Managed Health Care: Impact, Pros and Cons

This paper discusses what is “managed health care” and how does a managed system save money? Discusses the pros and cons of requiring everyone to enter the system through a “gatekeeper” health care provider (generalist physician, nurse practitioner, or physician assistant).


The need for health providers to cut down health care costs and improve the quality of their services to Americans has led to the initiation of a range of procedures to achieve this, often referred to as “managed health care”. Rising health care costs in the 1970s and 1980s acted as a catalyst to the rapid growth of managed care plans. They first came into play in the mid-1920s but were not as effective. In America, there are many players mainly in the private sector who operate hospitals and other health provision facilities. However, the high level of competition among players in the health sector can be said to be both advantageous and disadvantageous to both patients and health care providers. (Dudley,et al 1998).

The private sector also is a key player in the provision of insurance apart from government programs such as Tricare, Medicaid, Medicare and the Children’s Health Insurance Program. Managed health care utilizes programs tailored to do away with irrelevant costs by using methods such as: cost sharing, assessment of the need of specific programs, and control of admittance of inpatients among others. Inpatient period of stay in hospital and providing incentives to patients, doctors who select low costing health care. All these are aimed at saving on money by the health care providers. (Melnick & Zwanziger 1996).

Against this background, this paper looks into how the managing of healthcare impacts on the health sector especially how it helps save money. It will address the pros and cons of requiring everyone to enter the system through a “gatekeeper” health care provider. (Wholey, et al 1995).

Defining managed health care

What is it and does it save on escalating medical service costs?

Change is an inevitable aspect of life and therefore an integral part of the health sector in the financing, organizing and provision of quality health services to Americans, thus the need for the health sector to be managed so as to achieve maximum output. Approval of the 1973 Act on Health Maintenance Organization drove the development of managed health care in America with organizations providing health care broke new grounds in coming up with managed care techniques. Curtiss(1989) argues that “…health care can be considered to be managed when at least one of the following fundamental components is present: prospective pricing, “UCR” (usual, customary, and reasonable) pricing of services, peer review, mandatory use review, benefit redesign, capitation payments, channeling, quality criteria, and health promotion…”.

The managed health care sector is made up of Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) and managed-care fee-for-service plans. Managed health care controls the health care providers by letting them have product bundles for various services offered at collectively, discounted and negotiable prices, reimbursed, and prospective prices. Some of these such as prospective prices and product bundles has proved effective in the health sector by reducing inpatient costs incurred by hospitals making the previous mode of charging for singular services or items not relevant to the health facilities’ returns.

Consequently, it has become compulsory for hospital and pharmacy managers to be receptive to cost cuts and constant product improvement. “Application of managed-care principles has reduced the use of inpatient hospital services by Medicare beneficiaries, and helped HMOs and PPOs to lower prices for some services, reduced use of hospital services by HMO members, and redirected some inpatient hospital care to alternate-care providers” as noted by (Kassirer,1995).

Schlesinger, & Perreira (1997) argue that “…the full consequences of managed care for American medicine and health care professionals can be more fully understood if strategies for managing care are identified-in particular, strategies for the administrative oversight of professional decision making.” In managed care plans, health insurance providers endeavor to control cost of the provision of health care through the introduction of rules and procedures that health providers must adhere to. The insurers select amenities and health providers for employers and workers under their schemes to allow fiscal accounting shows a correlation between the quality of life and treatments offered to patients. Insurers are confident that this plan will help both employers and workers choose health providers wisely.

The pros and cons of managed health care

Although managed health care was supposed to be a solution to curbing high health care provision costs in the U.S, it has principally been unsuccessful in its general mandate of medical costs control. There exists a sharp division between advocates and opponents of the system’s impact on the provision of quality healthcare in the U.S. Proponents of managed health care plan argue that there is an increase in efficiency by health providers and patients now have a full grasp of the linkage between costs and quality of health care. The model has had some positive impact on Americans in a number of ways which include:

  • Paperwork has been done away with therefore it saves money and time too;
  • Quality healthcare is guaranteed as healthcare providers know what is expected and the consequences to be expected;
  • Senior citizens who do not qualify for Medicaid due to their low incomes are insurable;
  • The cost for obtaining health services is generally low;
  • Health Maintenance Organization take over the Medicare benefits of senior citizens and deals with providing services to the patient enjoyed with Medicare;
  • The plan ensures that doctors perform necessary examinations and test that are both medically and economically viable; and
  • HMOs and PPOs handle all decisions concerning a patient’s access to health services, providing for a wide range of skilled specialists to go to.

On the other hand critics of the managed health care plan argue that it inclines more to medical insurance providers and not the health providers nor patients themselves. Insurers dictate to patients which doctor to see and doctors are not also free to choose who to see or not thus not achieving fully on their incomes. Insurers have networks in their databases where they group doctors and health providers and doctors are not permitted to link with any network unless its in their geographical region. The managed care plan has given leeway to insurers to turn away health providers from networks without any concrete motive. Another disadvantage is that doctors often ignore compulsory tests until a situation spirals out of control, all in the name of cutting on costs.


Managed care plans can be said to play a key role in provision of health care services to Americans at present. As seen above there are different views on whether they are the final solution and the best system to check on provision of quality healthcare. However, there are both advantages and disadvantages accruing to it though its impact is constantly being disputed with advocates for it arguing that health provision is now cheaper and of good quality. On the other hand critics of the managed care system argue that it favors insurers and not patients and those that provide health care.

Reference list

Curtiss, F.R. (1989). Managed health care. American Journal of Hospital Pharmacy, 46(4), 742-763.

Dudley, R.A., Et al., (1998). The Impact of Financial Incentives on the Quality of Care. Milbank Quarterly, 76(4), 649–686.

Kassirer, J.P. (1995). Managed Care and the Morality of the Marketplace. The New England Journal of Medicine, 333(1), 50–52.

Melnick, G.A., and Zwanziger J. (1996). Can managed care plans control health care costs. Health Affairs, 15(2), 185-199.

Schlesinger, M. J., Gray, B. H., and Perreira, K. M. (1997). Medical professionalism under managed care: the pros and cons of utilization review. Health Affairs, 16(1), 106-124.

Wholey, D., Feldman, R. and Christianson, J.B. (1995). The Effect of Market Structure on HMO Premiums, Journal of Health Economics, 14, 81-105.

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