MANAGED CARE AND THE MORALITY OF
WHETHER health care should be subjected to the values of the marketplace is a
fundamental question facing us today. A powerful trend in this direction is
upon us, with enormous, well-financed companies already dominating the delivery
of health care in many parts of the country. Although many in medicine believe
that the unchecked expansion of managed care (particularly the investor-owned
variety) could have dire consequences, few have spoken out. Instead, many
leaders have accepted the new trend as a fait accompli and have begun to
position their institutions to survive within the constraints of the
marketplace. The threats are not difficult to identifY Market-driven care is
likely to alienate physicians, undermine patients' trust of physicians'motives,
cripple academic medical centers, handicap the research establishment, and
expand the population of patients without health care coverage.
Managed care itself is not the enemy. On the contrary, many of its effects are
salutary. Patients stay in the hospital far fewer days, many surgical
procedures that previously required hospitalization are now safely performed in
day surgery, there is far more attention to preventive care, many medical
practices have been standardized to produce better outcomes, and satisfying
patients has become an explicit goal. There is, however, remarkable
diversity among managed-care plans.' Some, mostly older plans that were created
when cost containment was an unexpected benefit rather than their central
purpose, deliver high-quality care economically. Unfortunately, others cut
costs by recruiting the healthiest patients, excluding the sickest, rationing
care by making it inconvenient to obtain, and denying care by a variety of
Market-driven health care creates conflicts that threaten our professionalism.2
On the one hand, doctors are expected to provide a wide range of services,
recommend the best treatments, and improve patients' quality of life. On the
other, to keep expenses to a minimum they must limit the use of services,
increase efficiency, shorten the time spent with each patient, and use
specialists sparingly. Although many see this as an abstract dilemma, I believe
that increasingly the struggle will be more concrete and stark: physicians will
be forced to choose between the best interests of their patients and their
own economic survival.
Under the fee-for-service system physicians were not at risk. It cost them
nothing to request consultations, order tests, or keep patients in the
hospital. But in many managed-care organizations, some payments are withheld
from physicians until the costs of their patients' care are assessed; in
others, doctors' salaries may be cut if the cost of their care is too high.2 3
These physicians are at risk financially, but if they play their cards right, a
large fraction of their income can be preservcd. In recent months, however, the
stakes have gotten higher. When the care in a community becomes
heavily capitated, many physicians are forced to join managed-care plans or be
left without patients. In addition, the physicians are often compelled to sign
contracts containing "no-cause" nonrenewal clauses45: their contracts can be
ended for any reason at all. Under this arrangement, physicians can rapidly
find themselves unemployed. In the past this would have had a negligible
effect: an unemployed doctor had only to move and start over. But other
managed-care organizations are not likely to be interested in a physician who
was dismissed from another plan, and such physicians may well be considered
Lamenting the lot of unemployed doctors is not the issue. The image of
physicians driving taxis or selling apples is worrisome, but the potential
effects short of that --on physicians' behavior and patients' confidence in
their doctors--are a real threat. Until now, there has been little empirical
evidence to indicate that managed care is inferior to fee-for-service care. In
fact, our professional ethos has so far acted as a sturdy constraint. Yet the
incentive to remain employed is so strong that many physicians in a
capitated system may not provide all the services they should, may not
always be the patient's advocate, and may be reluctant to challenge the rules
governing which services are appropriate. In some cases, in fact, their
contracts forbid them to disclose the existence of services not covered by a
plan.26 Doctors forced into such excruciating quandaries will not be able to
tolerate them for long. Soon, many will find themselves conforming to the
restrictions and deceiving themselves that what they are doing is best for
These predictions are based on several assumptions: first, that cost, not
quality, will dominate in the marketplace. Although many have argued that
competition will focus on the quality of care, the methods we have for
measuring quality are still quite primitive.7~9 As Arnold Epstein points out in
a Sounding Board article in this issue of the Jourrzal,9 the hope of
developing national quality-reporting standards died with the demise of health
care reform. With the quality measurements now in use, I believe that all plans
will look alike to employers. Another assumption is that all plans will offer
fewer services. As price competition becomes more intense, some plans are
likely to stop providing not only many services of uncertain value but also
