Story by
Kenman Wong
Associate, Professor of Business Ethics

Photos by
Jerry Gay

In the early '90s, as he was considering a topic for his doctoral dissertation, Kenman Wong suffered a year-long bout with severe headaches of an unexplained origin. His experiences trying to find effective medical treatment led him through the shifting new world of "managed care." It wasn't always smooth going, "but it did get me interested in the issues of business, medicine and ethics," he recalls.

As a graduate student taking courses in ethics and public policy, Wong knew the necessity of controlling spiraling health care costs in America. As a patient, he also knew the need for quality health services. Wong found himself asking whether managed care was truly the answer to the nation's health care dilemma.

The result was a lengthy scholarly investigation into the diverse systems loosely called "managed care" that developed in the 1990s. His conclusions, which even he describes as "controversial," were published in his 1999 book, Medicine and the Marketplace: The Moral Dimensions of Managed Care, published by Notre Dame Press. Reviewers have described the book as "engaging," "important" and "a first-rate contribution to the discussion of the intersection between business and medicine." Wong also co-authored Beyond Integrity: A Judeo-Christian Approach to Business Ethics, which has spent almost two years on's list of best-selling business ethics books.

Wong earned a bachelor of science degree from Biola University in 1986, followed by an MBA from the University of Washington in 1987. He was then employed by Andersen Consulting, where he specialized, in part, on working with health care organizations. In 1997, Wong received a Ph.D. in social ethics from the University of Southern California. He joined the SPU faculty in 1997 and won the School of Business and Economics' annual Scholar of the Year Award for 1997-1998.

At some point in our lives we will all be patients, likely vulnerable in our state of need. It is therefore understandable that we have watched nervously as medicine has evolved into "managed care" arrangements, dominated by large corporations, seemingly more interested in the bottom line than in the well-being of patients. This "revolution" in health care has prompted some physicians to state that the dollar sign has replaced the caduceus as the dominant symbol in medicine.

Numerous accounts of cost-cutting practices have only contributed to our fears. Media reports have focused on the plight of desperate patients who have been denied access to expensive procedures of last resort because the needed treatments were deemed "experimental."

Less sensational, but much more common, is the practice of payment through capitation arrangements, or prepaying primary care physicians a fixed dollar amount for treating a designated load of patients. The fear is that these arrangements give doctors the incentive to possibly withhold needed care since additional time spent with the patient and/or procedures performed comes at a direct financial cost to physicians.

Given these types of practices, it seems quite natural to conclude that if we could only turn back the clock and abolish managed care, and especially corporate involvement therein, the problems in our health care system would be solved. After all, the traditional business ethic is characterized by profit maximization, while the primary aim of medicine is the healing of patients. Mixing the two motives will lead to insurmountable moral tensions, whereby patient health will likely take a back seat to financial interests.

Despite the presence of very good reasons to be concerned, I do not think there are sufficient reasons to abolish managed care. The real challenge is in transforming managed care into an ethics-driven system. I believe this is best accomplished through the infusion of sound ethical values, and through some degree of governmental involvement.

Let me begin by taking on the very risky and unpopular task of defending managed care. While I do have many reservations about specific policies and practices, I believe that it is an acceptable, though imperfect, model of medical delivery.

Although managed care organizations have been criticized for their cost-cutting practices, it is important to remember that no model of medical delivery can supply care without attention to fiscal concerns. This would be the case even if medical care were provided by the government, non-profit organizations, or through medical savings accounts.

In fact, the main forces behind the growth in enrollment in managed care plans were legitimate concerns over fiscal irresponsibility and fairness in maintaining accessibility to care. It is well-documented that under the older, fee-for-service model, which was the dominant arrangement prior to managed care, wasteful spending was prevalent. Physicians were reimbursed for each treatment provided, and as a direct result overtreatment was more common than we would like to believe.

Furthermore, the real costs of medicine were often hidden from patients because traditional insurance plans reimbursed expenditures without much scrutiny. This resulted in a situation in which neither patients nor physicians had to worry much about fiscal concerns. As a result, health care costs were being driven upward to the point where medicine was becoming increasingly unaffordable.

