The Changing Approach to Managed Care

The rise of managed care in the early 1970s coincided with the establishment of The Robert Wood Johnson Foundation as a national philanthropy. It is not surprising, therefore, that the Foundation has been involved, almost since its beginning, in trying to develop and shape this mechanism for financing and delivering health care services. This chapter traces the ways The Robert Wood Johnson Foundation has approached managed care over the past 29 years and illustrates how the Foundation's strategies have changed as the concept of managed care itself has evolved.

The Foundation was an early supporter of the idea that later became known as managed care. In the 1970s, it promoted the idea of prepaid group health plans by funding a number of pioneers who were experimenting with alternative systems for financing and delivering health services-the early forms of health maintenance organizations. Later, as new forms of managed care became dominant and as concerns surfaced about whether large for-profit managed care organizations were cutting costs by providing less than high-quality services and by avoiding people with chronic illness, the Foundation adjusted its strategies to address these issues. In keeping with its priorities, in the 1990s, the Foundation began to fund programs that would demonstrate how HMOs could prevent and treat alcohol, drug, and tobacco abuse among their members.

The chapter's co-authors are Janet Firshein and Lewis Sandy. Ms. Firshein, the former editor of Medicine and Health, is a free-lance writer who has been covering health care policy issues for 13 years. Dr. Sandy, an internist who also has an MBA, is the executive vice president of The Robert Wood Johnson Foundation. Previously, he was a physician-manager at the Harvard Community Health Plan.

With the influence that managed care has on health care delivery today, it's hard to remember the world before it came along. Over the past three decades, managed care has gained what appears to be an enduring foothold in the American health care system. By the end of 1999, nearly 170 million people were enrolled in some form of managed care; this includes 7.1 million Medicare beneficiaries and 13.3 million poor Americans covered by Medicaid.¹ Three decades earlier, slightly more than 3 million insured Americans were enrolled in managed care plans, nearly all of them in health maintenance organizations, or HMOs.²

The evolution of managed care has had profound effects on health care delivery and financing in the United States. Once an obscure outgrowth of a predominately fee-for-service, retrospective payment system, managed care has, over the years, catalyzed the growth of large integrated delivery systems and squeezed excess dollars out of the health care spending pie. In the process, it has transformed traditional health care relationships and turned health care reimbursement and delivery on its head. Managed care has been the force behind efforts to improve health outcomes, mostly by encouraging wider use of preventive and primary care. Simultaneously, however, it has been vilified for restricting patients' access to their doctors and diminishing quality-all in the quest to cut health care costs.

About three-quarters of insured Americans now belong to some form of managed care arrangement, which range from more restrictive HMOs to looser preferred provider organization networks and other HMO hybrids. Nevertheless, surveys reveal that the managed care sector is second only to the tobacco industry in public distrust.

As a philanthropy, The Robert Wood Johnson Foundation has never staked out a position on the merits of managed care. But it has had a hand in shaping its development and direction over the last quarter of the twentieth century. Since the Foundation's inception, in 1972, it has spent more than $207 million on managed care-related activities. The Foundation's investment in managed care can best be viewed in evolutionary terms. Managed care originated as a single species: the nonprofit, prepaid group practice. Stimulated in part by cost inflation, the original species grew and matured. But hardier breeds-for-profit health plans-tended to be more financially robust and aggressive competitors, with access to much needed capital. These fitter species grew to dominate the health care landscape as well as to shape it.

Modern managed care began with the industrialist Henry J. Kaiser and Dr. Sidney Garfield's innovation for meeting the needs of the builders of the Grand Coulee Dam in 1937 and of World War II shipyard and steel workers-the prepaid group practice. The California-based Kaiser Permanente was organized in 1945 to promote a new kind of health care delivery that was built around medical groups and prepaid, capitated financing. By organizing medical care within physician groups, these pioneers felt that they could improve the continuity and the quality of care, encourage providers to constrain expenses when possible, and avoid overutilizing services.

In spite of the opposition of organized medicine, which viewed these arrangements as a step toward socialized medicine, Kaiser and other prepaid group practices, such as the Group Health Cooperative of Puget Sound, continued to grow. Their integrated delivery systems and unique financing allowed them to provide less expensive medical care than fee-for-service insurance. This cost advantage, modest in absolute terms when health insurance represented a small fraction of employee benefit costs, proved crucial for HMO growth and policy influence.

