“Managed Care”
Introduction to Health Policy
HMS Fall 2000
Nancy Turnbull, HSPH
Ground rules for the class
• No idealizing the “unmanaged” health care system
• Differentiate among
– Managed care techniques
– Managed care organizations (MCOs)
– Competition among MCOs (“managed
competition”)
• “If you’ve seen one MCO, you’ve seen one MCO”
• The plural of anecdote is not data
• MCOs did not introduce the profit motive into
medicine
• The status quo has many constituencies
“Problems in health care quality are serious
and extensive...Americans bear a great
burden of harm because of these problems,
a burden that is measured in lost lives,
reduced functioning and wasted resources…
Collectively, these problems call for urgent
action … Quality of care is the problem, not
managed care....”
Institute of Medicine, September, 1998
Variation: CABG/1000 (Medicare)
Dartmouth Atlas, 1996
What is managed care?
• “Anything other than an arrangement in which the
insurer pays all bills without questions.”
– Mark Pauly
• “A term that has even less specificity than the label
‘low in fat’ in your super creamy dessert.”
– Harold Luft
• “A vague phrase that covers actions that range from
the euphemistic to the evangelistic.”
– Daniel Fox
Techniques of managing care
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Selective contracting with providers
Financial incentives for providers
Financial incentives for patients
Medical management/quality improvement
techniques
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“Gatekeepers”
Precertification
Referral authorization
Case management
Demand management
-Organizational culture
-Practice guidelines
-Provider profiling
-Disease management
-Drug formularies
Types of entities that can adopt
managed care techniques
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HMOs
Insurance companies
Employers
Unions/welfare plans
Medical management
firms (full-service or
specialty)
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Individual providers
Delivery systems
Medicare
Medicaid programs
National health
systems
Common characteristics of managed
care organizations
• Combine financing and delivery of care (a
“system”)
• Enrolled population (“members”)
• Prepaid premium (a “fixed budget”)
• Selective “network” of providers
• Requirements and/or incentives to use
providers in the network
• Focus on prevention and primary care
• Medical management and quality improvement
programs
Types of Managed Care
Organizations
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Health Maintenance Organization (HMO)
Preferred Provider Organization (PPO)
Point of Service (POS) Plan
Managed Indemnity Plan
• Comprehensive vs. single service
– Mental health, prescription drug
The HMO
(Health Maintenance Organization)
• Organized health system responsible for
a. financing
b. delivery
• of comprehensive health services
• with restricted choice of providers
• to an enrolled population
• for a prepaid, fixed fee
The Original Types of HMOs
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Staff model
Group model
Network model
Independent practice association (IPA)
model
• Direct contract model
The creation of a mixed model MCO:
Harvard Pilgrim Health Care
• Harvard Community Health Plan-staff model HMO
founded in early 1970s
• Merged with Multigroup, a group model, in 1988
• Merged with Pilgrim, direct contract model HMO, in 1994
• Formed an insurance company in 1995
• Spun off health centers (staff model) to form Harvard
Vanguard Medical Associates in 1997
• Acquired Neighborhood Health Plan, network model
HMO, in 1998
• Bought half of Health New England, an IPA HMO, in 1998
The PPO
(Preferred Provider Organization)
• An organization that contracts with
employers or insurance companies to
provide health care from a selected group of
providers (“preferred providers”)
• Distinguishing characteristic from an HMO:
– Consumers may use non-preferred providers
but must pay more out-of-pocket
Key PPO Characteristics
• Select provider network
• Negotiated rates of payment
• Incentives in benefit structure for
consumers to use preferred providers
• (More or less) Utilization management
and quality improvement programs
POS (Point of Service) HMO Plan
• Hybrid HMO product that is similar to a
PPO
– Member may use non-HMO providers but must
pay higher out-of-pocket costs
• Fastest growing segment of managed care
• Broader choice of provider than HMO
• (Potentially) greater ability to control costs
and utilization than a PPO
Managed Indemnity Plan
• Traditional insurance plan that adopts some
features of managed care
– Most common examples
• Prior authorization of hospital admissions
• Catastrophic case management
• Specialty utilization management of certain
services (e.g., mental health, pharmacy)
• Freedom of choice of providers
• More limited ability to control costs
Average annual change in employer
health benefit cost: 1987-1999
20.0%
15.0%
10.0%
5.0%
0.0%
87 88 89 90 91 92 93 94 95 96 97 98 99
-5.0%
% annual change
Employer techniques
to control costs
• Increased cost-sharing with employees
– Premiums
– Deductibles, coinsurance, copayments
– Defined contributions not defined benefits
• Benefit cutbacks
• Eligibility reductions
• Managed care plans
US Managed Care Penetration:
1993 vs. 1998
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
91%
52%
52%
1993
1998
16%
9%
