Chapter 9

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Chapter 9
Managed Care
and Managed
Care
Organizations
(MCOs)
NOTE: In Quiz 2 and the final exam
this chapter will be a little more
heavily weighed than other chapters
What is Managed Care?
Core feature:
It integrates the functions of
financing, insurance, delivery, and
payment
Integration of the Quad Functions - 1
Financing – contract negotiations between
employers and MCOs
 Insurance –  The MCO assumes risk
 The need for an insurance
company is eliminated
 Risk is often shared with
the providers

Integration of the Quad Functions - 2
 Delivery
– The MCO must arrange to
provide a comprehensive array of
services
 Payment –  Capitation
 Discounted fees
 Salary
Other Characteristics of Managed
Care
 Defined
group of enrollees
 Limits on choice of providers
 Utilization management
 Financial incentives to providers for
efficiency
 Accountability for plan performance
(quality)
Enrollments in Managed Care:
2002
Private:
Medicare:
Medicaid:
95%
13%
55%
Forces Behind Managed Care
 Health
Maintenance Organization Act
1973 provided federal funds to start
new HMOs
 Escalating health insurance costs –
Figure 9-5, p. 333
The System Before Managed Care
Fee-for service
The insured had direct access to any
provider, PCP or specialist
 Itemized billing of charges by the
provider to the insurer
 Few, if any, controls over the amount of
payment
 Sickness coverage; no coverage for
wellness and prevention
 Insurers functioned simply as passive
payers of claims

Flaws in Fee-for-service
 Various
p. 332
kinds of inefficiencies – see
Moral hazard
 Overutilization of specialty care
 Charges set at artificially high levels
 Provider-induced demand
 Physicians benefited financially by
putting patients in the hospital

 Inefficiencies
were absorbed by
raising premiums
Cost Control in Managed Care
 Elimination
of intermediaries – tight
integration of quad functions
 Control over reimbursement –
capitation risk sharing or discounts
 Utilization management
Utilization Management
 Choice
restriction
– In-network access – no open access
– Out-of-network access, but pay extra
 Gatekeeping
by a PCP
 Case management for complex cases
 Utilization Review
 Practice profiling
Utilization Review (UR)
 Case
review
 Determine the most appropriate type
and level of service
 Plan subsequent care
Three Types of UR
 Prospective
UR
 Concurrent UR and discharge
planning
 Retrospective UR
Types of MCOs
 HMOs
 PPOs
 POS
Plans
Why Different Types?
HMOs did not become widely popular
(except in California and Minnesota) –
Figure 9-8, p. 341. The main
drawbacks of HMOs were:
– Choice restriction (for enrollees)
– Capitation (for providers)
– Utilization management (for both)
HMOs
 Emphasize
preventive care
 Capitation is the method used to pay
providers
 Carve outs for certain specialty
services
 In-network access
 Gatekeeping
 Standards of quality
HMO Models
Staff
 Group
 Network
 Independent practice associations
(IPAs)

Study from the textbook what these
models are and their main advantages
and disadvantages
HMO Enrollments
Figure 9-9, p. 344
PPOs
 Sickness
care
 Discounted fees is the method used
to pay providers (no risk sharing)
 Both in-network and out-of-network
access
 Generally, no gatekeeping
 Generally,
loose utilization management
PPO Enrollments
Figure 9-10, p. 346
POS Plans
 Cross
between HMO and PPO
 HMO features are retained
 PPO features are available at the
point of service
POS Enrollment
 Figure
9-11, p. 346
Trends in Managed Care
Figure 9-12, p. 347
Health insurance premiums
Figure 9-13, p. 348
Medicaid Enrollment
 Balanced
Budget Act 1997 allowed
states to enroll Medicaid beneficiaries
in managed care
 Unavailability of managed care plans
in some geographic locations
 MCO pullouts
 Primary care case management
(PCCM) programs: direct contracting
with providers by states
Medicare Enrollment
 Medicare
beneficiaries have the
option to remain in the fee-forservice program
 Capitated risk contracts
 MCO pullouts due to reduced
capitation under the BBA 1997
 Problem: Medicare capitation is not
based on risk adjustment
Impact on cost, access, and quality
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