Managed Care
Dr. Shahram Yazdani
What is Managed Care?

Some say:
1. Patient health is being managed
2. Physician behavior is being managed
3. Patient behavior is being managed
4. Health care institutions are being managed
Dr. Shahram Yazdani
What is Managed Care?
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All are correct
In managed care, everything is being
managed by the managed care
organization (MCO)
Dr. Shahram Yazdani
Managed Care

In the broadest terms, Kongstvedt (1997)
describes managed care as a system of
healthcare delivery that tries to manage
the cost of healthcare, the quality of that
healthcare and access to that care.
Dr. Shahram Yazdani
Managed Care
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Dr. Shahram Yazdani
A “managed care” system defines the framework within
which a service system’s three principal players (the
payer, the service providers, and consumers) interact.
A “managed system” is distinguished from an
“unmanaged system” by defining these interactions
globally rather than in a piecemeal fashion.
A managed system is organized to achieve key goals
and objectives in a systematic fashion.
These goals and objectives typically include cost
containment, improved productivity, and better targeting
of resources.
Characteristics of Managed Care

Managed care is a system that integrates the financing
and delivery of appropriate medical care by means of:
1.
2.
3.
4.
5.
Contracting selected MDs & hospitals to furnish
comprehensive care
Setting a predetermined monthly, premium fee for services,
Incorporating financial incentives to encourage patients to use
only resources in the plan.
Having physicians assume some financial risk for their work -thus the role changes from advocacy to allocation
(gatekeeper), and
Monitoring health care providers for quality assurance and
utilization management.
Dr. Shahram Yazdani
Managed Care Organizations (MCOs)
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Dr. Shahram Yazdani
MCOs are formal arrangements whereby
distinct organizations are made responsible for
managing a network of services and supports
and are accountable for network performance.
These operational responsibilities are separate
and distinct from the policy-level responsibilities
of the public agency charged with governing the
system.
As a rule, managed care organizations are
responsible for keeping spending within
established limits.
Managed Care Organizations (MCOs)
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Dr. Shahram Yazdani
In health care, the MCO plays a pivotal role in the
implementation of managed care.
It manages the delivery system on behalf of the payor
by delivering essential health care services at a cost the
payer can afford.
In order to play this role, the MCO must serve as a
conduit through which all funds are channeled.
The MCO organizes the supplier network, imposes rules
on its operation, and serves as the service system’s
fiscal intermediary.
Usually the MCO receives a fixed amount of money
from the payer to perform these functions and, thus, has
a strong economic interest in being a tough negotiator
with suppliers, ferreting out over-utilization, and
improving system-wide productivity.
Characteristics of Managed Care Plans
Versus Traditional Indemnity Insurance
Indemnity
Insurance
Managed
Care
Regulated by State Health Insurance Commission
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Member arranges for own health care services including use
of specialists
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Member may be required to pay for health care and submit
claim for reimbursement

Staying solvent and providing a community benefit (not for
profit) and/or providing a return to shareholders (for profit)

