Markets at Risk— Current and Future Challenges in a Managed Care Marketplace. A. Cost containment.

12/01/2000

It appears doubtful that managed care organizations will be able to deliver an encore performance of premiums and aggressive reduction in provider payments displayed through much of the 1990s. Current indications suggest that plans are less committed to revenue growth than income growth, and this is revealed in the fact that few plans are under-pricing their products to “buy” business. Insofar as this pattern contributed to some of the sharper reduction in the mid-1990s while contributing to sizable financial losses for plans, this strategy has been discredited. In this same vein, opening networks to respond to demand for choice has relinquished leverage plans previous held vis-a-vis providers. As long as purchasers insist on these products and remain willing to pay for them in a tight labor market, choice will prevail is the most important feature of a health plan. Provider consolidation further counteracts the ability of plans to negotiate as aggressively as they previously did. Plans and their provider networks also appear overmatched by current explosive growth in pharmaceuticals. Taken together these factors suggest plans will be hard pressed to exert much control over rising cost in the near term.