Wounded Profession: American Medicine Enters the Age of Managed Care

By Arnold Birenbaum | Go to book overview

4
The Reorganization of Health
Care Delivery

How do managed care organizations (MCOs) become successful? The principle that operates in putting together providers and patients is to pass along deflation. Indeed, if inflation is passed on in the way wages chase prices, then deflation is passed on in a race to see who can do it the most cheaply. It is a race to the bottom—and that is precisely what worries providers and patients. Can quality of and access to care be maintained if resources are conserved?

As with any organization that creates some output or changes the environment in some way, the greater the integration of work facilities, the greater the productivity of each unit. MCOs are integrated organizations in the two ways that this concept is used in the literature of organizations.

Horizontal integration means that providers with the same skills and interests join together to create a group of great capacity to see large volumes of patients. Administrative costs per unit of service decline when this form of organization takes place. Economies of scale enter into the picture, reducing the costs of such support services as payroll, human resources, and telephone systems, to name only a few of the important services found in large organizations. More specific to health care, the group practice aspect of this form of integration allows expensive equipment to be shared among many providers, making technology, such as a magnetic resonance imaging machine, less expensive to maintain when it is used more hours a day than when fewer physicians make use of it.

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