHM now serves four million enrollees in eleven health plans, ranging from Aetna

through various Blue Cross Blue Shield plans, Medicaid health maintenance orga

nizations (HMOs), and consumer-oriented start-ups such as Definity Health,

each for a different combination of products and customers. From the insurers’

and employers’ perspectives, AHM’s services are a buy-up, as they typically are

layered on top of in-house disease management programs and cost an additional

$0.60 per member per month for commercial enrollees and $1.00 for Medicare en

rollees. (By comparison, the fees insurers charge self-insured corporate accounts,

covering network access, claims processing, patient-oriented disease manage

ment, and related administrative services, range typically between $15 and $20

per employee per month.)

Claims data and clinical algorithms. The AHM system combines a data

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warehouse, which integrates physician, pharmaceutical, laboratory, and hospital

claims, with thousands of decision rules on appropriate and inappropriate diagno

ses and therapies. The AHM medical directors develop the decision rules based on

the literature, with each decision tree exhibiting numerous branches to account for

comorbidities, previous tests and interventions, and factors that could justify the

deviation of a particular intervention from the standard course of treatment. The

clinical algorithms are combined into approximately 650 “care considerations,” indi

cations of a deviation between actual and optimal care, with new indications con

tinually under development. One-quarter of the care considerations center on moni

toring and procedures, one-quarter on preventive service reminders, 37 percent on

recommendations to add a drug to the treatment regimen, and 13 percent to drop a

drug from the regimen (because of potential interactions with other drugs or be

cause laboratory findings contraindicate its use). Level 1 considerations are poten-

tially severe and urgent, generate a telephone call from an AHM medical director to

the practicing physician, and constitute 3 percent of the total. Level 2 considerations

are potentially severe but are less urgent and are handled via telephone or letter;

these make up 40 percent of the total. The remaining (Level 3) considerations con-

sist largely of reminders for missing preventive services and are handled by nurses

phoning or writing to the physicians’ offices.

After contacting the physician or physician’s office, AHM waits several months

to see if evidence of an alteration in the practice pattern can be observed in the

claims data flow, as in the prescription of a recommended drug; if not, AHM re-

contacts the physician’s office. AHM customers can specify the number of times

they expect the firm to recontact physicians if there is no evidence of behavior

change, with individual customers placing differing weights on the cost of out

reach and the potential for annoying the physicians. Customers also can specify

that algorithms be “turned off” for their enrollees, because of considerations of

cost (for example, do not want recommendations of expensive medications) or

privacy (for example, decision rules related to HIV status). The category of deci

sion rules most frequently turned off by customers are the preventive services re

minders (Level 3), as these are least likely to produce a physician behavior change.

AHM reports that 50–70 percent of the Level 1 recommendations result in physi

cian behavior change, while Level 2 recommendations change behavior in 20–40

percent of instances and Level 3 recommendations in less than 20 percent.

The limits of physician-oriented medical management have stimulated AHM to

invest in patient-oriented and nurse-administered interventions, based on clinical

algorithms. Nurses contact patients whose care considerations suggest a poten

tially important role for patient behavior change, first ascertaining whether a

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Medical Management

“Medical management programs are designed, packaged, and

priced with modest expectations for what they can deliver.”

problem truly exists and then educating the patient on ways to promote his or her

health and course of treatment. AHM always seeks to notify the practicing physi

cian before contacting a patient. In some cases, the physician is supportive of hav

ing the firm reach out to the patient, because compliance has been a problem, but

in others the physician is nonresponsive. Lack of physician response or coopera

tion, after appropriate notification, is not grounds for AHM to desist from efforts

to contact the patient.

Conclusions

Evolving initiatives in medical management are guided by a core set of princi

ples. First, all programs are designed to minimize abrasion with patients and phy

sicians, since no improvement in cost or quality would be worth reigniting the

backlash generated by earlier efforts. The contemporary programs are voluntary

for the patients, rely on education and incentives rather than barriers and require

ments, and are kept as separate as possible from adjudications of benefit coverage

and medical necessity. The main target of the insurer programs is behavior change

among patients, through better prevention and self-management for chronic con-

ditions, with only cautious and information-oriented outreach to physicians. This

shift in focus from the physician to the patient is emblematic of the larger shift in

emphasis from providers to consumers in all of the industry’s activities.

