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Health Care in Chaos: Will We Ever See Real Managed Care?

  • Judith A. Huntington, MN, RN
    Judith A. Huntington, MN, RN

    Director of the Office of Strategic Planning for the American Nurses Association

    Judith A. Huntington, MN, RN, is the Director of the Office of Strategic Planning for the American Nurses Association in Washington, D.C. She has been a member of the executive staff of ANA since 1989, serving as Director of Governmental Affairs (1989-1992) and Director of Field Services, Labor and Workplace Advocacy (1992-1995) before assuming her current role. Ms. Huntington's current responsibilities include association-wide strategic planning; oversight and direction of the development of ANA's online services programs; and executive liaison activities with constituent state nurses associations, specialty nursing groups, and other health care organizations


The purpose of this article is to provide the reader with a broad overview of managed care, including the scope and complexity of the issues facing nurses and consumers as the health care industry continues to consolidate and shift away from traditional fee-for-service financing. Managed care organizations (MCOs) and their evolving forms are reviewed; public policy issuesand their implications for nurses are identified; and responses for organized nursing are recommended. A glossary (See glossary) of terms and bibliography are provided, along with links to other Web sites of interest.

Key Words: World Wide Web, Ethics, Health Maintenance Organization, Job Market, Public Policy, Managed Care Programs, Preferred Provider Organizations, United States


The 1990s witnessed an unprecedented restructuring of the American health care industry, featuring a staggering rate of mergers, acquisitions and closures of hospitals as well as major shifts in "where and how" care is delivered. Early on, these changes were fueled by the unchecked growth in the cost of health care, advances in technology, and anticipation of national health care reform. Over the past decade, 675 acute care hospitals closed; the average daily census and inpatient days dropped 21 percent; and length of stay fell 7 percent. Indications are that this is only the beginning, as the existing supply of hospital beds far outweighs estimated demand under current and projected market conditions (Gerstein, 1995). Based on an average hospital occupancy of 67 percent and assuming managed care use rates, there may be more than 440,000 excess acute care beds in the country, according to a study done by the American Health Care Systems Institute, Washington, D.C.(Gerstein, 1995).

Since the failure of national health care reform proposals in 1994, the major drivers of health care restructuring have been unbridled competition and corporatization in the industry, and the unprecedented growth in managed care. Cost-containment, effected in large part by managed care, has caused hospitals and health systems to radically and rapidly reconfigure how they structure and provide care. Health care purchasers -- including large employers, and state and federal government programs -- seeking to lower their costs have increasingly turned to managed care contracts as a solution. In response, many hospitals, already struggling to compete in over-bedded environments, sought to obtain these lucrative managed care contracts by deeply discounting the prices for their services, hoping to underbid their competitors. As a result, hospitals frequently focus on achieving needed savings by reducing labor costs through work redesign and through substitution of lower-paid unlicensed assistive personnel (UAPs) for higher-paid personnel, including registered nurses (RNs).

There is no doubt that as hospitals continue to take licensed beds out of service in response to reduced demand in over-bedded communities, there will be some reductions in the number of positions in all job categories, including registered nurses.

Unfortunately, most of the RN layoffs now occurring are not true job reductions due to over bedding, but simply job substitution ...

Unfortunately, most of the RN layoffs now occurring are not true job reductions due to over bedding, but simply job substitution, instituted by hospitals to reduce labor costs and increase cash reserves (Huntington, 1995). Recent surveys of registered nurses provide many anecdotal accounts of the negative effects of downsizing on patient care and working conditions (ANA, 1994; Shindul-Rothschild, 1996). The results of these surveys lead the reader to conclude that many hospitals are engaging in cost-cutting practices that endanger patient safety and quality of care for the sake of profits.

The most recent of these is the 1996 American Journal of Nursing (AJN) Patient Care Survey, conducted by Judith Shindul-Rothschild, RN, CS, PhD, and commissioned by AJN in collaboration with ANA The survey, conducted March through June 1996, was designed to investigate nurses' perceptions of the safety and quality of patient care currently being delivered. Just released, the AJN survey of 7,560 registered nurses provides a comprehensive overview of nurses' perceptions of the effects of downsizing, restructuring, and the use of UAPs upon the quality of patient care and RN employment conditions.

Key findings of the AJN survey:

  • Almost two out of five nurses would not recommend that a family member receive care in their facility.
  • More than 85% of the respondents said that the increased use of UAPs did not improve patient care at their facility.
  • More than 60% of the nurses reported a reduction in the number of RNs providing direct patient care and an increase in the number of patients assigned to RNs resulting in a labor trend known as "speed-up" -- expecting fewer workers to both work harder and be more efficient than before staff reductions.
  • Fifty-five percent of nurses reported less continuity of care, and an even higher percentage reported less time to provide all aspects of nursing care. For example, most RNs reported less time to comfort and talk to patients (74%), teach patients and their families (73%), provide basic nursing care (68%), document care (66%), and consult with other members of the health care team (57%).=20
  • The number of nurses who report that they will remain in the nursing profession appears to be dropping. In 1986, University of Texas researchers found that 86% of nurses indicated that they planned to remain in nursing. In the AJN study, the retention rate dropped ten points, to 76%. According to the AJN survey, the lowest retention rates are in the Pacific region (70%) and the highest are in the West/North Central region (80%).

Even with these most recent survey results, the full impact of these changes on the quality and safety of care is difficult to document and evaluate. Most of the needed data are not publicly reported, and remain in proprietary databases of hospitals or managed care plans. As a result, health care quality in managed care plans and hospitals is subject to increased scrutiny, not only by the nursing profession, but by regulators and the public as well. Some question whether the current configurations can truly be called managed "care" or whether they are simply managed "cost."