other medical services valued more by patients than insurers (arthroscopic knee
surgery to restore the ability to play tennis, for example). Already, we are
seeing how competition is affecting plans in some parts of the countrY Some
plans with superb track records are being underbid by wealthy investor-owned
plans.~° i' It is only a matter of time before even the best plans will be
forced to trim benefits to compete. A last assumption is that physicians will
be given the responsibility to implement these restrictions'2~3--a
responsibility that will pit their duty to their patients against their duty to
Rather than oppose a system that might seriously
compromise the integrity of physicians, some people have proposed ways to cope
within the system. Several articles in recent issues of medical magazines have
offered advice.~4 t5 They suggest hiring a lawyer to assess contracts,
introducing a bookkeeping system to track the frequency of services, installing
a computer system that bills and tracks patients and their demographic data,
and attracting younger patients and turning Medicare patients away, if
necessary. In another strategy, proposed by the Council on Ethical and Judicial
Affairs of the American Medical Association, physicians are supposed to remain
dedicated to the health needs of their patients but at the same time to help
make decisions about the allocation of services through representation on the
governing boards or the medical boards of their organizations.~3 ~6 The council
acknowledged that doctors are obliged to provide or recommend treatment that
would materially benefit the patient and to disclose all therapeutic
alternatives regardless of their cost or whether they are offered by the
doctors' plans. A third strategy is to introduce rules and laws to ensure that
managed-care organizations provide appropriate care. Some advocate laws that
would bar nonphysician businesses and insurance companies from owning health
maintenance organizations,'7 some propose laws governing contracts with
patients and specifying measures of quality,iH ~9 and others would mandate
oversight committees to approve the clinical guidelines of managed-care
organizations.20 One is inclined to be skeptical, however, about the likely
effectiveness of rules and regulations to prevent overly restrictive practices
by capitated systems, given that rules designed to prevent profiteering in the
fee-forservice system worked poorly.
Devotees of "evidence-based medicine" propose another strategy--paying only for
treatments that are known to be efficacious or, better still, cost effective
(as if a list of such treatments actually existed2~). Still others suggest that
we try to place a value on human life and decide how much we are willing to pay
for it. For better or worse, we have not yet figured out how to do this. The
problem is that the marginal decisions-- those difficult choices about what is
beneficial--often have little scientific basis and are extremely difficult to
make. In fact, nobody wants to make them. To get around doing so, we often
substitute concepts such as "medically appropriate" care and "materially
beneficial" care. Unfortunately, these notions have different meanings to
different people. This is one reason that we have still not developed a
consensus on what should be offered and what should not.
The transformation of our health care system is having several perverse
effects. It is producing corporate conglomerates with billions of dollars in
assets22 that compensate their executives as grandly as basketball
players.23~26 These conglomerates are battling to control physicians in many
locations, and because they have cash and monopolistic power, they often
succeed. To some, providing medical care is a cost of being in the
health care business, with Wall Street and others using such terms as "the
medical loss ratio" to describe the expense involved in actually taking care of
the sick.27-29 There is already such sensitivity to price that both individuals
and companies change plans readily, thereby interrupting the continuity of
patient care.20303~ As another byproduct, a growing number of people in this
country have no health care coverage. The conversion to managed care has the
potential to squeeze hospitals so badly that they will no longer be able to
support research or education adequately,32 fund the debt service on their
capital loans, or provide many community services, such as free care for the
uninsured. In fact, these prospects expose in stark relief our failure to
support research and education independently rather than (in part) by
cross-subsidization with dollars designated for patient care.
Needless to say, supporters of market values have a different opinion about a
market-driven system. They are right in asserting that market distribution
works well for many goods and services. They believe that a market-based system
should lead to greater efficiency and make the health care dollar go further,
and they assume that the corporatization of health care is appropriate and that
health care should be treated as a commodity. Yet, a few have gloated over the
disorganization of physicians,33 34 and some contend that the large fraction of
health care revenues that is spent on marketing, administration, and profits is
what would be expected in any business."
