The hospital and medical service industry, also commonly referred to as the managed care industry, is comprised of establishments providing hospital, medical, and other health services to enrollees or members of a prearranged plan or agreement. Many of these establishments also provide traditional health insurance vehicles. Managed care plans typically arrange to provide medical services for members in exchange for subscription fees paid to the plan sponsor. Members receive services from physicians or hospitals that also have a contract with the sponsor. Thus, managed care plans integrate the financing and delivery of appropriate health care services to covered individuals.
524114 (Direct Health and Medical Insurance Carriers)
525190 (Other Insurance and Employee Benefit Funds)
524130 (Reinsurance Carriers)
Although they serve the same basic function as traditional insurance plans, managed care plans differ because the plan sponsors play a greater role in administering and managing the services that the health care providers furnish. For this reason, advocates of managed care in the late 1990s argued that it provides a less expensive alternative to traditional indemnity insurance plans. However, steep premium increases levied by managed care providers in the early 2000s, largely the result of the higher costs associated with the increased flexibility offered by many managed care plans, blurred the distinction between managed care and traditional indemnity plans.
Managed care had grown rapidly in popularity beginning in the early 1980s, as health care and related insurance costs skyrocketed. Following some financial setbacks for managed care companies in the late 1980s, enrollment in managed care plans increased dramatically throughout the 1990s. In 1999, more than 107 million people were enrolled in one of four types of managed care plans: health maintenance organizations (HMOs), preferred provider organizations (PPOs), exclusive provider organizations (EPOs), and point-of-service plans (POS). Nearly 375 HMO and PPO plans were in operation in 2000, and roughly 85 percent of all covered workers were enrolled in managed care plans versus traditional insurance plans. Factors that contributed to the rapid growth of managed care included the improved benefits with lower premiums and deductibles. Analysts attributed the slow growth in the cost of health care during the 1990s to the rise of managed care plans.
However, managed care providers began to raise their premiums for corporate clients at the turn of the twenty-first century. Premiums increased by 11 percent in 2001 and by another 12.7 percent in 2002. Some analysts predict an increase of up to 22 percent in 2003.
Managed health care plans, or pre-paid plans, exist in various forms yet all plans serve the same basic function—to spread the risk of extensive losses suffered by one individual across an entire membership group that is exposed to similar risk. By pooling the health care dollars of many subscribers, individual enrollees are assured of receiving care that they otherwise might not be able to afford. Managed care differs from traditional insurance in that members of managed care programs typically have less freedom to choose their health care providers, thus limiting the plan member's control over the quality and delivery of care in a managed system. Members of managed care plans usually must select a "primary care physician" from a list of doctors provided by the plan sponsor.
As managed care plans evolved into the twenty-first century, competing plans offered innovative health care delivery in response to the preferences of consumers. Still, all plans had certain elements in common. Common factors included arrangements with selected providers to furnish a set of health care services to members, definition of explicit standards for the selection of health care providers, maintenance of ongoing quality assurance standards, and the utilization of review programs. Additionally, significant financial incentives were set in place to discourage members from using providers and procedures not covered by the plan. In 1999, 181.4 million Americans were enrolled in managed care plans. Many of these people participated in plans offered through their employer. Statistically, 85 percent of U.S. workers covered by company insurance plans participated in some form of managed care, in keeping with a trend for increasing numbers of employers to offer a managed care option as part of their health benefits package. An estimated 89 percent of all commercially insured Americans were members of managed care plans by the year 2000.
How Managed Care Works. Managed care plan administrators act as middlemen by contracting with health care providers and enrollees to deliver medical services. The enrollees pay a set fee that entitles them to services. The plan administrator then supervises the health care providers. Subscribers benefit from reduced health care costs, and the health care providers profit from a guaranteed client base.
