In Economics, Managed Care Marches to a Different Drummer

John A. Marcille

For all of its charts, numbers, and equations, economics often seems more art than science, better tracked by rain-dancers than prognosticators. It is so intertwined with the wiles and whims of human beings — be they suppliers or demanders — that the intangibles of psychology or free will keep throwing wrenches into the works.

Senior Editor Frank Diamond's cover story goes out on a limb that looks very much like a trend line to say that the HMO industry is essentially recession-proof. It makes this call with the help of history, as if that's any guide, and in the words of experts, as if that's any comfort. To put it bluntly: We could be wrong, but if we had to bet….

Many of the issues health plans and physicians will have to grapple with in the next decades may be dictated by the biggest macroplayer of them all — the consumer.

“The market has actually, in some regards, become almost too competitive for comfort and consumers are getting ever, ever better deals,” says Uwe Reinhardt, Ph.D., a professor of health economics at Princeton University. “It is getting very hard to carve monopolies out of this. You need monopolies to have profits.”

Even if the consolidation in the managed care industries make some of the big players look something like monopolies, there are enough competing insurance mechanisms around to give them a real challenge, and cost-control, still what employers seek, is what HMOs will have to deliver again, as they did in the early 1990s. Can they make a profit and put a lid on premiums simultaneously? Good question. Will their efforts result in, after a slack season, tightened control on utilization and provider compensation? I ask you, is that also a good question? Or merely a rhetorical one?

Cost control shows up throughout this issue, notably in the articles on formulary administrationER observation units in hospitals, and fraud detection.