case study

At the Intersection of Health, Health Care and Policy

doi: 10.1377/hlthaff.w4.427 , , no. (2004):Health Affairs

Containment Strategies MarketWatch: Managed Care Rebound? Recent Changes In Health Plans’ Cost

Glen P. Mays, Gary Claxton and Justin White Cite this article as:

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MarketWatch

Managed Care Rebound? Recent Changes In Health Plans’ Cost Containment Strategies Strategies from the first wave of managed care have crept back into the practices of health plans.

by Glen P. Mays, Gary Claxton, and Justin White

ABSTRACT: Large increases in health care costs combined with an economic slowdown have created pressures for health plans and employers to reconsider cost containment strategies that were scaled back after the managed care backlash. In this paper we exam- ine how plans’ approaches to cost containment and care management have evolved since 2001. Plans reintroduced and refocused some utilization management techniques during 2002 and 2003 while continuing to invest in disease and case management. Some also began to experiment with new variants of managed care, including tiered provider networks and incentive-based provider payments. However, few respondents believed that these strategies alone would greatly reduce future costs.

H ealth care spending and private health insurance premiums have in- creased rapidly in recent years, rais-

ing new questions about the sustainability of these trends.1 During the early 1990s rapid spending growth and the resulting pressure f r o m e m p l o y e r s a n d o t h e r p u r c h a s e r s prompted health plans to adopt more aggres- sive approaches for containing costs that col- lectively became known as managed care.2

Use of these approaches—including selective provider networks, provider risk contracting, primary care gatekeeping, and utilization re- view—increased steadily in many health in- surance markets during the 1990s, as did en- rollment in health maintenance organizations (HMOs), the most restrictive form of man- aged care.3 By 2000, however, growing con- sumer and provider dissatisfaction with man-

aged care and persistently tight labor markets led employers to adopt less restrictive insur- ance products and health plans to discon- tinue or scale back their cost containment ef- forts.4 According to some observers, these developments signaled the end of managed care as a defining feature of the U.S. health in- surance industry.5 This suggests that private insurance markets may no longer provide suf- ficient pressure for health care cost contain- ment and efficiency.

Most recently, large increases in health in- surance premiums combined with an eco- nomic slowdown have created pressures for health plans and employers to reconsider ap- proaches for managing care and containing costs.6 One plausible response is to shift a greater proportion of health care costs to con- sumers through premium contributions, co-

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DOI 10.1377/hlthaff.W4.427 ©2004 Project HOPE–The People-to-People Health Foundation, Inc.

Glen Mays ([email protected]) is an associate professor in the Department of Health Policy and Management, College of Public Health, University of Arkansas for Medical Sciences in Little Rock. Gary Claxton is vice president of the Henry J. Kaiser Family Foundation in Washington, D.C. Justin White is a research assistant at Mathematica Policy Research, also in Washington.

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payments, and deductibles. However, these ac- tions may have only a limited impact on overall cost trends, create financial barriers to needed health care, and potentially result in fewer consumers’ taking up insurance coverage.7 An- other response is to revisit the cost contain- ment strategies of managed care under the as- sumption that recent premium increases and slack labor markets have made employers and employees willing to accept more restrictive health insurance products. This paper ex- plores these possibilities by examining how insurers’ approaches to cost containment and care management have evolved since 2001. Study findings provide insight into the contin- ued viability of market-driven approaches to cost containment in health insurance.

Data And Methods Data for our analysis were collected as part

of the Community Tracking Study (CTS), a longitudinal study that uses multiple data sources including site visits and national sur- veys to examine how local health care systems are changing.8 As part of this study, site visits are made every two years to twelve metropoli- tan communities that were randomly selected

to be nationally representative of local health care systems in markets with more than 2 0 0 , 0 0 0 r e s i d e n t s : B o s t o n , C l e v e l a n d , Greenville (South Carolina), Indianapolis, Lansing, Little Rock, Miami, northern New Jersey, Orange County (California), Phoenix, Seattle, and Syracuse. Collectively, these com- munities provide a picture of the average local health care system, yet they vary considerably in size, market structure, and experience with managed care (Exhibit 1).

