Markets at Risk— Current and Future Challenges in a Managed Care Marketplace. I. Introduction


A return to double digit rates of health insurance premium increases and widespread disenchantment with many of the strategies and tactics of managed care organizations have raised doubts about the capacity of managed care models to make a long term contribution to the health care sector. Public sector experience with managed care has both paralleled and contributed to some of the broader disillusionment. Many factors play a role in the declining ability of managed care models to deliver the added value they were expected to provide. Some of these developments relate to the practices and performance of managed care organizations. Other factors reflect changes in the operating environments and financial condition of health care providers. Still other indicators reveal shifting preferences among purchasers and consumers about what they want to buy and how and from whom they want to buy it. And the regulatory climate in which managed care is being carried out has seen dramatic developments.

Taken as whole then, it may be “this year the answers are different” in terms of whether managed care organizations will even meet the needs of the private and public purchasers who have relied on them in the past or expect to rely on them in the future. For public purchasers who historically have followed and attempted to conform to private sector trends, the faltering of managed care models raises many doubts about future strategies. It is not clear what types of organizations and products may be available to contract with in the future. Nor is it certain that surviving managed care enterprises will be interested in participating in public sector contracting. Furthermore, the extent to which the policies and practices of public sector purchasers can influence a market place shaped by broader secular trends remains in doubt.

This paper provides an examination of some of the evidence of widespread turbulence in the health care marketplace. It then shifts to looking at the environmental pressures that managed care organizations face that are shaping their capacity to do the jobs for which they have been created. Extrapolating from current trends and broader themes in the health care environment, the paper next examines some of the long-term challenges for managed care organizations and draws some conclusions about their ability to meet them successfully. It then concludes by identifying selected indicators of change that should be systematically tracked by purchasers and policymakers to ascertain if the markets and products they are looking for will be available in the future.