Thus, the question: Is managed care, as it is often proclaimed, a panacea for the nation's health care system, effectively controlling costs and providing preventive approaches and early interventions to millions who would not have benefited from these strategies under traditional indemnity plans? Or is it, as others claim, a pandora's box, destined to erode quality of care by cutting too many corners?

What is Managed Care?

In its most simple form, the term "managed care" refers to some form of organized delivery system that links the financing of health care to the delivery of services. The original objective of managed care was to maximize the quality of care while minimizing costs, by providing a coordinated, seamless set of services that emphasize prevention and primary care. However, because of the speed at which the industry is evolving, there is no single universally accepted definition of managed care. In fact, virtually identical managed care arrangements may be defined quite differently around the nation (Grimaldi, 1996).

Today, the term "managed care" encompasses a wide variety of organizational arrangements -- HMOs, PPOs, IPAs, PSOs, PHOs, IDNs (Integrated Delivery Networks) and, as Leah Curtin, Editor of Nursing Management, once described them, "OWAs" (other weird arrangements). In its most basic form, managed care is an insurance concept that joins the financing and the delivery of health care services to covered individuals under a single corporate entity, most often by arrangements with selected providers (ANA, 1995). Prior to 1980, most managed care arrangements were large group-practice Health Maintenance Organizations (HMOs), such as Kaiser Permanente (See and the Group Health Cooperative of Puget Sound. (See

HMOs had their origins in the labor movement of the late 20's and 30's, when unions and employers tried to provide new benefits attractive to workers. The oldest HMO still in practice is Ross-Loos in Los Angeles, founded in 1929. After World War II, many of these prepaid plans, like Kaiser Permanente, opened their membership to the public. In 1973, the Health Maintenance Organization Act was passed by Congress, requiring employers who offered health insurance to also offer a managed care HMO option if a qualified HMO was available.

Today, MCOs are systems that offer a package of health care benefits, explicit standards for the selection of health care providers, formal programs for ongoing quality assurance and utilization review, and significant financial incentives for its members to see providers and procedures associated with the plan. (ANA, 1995). Managed care is usually financed by a "capitated" or prepaid mechanism, which means that a stipulated dollar amount is established to cover the cost of health care delivered for a person and is paid (usually monthly) to a health plan or specified health provider. The plan/provider is responsible for arranging the delivery of all health care services required by the covered person under the terms of the contract (ANA, 1995). MCOs make money when they are able to provide all of the needed services to health plan members for less than the aggregate capitated payment. MCOs and providers are said to be "at-risk" in that they must absorb any costs of care delivered that exceed the capitated payments to the plan.

Managed Care Models

As we have seen, there are many different forms of MCOs. Under the Federal HMO Act, an entity must have three characteristics to call itself an HMO: 1. An organized system for providing health care or otherwise assuring health care delivery in a geographic area; 2.An agreed-upon set of basic and supplemental health maintenance and treatment services; and 3. A voluntarily enrolled group of people. May & Shaeffer, (1995) in Nurses Mastery of the Managed Care Environment describe several of these forms:

There are four basic models of HMO's: group model, individual group association, network model and staff model. Recent changes in the marketplace have blurred the distinctions among these models, but they help illustrate the structure and incentives in managed care. Currently there are more than 500 HMOs in the United States:

  1. Staff model. This form is the most rigid. Physicians are on staff with some sort of salaried arrangement, often with bonuses. Early staff model HMOs also owned their own hospitals. More recently, new staff plans have contracted for hospital beds rather than building new hospitals.
  2. Group practice. Group practice HMO use an administrative structure to contract with organized groups of physicians and hospitals to create a plan of care. In some HMOs, the physicians' group continues to have a separate identity rather than operating as employees of the plan. Many of these group practice plans serve only the HMO membership, and have no outside practice. Group forms will include office space identified as the HMO.
  3. Networks. This is the fastest growing form of managed care. Networks have a more flexible organizational form. The plan contracts with a variety of groups of physicians and other providers in a network of care with organized referral patterns. Networks typically allow providers to practice outside the HMO with little formal identification.
  4. Independent Practice Associations (IPAs). IPAs have the most flexible organizational form. As the name suggests, these plans provide a listing of associated physicians with only a bookkeeping connection to each other. The patient has restricted choice. However, no formal referral network exists. Doctors and patients choose specialist care together. IPA physician lists may change frequently. Although easier to establish, such plans have been much less successful in controlling costs.
  5. Preferred Provider Organizations (PPOs) are types of managed care plans that contract with independent providers for negotiated discounted fees-for-services provided to members. Usually, the contract provides significantly better benefits (e.g., prevention services and minimal co-pays and deductibles) for services received from preferred providers, thus encouraging utilization of these providers. Covered persons are generally allowed benefits for nonparticipating provider services, usually on an indemnity basis with significant co-payments. There are currently more than 900 PPOs operating nationwide.
  6. Point-of-Service Option Plans (POSs) also known as H= MO-PPO hybrids or open-ended HMOs. POSs provide a set of health care benefits and offer a range of health services; however, the members are given a choice to use either the managed care program and network, or use out-of-plan services. This option is available each time the member seeks care. Members usually pay substantially higher costs in terms of increased premiums, deductibles, and coinsurance if they select a provider outside the panel of participating providers.

Newer forms of managed care include Physician-Hospital Organizations (PHOs) and Integrated Delivery Networks (IDNs).

Nursing's View -- What would "Real" Managed Care Look Like?