Enrollment in managed care plans appeals to members because it can provide savings over traditional indemnity insurance plans, which typically serve the singular function of claims reimbursement. Contrary to traditional insurance plans, managed care sponsors are highly motivated to suppress health care costs and deliver quality services. Indemnity insurance in contrast offers little incentive to control the cost of health services. The savings of managed care result from an active role taken by the plan sponsor in determining the most cost-efficient means of delivering care to its members. Sponsors of managed care, for example, work with health care providers to increase outpatient care, reduce administrative costs, eliminate complicated claims forms procedures, and minimize unnecessary tests. Plan sponsors accomplish these tasks by reviewing each patient's needs before treatment and requiring a second opinion before authorizing doctors to administer care. Likewise, hospitalization of a plan member requires prior authorization, and services performed by specialists cannot proceed in the absence of approval. Some managed care plans offer bonuses to doctors for avoiding expensive tests or costly services performed by specialists, and some sponsors employ award bonuses to doctors in return for shortening the time a patient stays in the hospital. Practices such as these, according to critics of managed health care, can easily lead to under treatment.
Managed care instead places emphasis on preventive medical techniques that help patients avoid serious future health problems, which, in turn, reduce cost. For instance, managed care plans typically authorize regular physicals and checkups at little or no charge to their members, to prevent or detect long-term complications at an early stage. Many plans offer cancer screenings, stress reduction classes, programs to help members stop smoking, and other services that save the sponsor money in the long run by keeping the plan member healthy. Some plans offer financial compensation to members who lose weight or achieve fitness goals. For example, one plan offered $175 to overweight members who lost 10 pounds and gave $100 to members who participated in fitness programs.
Managed care plans exist in many forms. Most popular are health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Other plans that combine elements of HMOs and PPOs include exclusive provider organizations (EPOs), point of service plans (POS), third party administrators, and competitive medical organizations. In addition to these established plans, many employers and organizations offer hybrid plans that combine various forms of insurance and managed care into programs that offer multiple options for members of their group. In 1999, 79.3 million Americans were covered by HMOs, 89.1 million by PPOs, and 13 million by EPO plans.
Health Maintenance Organizations. The most popular plan, the basic HMO, characterizes the description of managed care plans provided above. HMOs, with 70 million enrollees in 1999, boasted a 30 percent market share among managed care providers, up from just under 60 million people at the end of 1996.
Four organizational models exist for the HMO; these define the respective relationship between plan sponsors, physicians, and subscribers. Under the first model, called independent practice associations (IPA), HMO sponsors contract with independent physicians who agree to deliver services to members for a fee. Under this plan, the sponsor pays the provider on a per capita, or fee-for-service, basis each time it treats a plan member. Under the second model, the group plan, an HMO contracts with a group of physicians to deliver client services. The sponsor then compensates the medical group on a negotiated per capita rate. The physicians determine how they will compensate each member of their group. Another model, called the network model, is similar to the group model but the HMO contracts with various groups of physicians based on the specialty that a particular group of doctors practices. Enrollees then get their service from a network of providers based on their specialized needs. In a fourth model, the staff arrangement, doctors practice as employees of the managed care plan sponsor. The HMO owns the facility and pays salaries to the doctors on staff. This type of arrangement allows the greatest control over costs but also has the highest start-up costs.
Preferred Provider Organization. A PPO is a variation of the HMO and combines features of indemnity insurance and HMO plans. A large insurer or a group of doctors or hospitals typically organizes a PPO. Under this arrangement, networks of health care providers contract with large organizations to offer their services at a reduced rate. The major difference from the HMO is that PPO enrollees retain the option of seeking care outside of the network with a doctor or hospital of their choice. They are usually charged a penalty for doing so, however. Doctors and hospitals are drawn to PPOs because they receive prompt payment for services; also PPOs provide access to a large client base. PPOs held a 30 percent share of the market in 1999, an equivalent amount to that held by HMOs.