During four rounds of CTS site visits, in 1996–97, 1998–99, 2000–01, and 2002–03, structured interviews were conducted in each community with decisionmakers in leading health plans, hospitals, physician organiza- tions, employers, insurance brokerages, and legislative and regulatory bodies at state and local levels. Approximately 1,000 interviews were completed during the fourth round of visits, including approximately 260 interviews with executives from 71 health plans. In each community we interviewed administrators of at least one national health plan, local or re- gional health plan, Blue Cross/Blue Shield plan, and a plan serving primarily Medicaid

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H e a l t h T r a c k i n g

EXHIBIT 1 Characteristics Of The Community Tracking Study (CTS) Communities, 2003

Percent enrolled in HMOs

Community

MSA population (millions)

People with commercial insurance

Medicare beneficiaries

Medicaid recipients

Number of plans intervieweda

Boston Cleveland Greenville (SC) Indianapolis

2.8 2.1 0.6 1.6

50.5 22.0 11.8 23.0

16.0 16.1 0.0 0.0

19.8 47.0 13.1 56.6

9 10 7

11

Lansing Little Rock Miami Northern NJ

0.5 0.6 2.3 2.1

42.2 24.5 60.6 27.9

0.0 0.0

35.8 5.9

26.3 0.0

24.4 69.8

6 6 6 8

Orange County (CA) Phoenix Seattle Syracuse

2.9 3.5 2.4 0.7

61.2 23.8 20.5 15.9

33.0 29.9 12.3 0.0

17.5 46.6 16.9 31.3

10 10 10 9

SOURCE: InterStudy Competitive Edge, using data from January 2003. NOTES: MSA is metropolitan statistical area, using the new U.S. Census Bureau definitions as of 6 June 2003. HMO is health maintenance organization. a Includes third-party administrators (TPAs) and preferred provider organizations (PPOs).

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beneficiaries. In each of these plans we at- tempted to interview the chief executive offi- cer (CEO), medical director, marketing execu- t iv e , n e t w o r k d e v e l o p m e n t e x e c u t iv e , utilization management director, and phar- macy benefit administrator. To ensure ade- quate coverage of the major health plan com- petitors, we interviewed executives at up to two additional health plans in each commu- nity, including major preferred provider orga- nization (PPO) plans, as well as one or more third-party administrators (TPAs) for self- insured employers.

Health plan inte r v iews asked ab o ut changes in the design and operation of health insurance products and about the rationale and perceived impact of these changes. In this paper we focus specifically on health plans’ ap- proaches to cost containment, including utili- zation management processes, disease and case management programs, provider con- tracting and network development strategies, and benefit design and cost-sharing arrange- ments. To confirm and expand upon this infor- mation, we also inquired about health plans’ cost and care management approaches during interviews with employers, benefit consul- tants, insurance brokers, hospitals, and physi- cian organizations. Data from each interview were coded, extracted, and analyzed using text analysis software. Interview responses were analyzed both within and across the twelve communities to examine how the use of cost containment approaches varies across health plans and local markets. In this paper we give primary focus to information obtained during the fourth round of CTS site visits con- ducted in 2002–03, and we compare this infor- mation with that obtained and reported in previous rounds of the study.9

Results After discontinuing or relaxing many man-

aged cost containment tools during 2000 and 2001, sizable numbers of health plans have re- fined and refocused these approaches during the past two years in an effort to moderate the recent growth in health care costs and use. Re- finements included selective reintroduction of

utilization management techniques; expanded investments in disease and case management programs; and development of restricted pro- vider networks and new provider incentive programs designed to encourage efficient clin- ical practice. Although far from being adopted universally, these changes were pursued by some of the largest, most visible insurers in the communities studied, perhaps providing a preview of what is to come. Although these leading health plans are using more than just higher cost sharing to constrain premium growth, relatively few expect that their cur- rent approaches will have large near-term ef- fects on cost trends.

