The Third G. Gayle Stephens Lecture by Joseph E. Scherger, MD, MPH

Last Updated on April 16, 2022 by Lee Burnett, DO, FAAFP

Joseph E. Scherger, MD, MPH

Sharp Healthcare Department of Family Practice and Community Medicine

San Diego, California

Fourth National Conference on Primary Health Care Access

Hyatt Regency Monterey

Monterey, California

Doctor Joseph E. Scherger presented the Third G. Gayle Stephens Lecture in April, 1993. Doctor Scherger’s presentation was subsequently organized for publication as a policy paper, with the footnoted citations displayed here.




Dr Scherger: Managed care is sweeping American medicine.  It is a megatrend, a process described by Naisbett1 , in that it began locally to meet specific needs, and has spread across the nation, carried by its own timely momentum.  Managed care is upon us regardless of who is president.  Yet, in retrospect, the Clinton administration may get credited or blamed for its near universal application in private and public health care.

[Below: Joseph Scherger, MD]

A value neutral definition of managed care is a means of providing health care services within a defined network of health care providers who are given responsibility to manage and provide quality, cost effective health care.2 Managed care may be defined more pejoratively as “[a]n attempt to contain health costs by controlling how and where patients obtain health care services.  Any health insurance or health financing control mechanism or financial inducement intended to direct or restrict the patient’s choice of provider or the patient/physician choice of treatment modality?.3

In 1991, 32.5% of insured Americans were in a health maintenance organization (HMO) or a preferred provider organization (PPO) receiving care within a fixed budget.  Many predict that during the 1990s,  virtually all public and private health insurance will convert to managed care.4 The impetus for this change is the need to control spiraling health care costs, and managed care is a framework for private medicine to try and provide health care within a fixed budget.

Managed care is an economic “paradigm shift” for private medicine.  Instead of being reimbursed for each item of care, providers will be reimbursed for care to population groups, with each service becoming a cost rather than a revenue.  This has enormous implications for the doctor/patient relationship.

There are many who feel that the transformation from independent fee-for-service medicine to managed care contaminates the doctor/patient relationship.5, 6,7,8 How can a physician be pure as a patient advocate when cost containment becomes an additional duty?  Does the managed care physician serve two masters, the patient and the payor, the latter now controlling the physician’s income?  Will the desired reform of medical care from a biomedical model to a biopsychosocial model be intercepted by a medical-economic model of care?  When physicians are economically incentivized to control costs, the physician’s income may be at risk by providing care to the patient.  Who wants to have such a physician?  Are physicians losing their autonomy to practice medicine in an office they control?  This essay addresses these questions.

Does managed care automatically raise ethical conflicts?  Some say not more than fee-for-service practice, where the physician has an economic incentive to provide unnecessary services9, 10 Honest physicians, and hopefully most are, will say they only act in the patient’s interest, regardless of economic gain.  But in managed care, acting in the patient’s interest may result in loss of income, either for the physician or for the organization which employs the physician.  Fear of loss may be a more pervasive economic incentive than greed.

There are obvious positive aspects to the managed care transformation.  Our historical non-system of health care has resulted in excessive health care costs which are crippling American industry, bankrupting local and state governments, and adding to the federal deficit.  Expensive health care has severely limited funds for other social services.  Resources are limited – not a traditional American concept – and managed care provides a means for rationally distributing health care.

Whether it be a family or a nation, deficit spending requires a change in order to  budget for all expenditures rationally.  Health care should be no exception, despite its impact on life and death.  Modern medicine has given us an almost unlimited potential of impacting on disease processes, and genetic engineering is  just around the corner.

With managed care upon us, how can we make it work best for patients and for physicians?  There are several key issues which bear upon managed care and its impact on the doctor/patient relationship, the ethics of medical practice, patient and physician satisfaction, and quality of care.

Micromanagement or Macromanagement?

How managed care is applied in the exam room, and how it impacts the doctor/patient relationship, have enormous implications for the tradition and ethics of medical practice.  When a person is ill and sees a physician, that person expects the physician to be focused solely on diagnosing and treating the problem.  If a family has an ongoing relationship with a physician, the family expects the physician to care about their welfare above any other concerns.  This Hippocratic tradition of patient advocacy has served us well and should not be violated in the economic shift to managed care.

Veatch argues that the Hippocratic tradition should be adjusted to modern medicine, without losing its essence of being patient-focused.11 He states that modern physicians should be less autocratic in believing they have unique answers for patients, and be willing to recognize and practice with generally accepted standards for the treatment of certain problems.  Veatch considers cost containment in medicine a social need, and argues that programs for controlling health care costs (i.e., rationing of care) should be applied on a societal level based on social justice.  Practicing physicians should not be making rationing decisions for their patients.  Physicians should not abandon their patient-centered ethic, but will have to deal with the policies of those who make decisions regarding allocation of resources.

