The Troubled Managed Care Industry - The Problem: Financial Health of Managed Care in the U.S.

National health expenditures, presently above $1.1 trillion a year account for 13.7% of the GDP, are expected to double by the year 2008. The managed care industry including HMO insurers and physician groups and networks assuming financial risk consists of over 1,200 organizations covering more than 140 million Americans.

Yet the financial condition of these health care entities is precarious. According to a recent article more than half of U.S. HMO's lost money last year, the industry as a whole reporting a loss of $490 million, including United HealthCare ($175 million), Prudential HealthCare ($60 million), and Aetna's HMO, the nation's largest ($16 million). The economic status of Non-HMO's, i.e. physician groups and networks at financial risk is even more alarming. The Cleveland Clinic lost $53 million in 1998. The University of Pennsylvania Health System had an operating loss of nearly $200 million in 1999. Two dozen groups, the backbone of managed care in California, including FPA Medical Management, and Med-Partners with 1.5 million members, AHERF in Pennsylvania, Mission: Health of Florida, and hundreds of others, are contributing to an epidemic of bankruptcies.

Why Managed Care is Failing

Our conclusion, based on our extensive medical experience with several plans over the past 15 years is that "managed care" increasingly edges into "mismanaged care." This is because many entities employ the most primitive utilization management(UM)functions, and others use UM in an audaciously inefficient manner based on a combination of telephone and fax communication. We can provide significant cost savings with decision support software on web-based servers to hundreds of ailing health plans as well as hospitals while at the same time improving patient outcomes.