programs use a capitation system to pay for health care and manage risk.10 In a capitation system, providers are reimbursed based on the number of patients enrolled in their care (e.g., paid a monthly fee per enrollee) rather than on the amount and nature of services rendered. Between 1990 and 1995, total enrollment in HMOs grew from 36.5 million to 50.1 million, representing 20 percent of all private insurance.11

The rise of managed care programs has greatly altered the practice of medicine. HMOs have contributed to a shift in the view of medical care from mostly an art based on clinical judgment to mostly a science based on empirical data. Managing the practice of care now involves examination of aggregate data to define optimal approaches to the management of chronic diseases, for example, and analysis of the cost and quality of current and new care practices. Managed care providers emphasize the need to manage care across a continuum of encounters in addition to managing care within an encounter. As a result, managed care organizations have an opportunity to assess patient health risks and define optimal approaches to the management of the chronically ill, in addition to improving the efficacy of specific patient encounters with a health care provider. They also have an opportunity to use information about the health care needs of enrolled subpopulations of patients with common characteristics (whether gender, age, or condition) to improve care for individuals.

This shift has resulted in implementation of and experimentation with new data-intensive approaches to care provision and management. For example, the industry is developing measures of performance in the form of quality report cards administered by marketing or accrediting organizations. These include the Health Plan Employer Data and Information Set (HEDIS) developed by the National Committee for Quality Assurance and the Information Management standards established by the Joint Commission on Accreditation of Healthcare Organizations. In addition, providers are introducing more sophisticated approaches to managing the care of groups of patients with similar health problems (e.g., using demand management, disease management, and clinical pathways analyses). Managed care providers also tend to analyze the use of medical resources, including medications, specialists, radiology services, and sur-


In practice, a provider may be wholly or partially capitated (e.g., it may be capitated only for the provision of primary care and paid on a fee-for-service basis for other care).


Pharmaceutical Research and Manufacturers Association. 1996. Industry Profile. Pharmaceutical Research and Manufacturers Association, Washington, D.C., Figure 5-3; available on-line at Also, Health Insurance Association of America. 1996. Source Book of Health Insurance Data. Health Insurance Association of America, Washington, D.C., Table 2.5a.

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