By the late 1960s, rising health care expenditures encouraged employers to make wider use of HMOs. Paul Ellwood, Jr., then an aide to President Richard Nixon, coined the term "health maintenance organization" in 1970. Ellwood, a physician, believed that restructuring the financing of health care into a capitated system that would reward providers for maintaining patients' health would improve outcomes and lower health costs. Thus, the Nixon Administration moved to develop a health policy framework around HMOs, culminating in the HMO Act of 1973. Nixon and his aides envisioned a rapid expansion of HMOs as a way to curb health inflation and redirect medical care toward preventing rather than just treating illness. The Act lifted barriers to HMO development, helping the expansion along by requiring businesses with more than 25 workers to offer an HMO option, if available, as an alternative to traditional coverage. The Act also provided grants and loans to start new HMOs.

In 1971, fewer than 4 million Americans were enrolled in nearly 40 prepaid health plans, most of which were operating in California.³ The Nixon Administration expected to create nearly 1,700 HMOs. Nixon's staff optimistically forecast that by 1980 some 90 percent of the American population would have access to an HMO.⁴

It was in this environment that The Robert Wood Johnson Foundation began operating as a national philanthropy. Its leaders believed that national health insurance was on the horizon, and that organized group practices that emphasized cost-effective primary care would help meet the nation's need to assure access, control costs, and improve quality. The Foundation, then headed by the late David Rogers, decided it should help direct the future of prepaid group practice by cultivating and nourishing academically based prepaid group practices.

Given the major federal impetus to promote HMO development, the decision was a logical step. The medical schools, after all, train the next generation of providers. It was thought crucial for schools to develop the ability to prepare young physicians for this new delivery mode. Moreover, since prepaid group practices emphasized primary care, academically affiliated HMOs could help increase the supply of primary care providers by serving as sites for ambulatory training.

Rogers was no stranger to prepaid health care. Before coming to the Foundation, he was dean of The Johns Hopkins University School of Medicine and the founder of the Hopkins Plan, a prepaid group practice model. Robert Blendon, a professor at the Harvard University School of Public Health who worked with Rogers at Johns Hopkins and then at the Foundation, says the University's plan and others like it had developed effective ways of practicing medicine that were worthy of exploration and encouragement. Having physicians work within a budget in which they could decide patient care priorities "was seen as a promising alternative," he says. This was a new organizational form, a place to train the next generation of health care professionals on how to practice in this environment.

One of the earliest initiatives undertaken by The Robert Wood Johnson Foundation was to help the Boston-based Harvard Community Health Plan. Harvard had had a site downtown, but it had reached enrollment capacity. In the early 1970s, the Foundation gave Harvard Community Health Plan about $1 million to fund the start-up of a second health center in Cambridge, Massachusetts. The creation of a center in Cambridge was an attempt by the Harvard Community Health Plan to expand its reach in the metropolitan area. Harvard was a safe investment for a lot of reasons. It had strong ties to the Harvard Medical School. Dean Robert Ebert advocated a stronger role for Harvard in the education of primary care physicians, and looked to the health plan to provide leadership in this area.

The Foundation also provided support to other less developed plans, including Georgetown University's Community Health plan and the Yale New Haven Community Health Center, and gave $350,000 in seed money to the Martinez Health Center in Martinez, California, to develop an HMO.

This initial grant making undoubtedly helped these fledgling health plans, but HMO development turned out to be a daunting task. The Martinez Center, which cared for an underserved population, had trouble attracting enrollees. After one year of operation, only about 1,000 people had enrolled, and the Foundation did not provide additional support. Yale New Haven also had its problems, with enrollment falling below projections and deficits growing higher than anticipated. The Foundation terminated its support for this project as well. The Foundation supported the Georgetown plan much longer, spending a total of $631,000 over eight years to assist with start-up costs and other operating expenses. But in 1980, that grant ended as well.