In 1992, ANA and 73 specialty nursing organizations developed and endorsed a comprehensive plan for health care reform called Nursing's Agenda for Health Care Reform. A cornerstone of the plan was the development and appropriate use of a managed care as a system that nursing called "organized delivery systems." Nursing envisioned an organized delivery system as a managed care system that would provide universal access to a defined standard package of essential health and treatment services, encompassing a balance between treatment of disease, health promotion and illness prevention. Additionally, the organized delivery system was seen as one that :

  • Provides for practice arrangements with a full range of health care providers;
  • Makes explicit standards for the selection of providers;
  • Provides for financial incentives for individuals enrolled in a plan to use the participating providers and procedures provided for in the plan;
  • Utilizes care coordinators who are responsible for guiding individuals in the plan to appropriate health care services in cost-effective settings;
  • Utilizes a case manager in those instances in which care is complex, involves multiple providers, and is high-cost;
  • Preempts state law and restricts states from limiting coverage because of pre-existing conditions and from limiting the type and number of providers;
  • Encourages consumer participation in healthy behaviors and self-care; and
  • Provides for utilization review that incorporates usage of standards for practice and guidelines (ANA, 1992, p.2).

The "organized delivery system" envisioned in Nursing's Agenda for Health Care Reform is strikingly similar to the "integrated delivery networks"described in the American Hospital Association's (AHA) 1995/1996 Environmental Assessment. However, as the AHA notes, these types of evolved systems are a rarity in today's managed care market, existing only in fully integrated markets such as Minneapolis (Gerstein, 1995).

Rapid and Continued Growth of Managed Care

1994, more than fifty-five million Americans (21% of the US population) were enrolled in managed care HMOs. Within this group, 9 million had access to PSO options (United HealthCare, 1996). This number included 67% of the employees of large firms. Additionally, about 79 million workers and their dependents had access to PPOs. Some 23% of Medicaid beneficiaries, and 9% of Medicare beneficiaries, were also in managed care plans.

The surge of interest in managed care is based in large part on dual assumptions: that managed care plans will lower costs for payers and consumers; and that quality can be maintained in a cost-effective environment.

Managed care industry experts predict that growth in enrollment in managed care plans will continue at a rate of 10% or more for the next several years, and that by the year 2000, more than 80% of the US population will be receiving their health care in a managed care environment (Ladden, 1996).

The surge of interest in managed care is based in large part on dual assumptions: that managed care plans will lower costs for payers and consumers; and that quality can be maintained in a cost-effective environment. However, fulfillment of these assumptions is proving to be problematic for consumers, providers, and the industry (May & Shaeffer, 1995).

Consolidation and restructuring of the health care industry and the subsequent utilization of managed care strategies exist along a continuum. According to the AHA Environmental Assessment, managed care markets will continue to evolve through phases, commencing with discounted fee-for-service, moving to market-driven financing and delivery, and ultimately to true integration. AHA notes that each market is different, and will proceed faster or slower, depending on local conditions and in some regions, market conditions may stabilize without ever reaching a fully-integrated model. They predict that eventually there will be, at most, 10 competitors in any region, with market shares ranging from 10 to 30 percent (Gerstein, 1995).

As IDNs evolve, they will produce more mergers, not only in the provider community, but between provider-insurers and insurers themselves (Gerstein, 1995). Many hospitals have already launched their integration efforts by consolidating among themselves. More than 650 of the nation's hospitals were involved in mergers or acquisitions in 1994, or 10 percent of all hospitals in the country. About half were the result of investor-owned firms' mergers; however, 301 other hospitals were involved in 176 deals during 1994, excluding hospitals merely affiliating (Gerstein, 1995).

This trend toward corporatization and consolidation is perhaps best represented by examining the aggressive growth of Columbia/HCA, Inc. In only seven years, Columbia/HCA grew from two Texas for-profit hospitals to an international health care delivery system of more than 330 hospitals in 37 states and two European countries, nearly 150 ambulatory surgical centers and a variety of other tightly-integrated services (Heineccius, 1995). This was accomplished by acquisitions of smaller proprietary hospital chains and by partnering with nonprofit hospital systems. Columbia/HCA has achieved cost-savings through vertical integration of all local medical services and creation of successful partnerships with physicians; volume purchasing discounts; exclusive supplier partnerships; refinancing of hospitals long-term debt at more favorable rates; eliminating excess capacity and duplication of services; and significantly reengineering operations, including nursing services (Heineccius, 1995). Wherever Columbia/HCA has entered the market, competitor hospitals have rapidly moved to consolidation and other alliances, giving rise to intense competition over prices and positioning for lucrative managed care contracts. The effects of this kind of market volatility and aggressive competition have far-reaching implications for consumers and nurses alike.

Public Policy Issues and Organized Nursing's Response

The rapid and continued growth of managed care has produced a wide range of important public policy issues and choices. Decisions made in the public policy arena will have either positive or negative implications for nursing. If nurses are to control their own destiny, it is essential that they fully understand and appreciate the linkages between public policy, nursing practice, and their own workplace employment conditions. Managed care prompts public policy debate and decisions on issues of critical importance to nurses, including: 1) Access, cost and quality of care; 2) Licensure and regulation; 3) Employment opportunities and conditions; 4) Educational preparation; and 5) Ethical issues.

1) Access, Cost and Quality of Care

Nurses have historically been advocates for access to quality, cost-effective health care services for all people. Lack of insurance coverage causes people not only to avoid preventive care, but to delay seeking illness care until later into the episode of illness.

... the increase in the number of uninsured not only represents a barrier to appropriate, timely care, but it also creates pressure on the system to absorb the costs for this uncompensated care.

Frequently this avoidance or delay increases the costs of care for an illness that could have been treated earlier, often in a less expensive setting, or the need for care avoided altogether.

Additionally, the increase in the number of uninsured not only represents a barrier to appropriate, timely care, but it also creates pressure on the system to absorb the costs for this uncompensated care. Historically, hospitals and other providers have provided uncompensated care by "cost-shifting" the charges for this care onto paying patients -- in other words, charging privately insured and self-paying patients more to offset the hospital's loses for uncompensated care and the underpayment by Medicaid and Medicare. Under capitated arrangements or deeply discounted fees-for-services, this option is not as readily available. Providers, especially hospitals, then look for ways in which to reduce their operating costs, through such strategies as downsizing, work redesign and substitution of less expensive personnel. Nurses must continue to be actively involved in advocating for insurance coverage for all people.