Characteristic
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Dr. Shahram Yazdani
Develop, disseminate and monitor use of clinical practice
guidelines
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Use of payment models other than just reimbursement for
health care services delivered
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Include coverage for preventive or screening services such as
immunizations or pap smears
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Mandated annual reporting on quality, satisfaction and impact
related to health care services
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Common characteristics of managed care plans
Characteristic
Description
Dr. Shahram Yazdani
Care of a defined
population
· Population defined as the enrolled members at any point in time.
· Responsibility for acute services, preventive services, and ultimately the
health status of this population.
· Focus on continuum of care rather than episodic visits.
Fixed budget
· Health plan must provide all necessary services within the established
per member premium amount or absorb the losses for each enrollment
period.
· Health plan may not increase premiums within an enrollment period.
Evidence-based
clinical guidelines
· Goal is to reduce unnecessary practice variation and define the expected
patterns of care.
· Guidelines are not absolute and providers may deviate from a guideline
for individual patients as appropriate. Documentation of variation is
provider's responsibility.
· Guidelines generally taken from specialty societies or governmental
agencies and define recommended approaches to diagnosis and
treatment of a specific condition.
Common characteristics of managed care plans
Characteristic
Description
Dr. Shahram Yazdani
Disease
management
· Goal of program is to improve quality of care and control costs for specified disease
state such as asthma, diabetes, or heart failure.
· Focus on improving member education to maximize self-care, monitoring, and early
recognition of exacerbation.
· Provide support to health care providers in terms of clinical guidelines, disease
registries, formal data collection and reporting and outcomes assessments.
Explicit quality
measures
· Us laws required all plans seeking accreditation through National Committee on
Quality Assurance (NCQA).
· Employer groups and government purchasers may request specific quality monitoring
and reporting.
· Member satisfaction surveys required by NCQA/purchasers.
Strong primary
care role
· Members choose or are assigned to a primary care physician and become a part of
his or her "panel."
· PCP acts as a gatekeeper if his/her approval is required for referrals, tests, treatments
or hospitalizations.
· Held accountable for members obtaining recommended preventive services and
screenings.
Financial
incentives
to providers
· Some providers "capitated;" receive a fixed fee per member per month
· Fraction of the total payment may be withheld until the end of the year. Distribution of
withhold amount may be dependent on meeting quality, financial or utilization targets.
Differences Between Managed Care
and Fee-For-Service Coverage
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The most important characteristic that
distinguishes managed care from other forms of
health insurance is the active influence on
medical decision-making through:
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Dr. Shahram Yazdani
Dissemination of clinical guidelines,
Pre-authorization programs for referrals, admissions,
and diagnostic testing,
Creation of limited provider networks whose
members agree to adhere to the practice standards
developed by the plan.
Managed Care Organizations
Dr. Shahram Yazdani
Managed Care Organization Continuum
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Managed care plans are sometimes
described as either loosely or tightly
managed, indicating how much they
actually manage the care of their
members.
Dr. Shahram Yazdani
Managed Care Organization Continuum
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A loosely managed program might allow a
member to:
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Dr. Shahram Yazdani
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Receive specialty care without approval from
his/her PCP,
Seek care from a physician who is not part of
the plan’s network and have the care at least
partially paid for by the plan benefit,
Obtain care at urgent care centers without
preauthorization.
Managed Care Organization Continuum
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A tightly managed program however,
would require a member to:
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Dr. Shahram Yazdani
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Select a PCP from providers affiliated with
the health plan,
Seek routine care from his/her PCP,
Seek prior authorization for urgent/emergent
care that is not life threatening,
Request referral for specialty care services
from his/her PCP.
Managed Care Continuum
Less
More
Use of Managed Care Techniques
Traditional
Indemnity
Health Plan
Traditional
with Cost
Containment
POS
PPO
HMO
Dr. Shahram Yazdani