By the end of the 1970s, HMOs did not dominate the health care system. Instead, they remained in a contained niche. It became clear that starting up and operating HMOs was an extraordinarily complex and expensive endeavor. In addition, most physicians preferred solo or small group practice. And the Nixonian vision for HMO expansion had not panned out.

By late 1979, there were fewer than 250 HMOs on the market-far fewer than Nixon had anticipated.⁵ Only about 4 percent of the population, or 8 million people, were enrolled in these plans.⁶ By the early 1980s, other pressing issues were bubbling to the surface. Health care inflation was engulfing the nation, particularly in the Medicare and Medicaid programs. President Ronald Reagan began block-granting public health programs, and health policy leaders-acknowledging the failure of federal health planning laws to contain capacity and control health costs-focused on new cost-containment approaches, such as Diagnosis-Related Group, or DRG, payments for hospital care. National health insurance seemed as elusive as ever, and the HMO movement, while growing, was clearly not the magic bullet that many had assumed it would be.

During the early and mid-1980s, the Foundation intensified its focus on increasing people's access to medical services and reducing health care costs. It supported research and demonstration projects to find out what was driving health care inflation and to test the effectiveness of cost-containment experiments directed at hospitals, physicians, and other providers.

By the early 1980s, the HMO movement seemed to have lost momentum. But a new species arose-some might say by mutation; others, by invasion. Entrepreneurs-impressed with the cost savings generated by capitated, prepaid financing-saw an opportunity for a profitable business venture. With health care costs soaring at double-digit rates each year, they reasoned that it wouldn't take much to reduce health care utilization, offer a cheaper insurance product to employer groups, provide adequate medical care, and keep surpluses as profit. Through these ventures, the new players thought they could cut the number of excess hospital beds and providers and make the health care system more efficient. These new entrants, rather than create their own delivery systems, began building networks of contractual relations with hospitals and doctors.

This latest variant of HMO was a different breed from its predecessors. Predominantly for-profit, the new HMO did not emerge out of the social ethos of earlier pioneers and was not anchored in a reform of the delivery system. Like many private sector innovations, it found a need and filled it-the need for employers to control their health care expenditures.

It was during this growth phase that the health policy community began to question whether the cost savings demonstrated by managed care were the result of enrolling lower-cost, healthier people (favorable selection), reducing reimbursement to providers, improving efficiency and effectiveness, denying services, or combinations of these factors. Employers also began to ask questions. As more workers began to enroll in managed care, employers wanted to ensure that health plans were providing quality services and appropriate access. They began to develop customized, detailed contracts requiring that data on quality be reported. Each employer had different requirements. HMOs began to stagger under the administrative burden of trying to comply with all of them. In addition, both the policy community and the public began to be concerned about the quality of care that HMOs were providing.

By the late 1980s, The Robert Wood Johnson Foundation focused on this new species of HMO and began to develop programs to both improve managed care quality and better understand how the dynamics of the managed care marketplace were affecting the entire health care system. For example, as insurers, HMO finances were heavily regulated, but there was no single entity responsible for assuring that the quality of medical care for enrollees met a specific standard. Unlike hospitals and physicians, there was no recognized certifying body to accredit HMOs.

It was in this context that in 1988 the Foundation provided a small grant, of $49,000, to an obscure group called the

National Committee for Quality Assurance, or NCQA. NCQA was established in the late 1970s by industry trade groups to do so-called quality review, because of the fear that the federal government might create a similar review body for HMOs that received federal funds. NCQA, however, made little progress in developing an effective quality review system, and by the late 1980s it had become moribund. The grant was meant to support a national survey of HMOs and convene a series of focus groups comprised of HMO leaders, payers, and other industry experts. The objective was to redirect NCQA's focus and assess whether there was a need for an accreditation program, whether industry would be willing to support such an effort, and whether there were sufficient methodologies in existence to develop an accreditation process.

Peter Fox, now a private consultant in Washington, D.C., who was involved in those early sessions, said the gatherings "were trying to get at whether there were enough employers who cared about the quality issue to see whether accreditation was something they would consider." He added, "There was a general feeling at the time that the only reason that an HMO would request accreditation is if employers cared about it."

