Markets at Risk— Current and Future Challenges in a Managed Care Marketplace. C. The Public Sector Challenge.


Public sector purchasers of manage care share many goals with private purchasers. Public purchasers are pursuing more value through managed care models, either in terms of better outcomes at the same cost; similar outcomes at a lower cost, or some combination of improved outcomes with cost reductions. They are also interested in contracting with responsible systems of care that provide increased accountability, including the availability of performance monitoring mechanisms that are not in place when care is purchased on a fee-for-service basis.

But the responsibilities of public purchasers bring added concerns for plans because they are subject to legislative oversight and administrative procedures that impose burdens on contractors typically not found in the private sector. Public purchasers have more rigid contracting terms, conditions, and procurement policies and plans have to make substantial investments in order to comply with them. Often, as has been noted in Medicaid managed care studies25, these are often additive costs because the requirements are different from private contracts, and plans may not see the payments they receive as commensurate with the additional cost they require.

The political context in which public sector contracting is being carried out also affects the attractiveness of this product line on several levels. Offering these products exposes health plans to increased public scrutiny—as those that have made recent withdrawal decisions in Medicaid and Medicare have discovered.26 Changes in political sentiments and policy may promote sweeping programmatic revisions in the operating environments of health plans that fundamentally change their business environment as noted by one Medicaid managed care plan executive’s comment: “In Medicaid, we get 100 year events, every 2 years.” The political volatility is even more apparent in the “buy versus bash” ambivalence evident in many legislative forums, as health plans struggle to understand how they can be vilified by the same people who have touted them to be the solution to cost containment problems. Or they discover that their success in controlling costs at the expense of providers has provoked a provider backlash that increasingly has influenced anti-managed care legislative initiatives27.

  1. Medicare Payment Advisory Commission. Medicare Payment Policy: Report to Congress, March 2000. Washington, DC: MedPAC, 2000.
  2. Medicare Payment Advisory Commission. Medicare Payment Policy: Report to Congress, March 2000. Washington, DC: MedPAC, 2000.
  3. K. Hallam, “A Big Problem for Health Plans: Some Providers Won’t Play the Managed Care Game,” Modern Healthcare, June 5, 2000, pp: 48-52.