Danis and Churchill offer a different perspective on the role of the physician in a society which comes to grips with the reality of limited resources.12 They argue for broadening the ethic of medical practice.  Along with the patient-centered Hippocratic tradition, physicians should consider themselves as “citizens” in a society which strives for social justice.  Danis and Churchill argue that for too long physicians have been “dodging the dilemma” of balancing individual wants and needs with society’s greater good.  Physicians who are good citizens will want to provide high quality care for their patients and will want to conserve health care resources to meet society needs.  Uwe Reinhardt has expressed this “attitude” regarding patient care among physicians and patients in some European countries where the limited resources for medical care are clearly recognized.13

Either way, managed care is ethically feasible and consistent with the Hippocratic tradition of medicine, if the doctor/patient relationship is preserved, and cost containment pressures act at a population level.  In practical terms for physicians seeing patients, managed care may be operationalized by micromanagement or macromanagement.  Micromanagement is analyzing and imputing on individual physicians seeing individual patients.  This is common in new managed care plans, and is dangerous in its impact on physicians and patients.

Health economists and administrators think of primary care physicians as “gatekeepers”, and conceptually they may be accurate when comparing a primary care doctor/patient relationship with an open access to the health care supermarket of specialists.   But to ask primary care physicians to think like gatekeepers in caring for patients creates ethical conflicts and contaminates caring for patients.  Primary care physicians are trained to care for, as well as any physician, about 90% of the reasons for which a person seeks health care.  This is possible because  common problems occur commonly, and primary care physicians are experts in treating common health problems.

If a managed care system wants good gatekeeping, train or hire enough good primary care physicians, and provide incentives for them to stay in the system by fair pay, a reasonable work load, and opportunities to enjoy their practice and stay current.  This is macromanagement.  Create an environment for quality and efficient care, and let physicians care for patients.  If limits must be applied on the use of medical resources – and they must – let the physician and patient know the rules they must live by.

Macromanagement even allows the physician to commiserate with the patient about the limit of available services.  Other incentives applied at the level of the doctor on the patient to limit services will contaminate the doctor/patient relationship, reduce quality of care, and result in doctor and patient dissatisfaction for good reason.  This is an example of why physician leaders are so critical to designing and interpreting the system of managed care.

Terms like gatekeeper and case manager may be conceptually meaningful to health care planners, but have no place in the psyche of primary care physicians dedicated to caring for a group of patients.  After all, despite the increase in wellness visits, patients are a wounded humanity bringing their complex lives to physicians as illnesses.  Gatekeeping, case management and managed care are not terms which belong in the exam room.

Experienced and successful managed care systems have appeared to resolve this dilemma.  Physicians who practice in staff model HMOs, such as Kaiser-Permanente or Group Health Cooperative of Puget Sound, express an acceptable degree of freedom in serving their patients.  They practice as “citizens” in a system of care.  They do not have to claim responsibility for making the rules or setting the limits.

Managed Competition – Hardware and Software

Managed competition is more than a proposal for health care reform – it is happening.  Another megatrend, American health care is being restructured along the lines of managed competition.  This process of care was first described by the Stanford health economist, Allan Enthoven14, and has been more recently referred to as the “Jackson Hole Model”, after a series of meetings in Jackson Hole, Wyoming, convened by Paul Ellwood.15 The Clinton administration appears to have embraced managed competition, and must now figure out how to place the uninsured into such a system.

The full scope of managed competition, and its inevitability as the American model of health care, can be understood by dividing it into two parts which, using a metaphor from computers, may be called the “hardware” and the “software”.  The software is the mechanism of budgeting and reimbursement for health care.  It is what is usually referred to when discussing reform proposals.  Managed competition calls for multiple managed care plans operating in a given region, competing for contracts to provide health care to employer groups, and other population groups such as Medicare and Medicaid recipients.  An organized delivery system under managed competition results from a level playing field of regulations produced by a local or central health care policy group.  This health care reform proposal has captured the support of many groups in America because it offers the potential for universal coverage, standardized benefits, quality controls and efficiency coming from market forces of competition.

