Managed care in an age of covert rationing 

If you were going to design from scratch a system for covertly rationing healthcare, you would need a central organizing concept like managed care, about which everybody could communicate using the same terminology, but while meaning entirely different things.

Defining Managed Care

Managed care in its purest form simply refers to an administrative philosophy, under which certain management principles that have become standard in other industries are now applied to the healthcare industry.

A managed care organization is the bureaucratic entity that purports to apply the techniques of managed care to a population of actual patients. Health maintenance organizations (HMOs) and preferred provider organizations (PPOs), for instance, are two types of managed care organizations. To keep things simple, in this chapter I will arbitrarily use the term "HMO" as a shorthand notation for all the various species of managed care organizations.

Since it is only an administrative philosophy - a technique, a tool - managed care is value-neutral. It is neither "good" nor "bad," any more than any other tool is good or bad.  What is important is how the tool is used.

"Pure" Managed Care

Managed care is a concept that has been around for decades, developed largely in academic and intellectual circles by healthcare policy experts, economists, governmental commissions and industrial management experts. In its purest form the idea behind managed care is a very simple and very useful one - it is to bring basic management principles that have been used successfully in other industries to the healthcare system, thereby injecting logic, organization and accountability to what traditionally has been a bastion of disorganization and inefficiency. Of course, there are many industry-derived principles that could be applied to healthcare.  But the unifying idea behind most of them can be boiled down to one word: standardization.

Standardization of process is what defines the difference between a factory worker and an artisan.  In fact, standardization can be considered a virtual synonym for industry.  In industry, it is axiomatic that standardization is the primary means of optimizing the two essential factors in any industrial process: quality and cost.  

This can be stated formally as the Axiom of Industry:

The standardization of any industrial process will improve the outcome and reduce the cost of that process.

If you had a widget-making factory, you would break your manufacturing process down into discrete, reproducible and repetitive steps, and then optimize the procedures and processes necessary to accomplish each step.  Later, if you wanted to further improve the quality of your finished product (or to reduce the cost of producing it), you would re-examine each step of the process, one by one, seeking opportunities for improvement.  To find such opportunities, of course, you would need to understand the process very well, and you would also need to collect data about how well the process works. But with the right information, you would almost certainly identify a few minor changes, often involving only one or two steps, which would improve the manufacturing process. The beauty in such a system is that you have only to make one change - to the process itself - and every single widget that comes off the line after you make that change will be improved.

So: standardization is good.  It leads to higher quality and lower cost.  Conversely, variation is bad.  It reduces quality and raises cost.

Proponents of managed care argue that there is no reason that standardization should not be just as useful in healthcare as it is in other industries.  In fact, since medical care traditionally has been completely individualized, highly variable, and without any semblance of standardization, there must be a huge opportunity to improve the processes of care, and to make them both cheaper and more effective.  Without a doubt, there is great merit in this idea.

Some Benefits of Managed Care Techniques

A good illustration of how industry-derived principles have been successfully applied to clinical medicine is in the use of "critical pathways."  

In practice, critical pathways are blueprints for delivering standardized care to patients with specific medical problems. Consider, for instance, a critical pathway for hip replacement surgery. A surgeon following such a critical pathway will have a blueprint of what services he or she is to provide for the patient, from the date of hospital admission until the date of discharge (which is, of course, predetermined). The surgeon will have a checklist telling him which laboratory tests to order and when, what medications to administer at which times, and what complications to watch for. The nurse and all other healthcare workers involved in the patient's care will have their own checklists.  They will know from the moment of a patient's hospital admission, for instance, when to take vital signs, when to get the patient out of bed, when to begin physical therapy, and when to provide standardized instructions to the patient before discharge. All this is pre-determined by the critical pathway.

All the while, the care each patient receives under the critical pathway is being monitored by a "case manager."  The job of the case manager (usually a nurse), is to track how well the doctors, nurses and other healthcare workers involved in the patient's care are sticking to the prescribed pathway.  Every deviation from the pathway (for instance, the patient with a hip replacement might begin physical therapy on Day 3 instead of Day 2), is tabulated as a "variance."  The idea of tracking variances is not to mete out punishment, but to identify areas within the process of care that need improvement.  If too many instances of a particular variance are seen within a critical pathway, then either medical personnel need to be "retrained" on following the pathway appropriately, or the pathway itself should be changed to reflect more realistic expectations.  

The case manager is also responsible for tracking the medical outcomes of patients cared for under the critical pathway. If a pathway is seen to lead to suboptimal outcomes of care, it needs to be revised.  It is said, therefore, that a critical pathway is never static.  It is a "living" document, constantly being monitored and revised in order to produce an ever-improving process of care.

Thus, critical pathways can provide at least three benefits that improve the delivery of healthcare. First, the mere act of developing a pathway requires you to understand completely the care process being managed.  Prior to managed care, such insights were rare.  Often when first studying the process, one or more "routine" clinical practices are immediately identified as being obviously wasteful.  So the very act of creating a critical pathway often leads to a rapid improvement in the efficiency of medical care.

Second, critical pathways provide a means of standardizing the processes of care. To the extent that healthcare is like other industries, the Axiom tells us that such standardization ought to be effective in improving outcomes and reducing cost - mainly by assuring that all patients enrolled in a critical pathway receive all necessary items of care at just the right time, and do not receive any unnecessary ones.

