s the initial health care environment (i.e., unstructured health care and fee-for-service financing). During the second stage of the UHC's model, health maintenance organizations (HMOs) begin to emerge. Eventually, a loose health care framework develops. This can involve, for example, the affiliation of hospitals into provider networks, discounted charges, and per diem payment schemes. Stage three involves a period of turmoil. As HMO enrollment accelerates, greater emphasis is placed on primary care physicians. When these individuals manage health care resources, however, there may be a general decline in the use of specialists. Hence, physicians' fees may become heavily discounted. Eventually, in stage four, "integrated hospital-physician systems compete to provide comprehensive services to defined population blocs" (Iglehart, 1993, pp. 1052-1056). This ultimately results in the solidification of alliances between payers and health care providers.
According to this market-evolution model, managed health care is gradually being implemented across the country. In fact, the primary difference from one region to the next is merely the pace of this change. The transformation has had a variety of consequences. Perhaps the most important of these is the oversupply of hospitals and physicians. Under the old system, hospitals prospered. Decisions regarding hospital care were made by patients and their doctors. A patient would choose a doctor, the doctor and patient would choose a hospital, and the hospital would merely bill the patient's health insurance company. Payments by both government and private insurance programs were predominantly based on the individual services received (Shuit, 1995, pp. A1, A21).
Such circumstances led hospital overbuilding on a massive scale. At present, an estimated two-thirds of all privately insured Californians are currently enrolled in some type of managed-care plan. In fact, even g...