Many disagree vehemently with the proposition that health care is just another
commodity. They argue that doctors have traditionally had a professional and
moral responsibility to care for patients, that patients are vulnerable and
dependent when they are ill and need to know that their physicians are not only
at their side but on their side. There is a strong presumption by patients that
the physician's concern for the patient will override any financial
Why have many of our leaders capitulated to such a wrong-headed philosophy of
health care? Over the past decade a few people have argued that cost should
never be a factor in the one-on-one encounter of a doctor and a patient,35~39
but where are the others? Why haven't we heard from them? I suspect that the
embracing of market values in health care reflects a change in society as a
whole. Because individualism and competition are increasingly celebrated, the
principles of the marketplace now permeate our personal lives and even capture
our judgment. When we spend our waking hours scheming about how to win, it
becomes difficult to keep in touch with fundamental human needs. We have not
given up talking about values, but they are often the values of the
marketplace, having to do with how much leverage and money we have. We forget
that there is more to being civilized than material goods and individual
rights. There is ethical behavior, respect, dignity, and caring.
We must persuade our leaders to speak out. They should concede that too much
money is still being spent
on excessive testing and unnecessary treatment, that hospital stays could be
further reduced, and that overhead costs could be cut substantially
by the elimination of redundant layers of bureaucracy and wasteful
paperwork. Leaders should also acknowledge that managing care can limit costs.
But they should go on to say that the enormous profits of megahospital systems
and huge insurance conglomerates should be used for medical care. Until they
are, we have not tried hard enough to discover whether our resources are
aufficient to avert restrictions in care. A rich country like ours that spends
nearly a trillion dollars a year on health care and enormous sums on tobacco,
alcohol, and cosmetics should be able to meet the basic health needs of its
citizens. Our leaders should reject market values as a framework for health
care and the market-driven mess into which our health system is evolving. We
gave up too easily; we must make another serious attempt to formulate a
national policy that will provide health care to all.
After all, what oath, promise, or pledge did we ever make, either as
individuals or as a profession, that obligates us to restrict care? We pledged,
instead, to provide care.
JEROME P. KASSIRER, M.D.
1. Clancy CM, Brody H. Managed care: Jekyll or Hyde? IAMA 1995:273:3389.
2. Rodwin MA. Conflicts in managed care. N Engl J Med 1995;332:604-7.
3. Hillman AL. Financial incentives for physicians in HMOs--is there a conflict
of interest? N Engl J Med 1987;317:1743-8.
4. Terry K. When health plans don't want you amymore. Med Econ 1994;
5. Gesensway D. Can you avoid being 'deselected?' Docs vs. HMOs' Mnktrimming
tactics. ACP Observer. October 1994:1, 15.
6. Morain C. Looking for more controls on managed care in California. American
Medical News. May 8, 1995:5, 6.
7. Kassirer JR The quality of care amd the quality of measuring it. N Engl J
8. Vladeck BC. Managed care and quality. JAMA 1995;273:1483.
9. Epstein AM. Performance reports on quality--prototypes, problems, and
prospects. N Engl J Med 1995;333:57-61.
10. Anders G, Winslow R. The HMO trend: big, bigger, biggest. Wall Street
Joumal. March 31, 1995:BI, B4.
11. Eckholm E. Healing process--a special report: while Congress remains
silent, health care transforms itself. New York Times. December 18, 1994:1.
12. Menzel PT. Economic competition in health care: a moral assessment. J Med
13. Council on Ethical and Judicial Affairs, American Medical Association.
Ethical issues in managed care. JAMA 1995;273:330-5.
14. Walker LM. Turn capitation into a moneymaker. Med Econ 1995;72(5):5873.
15. Doyle E. Medicine on 36 cents a day: how to take the fear and
risk out of capitated payments. ACP Observer. March 1995:13-4.
16. Eckholm E. A hospital copes with the new order New York Times. January 29,
17. Yarmolinsky A. Supporting the patient. N Engl J Med 1995;332:602-3.
18. Pear R. Once in forefront, H.M.O.'s lose their luster in health debate. New
York Times. August 23, 1994:A12.
19. Anders G, Stout H. Dose of reform: with Congress stalled, health care is
shaped by the pnvate sector. Wall Street Joumal. August 26, 1994:AI,
20. Emanuel EJ, Dubler NN. Preserving the physician-patient relationship in the
era of managed care. JAMA 1995;273:323-9.