The PPO industry tends to be more fragmented than HMOs, with numerous independent firms providing regional and local services. Some of the larger PPOs have started providing programs and designing products that are similar to those offered under HMO plans. One type of plan that has emerged is the exclusive provider organization (EPO), which is essentially a smaller PPO provider network offering higher discounts. Most EPO plans provide few, if any, benefits when an out-of-network provider is used.
Point of Service. POS plans have a 20 percent market share. These combine characteristics of HMOs and PPOs. Like PPOs, POS plans use a network of providers. Covered individuals select a primary care physician who controls referrals to specialists. As long as the covered individual uses a plan provider, there are few or no outof-pocket expenses. If care is received from a provider not in the plan, then the covered individual pays higher co-payments and deductibles, and the provider is reimbursed by the plan.
Demographic Influences. The type and magnitude of managed care offerings varies significantly with age, region, and the size of the employer delivering the managed care plan. HMOs and PPOs tend to appeal to younger families with children, yet traditional insurance plans are most popular with elderly people. Only 25.7 percent of the Medicare segment relies on managed care, while 61 percent of Medicaid recipients turn to managed care. Managed care plans also tend to be more popular with large employers, although the growth rate of managed care offerings in smaller companies is greater. According to OR Manager in 1998, more than one-half of HMOs were located in the Pacific regions or in the Northeast, with HMOs most prevalent on the Pacific Coast. California had 14 million enrollees by 1997, and HMOs in the Pacific Northwest held a market share of 47 percent, the highest in the United States. Enrollments were highest in New York and California in the latter half of the 1990s, while the growth rate of HMOs in Mississippi, at 103 percent, was the highest across the nation. HMO penetration at that time was lowest in the southeastern United States. While population density may also be a factor in attracting managed care plans, the demographic variances in managed care popularity are mainly the result of differences in the rate at which health care costs have escalated for different segments and regions of society.
The use of managed care in the United States coincides with the use of health care insurance itself. It was first used by the U.S. Public Health Service to provide medical treatment for merchant seamen who traveled from port to port. In the 1800s, managed care expanded to cover some corporate employees and some government employees, including railroad workers. Henry J. Kaiser and Dr. Sidney Garfield, to provide medical care for San Francisco shipyard workers, started the first major plan in the 1930s. This plan was offered to the public at large in the 1940s.
Although plans similar to the Kaiser plan were formed during the 1950s and 1960s, managed care did not become available to the population until the 1970s, when society began to address spiraling health care costs. The Federal Health Maintenance Organization Act of 1973 stimulated the growth of the industry by providing grants and loans that expanded plans and spawned new HMOs. Although a few companies, such as Kaiser and Group Health of Puget Sound, offered managed care plans in 1973, less than 3 percent of Americans were enrolled in them.
Spiraling Health Care Costs. The greatest reason for the advent and popularity of managed care has been spiraling health care costs, which many critics blame on the traditional indemnity insurance system. Throughout the 1980s and much of the 1970s, average health care costs in the United States jumped an average of 15 percent per year. Furthermore, between 1965 and 1992, health care expenditures, as a percentage of the Gross Domestic Product (GDP), soared from 6 percent to more than 15 percent. Between 1988 and 1993, health care expenditures rose 63 percent, reaching $889 billion.
As health insurance costs skyrocketed, so did the cost of all types of health insurance. From 1989 to 1991, for example, the average employee contribution to company sponsored health insurance plans increased 50 percent while the amount of services diminished and deductibles went up. As employers began to scale back their insurance offerings to save money, the number of uninsured Americans rose to nearly 35 million by 1992. Many smaller businesses were forced to terminate their health benefits.
These considerations caused employers and individuals to seek new forms of insurance in the 1980s and 1990s—such as HMOs and PPOs—that could contain costs while still providing satisfactory service. Others, including some government regulators, were advocating a nationalized health care plan similar to those in Canada or Great Britain. In the early 1990s, the United States remained one of the only industrialized countries in the world that relied on a privatized system of health care.