Types of Managed Care
Organizations
1. HMOs (Health Maintenance Organizations)
 Group
 IPAs (Independent Provider Associations)
2. PPOs (Preferred Provider Organizations)
3. POS (Point of Service Plans)
Dr. Shahram Yazdani
Health Maintenance Organizations (HMOs)
There are 2 types:
1. One group of HMOs consists of MDs who
contract with an HMO
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Doctors sign up and work exclusively for HMO
Patients enrolled in HMO must use their own or
contracted facilities for health care
Patients can only see HMO’s health care providers
Dr. Shahram Yazdani
Health Maintenance Organizations (HMOs)
2. Independent practicing MDs join an
association (IPAs) which contracts with an
HMO (most MDs are here)
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These doctors retain their own individual practices (have own
offices)
They are reimbursed via capitation* or at a discounted rate for
health services
Dr. Shahram Yazdani
HMOs
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Dr. Shahram Yazdani
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The HMO is generally the most tightly managed form of
managed care.
This term describes a plan in which routine care is provided
exclusively by physicians who are affiliated (or contracted)
with the plan.
In most HMOs, primary care providers may act as
“gatekeepers” and be required to approve all ancillary
services.
Prior authorization may also be used to review non-emergent
or non-urgent procedures and services.
This usually means that a request is sent to the health plan
for a procedure or service before it occurs, allowing the plan
time to review the request and determine if it is a covered
benefit under the member’s policy and meets clinical
guidelines for care.
If the plan does not feel the service is medically necessary or
if it does not fall within the benefit structure, payment could
be denied.
HMOs
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It is important to note that the MCO is not
saying the patient cannot have the care or
service, simply that it will not be paid for
under their benefit.
Dr. Shahram Yazdani
PPOs
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PPO describes an organization where
independent physicians agree to provide
services at discounted rates. This differs
from an HMO because in PPOs contracts
are not generally prepaid but are paid as
services are delivered.
Dr. Shahram Yazdani
Preferred Providers Organization (PPO)
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Dr. Shahram Yazdani
Group of health care providers contract with an
organization to negotiate contracts
Providers are paid at a discount rate (e.g. paid 80%)
Patients enrolled in PPOs do not have gatekeepers
and don’t need permission to see a specialist by their
PCP
Patients are restricted to a panel of doctors and cannot
see anyone outside the health plan
Often times, there is a greater monetary cost to
patients/employers (co-payments, deductibles, etc).
E.g. Patients may have to pay a $500 deductible before
the PPO/ or insurance company “kicks in”
Health Care System
or Insurance Company
Contracts
PPO
Dr. Shahram Yazdani
Independent
Practitioners
Independent
Practitioners
Independent
Practitioners
Independent
Practitioners
Independent
Practitioners
Independent
Practitioners
Independent
Practitioners
Point of Service
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Similar to PPO except patients can use other
facilities and doctors outside of plan
Cost to patient is much higher than a PPO
Dr. Shahram Yazdani
POS
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Dr. Shahram Yazdani
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The Point of Service (POS) product is less tightly
managed than the HMO, allowing members to choose
whether they will go to a provider within or outside of the
plan’s established network at the time medical services
are needed.
The member will generally pay a larger co-pay or
percent of the total cost for care provided outside of the
network.
This plan structure was originally created as a transition
product to move patients from indemnity to managed
care coverage with a higher level of comfort about their
ability to seek care from a wider variety of providers.
However, it has become one of the most popular
managed care plan structures as Americans continue to
equate choice with quality in healthcare.
Practitioners May Contracts With Many
Insurance Plans or MCOs
Independent Practitioner
MD, Dentist, Pharmacist
PPO #1
PPO #2
PPO #3
HMO #1
HMO #2
HMO #3
POS #1
Dr. Shahram Yazdani
The Problems With Contracting
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Health professionals such as doctors often
contract with a number of HMOs and PPOs.
This is why they often ask you, as the patient,
what type of insurance (MCO plan) you have.
Each plan has its own restrictions on care and
reimbursement scale. So this can be very
confusing and time consuming to those who
work in the provider’s office.
Dr. Shahram Yazdani
Indemnity Insurance
80%
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Specialist
Hospital
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PCP
80%
80%