� Utilization management. Health plans in six of the twelve study communities rein- troduced prior authorization requirements for selected services after having eliminated these requirements (Exhibit 2). In northern New Jersey, for example, Aetna eliminated prior au- thorization requirements for approximately fifty inpatient and outpatient services in its HMO and PPO products during 2000–01 but reinstated many of them during 2002–03 after experiencing sharp increases in health care use. Similarly, Excellus BlueCross BlueShield in Syracuse reinstated prior authorization re- quirements for specialist referrals within its HMO product after finding that referral rates increased markedly when these requirements were eliminated during 2002. These health plans noted that although many services sub- ject to prior authorization are rarely denied, the requirements often discourage requests for services that are not considered medically nec- essary. However, health plans in five communi- ties continued to eliminate prior authorization requirements for hospitalizations, noting that inpatient care was less likely than other types of services to be discretionary.

In reintroducing prior authorization re- quirements, health plans have targeted those services that offer little or no clinical benefit while being careful not to reduce access to po- tentially beneficial services. In many cases, the new prior authorization requirements were less restrictive than those the plans had used previously. In Seattle, for example, Regence

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BlueShield adopted a policy requiring prior au- thorization only after a patient has exceeded an established utilization threshold, such as a third magnetic resonance imaging (MRI) scan or a tenth chiropractor visit. This policy was adopted for both its HMO and PPO products. In several other markets, health plans have re- placed prior authorization requirements with more lenient notification policies that oblige patients or their physicians, or both, to advise the plan of an impending procedure or service to receive full coverage. These plans provide partial coverage for the designated services if advance notification is not received.

Health plans in five communities have stepped up their efforts to review hospital stays concurrently in an effort to reduce lengths-of-stay and eliminate unnecessary di- agnostic tests and procedures received in the hospital (Exhibit 2). Some plans recently have begun to station utilization review nurses in frequently used hospitals to monitor patient care, while other plans have adopted new tele- phone-based review procedures in an effort to

cover more hospitals with fewer staff. In Mi- ami, for example, Blue Cross and Blue Shield of Florida reintroduced an in-hospital concur- rent review program in 2002 after finding that the hospitalist program it had created to re- place concurrent review did not reduce unnec- essary hospital days and costs.

Although most plans historically have used concurrent review processes only in HMOs, several plans introduced these approaches into their PPOs in 2002–03, as these products have become more popular and costly. One plan moved from in-person to telephone-based concurrent review specifically to begin using it in its PPO hospital network, which was much larger than the HMO network in which in-person reviews had been used. In an effort to reduce the administrative costs of conduct- ing concurrent reviews, some health plans have adopted processes for reviewing inpa- tient cases only after stays have exceeded an established outlier threshold based on the pa- tient’s diagnosis and severity. Additionally, several plans have begun to use concurrent re-

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H e a l t h T r a c k i n g

EXHIBIT 2 Health Plans Reporting Changes In Utilization Management Processes Since 2001

Type of change Plans (N = 56)a Communities (N = 12)

Prior authorization requirements Hospitalizations

Increased use Decreased use

Outpatient services/procedures Increased use Decreased use

5 5

5 0

4 4

4 0

Specialist referrals Increased use Decreased use

Prescription drugs Increased use Decreased use

4 1

7 0

3 1

4 0

Concurrent review processes Increased use Decreased use

Retrospective review and provider profiling Increased use Decreased use

7 2

15 2

5 2

9 2

SOURCE: Authors’ analysis of data from the Community Tracking Study, 2000–01 and 2002–03. a Excludes third-party administrators (TPAs).

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view processes in non-hospital-based settings such as skilled nursing and rehabilitation fa- cilities and for ongoing outpatient services such as physical, occupational, and speech therapy. Plans noted the steady growth in spending for these services as the primary ra- tionale for these changes.