21. Naylor CD. Crey zones of clinical practice: some limits to
evidence-based medicine. Lancet 1995;345:840-2.
. Anders G. Money machines: HMOs pile up billions in cash. try to decide what
to do with it. Wall Street Journal. December 21, 1994:AI, A5.
23. Freudenheim M. Penny-pinching H.M.O.'s showed their generosity in executive
paychecks. New York Times. Apnl 11, 1995:D I, D4.
24. Contavespi V What about Michael Jordan's pay? Forbes. May 23, 1994:142.
25. Zaslow J. Larry Johnson: 'your job isn't everything.' USA Weekend. April
26. Taylor R Bad actors: the growing number of eelfish and spoiled players are
hurting their teams and marring the NBA's image. Sports Illustrated. January
27. Iglehart JK. Rapid changes for academic medical centers. N Engl J Med
28. Reinhardt UK. Managed competition in health care reform: just another
American dream, or the perfect solution? J Law Med Ethics 1994;22(2):10620.
29. Freudenheim M. Swallow hard and cut your costs, customers say. New
York Times. April 28, 1995:DI.
30. Emanuel EJ, Brett AS. Managed competition and the patient-physician
relationship. N Engl J Med 1993;329:879-82.
31. Stout H. Selective services: freedom to choose a doctor is dwindling, even
before reforms. Wall Street Journal. February 10, 1994:AI, A6.
32. Kassirer JR Academic medical centers under siege. N Engl J Med 1994;331 :
33. Murray D. The four market stages, and where you fit in. Med Econ 1995;
34. Johnsson J. Premium war: who pays? Quality may suffer as firms slice
physician fees, protect profits. Amencan Medical News. March 13, 1995:1, 21.
35. Angell M. The doctor as double agent. Kennedy Inst Ethics 1993;3:279-86.
36. Levinsky NG. The doctor's master. N Engl J Med 1984;311:1573-5.
37. Cassel CK. Doctors and allocation decisions: a new role in the new
Medicare. J Health Polit Policy Law 1985;10:549-64.
38. Leaf A. The doctor's dilemma--and society's too. N Engl J Med 1984;310:
.,. Relman AS. Salaried physicians and economic incentives. N Engl J Med 1988;3
THE OREGON HEAETH PEAN --
LESSONS FOR THB NATION
First of livo Parts
THOMAS BODENHEIMER, M.D.
IN 1989, the state of Oregon embarked on a controversial experiment in the
financing of health care. The state planned to add many uninsured people to the
Medicaid program and to pay for this expansion by reducing the Medicaid benefit
package--more people would be covered, but for fewer services. The Oregon plan
provides important lessons to a nation striving to expand health care coverage
in an era of shrinking budgets.
At first, the Oregon plan made repeated headlines and provoked strong
criticism. "The Oregon plan will target a new group for discrimination--the
seriously ill," wrote an Oregon physician in a letter to the editor of the
Journal.l "It denies care only to the politically powerless poor,"
commented health analyst Emily Friedman.2 "Oregon's decision to ration health
care to its poorest women and children," charged Al Gore, "is a declaration of
unconditional surrender just as the first battles are being fought over the
future of our health care system."3
Why all the outrage? After all, Oregon was insuring more people, not fewer.
Other states had axed thousands of families from Medicaid and reduced benefits,
with little or no fuss. The difference was the method that Oregon chose to
create its benefit package --the prioritized list. In 1991, Oregon ranked more
than 700 diagnoses and treatments in order of importance. The state legislature
then drew a line at item 587; treatments below the line would not be covered.
Oregon had openly embraced the "R word": rationing--worse, rationing for the
poor. Liberal Democrats in Congress, the Children's Defense Fund, the American
Academy of Pediatrics, and others condemned the Oregon plan.
On February 1, 1994, the Oregon Health Plan, with its prioritized list, went
into operation. How
From the Department of Family and Community Medicine, University of California
at San Francisco School of Medicine, San Francisco. Address reprint requests to
Dr. Bodenheimer at 1580 Valencia St., Suite 201, San Francisco, CA 94110.