Second, medical management programs are targeted narrowly at those condi-

tions and candidates where the expected benefits of intervention clearly exceed

the expected costs. Different initiatives are aimed at each subgroup within the

enrollee population, and each is subjected to continual monitoring for effective-

ness and cost-effectiveness. Quality and health improvement initiatives are tai-

lored to the diversity in preference and willingness to pay across customer seg-

ments.

Third, the health plans’ medical management programs are designed, packaged,

and priced with modest expectations for what they can deliver. All programs as

sert that they generate a positive return on investment, with the benefits in lower

medical costs exceeding the administrative costs of identification and interven

tion. The positive return on investment is predicated on the modest level of invest

ment, however, and a major ramping up of medical management programs would

not generate commensurately higher returns and slay the dragon of cost inflation

and quality deficiency.

ealth plans perform many functions across many products, cus

tomer segments, and geographic markets. Medical management ranges

alongside benefit design, network contracting, provider rate negotiations,

claims processing, consumer information, insurance risk spreading, and the com

bination of health with nonhealth services into product portfolios to be packaged,

priced, and sold. No novice observer, innocent of the tortuous history of insurers’

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attempts to influence the health care delivery system, would latch onto the mod

estly financed analysis of administrative claims data and outreach to narrowly tar

geted conditions as the defining feature of what the industry is and does. Health

plans might be described as insurers or benefit adjudicators or network contrac

tors or consumer service providers, but no one today would invent the term “man

aged care organization.”

This paper was supported by the California HealthCare Foundation (CHCF) and the Robert Wood Johnson

Foundation. It was adapted from a presentation at “Evidence and Economics in Health Insurance: Benefit Design

and Medical Management,” 13–14 November 2003, in Berkeley, California. The session was part of the Health

Policy Roundtable Series cosponsored by the CHCF and Health Affairs.

NOTES

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(Supp. 1993): 7–23; H.S. Luft, Health Maintenance Organizations: Dimensions of Performance (New York: Wiley

and Sons, 1981); and W.G. Manning et al., “A Controlled Trial of the Effect of a Prepaid Group Practice on

Use of Services,” New England Journal of Medicine 310, no. 23 (1984): 1505–1510.

2. H.S. Luft, “Why Are Physicians So Upset about Managed Care?” Journal of Health Politics, Policy and Law 24,

no. 5 (1999): 957–966; R.J. Blendon et al., “Understanding the Managed Care Backlash,” Health Affairs 17, no.

4 (1999): 80–94; P.B. Ginsburg and C.S. Lesser, “The View from Communities,” Journal of HealthPolitics,Policy

and Law 24, no. 5 (1999): 1005–1013; and D.A. Draper et al., “The Changing Face of Managed Care,” Health Af-

fairs 21, no. 1 (2002): 11–23.

3. J.C. Robinson, “The End of Managed Care,” Journal of the American Medical Association 285, no. 20 (2001):

2622–2628.

4. Institute of Medicine, Crossing the Quality Chasm: A New Health System for the Twenty-first Century (Washington:

National Academies Press, 2001); E.A. McGlynn et al., “The Quality of Health Care Delivered to Adults in

the United States,” New England Journal of Medicine 348, no. 26 (2003): 2635–2645; and E.S. Fisher et al., “The

Implications of Regional Variations in Medicare Spending, Part 2: Health Outcomes and Satisfaction with

Care,” Annals of Internal Medicine 138, no. 4 (2003): 288–298.

5. B.C. Strunk, P.B. Ginsburg, and J.R. Gabel, “Tracking Health Care Costs: Hospital Care Surpasses Drugs

as the Key Cost Driver,” Health Affairs, 26 September 2001, content.healthaffairs.org/cgi/content/abstract/

hlthaff.w1.39 (26 March 2004).

6. M.L. Berk and A.C. Monheit, “The Concentration of Health Expenditures Revisited,” Health Affairs 20, no.

2 (2001): 9–18.

7. A. Georgiou, Care Management, UnitedHealth Group, personal communication, 2003.

8. J. Raskin, Anthem Inc. Company Update: ATH and WLP to Merge: My Blue Heaven (New York: Lehman Brothers

Global Equity Research, 28 October 2003).

9. Medicaid and other state-sponsored managed care programs retain their own medical management pro

grams, because of the special regulatory requirements in that segment.

W4-280 19 May 2004

Medical Management