Industry Growth. During the 1970s, the HMO industry grew by approximately 25 percent, serving about 4 percent of the U.S. population by 1980. The HMO industry achieved its greatest period of growth during the 1980s. During this decade, the number of HMOs soared to about 700 in 1987, and enrollment jumped to include approximately 15 percent of the population.
In addition to rapid growth in the number of people enrolled in HMOs, PPOs became a popular form of care and grew at a faster rate than HMOs during the mid-1980s. Between 1984 and 1993, the number of PPOs bounded from 115 to nearly 900, with almost 40 percent of the population having the choice to enroll in PPOs through their employer. The PPO industry tended to be more fragmented than the HMO industry, with numerous PPOs offering regional or local services.
HMO industry profits began to sag in 1986. The number of people enrolling in HMOs began to decrease in 1988, with the number of HMOs falling from 707 in 1987 to about 546 by 1993. These trends reflected increasing start-up costs, increased mergers and acquisitions, and concerns by some people that HMOs would not be able to control costs as well as first hoped.
The effect of increased start-up costs was demonstrated in the growth rate of new HMOs between 1988 and 1991. In 1991, only four new HMOs were formed, compared with seven in 1990, 19 in 1989, and 34 in 1988. The sluggish economy and lack of start-up capital that was common in the late 1980s and early 1990s contributed to the fall in newcomers to the market. Many of the very large companies that had entered the industry in the 1980s remained unprofitable into the 1990s.
Increased economic pressures were also responsible for the merger and acquisition trend that reduced the number of HMOs in the late 1980s and early 1990s. While overall industry profits continued to grow in the early 1990s, many underfunded HMOs experienced financial difficulty.
The dramatic growth of the managed care industry can be seen by comparing the market share of managed care plans in 1988 and 1993 to that of traditional indemnity health insurance. In 1988, conventional health insurance held a 71 percent market share. The managed care share of the market was split between HMOs with 18 percent, and PPOs/POSs at 11 percent. By 1993, managed care accounted for 51 percent of the market, and conventional health insurance had fallen to 49 percent. Within the managed care industry, HMOs accounted for a 22 percent market share, the fast-growing PPOs accounted for 20 percent, and POSs took 9 percent. In 1996, HMOs replaced traditional indemnity plans as the primary choice for health care coverage by employers. Of the 1,151 firms with 200 or more employees surveyed, HMO enrollment rose during 1995. Memberships, which were at 29 percent at mid-year in 1995, rose to 33 percent in the first half of 1996. Meanwhile, enrollment in conventional health plans fell from 31 percent to 26 percent over the same time period. The survey showed that enrollment in some type of managed care reached 74 percent—a dramatic increase from 29 percent in 1988.
After experiencing financial problems in the late 1980s, managed care industry profits recovered during the early 1990s. Rapid growth, reduced medical costs, and the promise of stable premium rates characterized results in 1995. Some larger HMOs reduced premiums to boost enrollment. One of the largest and most profitable publicly traded HMOs, United HealthCare Corporation, announced it would sacrifice its 1995 profits by cutting premiums to increase enrollment. In 1999, United HealthCare Corporation ranked fifth largest in the United States.
Mergers and Acquisitions. Before 1996 there was little blending of HMO companies and traditional insurance companies, but that quickly changed with a series of well-publicized acquisitions. United HealthCare Corporation acquired Metra Health Companies, Inc. toward the end of 1995. Metra Health was formed earlier in 1995 by combining the group health care operations of Metropolitan Life Insurance Company and The Travelers Insurance Group. At the time of the acquisition, Metra Health served more than 10 million individuals, nearly 6 million of whom were in network-based care programs. Other mergers included the entry of Humana, Incorporated into the traditional finance and insurance industry with the acquisition of Emphesys Financial Group and one of its subsidiaries called Employers Health Insurance Company, and a major acquisition that involved the takeover of WellPoint Health Network.
