Richard Dean Smith, MD

Rise and Fall of Managed Care: History of the Mass Medical Movement

Managed care was characterized as a system that integrated financing and delivery of medical care: contracts with selected physicians and hospitals that provided medical care services to enrolled members for a set monthly premium; utilization and quality controls that contracting providers agreed to accept; financial incentives for patients to use providers and facilities associated with the plan; and assumption of financial risk by doctors. Thus, physicians' role was altered from agent for patients' welfare to a conflicting need for cost control—from advocacy to allocation. Managed care's central tenet was that doctors, hospitals, and patients couldn't be trusted to prescribe medical treatment: outside supervision was needed—not only to hold down costs, but also to decide what constituted appropriate care. Old incentives that supposedly encouraged excessive, unnecessary care would be replaced by rewarding thrift, and punishing "overtreatment."
Capitation payment, or set fee, was paid per person per month for whatever medical care they received during a defined period of time, usually one year, but sometimes six months when contracts were renewed and adjusted like other insurance plans. Capitation had a number of synonyms, such as "health maintenance organization" or "HMO," integrated systems, and numerous other variations that deal with managed care companies. Some were traditional insurance companies; others were money handling entities involved with health care. The public was tempted by the notion that managed care companies offered 'something for nothing' in that the patient paid a set fee and if costs went over that amount, doctors and hospitals paid the rest.
Proponents of managed care claimed that incentives encouraged providers to operate efficiently within the amount of time and money available in addition to providing high-quality care. Patients received a health plan, which covered specified health care services, regardless of number of visits or procedures performed. Proponents asserted that physicians also had an incentive to provide preventive services to decrease incidence and severity of illnesses, which would result in better care to consumers on the assumption that prevention lowers costs.
Americans were expected to abruptly adjust to a system that inverted traditional medical care ethics and recast doctors as double agents. Ideally, integration of hospitals, physicians, and all other providers would join to accomplish a shared goal, learn to create efficient governance, to align incentives, and to manage risks so the system could care for a population at a predetermined price while making necessary services available to all and preserving or improving quality of care.
Others said that managed care was the "blunt instrument" payers chose to change the culture of medicine. The issue of appropriateness—an underlying factor in use of technology and its inherently higher costs—was accompanied by attention to cost-effectiveness. The overriding issue of the managed care industry was its claim of effectiveness in controlling costs.
A pool of money was set aside by managed care companies for hospital inpatient services or referrals to specialists. If money remained in the pool at the end of the year, it was to be shared by the managed care company and its physicians, such as Kaiser Permanente's "unspent surplus" which at one time amounted to approximately 30 to 50 per cent of physicians' base salary. The surplus created an incentive not to refer patients for care, with the risk that primary care doctors handled complex cases and difficult problems that used to be referred to specialists. Managed care advocates declared the advantages of "preventive care, not unnecessary care." The slogan "runaway costs" became the emotional catalyst behind sanction of managed care without regard to causes of rising costs.
Managed care was promoted on cynicism toward patients and criticism of physicians.


Chapter I. The Beginnings

1. Introduction
2. Background
3. Definition of managed care
4. Criticism of doctors and medicine

Chapter II. Expansion

1. Growth
2. Enthusiasm. Contagion
3. Exceptional return
4. The consulting industry
5. The press
6. Rhetoric of managed care
7. Fear

Chapter III. Enthusiasm. Contagion

1. Supportive
2. Basic concepts
3. Medical technology
4. Intellectual underpinnings
5. Contrary data
6. Quality
7. Competition—Madness
8. From miracle to myth

Chapter IV. Finances of the Managed Care Industry

Chapter V. Cautions

1. Resistance
2. Role of the managed care industry
3. Regulatory agencies
4. Mania feeds on itself

Chapter VI. The Bind

1. Captivity, the bind
2. Behavior of physicians
3. Beating the scheme
4. Some legal aspects
5. Money /​ Trust
6. Medical "inflation"

Chapter VII. Early Warnings

1. Early signs
2. Emerging criticism
3. Role of patients

Chapter VIII. Act V

1. Late signs
2. Re-capitulation
3. Historical parallels
4. Precipitating event
5. Collapse of the bubble
6. Current cultural trends

Chapter IX. After the Fall

1. Carrying on
2. Continuing problems
3. Role of business and industry
4. Coming to our senses

Sample Chapter Section:

I. 4. Criticism of Physicians

The managed care mass movement derived its force from the criticism of practicing fee-for-service physicians, such that the profession of medicine experienced criticism from all sides. That the physician-patient relationship had deteriorated became part of dogma of "reform." If literature is a guide, the physician-patient relationship has not deteriorated because it was always in doubt; a few samples illustrate:
In Anthony Trollope's novel Doctor Thorne (1858), the competition between Doctor Thorne and his rival, satirically called Doctor Fillgrave, is the focus of the story. With a slovenly manner, Doctor Thorne is a poor man: "the gift of saving money had not been his." The wealthy families of Barsetshire capriciously dismiss one doctor to call in the other.
Robert Burn's poem "Death and Doctor Hornbook" (1787), illustrates:

'That's just a swatch o' Hornbook's way,
'Thus goes he on from day to day,
'Thus does he poison, kill, an' slay,
'An's weel paid for't;
'Yet stops me o' my lawfu' prey,
'Wi his damn'd dirt!