In 1989, a handful of the nation's largest employers decided to insist on performance data from HMOs with whom they did business. A group of leading health plans, inundated with multiple requests for variants of similar quality data, were seeking to simplify their administrative load and keep the employers happy. Eventually, this small band of employers and health plans agreed that the proper direction was to develop one standardized set of quality measures rather than having health plans meet different benchmarks for different companies.⁷ These employers and HMO leaders settled

on a few standard prevention indicators that HMOs would report on, such as how often they immunized children or gave mammograms to women. These standards were called the "Health Plan Employer Data and Information Set" or HEDIS, a central mechanism to determine how well plans perform certain basic health care services. NCQA seemed like a logical place to develop this approach further.

With the assurance that an HMO certification program would be both feasible and desirable, NCQA won a second, more generous grant from the Foundation to help it develop and implement an accreditation program for HMOs. In 1990, the Foundation awarded a three-year $309,000 grant to NCQA to help it refine standards for quality review, develop a training program for accreditation reviewers, and create a marketing strategy. In an unusual move at the time, the Foundation asked that its grant be matched by the HMO industry-an important requirement because it assured that the managed care sector would support the program. That support helped establish NCQA as a viable entity. "The Foundation gave us the wherewithal to become an independent organization," says Margaret O'Kane, who has been president of NCQA since its inception.

Since 1991, NCQA has been accrediting HMOs and assessing whether health plans have the controls they need to evaluate the quality of services they deliver. Today, it is the nation's leading organization measuring quality in managed care plans. Although observers differ in their views of NCQA's influence on employer purchasing practices, most would agree that it has raised standards in the managed care industry, led health plans and payers to focus on outcomes, and forced managed care operators to examine their internal quality assurance systems.

By the early 1990s, with health care costs still soaring and the ranks of the uninsured swelling, the managed care industry was enjoying rapid growth. Meanwhile, a growing body of health services research had documented that for the most part the quality of care in HMOs was no worse than in fee-for-service, and was better in delivering some preventive services.⁸ And the cost advantage of managed care continued.

In this context, the 1992 presidential election elevated the promise of managed care. Bill Clinton promised to control health costs and assure universal access to health care by building on the theory of "managed competition," in which consumers would get their health insurance through regional purchasing cooperatives that would contract with a variety of health plans including HMOs, PPOs, and conventional insurance policies. These plans would be required to offer a minimum standard set of benefits to every enrollee, who could choose among products every year. Managed competition was a policy construct developed by a hardy band of managed care devotees who called themselves the Jackson Hole Group, because they met regularly in Paul Ellwood's living room in that picturesque Wyoming town.

The demise of the Clinton health reform initiative in 1994 created a new opportunity for managed care plans. With market forces pretty much controlling health care, employers embraced managed care as the vehicle to manage employees' health and health costs. In addition, managed care was seen as an attractive option for many Medicare beneficiaries because it offered benefits that traditional Medicare left uncovered, such as prescription drugs or hearing aids, and required nominal or no out-of-pocket contributions. The government's strategy of financing Medicare HMOs made these plans particularly profitable in high cost areas such as Florida.

State Medicaid programs, also concerned with cost, began to support voluntary, then mandatory, managed care programs for beneficiaries. Finally, hospitals and physician groups were pushed by the national health care reform debate into developing integrated delivery systems and trying to build market share. These goals were achieved by contracting with as many managed care plans as possible.

As the Foundation considered its role in improving health and health care in the early 1990s, it was obvious that managed care would have increasingly powerful effects on both health care and health policy. The for-profit HMO sector alone was taking off. In 1981, roughly 18 percent of all HMOs were for-profit. By 1995, the number had risen to 70 percent.⁹

Foundation staff speculated that managed care would finally tackle the issue of an oversupply of hospital beds, equipment, and specialists in certain areas. The tools of managed care seemed to be able to moderate health care cost increases; however, the collateral damage to vulnerable providers and patients was uncertain. Managed care's emphasis on primary care and population health supported important public health principles. But in the mid-1990s the actual performance of HMOs in delivering preventive services and coordinated care began to be questioned.¹⁰

Throughout the 1990s, the Foundation's approach to managed care was aimed at seeking to understand how various system changes affected people; at seizing opportunities to shape critical aspects of managed care delivery; and at tracking how the health care system was evolving in a dynamic market environment.