Government Reform. Managed care companies were poised to benefit from political changes in 1993 that promised to promote the industry. The most crucial development was the election of Bill Clinton as president. Clinton promised in his campaign to deliver a national health care plan within his first 100 days in office. He promised a plan that would reduce costs and provide some type of care for all Americans. In 1993, First Lady Hillary Rodham-Clinton orchestrated the development of a national health care reform package that promised sweeping changes. However, by 1994 it was clear that Clinton's health reform initiatives were dead.
State initiatives dominated the reform agenda in 1994 and 1995 and continued into 1996. In November 1996, two anti-managed care referendums failed in California and Oregon, an indication that consumers remained concerned with the higher costs associated with traditional indemnity insurance. The political realities of election year 1996 again forced Congress to address the issue of health care reform at the national level. The result was the passage of the Kassebaum-Kennedy health insurance reform package.
Key elements of the Kassebaum-Kennedy bill included portability, guaranteed coverage, group purchasing for small groups, and medical savings accounts (MSAs). This legislation impacted managed care companies by increasing expenses due to regulations requiring upgrading and evaluating care. Federal and state regulations concerning 48-hour hospital stays for new mothers, for example, put increased pressure on profit margins by increasing costs for managed care companies.
While some large organizations experimented with health care cost controls that forced competitive pricing, many individuals and small businesses sought ways to participate in managed care systems. One solution advocated by government reformists in the early 1990s was health insurance purchasing cooperatives (HIPCs). HIPCs allowed individuals or small groups to pool their buying power and negotiate cheaper managed care.
Although some groups found ways to control their health care costs through managed care and managed competition, critics of managed care accused HMOs of "shadow pricing," a technique used to keep premiums just below the level of expensive indemnity plans. They also argued that some managed care providers were engaged in competitive practices that would eventually hurt the overall quality of the U.S. health care industry.
Profitability. In 1996, the managed care industry experienced falling margins resulting in less profitability. It was a combination of aggressive rate reduction and unrealized medical cost savings that contributed to many managed care companies losing favor with Wall Street. Another factor that put pressure on profit margins was the banding together of doctors and hospitals to negotiate higher provider fees. As a result, enrollment increased by an average of 19.2 percent in 1996, while margins declined to 0.2 percent, down from 2.4 percent in 1995. As a result of falling margins, the industry changed its focus from enrollment growth to one of managing medical costs to achieve profitable margin levels.
According to a study conducted by Weiss Ratings of Palm Beach Gardens, Florida, and reported in Healthcare Financial Management, managed care premiums rose by 3 to 4 percent in the mid-1990s and continued the slow rise, or else remained flat, through the end of the decade. These single-digit increases in premiums were commensurate with the rate of inflation, yet more than 50 percent of HMOs failed to achieve profitability by 1997 and again in 1998 as margins remained under 1 percent. It was provider-owned plans that suffered most severely from the ominous economic conditions of the managed care industry, with average losses estimated at $19 million.
In devising plans to curb escalating health care costs through managed care, regulators looked to examples of HMOs in the relatively new managed care industry. Although many HMOs were successful in the 1990s, others had failed. Furthermore, many of the new arrangements and innovations involving HMOs indicated that, as the federal government prepared to implement comprehensive reforms, the free market was beginning to deal effectively with spiraling health care costs. Managed care plans offered employers a chance to save on their medical expenses. According to the A. Foster Higgins survey, it cost employers an average of $3,739 to insure each indemnity member in 1996, an increase of 2.4 percent over the previous year. That cost compared with $3,185 for each HMO member, a decrease of 2.2 percent. With increasing numbers of indemnity plan participants converting to managed care membership, the market for managed care became saturated, which intensified competition between providers.
The volatility of HMOs in the 1990s was seen when Humana Corp. experimented by vertically integrating its hospital business with its HMO start-up operation during the 1980s. Although the strategy met with initial success, it eventually alienated many physicians and competing HMO networks. Doctors who were not a part of the Humana network started directing their patients away from Humana hospitals and facilities. As a result, Humana split the HMO and hospital businesses into separate divisions in 1993. The splintered corporation grew to be the sixth largest managed care provider in the United States, with 6.2 million enrollees by 1999.
