By Steve Toman, Account Director, Managed Markets, Palio
Back in the mid-1990s I worked in provider relations and sales for a large, national health plan. Talking about work at cocktail parties was rough – everyone seemed to have a gripe about managed care. But going to the barber shop was the worst. From the moment I walked in, Jimmy (who happened to be a member of my health plan) started in with complaints about denied bills, rejected prior authorizations, bad customer service, and on and on.
One day, during a conversation about the good old days of simple health insurance, Jimmy asked, “What changed? What happened that we wound up with this managed care?”
I tried to explain that it was complicated, but the exploding cost of healthcare was the primary driver for the growth of managed care. The Congressional Budget Office once reported that about half of all growth in healthcare spending over the past several decades is associated with changes in medical care made possible by advances in technology. All those breakthrough treatments, procedures, and therapies have come at a cost; a cost that good old simple health insurance was unable to control.
During the 1970s and 1980s, healthcare costs rose approximately 13% annually, while the gross domestic product (GDP) increased only 8.5% per year. That’s a huge gap, especially over 20 years, and has major implications for our ability to compete in an increasingly global economy. According to the Organisation for Economic Co-operation and Development, total healthcare spending in the US was 17.4% of GDP in 2009, by far the highest in the world. For many industrialized countries, this figure is around 10%. To put it in perspective, in 2011 the United States spent about $2.5 trillion on healthcare, or about $8,047 per person. In March 2010, investor Warren Buffet commented that the high cost for healthcare paid by the US is “like a tapeworm eating at our economic body.”
The Health Maintenance Organization (HMO) Act of 1973 provided funding for federally qualified HMOs and jumpstarted a drive towards managed care. Rapid growth in the 1980s and 1990s ensured that most Americans accessed their healthcare through some flavor of managed care, rather than traditional health insurance.
On another visit to the barber, I remember Jimmy asking, “What is managed care anyway?” Always trying to be a good steward for my industry, I tried to explain that managed care is a system of medical management in which purchasers, insurers, healthcare providers, and patients are linked together with the common goal of improving healthcare quality and reducing costs. What makes managed care different from good old health insurance are things like:
- Contracts between insurers and healthcare providers that share financial risk and provide members with a defined set of services
- Incentives for healthcare providers and patients to use care efficiently, with an emphasis on preventive care
- Utilization review and quality management techniques designed to improve quality and decrease costs
For the next few haircuts, Jimmy and I talked more about healthcare costs and our managed care “response.” For a while, he got pretty excited about trying to set up some sort of capitation plan for customers like me. Ultimately, he seemed to recognize that despite its shortcomings, managed care’s goals of improving quality and efficiency were perhaps the best route to making healthcare accessible and affordable. He asked me, “How do you think we should improve quality and efficiency in our healthcare system?”
I remember thinking it over, then sharing with him that we all have skin in the game. Each and every one of us needs to pull in the same direction, by:
- Improving our health. Americans have the highest BMI according to the World Health Organization, and that leads to higher disease rates
- Preventing and managing chronic diseases, particularly those most affected by lifestyle choices – diabetes, cardiovascular disease, high blood pressure, and lung disorders
- Improving quality by adopting healthcare delivery and payment models that optimize the coordination of care, improve patient outcomes, reward quality, and promote wellness
- Reducing waste. The Institute of Medicine’s “Health Care Imperative” identifies $463 billion in annual savings through best practices for both healthcare providers and insurers
- Expanding access. By driving patients into appropriate delivery settings that are focused on prevention and wellness, we can improve efficiency
- Harnessing the power of the individual. Improving consumers’ ability to compare the effectiveness and costs of various treatment options can have an enormous impact on quality and affordability
I stopped going to Jimmy when I left the health plan and moved into the next phase of my career. Helping pharmaceutical companies better understand and communicate with payer customers is much more difficult to explain at cocktail parties, but I don’t miss listening to people complain about their health plan. For all I know, Jimmy may still be griping about managed care to his customers, but in some form or another managed care is here to stay, and it’s up to us to make the most of it.
Managed Markets Monday is a weekly series that provides insight into what we think it takes to meaningfully and effectively communicate with the payer customer. Follow up with Steve at: firstname.lastname@example.org.
Palio is an advertising agency revolutionizing pharmaceutical and healthcare marketing to create experiences that will Never Be Forgotten.