Managed Care – How Did We Get Here?

The origins of Health Maintenance Organizations (HMOs) can be traced back to the early 20th century, when prepaid group practice models began to emerge. These models aimed to provide comprehensive healthcare services to individuals for a fixed prepaid fee. Notable examples include the Ross-Loos Clinic in Los Angeles and the Kaiser Permanente system, which began as an integrated prepaid health plan for construction workers.

The concept of HMOs gained momentum after World War II when the demand for healthcare services increased significantly. In response, various experimental initiatives were launched to provide affordable and accessible healthcare. The most influential among them was the Health Maintenance Foundation in 1947, which served as a precursor to the modern HMO model.

The most commonly known early managed care plan we most of us know is Blue Cross Blue Shield commonly known as BCBS.  BCBS was a fusion of plans supporting hospital care under “Blue Cross” and plans for physician care under the name “Blue Shield.” 

The origin of Blue Cross can be traced back to the early 20th century when hospitals faced financial challenges in collecting payments directly from patients. In 1929, Baylor University Hospital in Dallas, Texas, introduced a pioneering prepayment plan that allowed individuals to pay a fixed monthly fee in exchange for comprehensive hospital services. This plan aimed to make healthcare more affordable and accessible to individuals.

In parallel to the development of Blue Cross, the concept of prepayment for physician services also emerged. In 1939, a group of teachers in California organized a prepaid plan to cover physician services, naming it “Blue Shield.” The Blue Shield concept gained popularity, leading to the establishment of Blue Shield plans in other states as well.

BCBS was the merger of these two plans under the umbrella of the Blue Cross Blue Shield Association or “BCA.”

In what may appear to be a counter competitive move,  after Medicare was created in 1966,  it granted the “Master Contract” to audit cost reports and process claims to the BCA.

I personally owe a debt to BCA in that what we now call the Medicare cost report was created by BCA in order to compute Medicare’s portion of allowable costs.  We can also blame BCA for implementing a system that did not pay hospitals and physicians based on the amount they charged.

Programming note: Listen to Timothy Powell each Tuesday morning at he anchors the Talk Ten Tuesdays News Desk, 10 Eastern.