One of the biggest unknowns about managed care has been its effect on the ability of people with chronic medical conditions to get adequate care. With a growing number of Americans joining HMOs, it became clear that there was a dearth of systematic research on how they provide care for chronically ill patients. The Foundation felt that health plans were not directing enough of their focus to people with chronic conditions, yet with their emphasis on wellness and prevention, they had the incentive to help chronically ill people better manage their conditions.

In 1989, the Foundation contracted with the consulting firm of Lewin/ICF to compile data on HMO initiatives for chronically ill seniors. The project, done in collaboration with the University of Colorado and the Group Health Association of America (now the American Association of Health Plans), showed that the bulk of large HMOs had not developed comprehensive care programs that targeted the special needs of the chronically ill. A workshop was convened to set a research and demonstration agenda linked to caring for elderly people in a prepaid setting. This workshop was significant because for the first time it brought together leading researchers in the fields of geriatrics and health services with leaders of the HMO industry.

By 1991, with more than 36 million Americans in HMOs and a growing number of Medicaid and Medicare enrollees being channeled into these plans,¹¹ the Foundation decided that HMOs were likely to be enrolling increasing numbers of chronically ill patients. Moreover, HMOs could be useful settings for exploring new ways of organizing and delivering care to individuals with chronic health care needs. Because of capitation, HMOs could, in theory, reallocate resources from expensive marginally usefully tests and procedures toward low-technology services that could improve functioning and quality of life for chronically ill patients. As a result, HMOs could become the catalyst for changing practice in this area of medicine.

So in 1992, with a $5.6 million authorization, the Foundation began the Chronic Care Initiatives in HMOs, a four-year program designed to provide HMO managers, medical directors, providers, and payers with research and practice data to guide them in paying for and delivering chronic care services.¹² Overall, the project was meant to identify, nurture, and evaluate methods by which HMOs recognized high-risk chronically ill people for special interventions; to understand the impact of case management in the HMO setting (an area where there was virtually no research); and to figure out better ways to deliver primary care services in both nursing homes and ambulatory care settings.

The program supported some significant activities, including helping the NCQA develop chronic care benchmarks to incorporate into their HEDIS measures. Under the program, in 1994, The Robert Wood Johnson Foundation provided an $86,099 grant to NCQA to help it develop performance measures designed to assess how well HMOs care for enrollees with chronic illnesses. In 1996, it provided a $636,893 grant to the same accrediting group to develop, test, and evaluate health plan performance measures for diabetes, major depression, childhood asthma, and coronary artery disease. Both of these grants enabled NCQA to develop performance measures in these areas. All of those chronic conditions are part of HEDIS 2000.

The project also supported a $609,131 project at Group Health Cooperative of Puget Sound, which developed and evaluated a new approach to providing managed primary care to patients with chronic conditions within specialized chronic care clinics.

Another initiative was to create the HMO Work Group on Care, comprised of health plan leaders. The Work Group created a special screening tool to assist managed care systems identify upon enrollment senior members at high risk of frequent hospitalization. The Blue Cross and Blue Shield Association has recommended its use by managed care plans that enroll Medicare beneficiaries, and more than 50 health plans have begun using this instrument.

Based on the experience of the Chronic Care Initiatives in HMOs program, it became clear that improvement in care for the chronically ill requires fundamental changes in delivery systems. Relations between primary care and specialists need to be rethought; information systems that can track and distribute information over time and at multiple sites need to be in place, and teams of providers need to attend to the multiple medical and social needs of patients and their families.

To move the field forward, the Foundation authorized $25 million in 1998 for a five-year national program based at the Center for Health Studies at the Group Health Cooperative of Puget Sound, building on the work of a Chronic Care Initiatives grantee, Edward H. Wagner, a leader in the field of chronic care. The Program for Improving Chronic Illness Care is under the direction of Wagner, who also heads the MacColl Institute for Healthcare Innovation. The goal of the program is to identify and test innovative ways to help health care systems treat chronically ill patients. The program will assist up to 120 health care systems design, implement, and evaluate state-of-the-art disease management projects, focusing on such conditions as diabetes, depression, and congestive heart failure. Since this project is still in the early phases, it's premature to draw conclusions about its overall impact at this point.

