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Laura Remson Mitchell
Government Issues Coordinator
Multiple Sclerosis California Action Network (MS-CAN)
National Multiple Sclerosis Society

Managed care as typically practiced in health maintenance organizations (HMOs) poses a number of dangers to the health care of individuals with disabilities and/or chronic illnesses. Similar managed-care cost-control techniques in traditional health insurance programs pose the same risks. Essentially, the problems fall into two categories: those related to economic incentives that lead to under-service, and those related to the nature of this group's health-care needs. Modification of managed-care programs may remove such dangers, but these modifications are unlikely unless policy-makers change their assumptions about and expectations for managed care.

 "Managed care" vs. "Case Management"

As used here, "case management" refers to the coordination of care from different providers serving the same patient. This often involves the use of a primary care physician, or a nurse, who serves as the coordinator.

 "Managed care," on the other hand, refers to a health plan that, among other things, uses economic incentives to hold down costs. One of the goals here is to reduce or eliminate services that are deemed ineffective or "unnecessary." Typically, managed-care programs pay providers on a capitation (per patient) rather than a "fee-for-service" basis and use primary care physicians or other providers as "gatekeepers" to control access to care.

NOTE: Although "managed care" and "managed competition" are related to one another, they are not the same thing. Managed competition is a system in which "managed-care" health plans compete against one another and, perhaps, against more traditional health plans as well in the open market. Managed competition groups consumers into purchasing pools so that they can have the same kind of bargaining clout that large employers have in negotiating with various plans. Despite this distinction, however, the concerns expressed in this paper are relevant to managed competition because managed competition proposals generally make extensive use of managed-care plans.

Economic Incentives: Fee-for-Service vs. Managed Care

Many researchers have pointed out that the current fee-for-service type of health care encourages inappropriate utilization or "overutilization" of medical services. (By inappropriate utilization, I mean tests and/or procedures that are ordered more with the provider's income or legal protection in mind than on the basis of the patient's health-care needs.  "Overutilization" is a subjective term that may have some validity on a system-wide level but has very questionable and potentially dangerous implications when applied to individual cases: One person's "overutilization" is another person's necessity.)

Analysts have pointed out that when providers are paid per service rather than per patient, it is in the providers' financial interest to provide more--and/or more expensive--services. A major objective of managed care is to change those incentives by paying providers on a capitation basis. Depending on how a system is set up, however, this can create incentives for underutilization of health-care services that can have serious consequences for the patient--especially if the managed-care organization is operating for profit. The incentive then exists to exclude individuals with significant known health-care needs from participating in the managed-care program at all (just as many health insurance carriers now refuse to cover those with pre-existing medical conditions) or, where exclusion isn't possible, to find ways of denying services--sometimes even when the service is listed as a covered benefit.

 NOTE: Such exclusions and denial of benefits raise some questions about the apparent savings associated with managed-care plans. If managed-care plans accept and/or attract primarily healthy individuals, while those with more health-care needs choose the traditional fee-for-service system when given the opportunity, then fee-for-service would tend to appear increasingly expensive (as it is serving an increasingly high-risk group), while managed care would appear increasingly less expensive (as it is serving a lower-risk population).

 Expectations, Economic Incentives and the Downward Spiral of Care.

The cost-cutting expectations that are driving the popularity of managed care are likely to create incentives to deny benefits in order to achieve savings in the short run. But denying certain benefits--e.g., withholding physical therapy or certain types of durable medical equipment from individuals with disabilities who need them--may achieve those short-run savings at the expense of more costly problems in the long run. That's because denying benefits today keeps expenses down on the current year's balance sheet, while potential costs down the line can be dismissed as a theoretical matter until they hit home.

Unfortunately, as those deferred costs begin to show up in the form of increased demand for more expensive health services, the pressure to cut health-care spending is likely to escalate. In the end, the only way to curb those costs will involve restricting access to services. This could be accomplished by reducing or eliminating certain covered benefits (including such vital services as rehabilitative therapy and durable medical equipment), by using narrower and narrower definitions of what constitutes a "medically necessary" service, and/or by adopting some form of health-care rationing, which limits care based on such factors as age or diagnosis. In any case, the result is likely to be bad for those with special health-care needs. To the extent that priorities used in a health-care rationing system are influenced by nondisabled policy-makers' judgments of "quality of life," people with disabilities may be particularly at risk: Too many nondisabled people still react to disability based on fear and stereotypes, while few understand the real quality-of-life issues that affect individuals with disabilities.

Hidden Dangers

People with disabilities don't necessarily need more total health care than nondisabled people, though the services a disabled person requires at any specific time (a power wheelchair, for example) may seem very costly when viewed as a single item. For the usual acute care, a managed-care plan may be perfectly adequate, and the covered benefits listed on the plan agreement may seem comprehensive enough. For that reason, evaluations of patient satisfaction levels can be misleading.

People in managed-care programs may feel quite content about their coverage until a flareup of a special health condition reveals previously unrecognized barriers to getting the services they need. The fact that a service is covered on paper doesn't always translate into delivery of that service in the real world, but a patient who is ill may not have the strength, energy or other resources to push the managed-care system into providing what it has promised.

Limited Access to Specialists

Managed-care organizations like HMOs generally limit patient access to specialists by requiring referral from a "gatekeeper" physician. Unfortunately, "gatekeeper" doctors are often unfamiliar with the special needs of those with disabilities and/or chronic illnesses. In addition, cost-cutting pressures on the managed-care organization (as noted above) would tend to discourage these "gatekeepers" from ordering expensive services or referring to specialists outside the managed-care organization.