Third, critical pathways provide an organized means of defining, acquiring and tracking data related to the process of care.  Such collection and analysis of data are the keys to improving any repeatable process.

In many cases critical pathways have helped hospitals and physicians to achieve the twin goals of managed care - improving outcomes and reducing costs. While critical pathways are only a small part of "managed care" itself, they can be seen as the embodiment of the main principles by which managed care aims to organize, coordinate and tame the healthcare system.  It quickly becomes obvious to most individuals participating in the development of managed care procedures that there is often much to be gained by applying these principles. In fact, it is largely due to the success of critical pathways that many within the healthcare field have come to embrace managed care with at least some enthusiasm.  Systematically reducing the cost of care while simultaneously improving the quality of care is indeed a very attractive proposition.

Some Drawbacks of Managed Care Techniques

Unfortunately, there are at least two inherent limitations to the application of industrial management principles to the field of medicine. The first of these is a truth that, unfortunately, escapes many proponents of managed care techniques - namely, not all medical processes are suitable for standardization.

The standardization tools of managed care work only when you're dealing with a process that can be broken down into a predictable series of discrete, reproducible tasks that will generate reproducible results.  In other words, industrial management tools work best when the process of care is similar to the process of making widgets.

Hip replacement surgery, for instance, tends to be reasonably widget-like.  We know, for instance, that on Day 1 the hip replacement operation itself will take place.  We also know that since hip replacement is usually an elective procedure, any other medical conditions the patient may have will have been stabilized prior to surgery (and prior to entrance to the critical pathway), and so should not present unexpected problems during the hospitalization.  Thus the critical pathway can focus solely on steps to minimize the risk of complications of surgery, and to maximize rapid recovery. For hip replacement and many other elective surgical procedures, the use of critical pathways has resulted in reduced lengths of hospital stays, less cost, and more rapid (or at least, no worsening in the time of) recovery.

In contrast, developing critical pathways for many non-surgical hospital admissions has proven extremely problematic.  For many medical illnesses, neither the diagnostic procedures nor the treatments that may be employed are possible to predict, or thus to standardize.  For instance, consider what happens when we try to develop a critical pathway for congestive heart failure (CHF). Patients with CHF may have one or more of a variety of underlying conditions that caused their heart failure in the first place (such as coronary artery disease, valvular heart disease, viral infections of the heart muscle, and many others); they vary widely in their severity of illness (from mildly ill to moribund); and they often have related complicating disorders of one or more additional organ systems, such as kidney failure or peripheral vascular disease.  These factors, along with a multitude of others, ultimately determine what diagnostic and therapeutic maneuvers will be necessary.  Knowing only that a patient has been admitted to the hospital with CHF tells you nothing about whether that patient will require cardiac catheterization, angioplasty, bypass surgery, valve replacement, a pacemaker, an implantable defibrillator, a mechanical ventilator, a prolonged and complicated stay in the intensive care unit, or just a couple of diuretic tablets and overnight observation.  No two patients with CHF are alike; and there is no such thing as a "standardized" patient.

For medical conditions like this, in which every patient tends to be unique, managed care techniques tend not to be very useful.  Unfortunately, the majority of non-surgical hospital admissions fall into this category.  

The second inherent limitation in applying industrial management principles to healthcare, and the one that is more pertinent to our discussion of covert rationing, is that in healthcare the Axiom of Industry simply does not hold true. Standardization does not always improve outcomes and reduce cost.

It is instructive to consider just why this is so. What makes the Axiom of Industry apply to other businesses, but not to healthcare?  The answer is: patients are not widgets. While this fact is obvious to everybody, its implications, apparently, are not.

If you're a widget maker, deciding between two manufacturing processes is purely a matter of economics. Nobody expects you to consider the widget itself. The outcome by which you are judged has nothing to do with how many individual widgets get discarded during the manufacturing process, or even, ultimately, the quality of the widgets that pass final inspection. Instead, it's the bottom line - it's how much profit you make in relation to whatever level of quality you put into the widget.  So the quality of the widget is not necessarily maximized, instead it's optimized, tuned to the optimal quality/cost ratio as determined by the market forces of the day. This is why, for a widget maker, the Axiom holds: standardization, by rooting out variability, reduces the cost of making the widget (whatever the chosen quality level may be) - which automatically improves the outcome, since the outcome the manufacturer cares about is profit.

If instead of running a widget company you're running an HMO, the calculus is supposed to be quite different. You're supposed to be more interested in how things turn out for individual patients than you are in the bottom line. So an extremely expensive process of care that yields a significantly better clinical outcome is one most people (patients, at least) would expect you to use, even though it only gets you a healthier patient and doesn't make your money back for you.  Furthermore, a process that increases patients' mortality rate by 5% is one you should disregard, even if it is substantially cheaper than the alternative. The clinical outcomes experienced by patients - the measure of "success" you're supposed to be concerned about - may move in the same direction as costs, or in opposite directions.  But because you're dealing with patients the Axiom of Industry doesn't hold - outcomes and costs do not always move in the same direction.

In summary, "pure" managed care has given us some very useful ideas about how to make healthcare delivery more efficient without diminishing medical outcomes.  The principles of managed care are being widely and profitably used in most large hospitals in America today, and without a doubt have the potential of even broader applicability. However, contrary to the dogma, these principles are not applicable in many cases, nor do they always yield favorable results.