Health plans in nine communities have in- troduced or expanded initiatives for reviewing health care claims retrospectively and profil- ing providers based on indicators of health care use and quality. These plans varied widely in the types of providers profiled, the measures of use and quality reviewed, and the ways in which this information is used. A large Seattle insurer, for example, recently introduced a claims review system to detect targeted in- stances of inappropriate care delivered by hos- pitals and physicians in both its HMO and PPO products so that the plan could follow up with problematic providers and, in some cases, withhold payment for the services. In Green- ville, a health plan began collecting compara- tive data on physician use and costs to use as part of its contract negotiations, while a Lan- sing health plan introduced a system for profil- ing physicians in its HMO using Health Plan Employer Data and Information Set (HEDIS) measures of quality and providing compara- tive feedback reports to encourage improve- ments Many of these plans reported making sizable investments in their information sys- tems during 2002–03 to support retrospective review and profiling applications.

Unlike the trends observed for some prior authorization and utilization review require- ments, we saw no resurgence in the use of pri- mary care gatekeeping requirements among plans in the study communities. During 2000– 01 health plans increasingly moved away from these requirements by introducing open- access HMOs and PPOs as alternatives to tra- ditional gatekeeper HMOs. Enrollment in these open-access products continued to grow during 2002–03, but most health plans re- tained their gatekeeper HMO products as lower-cost insurance options.

� Disease and case management. Health plans continued to expand disease and

case management programs in 2002–03 in an effort to improve care and reduce costs for pa- tients with chronic and complex health condi- tions. Plans in at least half of the study com- munities added new disease management programs during this period, while many other plans took steps to expand participation in their existing programs (Exhibit 3). A Lansing health plan, for example, recently added pro- grams for osteoporosis and back pain to its ar- ray of offerings that already included programs for congestive heart failure, asthma, diabetes, and depression. Other plans have made exist- ing disease management programs available to more members. For example, health plans in Seattle and Greenville previously offered dis- ease management only in their HMOs but re- cently began offering these programs to their PPO members as well.

Health plans have begun to move beyond traditional disease management to more tar- geted approaches that seek to identify and ad- dress the health care needs of high-risk pa- tients who are likely to generate high health care costs.10 Unlike traditional disease man- agement, these approaches focus on managing the health care needs of high-risk patients through intensive and customized case man- agement, instead of emphasizing standard- ized, disease-specific interventions that apply to an entire population of members. Health plans in nine communities have adopted inten- sive case management programs combined with “predictive modeling” applications that use health care claims data and health risk as- sessments to identify members with utiliza- tion patterns or complex health conditions that suggest they are likely to generate sizable health care costs in the future. Most of these plans implemented such programs in both HMOs and PPOs. By identifying high-risk members prospectively, these plans expect to lower future health care costs through avoid- ing delays in receipt of needed health care, co- ordinating health care delivery and eliminat- ing redundant care, and encouraging member self-management of health conditions.

Many plans have introduced intensive case management and predictive modeling applica-

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tions alongside their traditional disease man- agement programs. These plans view mem- ber-focused case management programs as “filling in the gaps” by serving members with complex conditions and health care needs that are not addressed by existing treatment proto- cols and standardized care plans. However, other health plans have adopted intensive case management as an alternative to traditional disease management programs that are viewed as ineffective or of benefit to limited numbers of members. In Seattle, Regence Blue Shield discontinued most of its disease management programs—including programs for diabetes, asthma, and cardiovascular disease—in 2002 and replaced them with an intensive case man- agement program linked to predictive model- ing. Similarly, in Miami, UnitedHealthcare chose to emphasize intensive case manage- ment rather than disease management in its Medicare+Choice plan because of the large number of members who have multiple health conditions that would not be addressed by a single disease management program.

� Network design and provider con- tracting. In contrast to the emphasis placed on broad and inclusive provider networks in previous years, some health plans have begun to experiment with new products that restrict provider choice in order to achieve cost sav- ings. Health plans in Syracuse, Orange County, and Miami introduced new PPO and exclusive provider organization (EPO) products in 2002–03 that offer a more limited choice of hospitals and physicians than is available in the standard PPO and HMO products in these markets. One Orange County plan, for exam- ple, expected to include only about half of its contracted physicians and hospitals in its new PPO product under development and ex- pected to sell this product for 10–15 percent less than its standard PPO product.