A. Increase in the Number of Uninsured

Despite the rapidly growing managed care sector, the percentage of US workers covered under employer-sponsored health plans dropped from a high of 77.7% in 1990 to 73.9% in 1995. It is expected to drop even lower -- to 70.4% by 2002 according to a study recently released by the Lewin Group, a Washington-based health care consulting firm. The study estimates that the number of uninsured Americans will increase to 45.6 million by 2002, an increase of more than 5 million since 1994 (Auerbach, 1996). Additionally, many companies that provide employer-sponsored plans have increased premiums for family coverage which may help explain the decline in dependent coverage (from 83% in 1989, to 78.9% in 1995). ANA has strongly supported legislation at the state and national levels to prevent further erosion of these benefits.

The 1995 proposal of the Republicans in Congress to reduce the Medicare and Medicaid programs by $450 billion over seven years would have devastated the quality of patient care, both because of the proposed structural changes in the programs themselves, and because there no longer would be adequate funding to pay for acceptable care. In the wake of the 1996 elections, issues of cost will receive as much, if not more, limelight than issues of quality, especially as revised predictions of Medicare insolvency are revealed. ANA and organized nursing must remain among the leaders in defending quality of care in both Medicare and Medicaid.

B. Mental Health Parity

Advocates for mental health care have raised widespread concern about the practice of many managed care companies that provide more limited coverage for treatment of mental illness than for physical illness. In 1996, Congress approved language that to provide minimal parity in coverage of mental illness, scaling back the more comprehensive language that had been approved in the Senate (the Senate bill was strongly supported by ANA). Clearly, increases in crime, homelessness, suicide and other social problems are not due solely to lack of access to mental health services; but without ready access to mental health treatment options, those afflicted by such problems face a bleak future.

C. Emergency Treatment

Many managed care plans have required some form of preauthorization for emergency room visits and have disallowed payment for non-emergency conditions. Of course, many patients seek emergency treatment for what they believe to be life-threatening conditions that turn out to be more benign--as in the patient who is experiencing chest pain that turns out to be indigestion. Several states have seen efforts to enact legislation to require coverage of services under a "prudent layperson" standard -- in other words, services will be covered if an average person, having an average knowledge of health care, would have sought emergency treatment under the same circumstances. This issue is likely to be introduced early in the 105th Congress; in fact, the American College of Emergency Physicians (ACEP) and Kaiser-Permanente have already agreed upon principles for legislation on this issue. ANA has supported this type of legislation in the past and will continue to do so.

D. Medicare Managed Care and Cost-Savings

The fastest growing segment of managed care is the Medicare Managed Care program. HMOs have been contracting with the Medicare program for two decades to provide services to Medicare beneficiaries under what is commonly referred to as Medicare risk-contracting.

... Medicare risk-contract programs typically attract younger, healthier Medicare beneficiaries -- who cost the contractor much less -- leaving older and sicker patients in fee-for-service Medicare ...

HMOs receive payment equal to 95% of Medicare's average cost of treating a Medicare beneficiary under a traditional fee-for-service arrangement. Some critics have suggested that this practice has actually increased, not decreased, costs to the Medicare program, as Medicare risk-contract programs typically attract younger, healthier Medicare beneficiaries -- who cost the contractor much less -- leaving older and sicker patients in fee-for-service Medicare, thus driving up the average cost of treating beneficiaries under fee-for-service and, in turn, driving up payments to Medicare risk contractors. This debate is likely to grow more heated, particularly as Congress and the Administration examine what steps to take to ensure the viability of the Medicare program as a whole.

E. The Imposition of "Gag" Rules

Consumer concern has also been sparked by the discovery of "gag" rules that prevent physicians or other providers from revealing a full range of treatment options to patients or, in some instances, from revealing their own financial self-interest in keeping treatment costs down. Nursing has long advocated for patients' rights to have access to full information about their condition and their treatment options. Several states were successful in their efforts to outlaw "gag" rules. (See information in State Government Affairs area in However, in some instances, legislation has been limited in scope to physician communications. Nursing has made it a priority to ensure that other providers, including nurses, and their patients are also protected from the imposition of "gag" rules.

F. Efforts to Prevent Arbitrarily Short Stays

One managed care practice that effectively galvanized consumer interest has been some managed care organizations' imposition of arbitrary "caps" on the length of hospital stays for specific conditions. The most prominent example is that of allowing only a 24-hour stay for normal childbirth, but there are many examples of limits placed by managed care organizations on treatment options or duration. Some managed care organizations have recently begun requiring that mastectomies be done on an outpatient basis.

Health professionals and consumers alike have expressed concern over the potential impact of placing rigid limits on hospital stays. Increasing consumer concern led to successful efforts in several states to require payment for a minimum of 48 hours for normal childbirth, and a longer stay for Caesarean sections. (See information on 1996 legislation in the State Government Affairs section of

Patients should be offered appropriate, safe, and cost-effective options for care, not confronted solely by arbitrary caps on hospital treatment without alternatives or appropriate follow-up care and education.

The 104th Congress eventually passed legislation to prevent premature discharge policies. ANA and other nursing organizations supported such legislation, along with proposals to ensure access to nursing care in the home and other appropriate follow-up.

