Managed Care Reflections: A Q&A With Ge Bai, PhD, CPA

Am J Manag Care. 2025;31(10):In Press

AJMC: How have the concept of managed care and the conversations around it changed over the past 30 years?

BAI: Over the past 3 decades, the appearance of managed care has evolved, but its concept remains the same: Managed care providers are offered a defined amount of money in exchange for delivering care. Early managed care plans, particularly health maintenance organizations, emphasized controlling costs through enforcing strict utilization management, limiting patient choice, and requiring primary care physician gatekeeping before patients could access specialists or certain services.

Later, preferred provider organizations [PPOs] and point-of-service [POS] plans emerged, offering more flexibility in provider choice. PPOs generally allowed patients to see specialists without gatekeeping, whereas POS plans maintained some gatekeeping for in-network care. Despite these differences, all managed care models continued to prioritize cost management, network efficiency, and coordinated care.

Over time, managed care evolved further with technological advancements, electronic health records, and telemedicine, which improved care coordination and data-driven decision-making. The Affordable Care Act [ACA] of 2010 also reshaped managed care by promoting value-based initiatives, such as accountable care organizations and bundled payment models, linking reimbursement to quality and patient outcomes. Today, many managed care providers receive performance-based incentives and are held accountable for meeting specific care and outcome benchmarks.

Despite these innovations, the fundamental principle of managed care remains: fixed payments in exchange for care delivery. This contrasts with traditional fee-for-service systems, where payment is based solely on the volume of services delivered, often creating incentives for unnecessary care.

AJMC: What changes do you see taking place in managed care over the coming years?

BAI: Patients, rather than insurers, will increasingly be the ones handing out the money, and physician practices will strive to compete with integrated systems.

Recent reports show that commercial insurance premiums continue to rise significantly, including for both self-insured plans and ACA marketplace plans. High-deductible plans are becoming the norm to contain premiums. Patients—facing high deductibles, expensive premiums, medical debt, and prior authorization barriers—are increasingly questioning the value provided by health insurance. These trends intensify frustration with the status quo and push people toward paying directly for health care services. Once they have “skin in the game,” patients are highly motivated to seek low-cost options and take control over their health care spending and choices. For example, many may opt to go uninsured altogether or purchase coverage that protects only against catastrophic events, with minimal administrative complexity.

On the provider side, physicians are increasingly weary of administrative requirements, contractual restrictions, and burnout tied to insurance participation. Many are turning to direct-to-consumer models, as evidenced by the rise of cash-pay psychiatric services and concierge medicine. Together, these demand- and supply-side forces are disrupting the status quo and accelerating the growth of more efficient, consumer-driven health care arrangements.

AJMC: Much of your work has explored the complexities of pricing in the American health care system.^1-3 What do your findings say about the viability of various proposed solutions: negotiation vs regulation vs transparency?

BAI: Insurance negotiation works well for high-cost, infrequent services but not for routine, low-cost ones. The purpose of insurance is to protect against major financial risks. When it is used to cover routine services—where there is little financial risk to begin with—the added complexity and intermediary markup often outweigh the benefits of risk pooling. This is why cash prices are frequently lower than insurance-negotiated rates. Unless insurance returns to its core function of covering only economically insurable events, relying on it for most health care transactions will remain inefficient.

Regulation typically protects incumbents’ interests, limits competition, and ultimately harms patients. Take dialysis—the most regulated market—as an example. As Dr Eugene Lin, Dr Erin Trish, and I wrote in Health Affairs Forefront,⁴ patients are deprived of flexible, affordable, and high-quality care because providers focus on complying with top-down regulations rather than innovating from the bottom up to meet patient needs. Many of health care’s inefficiencies can be traced back to overregulation.

Price transparency stimulates competition, especially when patients control their own dollars and directly benefit from lower prices and better health. Price transparency alone can’t be sufficient to transform market efficiency: Just as people are less careful when spending others’ money, patients who do not directly benefit from lower prices have little incentive to pay attention to price or whether price information is available.

AJMC: Other work of yours shows the dire realities facing rural hospitals.^5,6 Why are these health systems under such financial pressure, and what needs to happen to ensure access to care in rural America?