80%
Hospital
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Specialist
80%
Dr. Shahram Yazdani
Indemnity Insurance with Utilization Review
Managed Care Plan
80%
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Specialist
Hospital
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PCP
80%
80%

80%
Hospital
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Specialist
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80%
Dr. Shahram Yazdani
POS
Managed Care Plan
70%
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Specialist
Hospital
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PCP
70%
70%

30%
Hospital
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Specialist
30%
Dr. Shahram Yazdani
PPO
Managed Care Plan
80%
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Specialist
Hospital

PCP
80%
80%

0%
Hospital

Specialist
0%
Dr. Shahram Yazdani
HMO
Managed Care Plan
0%
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
Specialist
Hospital
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90%
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FCP

90%
0%

0%
Hospital

Specialist
0%
Dr. Shahram Yazdani
Outcomes of Managed Care
Dr. Shahram Yazdani
MCOs and Controlling Costs
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MCOs do so by controlling
1)
2)
3)
MDs
Patients
Health Care Institutions
Dr. Shahram Yazdani
Managed Care Controls Costs by Controlling
MDs Behaviors
Specialists
1.
i.
ii.
2.
3.
4.
In HMOs, patient needs a referral by a PCP
Reimbursed via capitation/or discounted fee
Dr. Shahram Yazdani
Utilization Management- MCOs monitor what
resources doctors use—too much expenditure, you’ll
hear about it
Quality Assurance- doctors are monitored for how well
they do. Patient satisfaction surveys are common
ways of evaluating doctors.
Bonuses- doctors may be given bonuses if they do a
good job for their work or for saving money (not using
too much resources)
Managed Care Controls Costs by Controlling
Patients
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Dr. Shahram Yazdani
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Permission from MD or gatekeeper
(HMO) to get treatment
Co-payments
Deductibles
Nurse phone service (prevent access
to care)
Need approval for experimental or
expensive Rx
Follow rules of MCO’s plan or you will
pay
Managed Care Controls Costs by Controlling
Institutions
1.
2.
3.
4.
For some providers, capitation
DRGs: one fee for everything
Accountability-audits are done to
evaluate quality of care
Performance Evaluation- patient
satisfaction surveys
Dr. Shahram Yazdani
Studies have shown some outcomes on
Managed Care
1.
2.
3.
PPOs don’t save money
HMOs do save money
Patient satisfaction survey results show
consumers:
i.
ii.
iii.
4.
Don’t like bureaucracy
Like low costs for HMOs (compared to PPOs)
Don’t like the idea that MCOs can deny essential
care
Dr. Shahram Yazdani
Public outcry about managed care has caused
lawmakers to write laws to protect the
consumer.
Studies have shown some outcomes on
Managed Care
5. Health outcomes:
i. basically managed care and “fee for service”
(FFS) are comparable in terms of health
outcomes.
ii. In some studies, managed care patients do
better
Dr. Shahram Yazdani
Patients Satisfaction
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One 1997 national survey reported 79%
of PPO members, 83% of HMO members,
and 81% of POS members were satisfied
with their health plan compared to 75% of
fee-for-service members.
Dr. Shahram Yazdani
Patients Satisfaction
Plan Type
FFS
HMO
PPO
POS
% of Enrollment
1996
26%
33%
25%
16%
KPMG Peat Marwick, Health Benefits in 1996
Kaiser Family Foundation & Health Research Education Trust, 1999 annual survey
1999
9%
28%
38%
25%
Dr. Shahram Yazdani
Main Questions to Ask
Dr. Shahram Yazdani
Main questions to answer about MCOs:
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Dr. Shahram Yazdani
Whether the MCO will be expected to serve all
individuals or whether some will be kept outside
the agreement.
A managed care approach can wrap around the
full range of persons served in a system or it
can be designed only to address the needs of
pre-designated populations (e.g., “people who
require 24-supervision”) with the needs of other
individuals addressed through alternative
configurations.
Main questions to answer about MCOs:
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Dr. Shahram Yazdani
The scope of benefits, services, and supports
that an MCO will be contractually obligated to
deliver to individuals.
This benefit package defines the contractual
obligation of the MCO to the payor (the state).
In determining the scope of benefits, the payor
must decide whether some services/supports
will be placed outside the agreement (e.g.,
“carved out”) and thus be paid for separately.
Benefit Structures of Managed Care Products
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The typical benefits offered in managed care
plans are:
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Dr. Shahram Yazdani
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physician services (ambulatory and inpatient),
hospital services,
well-child care (including immunizations),
prenatal care,
periodic health maintenance exams,
some home care services,
emergency services,
diagnostic and laboratory tests.
Main questions to answer about MCOs:
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Dr. Shahram Yazdani
The conditions under which the MCO must furnish
contracted benefits to its enrollees.
These are sometimes referred to as “care criteria”.
Such criteria may take many forms. In essence,
however, they define the core of the system’s response
to consumer needs.
These criteria describe the MCO’s obligations under its
contract with the payor.
Care criteria also serve as the basis of MCO utilization
management activities as well as service substitution
strategies.
Main questions to answer about MCOs:
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The payor must decide whether it will
contract with a single MCO or multiple
MCOs and the criteria it will use in
selecting such organizations.
There are various pros and cons in using
a single MCO versus multiple entities.
Dr. Shahram Yazdani
Main questions to answer about MCOs:
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The payor can decide to restrict its
contracting to nonprofit entities.
It also may impose other requirements
(including consumer involvement in the
MCOs governing structure).
Dr. Shahram Yazdani
Main questions to answer about MCOs:
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The payer must specify its economic
relationship with the MCOs. This relationship
will have at least three dimensions:
1) Determining the amount of the capitated payment to
Dr. Shahram Yazdani
the MCO(s), including whether to use a single rate or
multiple rates geared to potential differences among
enrollees;
2) Deciding the extent to which the MCO(s) will be held
at risk; and,
3) Imposing additional contractual terms and
conditions, including limits on profit-taking, sanctions
for nonperformance, and any special incentives that
might affect payments.
Main questions to answer about MCOs:
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The payer must specify its expectations concerning the
manner in which the MCO will organize, manage and
operate the provider network. Such expectations can
include:
1. Maintaining a sufficient supply and distribution of providers to
2.
3.
4.
Dr. Shahram Yazdani
5.
ensure that consumers have ready access to needed services;
Directing the MCO to contract with specified “essential
providers”;
MCO monitoring of provider agency performance;
The extent to which the MCO may limit the number of providers
with which it contracts (“open” versus “closed” panel); and,
The extent to which an MCO may impose risk to network
providers (in the form of its own payment policies).
Main questions to answer about MCOs:
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Dr. Shahram Yazdani
The payor will need to specify how consumer
appeals/grievances will be addressed, including
provisions governing the filing of appeals with a party
not controlled by the MCO.
The MCO model delegates major system
responsibilities to a single organization.
Consumer appeals/grievance mechanisms represent a
critical “check and balance” when such delegation
occurs. These mechanisms must be defined.
Provision also must be made for consumer
appeals/grievance resolution when a satisfactory
resolution of the issues cannot be reached between the
individual and the MCO.
Main questions to answer about MCOs:
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Dr. Shahram Yazdani
The payor must decide how it will monitor and
assess the performance of the MCO and
network providers.
This may include specifications directing the
MCO to file regular and periodic management
reports, a requirement that the MCO itself
operate an internal quality assurance system,
provision for an independent assessment of
MCO performance, consumer satisfaction
surveys, and independent regulatory oversight
of network providers.
Thank You !
Any Question ?
Dr. Shahram Yazdani