Efforts to guarantee minimum hospital stays require careful consideration by nursing. Nurses have long advocated for the availability of treatment in non-hospital settings -- in communities, in the home, in schools and workplaces. The assumption that all safety concerns are allayed by a longer hospital stay is not always valid. In the case of normal childbirth, many mothers prefer not to have any hospital stay at all -- they opt to give birth at home, often with the assistance of a certified nurse-midwife -- and nursing has supported their right to make that choice. Patients should be offered appropriate, safe, and cost-effective options for care, not confronted solely by arbitrary caps on hospital treatment without alternatives or appropriate follow-up care and education. ANA and state nurses associations sought to shape legislation on short maternity stays to ensure that appropriate follow-up care in the home was also made available upon discharge.

2) Licensure and Regulation

A. Re-emergence of Regulation?

Since November 1994, there has been an "anti-regulatory" trend in public policy in the United States. The defeat of federal health reform, paired with the subsequent election of the Republican majority in Congress, heralded an abrupt turn toward reliance upon "the market" to regulate health care. Efforts to secure new regulation of health care at the state and federal levels were put on hold. But in 1996, in response to continued public concern, Congress passed the Kassebaum-Kennedy bill, providing a limited expansion of access to, and portability of, health insurance. Additionally, regulation of the "drive- through deliveries" and HMO "gag" rules became a focus of Congressional attention.

Growing concern about safety and quality of health care services and increasing examples of excesses by managed care organizations have contributed to a heightened public willingness, and even a demand, for government intervention into some aspects of health care. Whether this trend continues, and how far will it go, remain to be seen. But there are indications that the federal government is increasingly concerned about the percentage of market share that some of the larger managed care systems and for-profit corporations are able to capture, raising questions of antitrust. The potential for one corporation to dominate a given market raises concerns about the potential for unilateral changes to benefit structures and price-fixing, which could seriously harm consumers and providers alike. This possibility has clearly shattered the assumption that government will bow out of health care for any extended period of time.

B. Limitations on State-based Activities

Efforts to regulate managed care organizations and other insurers have met some success in state legislatures, but they have been limited in their effect. This is because self-insured plans, which often insure a substantial proportion of state residents, are exempted from the effect of state regulation. The federal Employee Retirement Income and Security Act (ERISA) preempts most state measures to regulate self-insured plans. This has made activity at the federal level even more important. For example, state legislation on short maternity stays did not apply to self-insured plans because of the ERISA preemption. The federal legislation passed by the 104th Congress, on the other hand, applies to all insurance plans, including self-insured plans.

C. Threats to Individual Licensure

As managed care systems and corporate mergers consolidate more and more across state lines, the difficulties posed by different state licensure laws and regulation become increasingly evident. These difficulties are glaringly apparent in the filed of telehealth where technological advances now allow practitioners to evaluate and treat patients in rural and remote areas. The Pew Commission Task Force on Health Care Workforce Regulation has joined the chorus of those advocating that policy makers reconsider traditional licensure laws. (See information on 1996 legislation in the State Government Affairs area of

Individual licensure exists to protect the public and assure that the practitioner is directly accountable to his/her client. Over the years, nursing has fought to preserve individual licensure and protect the scope of nursing practice, often in the face of strong challenges by state affiliates of AHA and AONE. These associations advocate expansion of the licensed institution's authority to determine the scope of practice and assume accountability for their employees' actions (i.e., institutional licensure). It is likely that these challenges will increase as hospitals form new alliances with multi-state, mega-managed care systems, seeking to gain consistency in the scopes of practice of their employees and allowing them to easily utilize the same practitioners to provide telehealth or direct care to clients in more than one state.

During the health care reform debates of 1994, organized nursing supported a move toward national licensure laws, not institutional licensure. The advantage of a national individual license would be that variations among the state practice acts, especially governing the practice of advanced practice registered nurses (APRNs), could be addressed federally rather than state by state. National licensure would also preserve individual accountability of the practitioner to his/her client rather than to the employer. Organized nursing will need to remain vigilant and consistent in its efforts to protect individual licensure laws, both at the state or national level.

D. Regulation of Unlicensed Assistive Personnel (UAPs)

As we have seen, hospitals increasingly substitute UAPs for RNs as a cost-saving strategy. As this practice has increased, not only in acute care but in other settings as well, many state boards of nursing and state legislatures are considering methods to regulate these unlicensed providers. This has fostered debate about appropriate supervision and delegation by registered nurses. While each state is unique in its approach, concerns about the effect on quality and safety of patient care are universal. A coordinated and consistent approach to these issues is essential to prevent erosion of the scope of nursing practice on a state-by-state basis. Many states are already considering changes to state nurse practice acts. (See information on 1996 legislation in the State Government Affairs section of Some activists believe that direct regulation of UAPs will help ensure safe care through standardization of training, utilization, and allowing RNs to delegate. Others believe that to legitimatize UAPs is a detriment to both patients and registered nurses, and will serve only to lower quality and jeopardize safety. This debate must be resolved to assure a consistent legislative and regulatory approach nationally. ANA convened a working group in January 1997 to delineate a comprehensive position on regulation and utilization of UAPs.

3) Employment Opportunities and Conditions -- Challenges for Nurses in a Managed Care Environment

A. Job Loss: Effect of Market Competition on Nurses Employed in Hospitals

Frenzied consolidation of the health care industry, positioning for sudden changes in regional markets, and increasing competition for managed care contracts have led many hospitals to seek aggressive cost-containment measures even though the data confirm that their financial reserves are stronger than ever (Gerstein, 1995). Hospitals want to ensure that they can absorb any short-term financial adjustments needed to offset revenue losses due to deep discounting for new managed care contracts and that they have sufficient revenues for advertising and promotion. Additionally, they want to be able to fund mergers, acquisitions, and other new business arrangements that may become (or appear) necessary in quickly changing markets. Hospitals in the for-profit sector are also under pressure to ensure high levels of return for their investors. As we have seen, these efforts have led to major downsizing, reengineering and job redesign, including cross-training and substitution of cheaper, minimally trained workers for higher paid professionals -- especially registered nurses.