In contrast, managed care has altered the trajectory of medical costs, albeit not to the extent promised. By integrating health care delivery and removing incentives for wasteful spending, the rapid rate of increase in the total level of health care costs has been slowed for the first time in decades.

Accompanying these cost savings, there is also some evidence that managed care may not be as damaging to overall patient health as is popularly believed. Although empirical studies are still in the infancy stage, many have concluded that overall patient health has not suffered. In fact, some significant, though largely unpublicized, contributions have been made by managed care to the actual improvement of patient health. For example, preventative care and quality measurement initiatives are receiving far greater emphasis than ever before.

While managed care can be defended as a model, many of the specific practices used to cut costs are questionable. And, while overall patient health may not suffer, some cost reductions (and thereby, profit) may come at the expense of individual patients. For example, capitation arrangements can pit the physician's interests against the patient's if the set pre-payment amounts are too low to cover the costs of necessary care. This is especially true if an individual physician has a load of patients that require more care than actuarily set premiums cover. Furthermore, defining the category of "experimental" too narrowly can lead to the denial of legitimately necessary and effective procedures. These examples underscore the fact that ethical concerns, and not just economic ones, must be central driving forces in the health care revolution.

However, transforming managed care into an ethics-driven system is anything but an easy task. The business and medical obligations of the organizations involved do not neatly fit together. In fact, many observers have stated that the profit motive has no legitimate place in medicine.

A deeper examination, however, reveals that medicine and business may have more in common than is thought to be the case. In fact, medicine has never been exclusively focused on patient needs and has always had a strong profit-oriented dimension. Health care professionals are generally very highly paid for their services (deservedly so).

Medical history is also replete with financially self-interested behaviors. Self-referral, the geographic concentration of physicians in wealthier areas, and the practice of refusing to see patients who lack financial resources are but a few examples. Furthermore, organized medicine has often supported policies because they favored the financial interests of physicians rather than the health needs of patients.

While these facts do not justify the extent to which the profit motive now exists in health care, they do reveal that medicine has never been as pure and as exclusively patient-centered as is commonly thought to be the case. They also point to the fact that the eradication of current managed care arrangements will not eliminate the profit motive in medicine.

In addition to a more truthful picture of medicine, it is also important to see that business can be conducted in a manner that is far friendlier to patients. While many businesses do follow a profit maximization model, characterizing this as the business ethic is erroneous. In fact, a growing number of corporations make decisions along the lines of a more enlightened, stakeholder-oriented paradigm. For these firms, success is measured by serving the interests of key stakeholders, rather than just maximizing profits for shareholders.

If such a model were applied to the health care revolution, as it should be, managed care organizations would place much more emphasis on the interests of patients, physicians and the greater community. And, they would not harm patients in the name of legitimate self-interests. While it would be naive to expect that all managed care organizations will voluntarily operate under a more values-driven business approach, a number are adapting their practices to better serve the interests of patients.

However, health care is one arena in which an appropriate degree of governmental and/or third-party intervention is legitimate and necessary in order to ensure fairness. While some observers have suggested that minimal governmental interference in business is ideal since long-term financial interests provide incentives to keep customers (in this case, patients) satisfied, this may not always hold true in medicine. A laissez faire, free-market approach will not work well, even in the long run, given the significant knowledge and power differences between patients and health care plans. Thus, some policies, such as which treatments qualify as experimental, are best determined by parties other than executives of individual plans.

Recent changes in health care delivery do give us legitimate reasons for worry. However, the problems therein are not insurmountable. If managed care organizations work under a more values-driven paradigm, the current health care revolution can be shaped so that patient health needs are met, while a greater degree of fiscal accountability is achieved.

How Well Are Patients Served?
Other Viewpoints on the Ethics of Managed Care

Response asked SPU graduates and faculty who serve as health and insurance professionals in the Seattle area to offer their opinions on the very complex issue of managed care. The following are excerpts from their comments:

Douglas Backous '84
Otologist, Neurotologist and Skull Base Surgeon,
Virginia Mason Medical Center. Director, Listen for Life Center, Virginia Mason Medical Center.

