that had to be corrected.44 Consequently, employers supported the
“managed care” movement—a complex of reforms intended to restrain cost
inflation while preserving the EBHI system.45
A foundational element of the managed care movement was the Health
Maintenance Organization (“HMO”).46 HMOs provided a comprehensive
set of health services to a defined subscriber population for a predetermined
amount, transferring to providers the risks of overutilization and excessive
costs.47 In theory, and generally in practice as well, the HMO model
brought the delivery of care and the payment for care together, presumably
inducing a desirable cost-consciousness in all parties involved.48 The
paradigmatic HMO was the nonprofit prepaid group practice (“PPGP”)
model, best represented by the Kaiser Health Plans;49 but in broader sweep
the HMO movement took in a variety of models in which the providers
were mostly paid a predetermined amount and had to provide all needed
care within this fixed budget.50
The managed care movement came into public prominence in 1970 with
the issuance of the “HMO White Paper” by the Department of Health,
Education, and Welfare (“HEW”).51 It was further propelled by the passage
44. Expert Guidance: Implications of The Changing Nature Of Society, HUM.
RESOURCES COMPLIANCE LIBR. (CCH) ¶ 54,062 (West 2013).
45. See generally, Ronald Lagoe, Deborah L. Aspling and Gert P. Westert, Current and
Future Developments in Managed Care in the United States and Implications for Europe,
HEALTH RES. POL’Y & SYS. 1, 2 (Mar. 17, 2005), available at http://www.health-policy-
systems.com/content/3/1/4 (discussing the history of managed care in the United States).
46. The term “Health Maintenance Organization” and the acronym HMO were coined
by Dr. Paul M. Ellwood, Jr., whose healthcare think tank, Interstudy, championed the
concept and worked with missionary zeal to promote the spread of HMOs. See Bradford H.
Gray, The Rise and Decline of the HMO: A Chapter in U.S. Health-Policy History, in
HISTORY & HEALTH POLICY IN THE UNITED STATES: PUTTING THE PAST BACK IN 309, 316
(Rosemary A. Stevens et al. eds., 2006).
47. Brian P. Battaglia, The Shift Toward Managed Care and Emerging Liability Claims
Arising from Utilization Management and Financial Incentive Arrangements Between
Health Care Providers and Payers, 19 U. ARK. LITTLE ROCK L.J. 155, 174-75 (1997); see
generally Gray, supra note 46.
48. See Gray, supra note 46, at 318-22 (discussing the history of HMOs).
49. Id. at 318-19.
50. See Arnold J. Rosoff, Phase Two of the Federal HMO Development Program: New
Directions After a Shaky Start, 1 AM. J.L. & MED. 209, 210 (1975) (discussing alternative
types of HMOs, including “open panel” or “foundation-type” plans). In 1979 HEW was
reorganized and became today’s HHS (Department of Health and Human Services).
51. See id. at 210-214 (discussing the efforts HEW made to promote HMOs,
referencing the prediction in their White Paper that by 1980 there would be 1,700 HMOs in
operation and discussing the progress of the HMO movement after HEW made this