@)1997, Massachusetts Medical Society.
have Medicaid recipients fared during these first three years? Perhaps
surprisingly, the plan has added more than 100,000 people to the Medicaid
program, and it is politically popular. Serious complaints about the
prioritized list are hard to find. Major problems exist, but they mirror the
difficulties of the health care system throughout the nation.
The Oregon Health Plan began with the poignant story of a seven-year-old boy.
In 1987, Coby Howard contracted acute Iymphocytic leukemia and needed a bone
marrow transplant. Earlier that year, the Oregon legislature had discontinued
Medicaid coverage for organ transplantation.4 Amid much publicity, Coby
John Kitzhaber, an emergency room physician in the town of Roseburg, Oregon,
was also president of the Oregon senate. In the emergency department, he saw
victims of Medicaid cuts with serious illnesses that could have been treated at
earlier stages. In the state senate, he lived through the Coby Howard tragedy.
Kitzhaber wanted to address the twin problems: lack of insurance among
low-income people and denial of life-saving treatment despite coverage of less
effective therapies for less serious conditions.
A legislature can reduce Medicaid expenditures by removing people from the
program, lowering the rate of reimbursement to providers, or reducing the
benefit package. Kitzhaber believed that removing people from the program was
the worst of the options. He also believed that many physicians refused to see
Medicaid patients because of low reimbursement rates and that the legislature
should not reduce payments to providers. The remaining option in the case of a
budget crisis was to reduce the benefit package. But how could the benefit
package be reduced without letting more Coby Howards die? Perhaps a prioritized
list could guarantee that benefit reductions would eliminate only the least
In 1989, Kitzhaber shepherded through the Oregon legislature a plan with
several key features: ( 1 ) all persons with incomes below the federal poverty
level would be eligible for Medicaid, (2) the Medicaid benefit package would
consist of a prioritized list of diagnoses and treatments, (3) the legislature
would draw a line on the list below which treatments would not be covered, (4)
the legislature would not be allowed to reduce reimbursement rates to Medicaid
providers, (5) Medicaid services would be provided through managed-care plans,
and (6) employers would be required to insure their employees, with the
prioritized list as the basic benefit package.
In 1989, the Oregon Health Services Commission was established to create the
prioritized list.56 The 11 commissioners were remarkably dedicated, attending
many long meetings without pay over a
MANAGED CARE UNDER THE OREGON
Eighty-seven percent of persons enrolled in the Oregon Health Plan are in 1 of
the 13 capitated Medicaid managed-care plans with which the state contracts.
These are all not-for-profit plans; three forprofit plans dropped out
(PactfiCare, Qual-Med, and a local health maintenance organization [HMO]). By
far the largest Medicaid managed-care plan is HMO Oregon (owned by Blue Cross
and Blue Shield of Oregon), with 34 percent of Medicaid managedcare
Medicaid managed care has been growing rapidly throughout the United States. In
1996, one third of all Medicaid recipients were enrolled in managedcare plans
in 48 states, representing a 33 percent increase in the number for 1995. The
federal government is likely to eliminate the waiver process and allow states
more flexibility to require that Medicaid baneficiaries enroll in managed-care
Oregon was able to move its Medicaid population into managed care rapidly
because managed care has been a major component of Oregon's health system for
decades. Kaiser Permanente arrived in the 1940s and started to enroll Medicaid
patients in 1976. During the decade before the institution of the Oregon Health
Plan, the state enrolled 90,000 Medicaid recipients in HMO-style health plans.
Thus, by 1993, when the federal waiver was approved that allowed the state to
require that Medicaid recipients enroll in managed-care plans, Medicaid managed
care was already well established.
In any Medicaid managed-care plan, one measurement stands out as critically
important: the size of the capitation payment from the state to the plan.
Kitzhaber recognized the need to make capitation payments reasonably high for
two reasons: with adequate payment, physicians, hospitals, and managedcare
plans are more likely to support funding for the Medicaid program; and
reasonable rates attract physicians to the program, which means greater access
to care for baneficiaries. Kitzhaber insisted that capitation payments cover
the costs of care, whereas some other states provide payments that are lower
than the costs of care.