If the actuarials are correct and between 200,000 and 400,000 hospital beds eventually are eliminated, the impact on RN jobs in hospitals will be substantial. Currently, the hospital industry reports RN staffing at about 1.1 RN per licensed, occupied bed per 24-hour period. These two statistics, when taken together, have led some policy makers to conclude that there will eventually be a reduction in the hospital-based RN workforce of between 220,000 and 440,000 jobs (Pew, 1995)

When the managed care market matures to the point where managed care systems compete not only on cost, but on quality of care as well, the demand for RNs will increase. However it is unlikely that the new job opportunities will be created one-for-one to fully offset the number of jobs lost due to the elimination of hospital beds as the industry continues to consolidate.

When the managed care market matures to the point where managed care systems compete not only on cost, but on quality of care as well, the demand for RNs will increase.

Nurses will need to acquire new skills to assure their marketability in the future. Acquiring and using new information systems and technology will become an essential skill for the nursing workforce. The current nursing workforce will need training and education to stay current of these new technologies

B. New Job Opportunities for Nurses in Managed Care

Many managed care organizations now place an almost exclusive emphasis on cost containment. This is a far cry from the original goals of managed care -- provision of coordinated, seamless services that emphasize prevention and primary care. However in the more integrated and consolidated markets, as managed care price reductions approach their limit, patient satisfaction, provider access, and documentable quality are expected to take center stage (Gerstein, 1995). Many nurses are already identifying important new opportunities to help achieve those goals, as well as creating new roles for nursing. According to=0D the AHA 1995/1996 environmental scan, the greatest health care employment opportunities will be in nonacute care settings, such as home care, primary or custodial care, and case/care management (Gerstein, 1995).

Managed care organizations that value quality and recognize the importance of prevention, wellness, and early intervention can benefit greatly from nurses' expertise in a variety of roles. In turn, nurses can help guide managed care to focus on providing a full range of quality, cost-effective services. In addition to jobs in the more traditional institutional settings such as hospitals, ambulatory, and long term care facilities, some of the fastest growing roles for nurses in managed care include jobs in home care, case management, risk management, patient advocacy, patient education, benefits coordination, and provider liaison (ANA, 1996). Two of the fastest growing areas of job opportunities for nurses are:

(1) Primary Care Provider

Perhaps the most widely identified role for nurses in managed care is that of the primary care provider, the gatekeeper to the rest of the system. Many HMOs already utilize APRNs as primary care providers. Managed care's emphasis on primary care and health maintenance, the current shortage of primary care physicians, and growing chronic care needs are propelling other job opportunities for APRNs and physician assistants (PAs). Managed care corporations are recognizing that APRNs can increase patient access and compliance, are less costly to employ than physicians, and are effective in patient-centered care coordination. They are increasingly accepted by both patients and physicians, so much so that the U.S. Department of Labor predicts a 36 percent increase in these jobs through 2005 to accommodate growing demand. APRNs can provide 60 to 80 percent of basic services performed by primary care physicians (DOL, 1996). Furthermore, according to AHA, more than half of all HMOs are planning wider use of mid-level providers to cope with the primary care physician shortage (Gerstein, 1995).

(2) Demand Management and Telehealth

Opportunities for experienced registered nurses also exist in the rapidly growing area of telehealth, or "demand management services," as it is frequently called in managed care. MCOs increasingly turn to telephone triage and on-line health advice services to reduce members' avoidable visits to health providers. According to the MCOs, this not only helps reduce unnecessary costs, but contributes to better outcomes by helping members become more involved in their own care. Historically, demand for outpatient health care has been largely unmanaged. According to Michael Wood, a consultant with William Mercer, Inc., in Seattle, "The objective of demand management is to help people stay well and obtain the appropriate level of high quality care. Cutting costs is a natural benefit of it." (Bureau of National Affairs, 1996). Consumer satisfaction is also reportedly very high. As a result, MCOs are either buying a demand management program from a vendor or building their own, thereby creating jobs for experienced nurses. Wood advises his clients that nurses must have at least five years' experience in order to bring clinical judgement to each call. For example, Informed Access Systems, Inc., one of several national demand management vendors, employs more than 100 registered nurses -- up from 15 two years ago. The company now handles more than 1 million calls annually and continues to grow rapidly Bureau of National Affairs 1996).

According to AHA, demand management will receive greater attention in the future, focusing on reducing utilization through programs that support health and medical self-care. About six million people have access to 24-hour telephone health information and counseling services, which coach consumers through care options. "Electronic house calls" that extend health care beyond the borders of physicians' offices are provided by growing numbers of services (Gerstein, 1995).

C. Exclusion of APRNs from Managed Care Plan Provider Panels

The nursing community continues to express concern about some managed care organizations' pattern of excluding APRNs from provider panels. This has the effect, of course, of preventing APRNs from serving as providers for patients enrolled in those managed care organizations. APRNs in some markets have won the opportunity to be managed care providers -- whether through educating the managed care plan administrators, organizing consumer demand, seeking legislation, or other means.

During the 103rd Congress, many non-physician provider groups sought legislation (in conjunction with comprehensive federal health reform efforts) to prevent managed care organizations from excluding whole categories of health care professionals from participating as providers. These efforts were unsuccessful, but provided an opportunity to educate policy makers about the issue of exclusion of classes of health care professionals. These efforts should not be confused with efforts to secure "any willing provider" legislation. "Any willing provider" measures seek to prevent managed care organizations from excluding individual health professionals or providers who are willing to participate as providers, and to accept the managed care organization's conditions for participating. Physician groups, pharmacists, and others have actively sought such measures in many states, often successfully. What nurses have sought, by and large, is legislation to prevent the exclusion not of individuals, but of whole professional categories.

While nurses generally support calls for equal pay among professionals for the same services, some managed care plans may consider this a disincentive to hire nurses if they can hire physicians at the same rate.