Chaucer's fourteenth-century Doctour of Physik in The Canterbury Tales is suspected of being something of a humbug, in league with his apothecaries to fleece the public.14 Even though medicine today is far removed from practice of the days of Chaucer, character traits of his physician are amazingly similar to current criticism against doctors. A few centuries later, Shakespeare's physicians were satirized and comical. Boccaccio (1313-1375) was equally critical of doctors, as well as lawyers, clerics, and academics.
During the Islamic Renaissance of the ninth century, physician al-Ruhawi wrote in Adab al-Tabib, or Practical Medical Ethics: "How many people hate physicians and execrate them instead of loving and respecting them since they hold them back from their desires and warn them not to follow their pleasures."15
When today's critics defame doctors, or when tenured economists derided the profession, they repeat what has been said about the profession for millennia using the theme of criticism to justify their own purposes.
In the mid-twentieth century, medicine received uncharacteristic sanction and support which is atypical in the history of medicine. A career in medicine offered promise of economic certainty or at least making a living; such is not the case through much of history. Those who are healthiest complain the most, but those who are ill and have greatest contact with physicians and have substantial medical bills complain least and are the most appreciative.
Nevertheless, some journalists allowed no exceptions by generalizing from the particular to the general, claiming that "unscrupulous doctors" increased their incomes by any excuse in the "sins of fee-for-service medicine…to jack up revenue,"16 an argumentum ad odium, from enmity, malice. Some claimed that "unsupervised" fee-for-service medicine was "deeply flawed" giving rise to the managed care mass movement. To critics, over-treatment was inevitable if doctors and hospitals were paid a fee for each exam, test, or surgery.17 Such complaints against physicians are not new, but follow the historical tradition of physician criticism. Parallels of managed care with nineteenth-century quackery are striking: orthodox physicians felt besieged by the growing nostrum business, burgeoning competing systems, and declining public confidence. Nostrum vendors denounced restrictions on their unorthodoxy as a "wicked monopoly" for the benefit of doctors.18
Complaints against physicians show little change over the ages. Mass movements do not require the existence of a deity, ideal or truth, but it must believe in a ‘devil’, which gives the movement its greatest strength: the devil must be vivid and tangible. In the case of the managed care mass movement, it was doctors in general and, more specifically, those in fee-for-service practice of medicine who were the mass movement's ‘necessary devil.' Hatred, enmity, is the most accessible and comprehensive unifying agent to a cause generating a feeling of kinship. Self-contempt of adherents transforms into a hatred of others. It is easier to hate an enemy with much good to its credit, such as regular fee-for-service practicing physicians, than one that is all bad. The mass movement seeks, and deserves, the hatred of its 'devil,' which tends to give sanction and lends support to the claims of superiority of the mass movement. Enmity gives meaning and purpose to an empty life; a mass movement nurtures a fanatical grievance. The undercurrent of admiration in hatred manifests itself in the inclination to imitate those who are hated; every mass movement shapes itself after its specific 'devil.'19
Fee-for-service medical practice, or other systems of medical practice, offered no holy cause to cling to and no corporate whole for masses to be engulfed in. Criticizing and demonizing doctors and denunciation of regular practice of medicine became a necessary ingredient in the mass movement into managed care.


1. V.R. Fuchs. "The 'Competition Revolution' in Health Care." Health Affairs 7 Summer (1988) 5-24.

2. Lawrence D. Brown. Politics and Health Care Organization: HMOs as Federal Policy. Washington, DC: The Brookings Institution, 1983, pp. 17-18.

3. Brown. p. 219.

4. John K. Iglehart. "Health Policy Report: The American Health Care System." New England Journal of Medicine 327 (1992) 742-747.)

5. Robert G. Frank. "Lessons from the Great Battle: Health Care Reform, 1992-1994." Archives of Physical Medicine and Rehabilitation. 78 (1997) 120-124.

6. Lynn Etheredge, Stanley B. Jones, and Lawrence Lewin. "What Is Driving Health System Change?" Health Affairs 15 (1996) winter 93-104.

7. Victor Tabbuch and Gerald Swanson. "Changing Paradigms in Medical Payment." Archives of Internal Medicine 156 (1996) 357-360.

8. Eric Hoffer. The True Believer: Thoughts on the Nature of Mass Movements. New York: Harper & Row, 1952, p. 55.

9. Iglehart.

10. George Anders. Health Against Wealth: HMOs and the Breakdown of Medical Trust. Boston and New York: Houghton Mifflin, 1996, pp. 25-26.

11. Iglehart.

12. A.S. Relman. "Controlling Costs by 'Managed Competition'—Would It Work? New England Journal of Medicine 328 (1993) 133-135.

13. "Background Paper for Capitation Hearing." California Legislature. Senate Committee on Judiciary. Senator Charles M. Calderon, Chairman.

14. W.C. Curry. Chaucer and the Mediaeval Sciences. New York: Barnes and Noble, 1960.

15. R.D. Smith. "Adab al-Tabib: Practical Medical Ethics of the Ninth Century." ACCMA Bulletin. Feb. 1982, p. 21.

16. Anders. p. 247.

17. Anders. p. 251.

18. James Harvey Young. American Health Quackery. Princeton, New Jersey: Princeton University Press, 1992, p. 44.

19. Hoffer. pp. 87,90.

Selected Works

Fiction, Mystery
Pool: more than mental, more than physical, it's partly mystical.
Historical fiction, a mystery
A doctor and family struggle to survive in the era of managed care. Dr. Browne uncovers deception by government, insurance companies, consultants, hospitals, and others.
Medical management.
Satire of the absurdity of a national craze: managed care.
Health of Keyboard Workers.
Social importance of an irrational mass movement.