Similarly, health plans in at least half of the communities have begun to experiment with tiered provider networks, which group pro- viders into tiers based on measures of the cost of care they deliver and then encourage pa- tients to choose providers in the lower-cost

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EXHIBIT 3 Health Plans Reporting Changes In Other Cost Containment And Care Management Approaches Since 2001

Type of change Plans (N = 56)a Communities (N = 12)

Disease management programs Increased use Decreased use

Intensive/complex case management programs Increased use Decreased use

Provider networks Developed limited-network product Developed tiered-network product

15 2

18 0

4 9

6 2

9 0

3 6

Provider incentives Introduced financial incentive program Introduced nonfinancial incentive program Eliminated incentive program

Benefit design and cost sharing Increased deductible and copayment levels Introduced deductible HMO product Introduced coinsurance options Introduced consumer-directed health plan

15 2 2

35 2 5

30

7 2 2

12 2 3

11

SOURCE: Authors’ analysis of data from the Community Tracking Study, 2000–01 and 2002–03. NOTE: HMO is health maintenance organization. a Excludes third-party administrators (TPAs).

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tiers through reduced cost sharing.11 In Orange County and Boston, plans have developed tiered networks for hospitals only, while in Se- attle and Miami, plans have included both physicians and hospitals in the tiers. However, most plans have experienced considerable op- erational difficulties with these products, in- cluding methodological challenges in differen- tiating providers based on cost measures and resistance from large hospitals and medical groups. In Cleveland and Indianapolis, several hospitals have preemptively negotiated con- tract language that precludes these types of products, and in other markets large hospital systems have threatened to drop out of the network altogether unless they are placed in preferred tiers. Moreover, both providers and employers have expressed concern that qual- ity of care typically is not considered when forming tiers—a limitation that some health plans have begun to address. Most of the tiered-network products launched to date ex- clude relatively few providers from the pre- ferred tiers and therefore offer relatively mod- est savings over traditional, single-network products. Moreover, enrollment in these prod- ucts has been light in most communities.

We found no evidence of a resurgence in the use of capitated payment arrangements for providers in the study communities. Some health plans previously had used these ar- rangements in HMOs to encourage providers to reduce health care use and costs, but they were scaled back or abandoned in many com- munities during 2000 and 2001 as a result of provider resistance and the growing demand for open-access products.12 Since that time, plans in many communities have moved to fee- for-service (FFS)–based payment systems for both HMO and open-access products, with a few exceptions. Some plans continue to use capitated payments with physician organiza- tions that have developed the infrastructure to operate successfully under this form of pay- ment—an occurrence observed more fre- quently in Orange County than in the other study communities. Moreover, health plans in several communities continue to use capitated provider payment systems only in their

Medicaid and Medicare HMOs, noting that such cost containment arrangements allow the products to remain financially viable.

Although the use of capitation remains lim- ited, health plans in most of the study commu- nities have begun to experiment with new in- centive payment systems designed to reward providers for the quality and efficiency of care they deliver. Fifteen plans in seven communi- ties have introduced new financial incentives for physicians and hospitals that are based on measures of quality and efficiency (Exhibit 3). Health plans in Seattle, Syracuse, and Orange County began piloting programs that encour- age physicians to prescribe lower-cost generic drugs rather than brand-name drugs and offer them a percentage of the cost savings that re- sult. In Lansing, one plan began offering hospi- tals higher payments in exchange for reducing medication errors and achieving other patient- safety standards, while another plan intro- duced physician incentives tied to HEDIS quality measures. Similar HEDIS-based incen- tive programs were launched by plans in Boston, Northern New Jersey, and Orange County during 2002–03.

Some plans viewed these new financial in- centives as replacements for capitated pro- vider payment methods that had been used previously in HMOs.13 Whereas capitation was used primarily as a cost containment strategy, these new incentives are being used to address both cost and quality issues. More- over, some plans have begun to introduce these types of incentives not only in HMO networks but also in much larger PPOs. For example, Blue Cross of California introduced an incen- tive payment and recognition program for its 15,000 PPO network physicians based on mea- sures of quality in chronic illness care and effi- ciency in generic prescribing.