4) Education and Retraining:

A) Preparation for New Nursing Roles

While hospitals continue to employ two-thirds of the practicing nurses, and will probably continue to be the largest employment setting for nurses for some time to come, new opportunities exist in managed care and in alternate settings, such as nursing homes, community/home/public agencies, and schools. As more nurses find themselves employed in a managed care work setting, adequate preparation for the unique elements of such an environment must be addressed. To appropriately prepare and retrain acute care nurses for new roles in community care, continuing education and undergraduate nursing programs need to develop curricula that include the essential skills necessary to function competently and effectively in new managed care roles and settings.

ANA has developed a Managed Care Curriculum for Baccalaureate Nursing Programs, funded by a grant from the American Nurses Foundation and Aetna Life and Casualty (Hart, 1995). Copies of the curriculum were distributed to all university schools of nursing and the State Nurses Associations. This six semester-hour course is designed to prepare nurses to function effectively and efficiently in beginning leadership roles in a managed care environment.

To appropriately prepare and retrain acute care nurses for new roles in community care, continuing education and undergraduate nursing programs need to develop curricula that include the essential skills necessary to function ... in new managed care roles and settings.

Didactic content includes community-based nursing practice, the philosophy of managed care, technology and managed care practice, prevention, health promotion strategies, client and provider accountability, risk management, sensitivity to health costs, quality improvement, risk management, marketing and interdisciplinary collaboration. Practicum includes computer knowledge and skill development, clinical practice, mentoring by experts, performance assessments, quality assessment and analysis, cost accounting and analysis, interdisciplinary team activities, and generation of and participation in staff development programs.

5) Ethical Issues

A. Quality Considerations

As managed care systems assume a larger role in health care, it is important that nurses strive to promote and preserve the ethical precepts of the profession and remain committed to the delivery of compassionate, competent, respectful and responsible care. Nurses repeatedly express concern over the impact of managed care and restructuring on the quality and safety of patient care, and the difficulty in fulfilling their advocacy responsibilities to patients. The obligation to safeguard patients and minimize harm is greatly challenged in the present health care environment.

B. Increasing Profits and CEO Salaries

The increasing profitability of managed care organizations, and the rising salaries of their top administrators, are major ethical issues for consumers, nurses and other providers. Managed care organizations and health care institutions assert that cost-control must be an increasing priority, and that the advantage of managed care is its ability to provide care more efficiently and cost-effectively. One could question whether, in an environment in which everyone is asked to share the economic burdens of health care delivery, there is room for increasing profiteering and for outrageously high administrative salaries? Why should deal-making in the health care industry yield bonuses in the millions of dollars? Why are these savings not shared with the plan participants in terms of either enhanced services or reduced premiums? How can these abuses be reconciled with the continual claims for harsher austerity measures, including nurse layoffs, in the health care industry?

These questions may be sardonic, but they help to make a point. This is an industry out of control, in which nurses and consumers alike are told to make do with less, by a system that is making a people into millionaires many times over. Is this what we want in a health care system?

C. Emerging Compensation Systems

Managed care organizations have examined means to provide professionals with financial incentives to keep costs low. Some have offered physicians bonuses for keeping expenses down or limiting referrals to specialists. Some HMO-run hospitals have experimented with compensation systems that reward lower expenses or higher levels of patient satisfaction. ANA has expressed its concern with providing financial incentives to limit care.

Nursing has long recognized the value of ensuring more efficient, less wasteful use of resources. What indicator can be used to separate legitimate efforts to use resources more efficiently from those that provide nurses (or others) with a financial stake in withholding care? This question gains significance for the nursing profession as new approaches to compensation continue to emerge. ANA continues to work to provide guidance in assessing these new compensation systems.

These are just a few of many important policy issues raised by managed care. ANA has placed high priority on addressing the impact of managed care on the quality and safety of health care and the impact on the employment opportunities and working conditions of registered nurses. ANA's Congress on Nursing Practice has convened a workgroup of nurses with expertise in existing managed care regulations and current operations, to review the National Committee on Quality Assurances (See accreditation process for managed care organizations as well as all other pertinent regulations. The committee is charged with identifying nursing's recommendations for the essential elements of managed care regulation, and preparing a policy briefing paper that will identify areas not addressed in current regulations.

The Public's Response

There are signs that the public is also beginning to raise serious questions about managed care practices. According to the Princeton Survey Research Associates, a Princeton-based polling organization that conducted a recent national survey (See ANA Press Release) for the American Nurses Association (ANA), of 1,001 American adults polled, as many as 75% indicate serious concern that the quality of patient care is being diminished by cost-cutting practices -- a concern that has increased significantly since 1994.

Americans want information about the level of nursing care in hospitals, but many feel that it would be difficult to obtain.

75% of the survey respondents believe that reducing the number of registered nurses who provide bedside patient care in hospitals lowers the quality of care, and 67% said that increasing the use of unlicensed health care workers for care traditionally performed by registered nurses has the same quality-diminishing effect. Americans want information about the level of nursing care in hospitals, but many feel that it would be difficult to obtain. Eighty-two percent of those polled want to know the average number of patients assigned to each nurse, and 80% want to know the hospital's policy on types of care Unlicensed health care assistants are allowed to perform.

Public education campaigns at the state and local level, similar to ANA's national "Every Patient Deserves A Nurse" campaign, and news reports of significant problems with patient safety and quality of care in hospitals are on the increase. More than 500,000 "Every Patient Deserves A Nurse" brochures have been distributed across the country resulting in countless stories in local and national print and broadcast media, including the Pittsburgh Post-Gazette, the Los Angeles Times, the Washington Post, Newsweek, Time, CNN, CBS Evening News and the New York Times. As a result, complaints from consumers are beginning to have an effect on public policy. The New York Times has reported that over the last 18 months, at least 34 states have outlawed or curtailed methods that many HMOs have used to shorten some types of stays, discipline physicians or keep patients in the dark about incentives and ground rules of managed care. According to the National Conference of State Legislators, more than 400 bills affecting managed-care practices were introduced in state legislatures in 1996.