"I'm not opposed to managed care, just leery of managed care as we know it. Managed care works very well for healthy patient populations. Let's say a company has 30,000 employees and that company gives an HMO a lump sum to serve those 30,000. The HMO makes money by not delivering care. If there's not much care, the HMO makes money; if there is, they lose.

"My main concern is that patients become 'consumers,' and I'm not a physician anymore, but a 'provider.' I don't take care of 'FTEs' or 'units'; I take care of people. The boards can decide they're not going to give a consumer a bone marrow transplant. That's a lot easier than denying a mother, a father, or the kids.

"The way I want to practice medicine is the way I want to take care of my own mother. But I'm being told I can't do that, that adequate care is enough. Well, I'm not going to take care of anyone just adequately.

"Ethics is a broad word. For me, it means my Christian belief. I don't always know what's right and wrong, but there's a moral base to guide me. I can consult with God. Managed care is not ethics-driven but instead is guided by the allocation of medical resources.

"Managed care is a concept that should be refined to focus on the needs of people, keeping in mind financial constraints. Thinking dollars first and fitting patient needs around them is where my disagreement begins."

Cathryn Washington
Professor of Nursing, Seattle Pacific University.
Member, Governing Council, PAC-MED.

"As both a patient and a health care provider in a managed care organization, I believe that the system is working. The strengths of managed care are numerous. Quality of care is monitored more closely than in the past, and continuity of care is emphasized.

"In addition, ethical principles are outlined and used by health care organizations in their decision-making. There's also been a major shift in thinking from cure to preventative care. Patients are more inclined to take better care of themselves with the promotion of wellness and the focus on disease prevention.

"There are weaknesses, however. Patients not enrolled in managed care may have reduced access to medical care, and there's limited access to experimental treatments because of their high cost.

"The alternative system - the fee-for-care model - has its own problems. It's fragmented, offers little emphasis on holistic care, and has financial rewards for using high-tech equipment.

"The principles of managed care are aimed at improving the overall health and well-being of society in a cost-effective manner through the judicious use of resources, while also assuring quality health care - a worthy objective."

Thomas Knudsen '66
Insurance Agent, Thomas Knudsen Insurance.

"I, personally, have had a good experience with managed care. The reason it's gaining market share is because the person who sends patients to managed care is the person who pays for their insurance - the employer. The employer needs to control costs to be competitive. Managed care costs less. It's all economics.

"Until recent years, doctors embodied both the American ethic and the American dream. They undertook a long, costly education followed by years of long and inconvenient working hours. The reward was great wealth and unquestioned wisdom. By contrast, today's icon is just as likely to be the assistant manager at an '' who makes a million on stock options, retires at age 30, and goes off to save some endangered rat species. Times have changed.

"To accommodate managed care, doctors are being asked to submit to unprecedented restrictions and to accept reduced levels of compensation, so don't ask them to go quietly into the night. But managed care is here to stay and the reality is that doctors and insurance companies need each other. Leave them alone and they'll work it out.

"To believe that government involvement might bring enlightened resolution to the differences is to believe in the Easter Bunny and Bobby Ayala in the ninth inning."

Carrie Cady '84
Staff Nurse, Children's Hospital

"I think managed care is hit or miss. It works for some and not for others. For more complicated cases, it's difficult to get through the process. When everything goes as expected, managed care does work.

"I remember a one-year-old patient on managed care. He needed 24-hour nursing in order to go home but the insurance company refused to cover it. So he couldn't go home. He stayed in the hospital. He had a mother who knew how to advocate and she called her congressmen and her senators in Washington, DC. She was a squeaky wheel. It took a few weeks, but her son got to go home.

"In Medicaid, they give you a cap for all the kids in the clinic. If you have a child on intravenous nutrition, which is expensive, that blows the whole budget. And it's all about budget.

"It's true that managed care has brought costs down, and of course there should be limits to care. There's a lot of technology and it's expensive. But families need to have a say in this. They need to be told what's involved. It's unethical to deny treatment that can make life better just because it's expensive.

"We're asking, 'Why does this patient need expensive care?' when we should be asking, 'Is this what the patient needs medically?'"

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