In the early 1990s, managed care-with its promise of significant cost savings-was increasingly viewed as an attractive option by state leaders eager to slow the growth of Medicaid expenditures and cover more of their uninsured residents.

Mandatory use of managed care by Medicaid recipients exploded in the early 1990s. By 1995, 11.6 million Medicaid beneficiaries-a third of the program population-were enrolled in a managed care plan.¹³ Twelve years earlier, only about 750,000 beneficiaries out of a pool of 22 million were enrolled in managed care.¹⁴ The managed care phenomenon represented a sea change in the way the United States delivered care to the poor, the disabled, and the chronically ill who were covered by Medicaid. Most managed care organizations cared for employed populations, and earlier forays into Medicaid managed care-such as in California in the 1970s-were disasters. While the Foundation did not view its role as promoting or endorsing managed care, it did want to play a major role in helping to ensure that this delivery mode bolstered access to and quality of care for Medicaid beneficiaries, and did not simply save the Medicaid program money.

The Foundation's concerns were heightened by the action of Tennessee, which rushed nearly overnight into establishing its controversial TennCare program, described at the time as one of the most ambitious health care initiatives in the nation. Stephen Somers, who was a Foundation officer at the time and had a background in care for needy populations, says TennCare "was a harbinger that Medicaid managed care was going to sweep across the country and transform care for low-income people." TennCare began with minimal planning, and almost immediately faced problems with beneficiary enrollment and provider participation. Robert Wood Johnson Foundation staff members were concerned about the technical ability of states to design, implement, and monitor large-scale managed care programs, particularly those enrolling large numbers of Medicaid beneficiaries. The TennCare model-while extreme-was emblematic of that problem.

So in 1995, the Foundation established the Medicaid Managed Care Program, a national initiative under the umbrella of the Princeton-based Center for Health Care Strategies. Led by Somers, who left the Foundation to run it, the program would provide technical assistance and grants to states and managed care plans to help them identify, design, and test new models for organizing, delivering, and paying for managed care. The program was structured so that the Center for Health Care Strategies could deploy its resources flexibly to allow the program to adapt to changing circumstances.

Since 1995, the Foundation has authorized $45 million for the Center's activities, and the Center has awarded over 100 grants to states, managed care organizations, consumer groups, and researchers. Among the grants are awards to ten states to develop and test chronic care models. The program has given Rhode Island a grant to develop, implement, and evaluate innovative care models for children with special needs. It also has helped create a Center of Excellence for AIDS Care, which works throughout Tennessee to help providers treat Medicaid patients.

The Foundation recently reauthorized the Medicaid Managed Care program for another five years. Some of the funds will be directed to projects to help make state officials overseeing managed care programs more savvy purchasers; to strengthen the capacity of staff members of managed care organizations to organize and deliver quality managed care services to Medicaid recipients; and to help low-income consumers navigate the managed care system and become more involved in the design and monitoring of Medicaid managed care.

Individuals with chronic conditions absorb a disproportionate amount of the cost of medical care. Managed care plans have a strong financial incentive not to enroll chronically ill people whose care can cost them large amounts of money. It is easier for managed care plans to do better financially by avoiding risk than by utilizing practices that improve quality of care, and some studies indicate that they may attract and enroll healthier populations. Experts say that developing a method to pay plans for the extra resources it takes to care for patients with expensive, resource-intensive conditions-a risk adjustment mechanism-is critical for realizing the theoretical potential of managed care to save costs and increase quality. In fact, finding a risk adjustment mechanism is considered by some to be the Holy Grail of health care financing in a prepaid era.

In addition to a number of related research projects funded under the Changes in Health Care Financing and Organization program, the Foundation, in 1997, awarded $2.4 million to the University of California at San Francisco's Institute for Health Policy Studies to assess the accuracy of current risk identification methods and lay the foundation for a risk adjustment mechanism that will compensate health plans for accepting chronically ill people. Harold Luft, who is directing the project, says risk adjustment methods attempt to counteract the financial incentives placed on health plans and providers that foster disenrolling and/or limiting treatment to patients with chronic conditions. In a risk adjusted system, plans and providers are paid for the risk they assume in treating patients with high-cost conditions. Through incremental increases in payments for specific disease and conditions, he says, payments should also motivate plans and providers to track and efficiently treat chronically ill people.