� Benefit design and cost sharing. Nearly all of the health plans we studied re- ported increasing consumer cost-sharing re- quirements during 2002–03 in an effort to con- trol escalating premium costs. Continuing a trend noted in 2000–01, plans have increased copayment and deductible levels, added de- ductibles to HMOs that previously offered

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first-dollar coverage, and introduced coin- surance into both HMOs and PPOs that previ- ously offered fixed-dollar copayments.14 In Se- attle, Group Health Cooperative of Puget Sound departed from its long-standing tradi- tion of offering only HMOs with first-dollar coverage by introducing a deductible HMO in 2002 with annual deductible options ranging from $200 to $500 for individuals. This prod- uct reportedly offered a premium 10–15 per- cent below the plan’s standard HMO, thereby helping the plan compete with lower-price PPOs in the market. Similarly, a large plan in Miami introduced an EPO in 2002 that in- cluded coinsurance rates of 20–30 percent for most services rather than the $10 and $20 co- payments common in other products, report- edly allowing the plan to offer a premium 15–20 percent below those of its closest com- petitors. The growing popularity of this prod- uct prompted several other Miami health plans to develop similar coinsurance products.

Additionally, health plans in all but one of the study communities introduced variants of consumer-directed plans during 2002–03 to give employers additional options for premium savings. These products provide members some first-dollar coverage for health expenses through member-directed spending accounts or other mechanisms, and they require ex- penses to be paid out of pocket once this cov- erage is exhausted until an established spend- ing threshold (or deductible) is reached. Most of these products use a PPO provider network as their platform and function like a tradi- tional PPO once the spending threshold is met.

Health plans indicate that consumer- directed products offer employers lower pre- miums than traditional HMOs and PPOs by shifting more costs to consumers and encour- aging consumers to be more economical in their patterns of service use. Nevertheless, em- ployers’ interest in consumer-directed prod- ucts has remained tepid in most markets, and enrollment has been modest, with some ex- ceptions. In Seattle, Regence Blue Shield’s new product attracted considerable attention among small businesses and the state’s subsi- dized health insurance program because of

premiums 10–15 percent below those of tradi- tional PPOs and a design that offers full cover- age for an initial set of routine services includ- ing office visits, diagnostic and laboratory services, and preventive care. Nevertheless, many employers remained skeptical that these products could offer sizable cost savings with- out substantial reductions in the benefits of- fered to employees.

Discussion Recent increases in health care use and

costs have prompted health plans to revisit some of the cost containment strategies that were discontinued or relaxed in the wake of the managed care backlash. Health plans re- instituted selected cost controls during 2002– 03, although in many cases these controls are less stringent than those employed before the backlash. Health plans have also begun to ap- ply these controls in a broader range of health insurance products, recognizing that HMOs now serve only a small segment of the market in most communities. Collectively, these devel- opments suggest that at least some of the con- cepts and tools of managed care remain viable in the current health insurance marketplace.

Although these tools’ viability appears se- cure, many health plans, employers, and other stakeholders question their ability to alter fu- ture health care cost trends. Although health plans continued to invest in disease and case management programs during 2002–03, most report relatively limited evidence of cost sav- ings.15 For many plans, these programs need to operate for longer periods of time and achieve higher rates of membership participation be- fore sizable cost savings could be expected. Most of the tiered-network products launched to date offer only modest price advantages over traditional products because relatively few providers are excluded from the preferred tiers. Moreover, enrollment in these products has remained low in most markets, which in- dicates that their near-term effects on health care costs will be limited. Many of the pro- vider incentive programs adopted to date cover only selected providers and offer rela- tively modest financial rewards, which sug-

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gests that the incentives may not be suffi- ciently strong or widespread to induce large-scale changes in clinical practice.