BAI: The key vulnerability of rural hospitals is their low occupancy rate. Demand is simply insufficient to sustain operations—not only because rural populations are sparse but also because rural patients routinely prefer to bypass local hospitals to seek care in larger hospitals far away. Subsidizing empty rural hospitals does not improve access to care. Encouraging market entry of low-cost, flexible care delivery is the right approach, including emergency hospitals that possess emergency care and transportation capacity without inpatient beds, physician-owned facilities, telehealth, mobile care, and midlevel practice providers.

In the meantime, allowing rural residents to have health savings accounts [HSAs] and subsidizing these accounts for vulnerable patients, rather than sending money to hospitals, would encourage the bottom-up, organic development of care delivery that truly meets patients’ diversified needs.

As I wrote in Forbes, “Just as rural areas provide a friendlier operating environment for Walmart than for Whole Foods, low-cost, flexible facilities and care delivery models hold the key to improving rural access to care.… In Europe, area travel is much more affordable and accessible than in the US, primarily because of the [European Union’s] Open Skies policy, which removed competition restrictions, liberated air transport markets, and promoted affordability and broad access. Similarly, opening rural health care markets to all providers could produce comparable results.”⁷

AJMC: If you could instantly enact, change, or eliminate any legislation affecting health care, what would you choose as most impactful?

BAI: I would pursue a 3-pronged approach of deregulation and subsidization to deliver health care affordability, innovation, and access to Americans.

First, allow patients to control their earned or subsidized health care dollars. Employers should contribute health care dollars directly to workers’ HSAs, which can then be used to purchase insurance and pay for routine services. A similar approach can be applied to public programs. Taxpayer-funded reinsurance programs should be used to stabilize premiums for high-risk patients. HSAs should also be allowed to receive tax-deductible contributions and transfers and be used to cover social determinants of health.

Second, allow clinicians to compete on a level playing field. The current regulatory environment makes it challenging for independent physicians to survive. Reforms should include site-neutral payments; the 340B program; relaxed restrictions on telehealth, licensing, accreditation, scope of practice, quality measurement, and electronic health records; and incentives for states to repeal or relax certificate of need laws.

Third, allow insurers the flexibility to design and offer plans that meet patients’ diverse needs. As noted earlier, insurance should cover major, high-cost events that pose meaningful financial risks. Current regulations prevent insurers from doing so. Relaxing these restrictions would allow insurance plans to return to their original purpose, foster innovation, and offer affordable products that compete to meet diverse patient needs while taxpayer-subsidized reinsurance continues to stabilize premiums for high-risk individuals.

REFERENCES

1. Wang Y, Plummer E, Wang Y, Cram P, Bai G. Comparison of commercial negotiated price and cash price between physician-owned hospitals and other hospitals in the same hospital referral region. JAMA Netw Open. 2023;6(6):e2319980. doi:10.1001/jamanetworkopen.2023.19980

2. Eisenberg MD, Meiselbach MK, Bai G, Sen AP, Anderson G. Large self-insured employers lack power to effectively negotiate hospital prices. Am J Manag Care. 2021;27(7):290-296. doi:10.37765/ajmc.2021.88702

3. Mattingly TJ II, Ben-Umeh KC, Bai G, Anderson GF. Pharmacy benefit manager pricing and spread pricing for high-utilization generic drugs. JAMA Health Forum. 2023;4(10):e233660. doi:10.1001/jamahealthforum.2023.3660

4. Lin E, Bai G, Trish E. How regulatory failures have crippled dialysis care. Health Affairs Forefront. April 9, 2025. Accessed September 15, 2025. https://www.healthaffairs.org/content/forefront/regulatory-failures-have-crippled-dialysis-care

5. Wang Y, Perkins J, Whaley CM, Bai G. Sharp rise in urban hospitals with rural status in Medicare, 2017-23. Health Aff (Millwood). 2025;44(8):963-969. doi:10.1377/hlthaff.2025.00019

6. Bai G, Yehia F, Chen W, Anderson GF. Varying trends in the financial viability of US rural hospitals, 2011-17. Health Aff (Millwood). 2020;39(6):942-948. doi:10.1377/hlthaff.2019.01545

7. Bai G. Are rural hospitals truly rural? only when being rural pays. Forbes. September 8, 2025. Accessed September 15, 2025. https://www.forbes.com/sites/gebai/2025/09/08/are-rural-hospitals- truly-rural-only-when-being-rural-pays/