Experts say that such initiatives are critical for the future of health plans to care for their sickest enrollees and compete for sick patients. "I have heard health plans say, 'We have an absolutely outstanding AIDS clinic, but we don't want to talk about it because we don't want to attract more people with AIDS.' If there is an applicable risk adjuster, plans will see that being a magnet is a way to be profitable," Luft says.

With prospects for wholesale health care reform dimming, the United States adopted a de-facto policy in 1994 emphasizing the role of the private market and competition in health care. At that time, staff members felt that The Robert Wood Johnson Foundation should establish an entity that would produce unbiased analysis and credible information about the effect of competition and managed care on access to health care, as well as its quality and cost, and that would communicate the findings to interested parties and the public at large. In 1994, the Foundation authorized funds to establish the Center for Studying Health System Change. It essentially was trying to understand, and build public knowledge about, whether the changes under way in the health system were resulting in better or worse care for Americans.

In debating alternative designs for a tracking initiative, staff members considered the challenge that, like politics, all health care is local. National surveys and studies, while comprehensive, lose the texture of local change and can miss significant trends. On the other hand, purely local or market analysis cannot determine what factors can be generalized and which are idiosyncratic to a particular community. The staff concluded that the proper approach would track market changes and their impact on people at the community level but also to engineer the sampling strategy so that national lessons could be learned.

Using this framework, the Center set up a community tracking study to follow how health care is organized and delivered in different communities. The study involves surveys of households, physicians, and employers. The Center surveys 60 communities every two years and 12 of those are studied in depth. One of the chief goals of the tracking project is to place findings about local change within a national context and show how managed care really responds to the different community markets and niches it operates in.

Although this kind of initiative requires a long-term perspective to gauge its impact, the Foundation has put a lot of weight behind it. Since 1995, it has authorized $104.7 million for Center and related activities.

Through routine briefings, forums, and published papers, the Center releases information gathered through its research to policymakers and the media. One of its earliest contributions was to dispel the myth, prevalent in the 1990s, that communities would follow a fairly linear path, from low managed care penetration to high, with progressive consolidation of health care systems. Paul Ginsburg, a health economist who directs the Center, says, "We've shown through our work that no one city is a barometer and that the paths they are taking are quite different."

In 1997, the Center held a briefing on Wall Street revealing that the profits HMOs had been making were on the wane. This briefing, covered heavily by the national press, belied the notion that HMOs were flush with money. It provided a better sense of the volatility of the private insurance market. "A lot of useful information has been shared through these Wall Street meetings," Ginsburg says. "The Washington policy makers and the Washington health policy media were not in touch with the Wall Street experts, who really have a useful perspective to bring to the debate."

In early 1998, the Center also released a major study on the effect of managed care on the provision of charity or unreimbursed care. The study pointed out that doctors who earn most of their income from HMOs or managed care plans devote less time to charity care than other physicians. That study also found that charity care was less available in communities where managed care is more prevalent than in places where it hasn't taken root as strongly.¹⁵

Initially, Foundation leaders were worried that the Center might be viewed as pushing a particular agenda, but so far that doesn't seem to be true. The challenge remains, however, how to get the information gathered from the Center's research into the consciousness of policymakers, the media, and the public. The task for the Foundation and the research community, observers say, is to move beyond the traditional academic audience to the community at large.

Nearly half of the nation's premature deaths and 70 percent of health care costs are directly linked to unhealthy behavior, including tobacco use and substance abuse. Studies have shown that changing behavior not only can improve health but also has the potential to curb health spending on preventable diseases. Because managed care plans can take a population perspective, they provide a potential platform for supporting population approaches to behavior change to improve health. Thus, beginning in the mid-1990s, the Foundation has begun to test the use of managed care as a vehicle to promote healthy lifestyles. In the tobacco arena, for example, the Foundation was able to harvest the fruits from its earlier investments in the National Committee for Quality Assurance.