However, it is the hardware transformation which is going on throughout the country which makes a managed competition system of care inevitable.  By hardware, I am referring to the providers of care -physician groups, hospitals and ancillary services.  Throughout America the cottage industry of small, independent practices, hospitals and other health care enterprises is giving way to regional, integrated systems of care.  Under the leadership of Stephen Shortell and others, these integrated systems are forming to compete as units of health care delivery with the goal of efficiency and quality comparable or better than staff model HMOs.16   Soon, in most metropolitan areas, virtually all providers will be operating in one of several regional systems of care.  Some systems are reaching out to rural areas, acquiring hospitals and physicians, in order to provide a broad geographic continuum of care.  This new American medical infrastructure, with competing regional systems of care, makes managed competition the obvious model for health care in America.  Physicians are no longer autonomous captains of their practice in an integrated system, but rather are key participants in a much larger model of health care.

Physicians used to professional autonomy in business will need to have an attitude adjustment in order to become team players in a larger system.  The only autonomy worth preserving in health care is the autonomy in the exam room in caring for patients.  Physicians would be wise to learn as much as possible about the forming regional systems in their area and think seriously about participating.

Physician Leadership or Victimization

Loss of control over the practice of medicine is the greatest source of physician discontent today. Physicians feel victimized as payors take greater control over clinical decisions.  One physician writes that he now feels like the third party with patients.17 Getting approval for a medical service, usually from a person with less training than the physician, has become a daily irritant.  Outright denials of a service considered by the physician as warranted seems like a violation of clinical judgment, and places in physician in a “Catch 22” with respect to liability.  In the office, with our patients asking why and why not, the larger picture of social justice may be hard to focus.  Less micromanagement of medical practice will help, but what will help most is for some physicians to take a leadership role in making sure the system works, not for their own self-interest, but for their patients and for the physicians’ ability to care for their patients.

Some physicians will be leaders in macromanagement, helping to set overall policies which balance quality and cost containment.  All physicians in practice should take the lead to drive out the contaminants of macromanagement from medical practice.  In turn, all physicians should act as citizens of the system, conserving health care resources for those who most need them.

If non-physician health executives are left alone to design managed care systems, based on economic data, with physicians as mere players, the mistakes will result in great physician dissatisfaction and a feeling of victimization.  To the administrator, patients become a panel and physician workload and productivity are determined in the aggregate.  This is fine only if there is reality-testing regarding the actual practice of medicine, especially with difficult patients.  Physician leaders, who can speak the same language as the administrator, yet also can reflect the reality of caring for patients “in the trenches”, are crucial to the success of managed care.

The Re-valuation of Physician Services

The transformation to managed care, with its predetermined budgets for services, will cause a re-valuation of physician services.  This is so because our current valuation is so irrational and grew out of the fee-for-service economic paradigm which rewarded procedures and technology over spending time with patients.  As services become costs rather than revenues, the real costs and value of all services are reconsidered.  The resulting valuation should be rational and fair.  RBRVS (Resource Based Relative Value Scale) was a step in this direction in the fee-for-service model.  With capitation, objective measures of relative value will be important.

The primary care specialties should benefit in this re-valuation.  Currently at the bottom of the physician earnings ladder, primary care physicians are recognized in managed care as a key to success by taking overall responsibility for patient care, providing common services, and deciding on appropriate use of other specialty care.  Fully trained primary care physicians should be valued at least at the median of physician remuneration.  Not only does this seem fair, but it would increase the number of medical students choosing a career in primary care, a desperate need for managed care systems.

The re-valuation of physician services are part of the budgeting process for care, and physician input will be crucial.  However, only physicians who can place the common good over their specialty self-interest should be involved.  This will be a difficult and painful process.  It has the potential of disrupting organized medicine, pitting specialty against specialty, primary care physicians against the specialist on which they depend and vice versa.  Inflammatory, self-serving actions by physicians could further damage the public’s view of the medical profession.


While the practicing physician may view managed care as ethically problematic, the managed care transformation in American medicine provides an opportunity to deal with ethical dilemmas not addressed in a non-system of uncontrollable costs.  Managed care gives America a framework or context in which to address the ethical dilemma of individual needs and social justice.

The danger of managed care is that physicians will be overly coerced to be devoted citizens to a particular health system or plan.  As regional systems compete, each with its own managed care plans and contracts, who is to ensure that the community is well-served?  Patients are different than cellular telephone customers – the latter seem to be doing well under managed competition.  Patients are people with health care needs, and competing systems must be discreet and appropriate in their local marketing, appropriate in access and continuity of care.  Physicians grounded in patient care are invaluable advisors for such discretion.  Finally, all systems of managed care must remember that they are in the business of human service to the entire community.  We are all looking to the Clinton administration to implement a plan which sets appropriate ground rules for managed competition, defines basic levels of care which all plans must provide, and provides ways for those who have been left out of health care in the past to participate.

