Prognosis: managed care has a lot of room to grow.

• Author: Hall, Mark

Mark Hall is a professor of law and public health at Wake Forest University School of Law and Bowman Gray School of Medicine. He also teaches at Wake's Babcock Graduate School of Management. He has a law degree from the University of Chicago and studied public health at Johns Hopkins University.

BNC: What's the new trend in managed care in North Carolina?

We're seeing a rapid increase in the number of managed-care entities and people enrolled in them. It seemed to pick up speed around 1994. That's the year when the number of new HMO applicants suddenly jumped, and it has continued at a rapid pace.

MANAGED CARE Health-maintenance and preferred-provider organizations Fiscal Fiscal Fiscal '94 '95 '96(3) Licensed HMOs(1) 12 18 26 New HMO applications(1) 7 16 7 Registered PPOs 20(2) 62 85 1 includes single-service providers e.g. dental plans 2 estimated 3 through February Source: N.C. Health Care Reform Commission BNC: California and Minnesota have more-mature managed-care markets. What can this state see coming?

The market will become saturated for managed-care entities. But it is far from being saturated in the number of enrollees. What we're seeing is the start-up of a vigorous market, where the major providers are being established. I don't think the state can easily sustain 25 or 30 HMOs, although it's conceivable. It could drop back to about 15. On the other side of the ledger, the number of enrollees is expected to continue to increase at a steady pace, if not an accelerated one.

BNC: You've said that North Carolina is ahead of most states in moving to capitation - HMOs telling hospitals and doctors, 'We'll give you this many patients, pay you this much, and do what you have to.'

That's right. The first level of savings comes from bulk discounts and also managed-care oversight, such as utilization review. Then the market moves on to capitation, where additional savings are achieved by imposing financial risks directly on the provider. When that occurs, we've seen in California that there's a very rapid decline in expensive medical treatments such as hospitalization.

BNC: Are there lessons to learn from California and Minnesota?

There are a couple of things that concern me. There is a regulatory concern: Should doctors or hospitals that bear insurance risk be regulated as insurance companies? You have to set up solvency guarantees that protect against defaults or bankruptcies.

BNC: What is the state Department of Insurance doing?

They are...