In 1996, the Agency for Health Care Policy and Research, or AHCPR, issued smoking cessation guidelines to help providers and HMOs identify and treat their patients who use tobacco and to deliver antismoking messages to those who do not. The Foundation worked with a number of health and antitobacco organizations to suggest that the NCQA incorporate the guidelines into its HEDIS 2000 health plan report cards. This effort succeeded. Plans seeking accreditation are now required to measure and report the percentage of enrollees who are current smokers or quitters as well as the proportion of those who received advice to quit smoking from their doctor.

To help plans implement the AHCPR guidelines and prepare for the new HEDIS measure, the Foundation in 1996 developed a program called Addressing Tobacco in Managed Care. It is providing up to $5.3 million in grants for assessing projects designed to reduce rates of tobacco use among managed care enrollees. The four-year program is under the joint direction of the University of Wisconsin-Madison's Michael Fiore and Susan Curry of the Group Health Cooperative of Puget Sound. Fiore says that the project's objective is to identify tobacco cessation initiatives that can be integrated into a wide variety of health plans. Through this process, he says, "we hope to make it easier for managed care organizations to help their patients quit tobacco use."

In a similar fashion, the Foundation is trying to disseminate effective approaches to reducing excessive alcohol consumption. Most problem drinkers are not alcoholics, but they drink excessively or in a way that raises significant risks, such as drinking and driving. Screening and brief intervention, or SBI, approaches have been found effective in primary care settings, and managed care provides a potentially promising venue for diffusing this approach. To promote this idea, the Foundation is working with the Foundation for Accountability, based in Portland, Oregon, on a project to find a way to get providers to adopt SBI approaches among managed care enrollees.

Despite managed care's hold on health care policy and delivery, its future is far from secure. The industry has a tarnished reputation, the easy profitability of the early 1990s has disappeared, and consolidation is occurring throughout the country. Some of the oldest, most mature health plans, such as Kaiser, have suffered major fiscal losses. Others, such as Harvard Pilgrim Health Care, were placed in state receivership. Managed care leaders are fighting battles in statehouses and in Congress over various patient's "bill of rights" measures and whether consumers should have the right to sue HMOs. Even the product liability lawyers have gotten into the act, attempting to apply legal strategies similar to those which worked on the tobacco industry.

Some policy analysts have predicted the end of managed care, but this seems unlikely, since no new, superior species of organization has emerged. The nation continues to spend more than a trillion dollars a year on health care, with population health indices far from the top compared with those of other industrialized nations. Over 44 million Americans now lack health insurance, and health care costs, while moderating throughout the latter 1990s, are starting to creep upward again, driven by scientific advances, new technology, and an aging population. Managed care is inextricably linked to these fundamental health policy debates.

Over the years, the Foundation's work in managed care has evolved as a parallel to the industry's development. In the early years, The Robert Wood Johnson Foundation sought to expand nonprofit prepaid group practice, a strategy that was redirected when the limits to its growth became clear. By investing more heavily in expanding non-profit HMOs, would the Foundation have altered the industry's evolution? It's highly doubtful. Philanthropic activity can accelerate and catalyze action. But rarely can it move a field in a dynamic environment that is affected by a slew of uncontrollable factors. The conditions that promoted the growth of for-profit HMOs provided such a fertile soil that their initial success was inevitable.

In the 1980s and 1990s, the Foundation emphasized better understanding of managed care, tracking market change, and focusing on particular domains of managed care. In retrospect, these efforts, while providing useful information and experience, could have better anticipated the major policy issues now arising. The Foundation learned that supporting innovation in a rapidly changing environment requires a flexible "action research" approach rather than static experimental designs.

Another area in which the Foundation could have been more active is in helping develop managed care leaders. One could argue that philanthropic support is unnecessary for the development of leadership in the private business sector. On the other hand, many other foundations, such as Sloan and Kauffman, have developed effective leadership programs with industry. The managed care industry is facing enormous and complex challenges. Foundation backing of leadership development initiatives in this area could have provided more human capital able to offer creative solutions.

Finally, the Foundation has consistently been accused by a variety of parties of being for or against managed care. Its contributions reveal that it is neither. The Foundation supports efforts that improve health and health care access for the American people. Managed care, whatever shape it takes in the future, will be an important part of achieving those objectives.