The new world of managed care has the potential of improving medical care in ways that were not able to be accomplished in the fee-for-service entrepreneurial system.  The medical industrial complex, as described by Relman and others, entrenched American medicine in the use of high technology over spending time relating to the real roots of patients’ illness, often in psychosocial problems.18  Kerr White, in summarizing The Task of Medicine:  Dialogue at Wickenberg19 , identified four institutional barriers to improving medicine so that the full range of interrelated biological, social and psychological health problems can be studied and the people who experience them served.  These four barriers are:  the minor role given to primary care disciplines, such as family medicine and general internal medicine; horizontal cartels of hospitals and nursing homes rather than vertically integrated systems which balance resources and manpower in relation to needs; the constricted view of health problems experienced by most medical faculty; and the tendency of subspecialists of various persuasions to band together in self-serving national organizations closely allied with bureaucratic colleagues and political patrons, allowing more allegiance to themselves than to their patients.

Managed care is not a quick fix to these problems, but the resulting effects of budgeting for care and in which services become costs is likely to cause the great institutions of the medical-industrial complex to crumble or transform.  The yardstick by which any new health care system will be measured will be what degree quality care is provided to a population for a defined cost.  Patient needs become paramount, and self-serving medical technologies become suspect.

Physicians must accept that as a society we have a new dilemma.  Medical science and technology, with its inherent costs, have created a situation where we have more resources to offer patients than we can possibly justify providing to everyone.  With the advent of genetic engineering, the situation is likely to get worse.  While physicians serve as patient caregivers and patient advocates, at another level a rational system of providing services in a socially just way must be developed.  Managed care is a means of rationally delivering medical services.  It must be designed and regulated so that excesses, whether in administrative costs, services or earnings, are avoided in order to maximize the amount of health care which can be given to society.  Physicians alone cannot control this system any more than we can serve two masters.  However, we are critical participants in making it work.  When the medical profession as a whole gets involved in trying to make managed care work, placing the common good above self-interest, we have entered a new  era in American medicine.

1 Naisbett, J. ­Megatrends, New York: Warner Books, 1982.

2 Vogel, DE, Family Physicians and Managed Care:  A View to the 90s, Kansas City:  American Academy of Family Physicians, 1992.

3  Statement of Principles of Managed Care for Children.  Alexandria, Virginia: National Association of Children’s Hospitals and Related Institutions, September, 1990.

4  Vogel, ibid.

5  Stephens, GG, “Can the Family Physician Avoid Conflict of Interest in the Gatekeeper Role?  An Opposing View”, ­Journal of Family Practice, 1989; 28: 701-704.

6 O?Connor, SJ, Lanning JA “The End of Autonomy?  Reflecting on the Postprofessional Physician”, Health Care Management Review; 17(1):63-72.

7 Powe, NR, Eisenberg JM “Studying and Teaching the Gatekeeper”, Journal of General Internal Medicine, 1986; 1:97-98.

8  “Is it Still a Privilege to be a Doctor?” (Letters), New England Journal of Medicine, 1986; 315:1097-1099.

9 Ellsbury, KE, “Can the Family Physician Avoid Conflict of Interest in the Gatekeeper Role?  An Affirmative View”, Journal of Family Practice, 1989; 28; 698-701.

10 Eidus, R, Warburton, SW (Editors) Managed Health Care:  A Teaching Syllabus, Kansas City: Society of Teachers of Family Medicine, 1990.

11 Veatch RM “Allocating Health Resources Ethically:  New Roles for Administators and Clinicians” Front Health Ser Manage 1991; 8(1):3-44.

12 Danis M, Churchill LR, Autonomy and the Common Weal, Hastings Center Report 1991; 21(1) 25-31.

13 Breo, D Reinhardt, U “The Economist as Health Evangelist”, Journal of the American Medical Association, 1992; 268: 1332-1336.

14 Enthoven, A, Kronick R. “A Consumer Choice Health Plan for the 1990s:  Universal Health Insurance in a System Designed to Promote Quality and Economy” New England Journal of Medicine 1989: 320:29-37, 94-101.

15 Ellwood P, Enthoven A, Etheredge L, “The Jackson Hole Initiatives for a Twenty-First Century American Healtgh Care System”, Health Economics, 1991; 1: 149-168.

16  Shortell SM, Anderson DA, Gillies R et al. “The Holographic Organization” Healthcare Forum J 1993; 20-26.

17 “Is it Still a Privilege to be a Doctor?” (Letters), New England Journal of Medicine, loc. cit.

18 Relman, A “Shattuck Lecture -The Health Care Indeustry:  Where is it Taking Us?” New England Journal of Medicine, 1991; 325: 854-859.

19 White KL, The Task of Medicine:  Dialogue at Wickenberg, Menlo Park, CA:  Henry J. Kaiser Family Foundation, 1988.

people found this article helpful. What about you?