It is essential for organized nursing to work effectively to build broad coalitions rather than work from a singular or exclusive point of view and, at times, to be willing to move ahead in steps rather than in leaps. In California, two very similar statewide initiatives aimed at strictly controlling the managed care industry were narrowly defeated -- primarily because the two major proponents (the California Nurses Association and SEIU) couldn't agree on a single initiative and, as a result, split their votes and were out spent in the public campaign by their managed care industry opponents.

However even with the progress at the state level, action on the federal level will be required to affect the large ERISA self-insured employer plans which are exempt from state insurance laws. ANA initiated federal legislation in the 104th Congress and will have it reintroduced when the 105th Congress convenes in January. The Patient Safety Act of 1996" (HR 3355) (See ANA Press Release) introduced by Representative Maurice Hinchley (D-NY) calls for public access to information about nurse staffing and care givers' qualifications, "whistle blower" protections for nurses who speak out on behalf of patient care issues, and review of the impact of proposed mergers and acquisitions of health care institutions on patient health and safety.


A review of the nursing literature, including ANA's House of Delegates reports over several years, reveals widely differing views on whether the rapid spread of managed care will ultimately have a positive or negative impact on the nursing profession. This is because managed care exists along a wide continuum, encompassing a broad range of capitated and discounted health systems with wide variations in individual health plans practice patterns. It is important to recognize trends as they develop, whether toward greater recognition for primary care nurses, or toward compromises in safety and quality. ANA has produced a number of materials that offer more analysis and viewpoints on managed care, including prominent articles in both the June 1995 and October 1996 issues of The American Nurse.

The articles contained in this issue of the Online Journal of Nursing Issues are intended to raise a number of the controversial issues surrounding the evolution and practice of managed care. It is hoped that readers will respond with letters to the editor and authors stimulating even further discussion and debate on this important topic.

In the meantime, the way for nurses to have a part in shaping the future of health care is to belong to their ANA constituent state nurses association and to work directly with managed care insurers, providers, and consumers to educate them about how nurses are the most cost-effective health care professionals that provide quality patient care. The profession must analyze and evaluate current and future roles for nurses, document the quality and cost-effectiveness of nursing services, identify the link between nursing action and patient outcomes and work together to affect public policy at the federal, state and institutional level.

Additional Resources on Managed Care Available Online on the World Wide Web

  1. American Association of Health Plans (1996). Available online at AHHP (formerly GHAA/AMCRA) requires no registration or fee for the public access level to their site. The site provides comprehensive information on managed care from the industry's perspective, including the industry's philospophy of care. Links to related sites are also provided. To get to the links, once you've accessed the home page, click once on "sitemap." From there, click once on "links" in the communications area. A list will apprear; highlight the list you want and click once on the "search" button. From there, scroll down the lists of organizations until you find what you are looking for and then click on the organization's underlined name. That link will take you to the appropriate Web site.
  2. Families USA (1996). Available online at Provides frequent reports on Medicaid/Medicare and managed care geared to the consumer.
  3. Harvard Community Health Plan (1996). Excellent resource for consumer and provider for health information. [NOTE: HCHP merged with Pilgrim Health Care in 1995 to form Harvard Pilgrim Health Care]
  4. Integrated Healthcare Association (September, 1996) Available online at This site provides the managed care industry association's principles of managed care as well as an education packet that includes issue papers on access, medical decision-making diversity of populations served, quality of care, and consumer satisfaction, and a glossary of terms.
  5. Managed Care Annotated Bibliography (April, 1996). Available online from the American College of Physicians at This site provides an excellent list of both hard copy and online publications on managed care as well as Internet links to other helpful Web site sources for managed care information
  6. United Health Care, Inc. (1996). Managed Care Acronyms: Abbreviations and Acronyms. Available online at
  7. United Health Care, Inc. (1996). The Language of Managed Care and Organized Health Care Systems. Available online at: This contains an excellent glossary of terms and is part of the larger United HealthCare Web site.


Judith A. Huntington, MN, RN
Director of the Office of Strategic Planning for the American Nurses Association

Judith A. Huntington, MN, RN, is the Director of the Office of Strategic Planning for the American Nurses Association in Washington, D.C. She has been a member of the executive staff of ANA since 1989, serving as Director of Governmental Affairs (1989-1992) and Director of Field Services, Labor and Workplace Advocacy (1992-1995) before assuming her current role. Ms. Huntington's current responsibilities include association-wide strategic planning; oversight and direction of the development of ANA's online services programs; and executive liaison activities with constituent state nurses associations, specialty nursing groups, and other health care organizations


Selected text and research support for various sections of this article were provided by several current and former staff of the American Nurses Association. The author would like to acknowledge the following for their assistance and support: Linda M. Minich, Research Specialist, ANA Office of Policy, for her assistance in identifying significant managed care resources on the World Wide Web; David Keepnews, JD, RN, Director of the Office of Policy, for his contributions to the section on policy issues; and Cheryl May, MBA, RN, and Ellen Shaeffer, MPH, former Policy Analysts, for their development of the ANA*NET resource manual, Nurses Mastery of the Managed Care Environment, available online to State Nurses Associations at ANA*NET.

© 1997 Online Journal of Issues in Nursing
Article published January 6, 1997


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Citation: Huntington, J., (Jan. 6, 1997) "Health Care in Chaos: Will We Ever See Real Managed Care?" Online Journal of Issues in Nursing Vol. 2, No. 1, Manuscript 1.