Moreover, the number of specialists within a specific managed-care organization can be very limited. For example, one major HMO that contracts with Medicare in Southern California offers members a choice of provider groups in several geographic areas. The group serving the Northridge, California, area includes two specialists each in endocrinology and in hematology/oncology and one each in neurology, surgery, obstetrics/gynecology, ophthalmology, cardiology, allergy/immunology, gastroenterology, urology, orthopedics and pulmonary diseases. In the mental health field, the group offers one psychiatrist, one psychologist and one licensed social worker.

The problem here is that a single practitioner in a given specialty cannot possibly be familiar with the particular subset of that specialty affecting every patient. For example, not all neurologists are well-versed in the diagnosis, treatment or management of multiple sclerosis. In view of the managed-care incentives against referrals outside the provider group, this kind of situation can lead to inappropriate care--even unnecessary surgery--with all its attendant costs and risks to the patient's health.

It is also important to recognize that for individuals with certain chronic health conditions and/or disabilities, an ongoing relationship with a specialist/specialists familiar with his or her health problems can be the equivalent of a relationship with a primary-care physician. Yet the typical managed-care program treats access to such specialists as a medical luxury rather than the essential service it is. While HMO members generally have at least a limited right to "shop" for a primary-care physician they like, those with disabilities usually don't have the same freedom to find the right specialist, even though this relationship is often critically important.

Denial of covered benefits/delays in access to service.

Because managed-care "gatekeepers" are frequently unfamiliar with the special needs of individuals with disabilities and/or chronic illnesses, they may deny certain benefits on the grounds that the services aren't "medically necessary." For example, they may refuse to authorize physical therapy to maintain function in the belief that "medical necessity" requires the restoration or improvement of function. Part of the problem here may be a focus on "cure" rather than "management" of the condition. (While this is often true in the fee-for-service system as well, managed-care programs severely limit--or even eliminate--the patient's option to find a provider with a different perspective.) It is important to recognize that so-called "maintenance benefits," which prevent or slow deterioration, may be essential to the patient's quality of life while also being highly cost-effective.

Even when HMOs don't deny benefits outright, long delays are typical. Such delays, too, can result in deterioration of a chronic condition and consequently lead to increased costs for later treatment. All this contributes to a downward spiral of care for those with special health-care needs under managed care.

Two-tier system.

Many proposals for a state or national system emphasizing managed care include options to allow those who wish to do so to purchase more expensive fee-for-service plans by paying some kind of differential. Unfortunately, the higher-priced fee-for-service option may not really exist for many of those who need its flexibility the most because they can't afford it. Nevertheless, to the extent that those with higher health risks choose fee-for-service plans over managed care, any actuarially determined differential would tend to become increasingly unaffordable. If those with disabilities or special health problems are forced by financial circumstances to remain in managed-care programs that fail to deliver the services they need, managed care would, in effect, continue to discriminate on the basis of health status and financial resources.


  1. Managed-care programs often provide inadequate access to specialists who are qualified to diagnose and/or treat special health-care conditions, including various disabilities and certain chronic illnesses.

  3. Without a medical provider who is well-versed in the patient's special health-care needs, there may be no one willing or able to attest to the "medical necessity" of the services that patient needs and to advocate for them on the patient's behalf. Thus important services may be denied, and/or inappropriate treatment may be ordered.

  5. Expectations of significant cost savings due to managed care are likely to put pressure on program administrators to focus on holding down short-run costs, even when some of the decisions involved may harm patients and lead to higher long-run costs. This puts into operation a downward spiral of care. This paper has attempted to highlight some of the dangers that managed care poses for individuals with disabilities and/or chronic illnesses. That doesn't mean managed care can't play a useful role in reforming our health-care system. But unless policy makers address problems like those noted here, they are likely to find that costs ultimately are going up, not down--especially for those with special health-care needs.
Among possible responses to the dangers described are the following:
  1. Improve state and federal oversight of managed-care plans, with better analysis of utilization data in order to identify and correct problems of under-service.

  3. Limit the degree of financial risk to which managed-care providers are exposed.

  5. Improve grievance and appeal procedures under managed care.

  7. Allow people with disabilities and other special health-care needs to have appropriate specialists serve as their primary-care physicians.

  9. Offer a point-of-service option as part of HMO plans.
These suggestions are just a beginning, not an end, to addressing the issues raised here. In addition, any significant health-care reform should permi individuals with disabilities or other special health-care needs to remain in the fee-for-service system without paying an additional charge at least until it can be demonstrated that managed-care plans will meet the needs of this population. (Note that waiving the charge only for those with low incomes could create a serious work disincentive/penalty for people with disabilities.)

ADDENDUM:  This paper originally was drafted in April 1992.  Therefore, some of the language refers to national health-care reform proposals that then were being discussed.  Although the paper was slightly revised in 1994, those references remain in the paper because although the drive for national health-care reform was unsuccessful, the issues raised in this paper at that time remain relevant in discussing today's health-care and managed-care issues.

Laura Remson Mitchell, Aug. 14, 1998

For more information contact  Laura Remson Mitchell at

 [April 1992; rev. February 1994; rev. December 1994; text version June 14, 1995; reformatted for NMSS web site display with addendum added 8-14-98; rev 8-28-98.]

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