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U.S. Experience with Managed Care and Managed Competition, The

Working Paper

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Presented at the Federal Reserve Bank of Boston's 50th economic conference

held June 15-17, 2005 in Chatham, Mass.

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To understand "managed care," one needs to understand the traditional model of health care organization and finance that managed care was intended to replace. That model was aptly characterized "Guild Free Choice" by Charles Weller to indicate that "free choice" was being used as a restraint of trade to block the emergence of any form of economic competition among doctors. Its principles were: "Free choice of doctor at all times;" "free choice of treatment, i.e. nobody 'interferes with the doctor's decisions and recommendations;'" "fee for service payment;" "direct doctor-patient negotiation of fees;" and "solo (or small single-specialty group) practice." The model was widely accepted because of the pre-Wennberg view of most people that "the medical care they receive [is] a necessity provided by doctors who adhere to scientific norms based on previously tested and proven treatments." In combination with well-insured patients, there was no way that employers or insurers could control health spending in this model. Organized medicine is still fighting to hold on to parts of it. Some people say that managed care is "anything other than Guild Free Choice."

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