Because most health plans are still rela- tively early in their experience with disease management, tiered networks, and provider incentive systems, the effects of these arrange- ments on health care costs will depend on how they mature and evolve over time. If tiered net- works become more selective and better able to target cost-effective providers, they could begin to place downward pressure on costs. Similarly, the savings from disease man- agement programs and pro- vider incentive systems may increase over time as they reach larger numbers of eligi- ble patients and providers. The success of all of these ap- proaches will hinge in part on health plans’ ability to gain the acceptance and coopera- tion of physicians and other providers. In the wake of the managed care backlash, most plans remain cautious about imposing new requirements and constraints on hospitals and physicians. Moreover, health plans lack the bargaining power to impose such requirements on the large, consolidated health care providers that have emerged in many markets. Instead, plans are focusing on improving provider relation- ships through better communication and smoother business transactions. Whether these activities will lead to increased provider engagement in cost containment and care management activities remains to be seen.

Employers’ and consumers’ interest in cost containment approaches is also essential for their success, and such interest may grow over time if health insurance premiums continue to rise rapidly. Because health plans’ current ap- proaches place relatively few limits on health care choices, consumers and employers may find them preferable to more restrictive man- aged care tools. If so, these approaches could become increasingly important features of health plan design and have moderating effects

on health care costs. Nevertheless, current approaches do little

to address the most powerful driver of long- term cost growth: advancements in medical technology.16 This casts doubt on the extent to which they can truly contain costs. The array of administrative controls and financial incen- tives in use in 2002–03 lacked the sensitivity and specificity required to differentiate alter- native treatment options based on their clini- cal effectiveness and steer both providers and

patients toward the most cost- effective options. Ad- dressing these gaps would re- quire much more aggressive efforts to evaluate new tech- nologies prior to making deci- sions about coverage, and much more intricate and dif- ferentiated systems of incen- tives for both providers and patients.17 Developing and im- plementing such a compre- hensive evaluation and incen- t ive s ys t e m wo u l d l i k e ly

require policy action at the federal, state, or lo- cal levels, since individual health plans would likely face intractable technological challenges and provider resistance. Without such ap- proaches, the long-term cost growth experi- enced during the past four decades appears likely to continue unabated.

In the absence of more systematic ap- proaches to cost containment, health plans have continued to develop products and op- tions that allow employers to buy down their premiums through higher consumer cost shar- ing. Because patients faced with higher cost sharing tend to cut back on both discretionary and needed care, these responses may contrib- ute to reduced access to care and, ultimately, poorer health outcomes, particularly for seri- ously ill and low-income populations.18 If cost sharing continues to increase, consumers may begin to demand products with more cost con- tainment and care management features, par- ticularly those such as tiered networks that of- fer consumers a trade-off between costs and choice of providers. These possibilities under-

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“In the wake of the managed care

backlash, most plans remain cautious

about imposing new requirements and

constraints on hospitals and physicians.”

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score the need for continued efforts to refine and improve such features of health plan de- sign, even if employers appear more focused on cost sharing than cost containment.

This research was conducted as part of the Community Tracking Study at the Center for Studying Health System Change and was funded by the Robert Wood Johnson Foundation.

NOTES 1. M.E. Chernew, R.A. Hirth, and D.M. Cutler, “In-

creased Spending on Health Care: How Much Can the United States Afford?” Health Affairs 22, no. 4 (2003): 15–25; and D.E. Altman and L. Levitt, “The Sad History of Health Care Cost Containment as Told in One Chart,” Health Affairs, 23 January 2002, content.healthaffairs.org/cgi/ content/abstract/hlthaff.w2.83 (21 June 2004).

2. S. Glied, “Managed Care,” in Handbook of Health Economics, ed. A.J. Culyer and J.P. Newhouse (Am- sterdam: North-Holland, 2000), 707–753.

3. See, for example, J. Gabel, “Ten Ways HMOs Have Changed during the 1990s,” Health Affairs 16, no. 3 (1997): 134–145; M. Gaynor and D. Haas- Wilson, “Change, Consolidation, and Competi- tion in Health Care Markets,” Journal of Economic Perspectives 13, no. 1 (1998): 141–164; and J. Zwanziger, G.A. Melnick, and A. Bamezai, “The Effect of Selective Contracting on Hospital Costs and Revenues,” Health Services Research 35, no. 4 (2000): 849–867.