Although it is difficult to compare capitation payments from state to state
(since the mix of services covered by the payments varies), estimates can be
made. In 1995, Oregon's capitation rate for nondisabled persons under the age
of 65 years was about $130 per member per month. This payment represented a 30
percent increase over the fee-for-service Medicaid payments physicians received
before the Oregon plan was introduced. In Tennessee's TennCare program, in
contrast, 1995 capitation rates for a similar population were closer to $100
per member per month, representing a 40 percent decrease in pre-TennCare
payments.ls~l6 California's compara
ble capitation rate is even lower, about $80 per member per month. New York's
rates were considerably higher but have been ratcheted down in the past few
years. Studies have shown that the willingness of physicians to provide care
for Medicaid patients is related to the level of Medicaid reimbursement.l7
Are Oregon's doctors, hospitals, and health plans satisfied with the capitation
rates? Of course not. Are they extremely dissatisfied? Not really. Physicians
still earn one third less for services provided to Medicaid patients than for
those provided to patients covered by commercial plans or Medicare. Some
physicians are limiting the number of Medicaid patients they see, giving rise
to complaints--especially in rural areas--that Oregon Health Plan membership
cards are simply hunting licenses that enable the poor to join the hunt for a
physician who will give them an appointment. The state counters that in 1996,
88 percent of surveyed Medicaid enrollees were satisfied with their access to
health care, as compared with 70 percent in 1994.
THE PRIORITIZED LIST
In 1990 and 1991, Oregon's prioritized list was a controversial topic of
conversation among health care professionals, policy analysts, bioethicists,
and politicians. Today, complaints about the list are unusual.
What does the list look like? Table 1 shows three parts of the 1995 list: the
top five lines, the bottom five lines, and those near the current line (578)
below which services may be denied.l~ A number of diagnoses listed below line
578--for example, hepatorenal syndrome--can be managed by choosing a treatment
listed above the line, such as comfort care (line 260). Pulmonary sarcoidosis,
which is near the bottom of the list, can be treated with corticosteroids (line
158, medical treatment for respiratory failure). Expensive therapies that are
medically effective, such as renal transplantation for end-stage renal disease
and liver transplantation for biliary atresia and other life-threatening
hepatic disorders, are ranked high on the list. Contraception is also ranked
high, at line 51. Low birth weight (less than 2500 g) is at line 67. Preventive
services for children are at line 143, and preventive services with proven
effectiveness for adults are at line 181. Medical therapy for human
immunodeficiency virus disease and AIDS is at line 168.
Five factors have stilled the argument that the list represents rationing of
medical care. First, on balance, the Oregon Health Plan has expanded health
care benefits more than it has reduced them. In particular, all enrollees are
now covered for dental care and organ transplantation, benefits previously
denied to Medicaid recipients.
Second, the line below which services may be de
nied has been set quite low on the list of diagnoses and treatments and has
remained low. Most of the treatments listed below the line have little
effectiveness. "Line movement" (movement of the line upward so that fewer
treatments are covered) has been minimal, in part because the Health Care
Financing Administration (HCFA) must approve any line movement passed by the
state legislature. In 1996, the legislature moved the line from 606 to 581. In
1997, the legislature attempted to move the line from 581 to 574, but HCFA
approved a move only from 581 to 578. If the line were moved much further up,
protests could be expected from health plans, physicians, and patients. That
situation is unlikely, however, since HCFA has indicated that it will not favor
further movement of the line in the near future.
Third, since the items on the list represent diagnosis and treatment pairs, a
diagnosis is required before a treatment can be denied. For simple maladies
listed below the line, such as acute bronchitis, treatment is given at the
diagnostic visit and is covered. Complex diagnostic workups are also
Fourth, physicians occasionally "game" the system, choosing a diagnosis above
the line even though the patient has an illness that falls below the line.
