Managed CareA Product of Market Dynamics

Abstract

The development of managed care is described as an unexpected product of competition between public and private purchasers of health care. Managed care is a series of purchasing techniques that employers have applied to reduce the cost of their employees' health benefits. Its most significant use has been as a device for bargaining with individual health care providers by encouraging or requiring employees to purchase health care services from a select set of providers. Selective contracting has broken a 40-year-old barrier to price competition among health care providers, who have responded to this negotiating tactic by forming or joining larger organizational units to strengthen their bargaining power. Although the so-called managed care revolution has reduced the rate of increase in health care costs by creating a more competitive price environment, it is simply a start toward a more effective health care market. It is very much a work in progress that will affect and be affected by both political and market changes occurring over the remainder of this century.