Emerging Health Care Market Trends

Originally published by the Center for Studying Health System Change (HSC). HSC was a nonpartisan policy research organization funded principally by the Robert Wood Johnson Foundation.

Emerging Health Care Market Trends: Insights from Communities

HSC Conference Proceedings — December 10, 2001, Washington, D.C.

In December 2001, HSC convened a conference to present findings from its community tracking research, which monitored health care market developments across 12 nationally representative metropolitan areas. The conference, moderated by HSC President Paul Ginsburg and HSC Director of Site Visits Cara S. Lesser, brought together researchers, health plan executives, hospital administrators, and policy analysts to examine how local health care markets were evolving as the managed care era gave way to a period of loosening cost controls and rising health care spending.

Session One: Managed Care and Costs

The opening session examined how health plans and employers were responding to the retreat from tightly managed care. Glen P. Mays of Mathematica Policy Research presented findings on changes in health plan approaches to managing costs and care, describing what he characterized as an empty toolbox: plans had abandoned many of the utilization management techniques that had constrained cost growth in the 1990s, including prior authorization requirements, gatekeeping by primary care physicians, and narrow provider networks. The backlash against managed care restrictions had left plans with fewer mechanisms to control spending, even as underlying health care costs were accelerating.

Jon B. Christianson of the University of Minnesota presented research on employer decisions in local health care markets. Employers were grappling with double-digit premium increases and experimenting with a range of strategies, from increasing employee cost sharing to restructuring benefit designs to exploring emerging consumer-directed health plan models. The session included perspectives from Brian Ancell of Premera Blue Cross in Seattle and Joe Reilly of Aon Consulting in New Jersey, who offered real-world accounts of how plans and employers were adapting to the new market environment.

Session Two: The Provider Response

The second session examined how providers were responding to the loosening of managed care controls. Lawrence P. Casalino of the University of Chicago discussed the retreat from risk contracting, noting that physician groups that had taken on financial risk under capitated managed care contracts were pulling back as the arrangements proved financially untenable for many. Kelly Devers, an HSC health researcher, described the return of the medical arms race, in which hospitals were competing for patients by investing in facilities, technology, and specialty services rather than through price competition or efficiency improvements.

J.B. Silvers of Case Western Reserve University in Cleveland and Ellen Zane of Partners Community Health Care in Boston served as panelists, offering perspectives from markets where provider consolidation and capacity expansion were reshaping competitive dynamics. The return of capital investment in hospital facilities and medical technology after a period of restraint during the managed care era was a recurring theme, raising questions about whether the resulting capacity growth would fuel further cost increases.

Keynote: Quality and Patient Safety

Janet M. Corrigan of the Institute of Medicine's Board on Health Care Services delivered the keynote address. Her remarks focused on quality and patient safety issues that the Institute of Medicine had brought to national attention through its landmark reports, including "To Err Is Human" (1999) and "Crossing the Quality Chasm" (2001). Corrigan discussed how the shifting market dynamics described in the earlier sessions intersected with the quality improvement agenda, and whether the retreat from managed care and the return of provider market power would create obstacles to or opportunities for improving the safety and effectiveness of health care delivery.

Session Three: The Safety Net Under Pressure

The third session turned to the health care safety net. Laurie E. Felland, an HSC research analyst, presented findings on the resilience of safety-net providers in the communities HSC tracked. Despite persistent financial pressures and growing demand from uninsured populations, many safety-net institutions had demonstrated remarkable adaptability, finding new revenue sources, expanding community health center capacity, and forging partnerships with mainstream health care organizations. Bruce Bragg of the Ingham County Health Department in Lansing, Michigan, and Marion Lewin, formerly of the Institute of Medicine, provided reactions to the findings, discussing the ongoing tension between safety-net capacity and growing demand as the economic slowdown pushed more Americans into uninsurance.

Session Four: Medicare+Choice and Local Markets

The final session examined the Medicare+Choice program and its interaction with local health care markets. Robert Hurley of Virginia Commonwealth University presented a lifecycle view of Medicare risk contracting, tracing how managed care organizations had entered, expanded in, and in many cases withdrawn from the Medicare managed care market across different communities. The discussion, which included Brian Jeffrey of PacifiCare in Orange County, Mark Miller of the Congressional Budget Office, and William Scanlon of the General Accounting Office, explored the policy implications of plan withdrawals from Medicare+Choice and what the experience revealed about the viability of private plan competition in the Medicare program.

Taken together, the conference sessions painted a picture of a health care system in transition. The managed care era's restraints on spending and utilization were dissolving. Providers were regaining market leverage. Employers were absorbing steep premium increases with limited tools to push back. And the safety net was straining under the weight of growing uninsured populations. The market dynamics documented by HSC's community tracking research would continue to shape the national health policy debate for years to come.

Sources and Further Reading

AHRQ — Federal health care quality research agency.

Health Affairs — Peer-reviewed health policy research.

Robert Wood Johnson Foundation — Health policy research.

Commonwealth Fund — Research on health care quality.