Finally, and most important, the state Medicaid program requires adherence to
the list only for the 13 percent of patients whose physicians are paid on a
fee-for-service basis by the state. In these cases, International
Classification of Diseases, 9th Revision (ICD-9) codes and Current
gy, 4th revision (CPT-4) codes for treatments listed below the line are not
reimbursed. But for the 87 percent of Medicaid enrollees in capitated health
plans, the state has shifted the financial risk to the plans and provides no
additional funds if treatments listed below the line are given. The state has
calculated that items below the line account for about 10 percent of all
medical expenditures and has therefore subtracted 10 percent from capitation
payments to the health plans. In this way, the state saves money as a result of
the list. Yet the medical directors of health plans may, and often do,
authorize care for diagnoses listed below the line. Recently, the utilization
review committee of the CareOregon health plan approved high-dose chemotherapy
and bone marrow transplantation for a nine-year-old child with medulloblastoma,
a $75,000 treatment of unproven efficacy that is listed below the line.
Oregon's prioritized list serves as the Medicaid benefit package, indicating
which services are covered and which are not. The list parts company with most
health insurance and HMO benefit packages, which cover services that are
"medically necessary" but leave the interpretation of medical necessity to
medical directors within the insurance company or HMO. In contrast, Oregon's
program clearly defines services that are deemed medically necessary, and if
fiscal constraints require a reduction in benefits, this reduction is
accomplished by taking away less appropriate treatments before denying more
A similar approach to the design of benefit pack
TABLE 1. THF. OREGON HEALTH PLAN'S PRIORITIZED LIST OF HEALTH SERVICES,
The 6ve top items
Line 1. Diagnosis: severe or moderate head injury, hematoma or edema with loss
of consciousness. Treatment: medical and surgical treatment.
Line 2. Diagnosis: insulin-dependent diabetes mellitus. Treatment: medical
Line 3. Diagnosis: peritonitis. Treatment: medical and surgical treatment.
Line 4. Diagnosis: acute glomerulonephritis with lesion of rapidly progressive
glomerulonephritis. Treatment: medical therapy, including dialysis.
Line 5. Diagnosis: pneumothorax and hemothorax. Treatment: tube thoracostomy or
thoracotomy, medical therapy.
The five bottom items
Line 741. Diagnosis: mental disorders with no effective treatments. Trcatmc~lt:
Line 742. Diagnosis: tubal dysfunctic,'1 and other causes of infertility.
Treatmcnt: in vitrc> fertilizatic>n, gamete intrafallopian transfer
Line 743. Diagnosis: hepatorenal syndrome. Treatment: medical therapy.
Line 744. Diagnosis: spastic dysphonia. Treatment: medical therapy.
Line 745. Diagnosis: disorders of refraction and accommodation. Treatment:
Six items near the 1997 cutoff line
Line 576. Diagnosis: internal derangement of the knee and ligamentous
disruptions of the knee, g~-adc IIT c~r 1~. Treatn~ent: repair, n~edical
Line 577 Diagnosis: keratoconjunctivitis sicca, not specified as Sjogren's
syndrome. Treatment: punctal occlusion, tarsorrhaphy.
Line 578. Diagnosis: noncervical warts, including condyloma acuminatum and
venereal warts. Treatment: medical therapy.
Line 579. Diagnosis: anal fistula. Treatment: fistulectomy.
Line 580. Diagnosis: relaxed anal sphincter. Treatment: medical and surgical
Line 581. Diagnosis: dental conditions (e.g., broken appliances). Treatment:
~Data were adapted from Oregon Health Plan Administrative Rules.'8
ages has been proposed by two health policy experts. Robert Brook suggests that
substantial resources be devoted--through outcomes research--to the development
of detailed guidelines that all health insurance plans can use to determine
medical necessity, so that all appropriate care, and no inappropriate care, is
covered.l9 David Eddy, arguing that "almost anything would improve on the
hopelessly vague terms 'medically necessary' and 'appropriate,"' wants more
precise benefit language but rejects the level of detail in Oregon's list.20
Although many particulars of Oregon's list are open to criticism,5 it does
incorporate a large dose of common sense. As one Oregon physician explained,
"Most things at the top are important, and most things at the bottom are not so
important." Oregon's list represents a new approach to the design of a benefit
package, introducing a health policy issue that merits further discussion and
1. Bennett WM. The Oregon Medicaid controversy. N Engl J Med 1992;
2. Friedman E. Out of the frying panHealthcare Forum J 1990;
3. Gore A Jr Oregon's bold mistake. Acad Med 1990;65:634-5.
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