One successful example of the implementation of HMOs to curb costs involved a plan implemented by Xerox Corporation using the managed competition concept. Like many companies, Xerox offered a combination of indemnity and HMO plans to its employees. However, the company also used a "benchmark" system that limited company funded premiums per employee to the level of premiums charged by the least expensive HMO plan. This caused HMOs competing for Xerox employees to reduce their premiums and subsequently served to keep the rising cost of premiums in check. The program allowed employees to pocket the savings offered by the more efficient plans or pay extra for choosing indemnity plans that offered more freedom in choosing physicians. Xerox distinguished itself among employers over the well-publicized situation, through the practice of closely monitoring the HMOs that serviced the corporation, to ensure that its employees received satisfactory care. Similarly, through an innovative administrative policy, Minnesota became the first large employer to base its health care contributions for employees and dependents on the lowest-priced HMO in each county.
Customer Satisfaction. In 1999, American Medical News quoted Employer Benefit Research Institute statistics indicating that 49 percent of Americans expressed satisfaction for their PPOs, while only 35 percent of HMO members were satisfied with their respective plans. The largest positive response, however, came from feefor-service plan participants, of whom 64 percent were satisfied. This was in direct contrast to a report issued seven years earlier by the National Research Corporation indicating that people were most satisfied with HMOs and least satisfied with fee-for-service plans. Additionally, the earlier survey indicated that while 85 percent of the people were at least somewhat satisfied with their health plan, younger respondents reported the least amount of contentment. Furthermore, it was the younger respondents who were also the most likely to convert from traditional to managed care plans. As a result of the findings of the later survey, the managed care industry contracted Waylon Advertising of St. Louis, Missouri, to create an advertising campaign to help shed a more positive light on the industry. Along with the American Association of Health Plans, other members of the coalition that contracted the advertising campaign included Aetna U.S. Healthcare, Blue Cross and Blue Shield Association, and CIGNA Healthcare.
A number of factors helped to boost the profits of industry leaders like Aetna and United Health in the early 2000s. Between 2000 and 2002, one of the largest expenses faced by managed care providers, increases in prescription drug costs, actually began to slow, from 19 percent in 1999 to 16 percent in 2002. At the same time, however, managed care providers began to levy substantial increases in premiums, which rose nearly 24 percent, more than three times the rate of inflation, between 2000 and 2002. In addition, premiums are expected to grow another 22 percent in 2003. According to the October 2002 issue of Fortune , industry consolidation has helped give managed care companies negotiating power with their corporate clients. "Big insurers are swallowing little ones—roughly a third of small firms have been gobbled up in the past few years—giving better pricing leverage to the 600 or so remaining players."
Realizing that they will not likely be able to continue raising premiums this substantially without seriously alienating corporate clients, who are forced to choose between passing increases along to employees or swallowing the cost themselves, many managed care companies have begun experimenting with "consumer driven" health plans. These plans put the onus for securing affordable healthcare on consumers by giving them a set number of medical dollars, such as $500 or $1,000, to spend each year. Those who exceed this limit are responsible for additional medical costs up to a set deductible, such as $1,500 or $3,000. Once expenses exceed that amount, the managed care plan then resumes making its typical payments. In 2001 Aetna became the first managed care provider to launch such a plan with the introduction of HealthFund.
In 1999, Blue Cross and Blue Shield System/HMOUSA was the largest provider of managed care (by enrollment) in the United States with 47.7 million members, more than twice the enrollment of the second largest provider, Aetna U.S. Healthcare. Blue Cross/Blue Shield surpassed Kaiser Permanente as the largest HMO organization at the end of 1995, according to rankings published in The New York Times. Throughout the United States, the 62 member plans of the Blue Cross and Blue Shield Association reported that 52 percent of their members were covered by POS contracts, PPO plans, or HMO plans in March 1996. That translated into one-sixth of the U.S. population being covered by the Blues' managed care plans.