4. See, for example, R.J. Blendon et al., “Under- standing the Managed Care Backlash,” Health Af- fairs 17, no. 4 (1998): 80–94; C.S. Lesser and P.B. Ginsburg, “Retreat from Managed Care: How Local Healthcare Systems Changed, 1997–1999,” in Understanding Health System Change: Local Markets, National Trends, ed. P.B. Ginsburg and C.S. Lesser (Chicago: Health Administration Press, 2001), 3– 18; and J.B. Christianson and S. Trude, “Managing Costs, Managing Benefits: Employer Decisions in Local Health Care Markets,” Health Services Re- search 38, no. 1 (2003): 357–373.

5. K. Swartz, “The Death of Managed Care as We Know It,” Journal of Health Politics, Policy and Law 24, no. 5 (1999): 1201–1205; and J.C. Robinson, “The End of Managed Care,” Journal of the American Medi- cal Association 285, no. 20 (2001): 2622–2628.

6. B.C. Strunk and P.B. Ginsburg, “Tracking Health Care Costs: Trends Stabilize but Remain High in 2002,” Health Affairs, 11 June 2003, content.health affairs.org/cgi/content/abstract/hlthaff.w3.266 (21 June 2004).

7. Regarding impact on cost trends, see T. Rice and

K.R. Morrison, “Patient Cost Sharing for Medi- cal Services: A Review of the Literature and Im- plications for Health Care Reform,” Medical Care Review 51, no. 3 (1994): 235–287; and J.S. Lee and L. Tollen, “How Low Can You Go? The Impact of Reduced Benefits and Increased Cost Sharing,” Health Affairs, 19 June 2002, content.healthaffairs .org/cgi/content/abstract/hlthaff.w2.229 (21 June 2004). Regarding financial barriers, see S. Trude, “Patient Cost Sharing: How Much Is Too Much?” Issue Brief no. 72 (Washington: Center for Studying Health System Change, December 2003). Regarding reduced take-up of insurance, see L.J. Blumberg, L.M. Nichols, and J.S. Banthin, “Worker Decisions to Purchase Health Insur- ance,” International Journal of Health Care Finance and Economics 1, nos. 3–4 (2001): 305–325.

8. P. Kemper et al., “The Design of the Community Tracking Study: A Longitudinal Study of Health System Change and Its Effects on People,” Inquiry 33, no. 2 (1996): 195–206.

9. S. Felt-Lisk and G.P. Mays, “Back to the Drawing Board: New Directions in Health Plans’ Care Management Strategies,” Health Affairs 21, no. 5 (2002): 210–217; and G.P. Mays, R.E. Hurley, and J.M. Grossman, “An Empty Toolbox? Changes in Health Plans’ Approaches for Managing Costs and Care,” Health Services Research 38, no. 1 (2003): 375–394.

10. A.C. Short, G.P. Mays, and J. Mittler, “Disease Management: A Leap of Faith to Lower-Cost, Higher-Quality Health Care,” Issue Brief no. 69 (Washington: HSC, October 2003).

11. G.P. Mays, G. Claxton, and B.C. Strunk, “Tiered Provider Networks: Patients Face Cost-Choice Trade-offs,” Issue Brief no. 71 (Washington: HSC, November 2003).

12. R.E. Hurley et al., “A Longitudinal Perspective on Health Plan–Provider Risk Contracting,” Health Affairs 21, no. 4 (2002): 144–153.

13. Ibid.

14. Mays et al., “An Empty Toolbox?”

15. Short et al., “Disease Management.”

16. P.B. Ginsburg, “The Pricing Practices of Hospi- tals,” Testimony before the Ways and Means Subcommittee on Oversight, U.S. House of Rep- resentatives, 22 June 2004, waysandmeans.house .gov/hearings.asp?formmode=view&id=1687 (23 June 2004).

17. A.M. Garber, “Can Technology Assessment Con- trol Health Spending?” Health Affairs 13, no. 3 (1994): 115–126.

18. J.P. Newhouse, Free for All: Lessons from the RAND Health Insurance Experiment (Cambridge, Mass.: Harvard University Press; 1993); and Trude, “Pa- tient Cost Sharing.”

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