"Managed care has been the single most dominant force that has fundamentally transformed the delivery of health care in the Unites States since the 1990's". (Shi & Singh) According to the National Library of Medicine, the term "managed care" encompasses programs: "...intended to reduce unnecessary health care costs through a variety of mechanisms, including: economic incentives for physicians and patients to select less costly forms of care; programs for reviewing the medical necessity of specific services; increased beneficiary cost sharing; controls on inpatient admissions and lengths of stay; the establishment of cost-sharing incentives for outpatient surgery; selective contracting with health care providers; and the intensive management of high-cost health care cases". The programs may be provided in a variety of settings, such as Health Maintenance Organizations (HMOs) and Preferred Provider Organizations. (PPOs)

Private health insurance began as a prepaid plan at the Baylor Hospital in 1929. For a predetermined fixed fee per month, Baylor, and subsequently other hospitals, started providing inpatient services. Within a few years, the Blue Cross Commission took over the insurance functions of the hospitals. The growth of managed care in the U.S. was spurred by the enactment of the Health Maintenance Organization Act of 1973 signed by President Richard Nixon. The underlying reason for supporting the growth of HMOs was the belief that prepaid medical care, as an alternative to traditional fee-for-service practice, would stimulate competition among health plans, enhance efficiency, and slow the rate of increase in health care expenditures. The HMO Act required employers with more than 25 employees to provide an HMO alternative if one was available in their geographic area. Premiums are based on contract negotiations between employers and the Managed Care Organization (MCO). Generally, a fixed premium per enrollee includes all health care services provided for in the contract. The MCO functions as an insurance company in that it covers any costs of services provided when exceeding fixed premiums. MCOs provide a comprehensive set of services, including preventive services ambulatory care, inpatient care, surgery and rehabilitative services. Most MCOs have contracts with physicians, clinics, and hospitals while some employ their own physicians on salary. MCOs use three main types of payments arrangements with providers: capitation, discounted fees and salaries. The three methods allow risk sharing in varying degrees between the MCO and the providers. Risk sharing puts the burden on the providers to be cost conscious and to curtail unnecessary utilization's. A survey of physicians and employers reported consensus of the two groups on seven essential features of managed care: cost containment, accountability for quality and cost, measurement of health outcomes and quality of care, health promotion and disease prevention programs, management of resource consumption, consumer eduction programs and continuing quality improvement initiatives. While managed care techniques were pioneered by health maintenance organizations, they are now used by a variety of private health benefit programs. Managed care is now nearly ubiquitous in the U.S with 90 percent of insured Americans enrolled in plans with some form of managed care. However, there is attracted controversy because it has largely failed in the overall goal of controlling medical costs. Proponents and critics are also sharply divided on managed care's overall impact on the quality of U.S. health care delivery.

Managed Care Museum. 19 Feb. 2009 http://www.managedcaremuseum.com/index.html.

"376 - Statement on Signing the Health Maintenance Organization Act of 1973" The American Presidency Project. 20 Feb. 2009 http://www.presidency.ucsb.edu/ws/index.php?pid=4092.

Shi, L., & Singh, D. A. (2008). Delivering health care in America: A systems approach (4th ed.). Boston: Jones and Bartlett.