Aetna Incorporated, with 13 million enrollees and 2002 revenues of $19.8 billion, was the second largest managed care provider in the United States. CIGNA Corporation, also with 13 million enrollees, had sales of $19.3 billion that year.
Kaiser Foundation Health Plan was the largest nonprofit managed care provider in the industry, with 8.6 million enrollees. Kaiser, founded during the 1930s, remained the oldest managed care provider in the United States at the end of the twentieth century. The organization had sales of $22.5 billion in 2002, reflecting a 14.2 percent growth over the previous year.
The merged conglomerate of Minnesota's United HealthCare—a part of the United Health Group—increased its membership to cover an additional 10 million individuals through acquisitions. Among United HealthCare's expanded membership, 5.9 million individuals were members of network-based care programs. The group's sales were a reported $25 billion in 2002, which comprised a growth of 8 percent. With 6.4 million enrollees, United HealthCare Corporation was the fifth largest managed care plan provider in the United States in the late 1990s.
Humana, Incorporated was the sixth largest managed-care provider in the United States, with 6.2 million enrollees and 2002 revenues of $11.1 billion.
The increase in the popularity of managed care, in conjunction with an aging U.S. population requiring more care, ensures a stable employment market within the industry well into the twenty-first century. The jobs in the managed care industry parallel the positions that existed previously within the health care and health insurance industries. The basic difference, however, is that organizational structures within the managed care industry are subject to an excessively bureaucratic management environment. Additionally, employee and practitioner compensation trends within managed care organizations call for lower wages than health care providers such as doctors, nurses, and facility administrators have traditionally commanded.
Managed care offers similar positions in the insurance and health care fields: jobs in finance, accounting, sales, and administrative support. Managed care health professionals are equivalent to those in other health care environments: physicians, nurses, physical therapists, lab technicians, and occupational therapists. Nurses, who were in particular demand during the 1990s, reported greater job satisfaction in the managed care fields than within the traditional hospital structure.
In 1998, Blue Cross and Blue Shield Association employed 150,000 workers, and Kaiser Foundation Health Plan employed 100,000, although neither corporation showed employee growth for the year. The largest employee growth for that year was at Aetna; with 33,500 employees the company realized an employee increase of 16.9 percent for one year. Nearly as large was the employee growth at Humana, which realized an increase of 16.4 percent for a one-year count of 16,300 employees. Third-ranked CIGNA grew to 49,900 employees for 4.6 percent growth, while United Health Group increased its staff to 29,200, a 1.4 percent increase.
The managed care industry has been a major innovator and implementer of advanced research and technology. This is partly because the industry is focused on cost containment. Another reason is most companies in the managed care industry are relatively new and more open to change. In fact, indemnity insurers and hospitals later implemented many of the advances first developed in the managed care industry.
The managed care industry has become increasingly competitive, with HMOs and PPOs vying—and sometimes actually bidding—for contracts to serve the employees of different companies and organizations. As a result, managed care companies with the most advanced information systems and the most effective automation have excelled. Many companies are using new technology to help them provide a "one-stop-shop" for employers seeking efficient managed care benefits for their employees.
Kaiser Foundation Health Plans signed a 10-year, $70 million contract (to run through 2002) with an IBM subsidiary for the development and management of information systems in its expansion regions. Other managed care companies used information systems to integrate data about clinical and support services, medical staffs, and enrollees with data from internal operations such as cash management, human resources, and strategic and financial planning. These "seamless" health care delivery systems monitored and lowered treatment costs, reducing human error and intervention in the administrative process, thus speeding treatment. These advances also spilled over into the areas of ambulatory services and medical legal functions.
In 1999, the health care industry invested $19.9 billion dollars in research and development, not including research by drug manufacturers and medical equipment suppliers.
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