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healthcare market. Aggregate revenues for MCOs in the S&P 500 index grew 30% in 2006 to $212.4 billion while earnings per share estimates are expected to increase by 15% for 2007. The purpose of this paper is to analyze the United States’ managed care industry in understanding the sources of profitability.
Managed Care History
From 1910 - 1970, MCOs were a small part of the healthcare landscape (see Exhibit 1 for industry timeline). As increasing medical costs placed budget constraints on government programs, it was believed that the traditional way of delivering healthcare was financially wasteful since healthcare providers (doctors, hospitals, etc...
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