Employed
Medicare
14%
Medicaid
19
Change in percentage of workers in
various types of health plans: US
1993, 1996-1998
60
50
48
35 36
40
30
20
10
27
23
30 30
25
27
31
19 20
19
15
9
7
0
Traditional
HMO
POS
PPO
1993
1996
1997
1998
Growth of products with “choice”
• Majority of managed care enrollment is in
PPO and Point of Service products
• Consumers equate “choice” with quality
• MCOs want broadest provider networks for
marketing reasons
– Managed care plans have diffuse and largely
overlapping provider networks
– Most providers do not distinguish among
MCOs in delivering care
21
Potential strengths of managed care
• Containing the increase in health care costs
• Improving quality
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Creating more rational systems of care
Improving coordination of care
Enhancing communication among providers
Reducing variation in practice
Improving access
Promoting prevention and wellness
• Enhancing accountability
Potential concerns about managed care
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Impaired continuity of care
Withholding of necessary care
Failure to provide “state of the art” care
Increased administrative costs
Reduced clinical autonomy
Hindering provider advocacy for patients
Promoting competition based on risk
selection and not efficiency of providing
care
Managed care is still an experiment
• Limited research on results of managed care
• Results seem to suggest:
– Lower rates of hospitalization
– Less intensive use of some resources
– Clinical quality measures as good, sometimes better
(not clear for frail and poor)
– Satisfaction higher for costs, paperwork
– Satisfaction lower for access; lower for the poor and
frail elders
– Lower “costs” (at least until last two years)
Past results may not be predictive
of future
• Limited number of HMOs studied; mostly
staff and group
• Focus on traditional, lock-in products
• Inadequate correction for selection bias
• Comparison usually of HMOs to
unmanaged, indemnity plans
• Focus on “does MC work” rather than
“what in MC works”
Little evidence that MCOs have achieved
sustainable reductions in the rate of increase in
costs
• Some scattered victories, but battle continues
• Premiums are not costs
– MCO pricing decisions
– Cost-shifting
• By purchasers to covered individuals and by dropping
coverage
• Among purchasers
• To families (e.g., home health)
– Benefit differences
– Administrative costs not adequately included
– Risk selection
– Differences in different market segments (e.g., small group,
nongroup)
Managed care has not altered
most of the causes of rising costs
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Technology
Demographics
Mix of primary and specialty physicians
Excess capacity
Lack of universal coverage
Culture (“death is optional”)
The Possibilities of Managed Care
1. Manage Cost • Manage insurance risk: benefit
package design, pricing, marketing
• Manage provider pricing: network
formation, contracting
• Manage utilization: utilization review,
provider financial incentives,
consumer cost-sharing
The Possibilities of Managed Care
2. Manage Care • Develop and implement protocols for
prevention and treatment; monitor
outcomes
• In-hospital acute case management /
“care pathways”
• Disease management across
continuum of care; shift resources
from acute to chronic, inpatient to
community-based sites of care
The Possibilities of Managed Care
3. Manage
Health
• Population-based interventions
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Risk assessment
Outreach
Intervention
Monitoring and follow-up
• Shift resources from health sector to
non-health sector (education, social
services, housing, transportation)
Why the growing scrutiny and public
discontent with managed care?
• Managed care is not a “voluntary” choice for most
people
• No more “safety valve” of unmanaged care
• Middle class has shifted debate from coverage and
affordability to allocation
• Massive transfer of power from providers to
purchasers
• “As the pie shrinks, the table manners deteriorate”
• Impingement on autonomy of providers
• Complexity and administrative hassle
Why the growing scrutiny and public
discontent with managed care? (cont’d)
• Growth of for-profit plans/distrust of “Wall Street”
• Some true horror stories (although these existed in
unmanaged care as well)
• Managed care introduces a more obviously
“accountable” entity
• Managed care doing the “dirty work” of cost
containment and resource allocation
• Consumers have not benefited from the cost
savings of managed care
“Hot” regulatory issues
• Access to care
– Any willing provider laws
– Access to emergency treatment/standards to judge what
is an “emergency”
– Use of specialists as “gatekeepers”
– Continuity of care following enrollment and provider
termination
• Quality of care
– Standards for utilization management decisions
– Standards for specific diagnoses/conditions
– Collection and reporting of access and quality
information
An Act to protect patient continuity of care
A health plan that requires the designation of a primary care
physician shall notify a member at least 60 days prior to the
disenrollment of such member’s PCP and shall permit such
member to continue to be covered for covered health services by
such physician at least six months after said physician is
disenrolled, unless the physician is disenrolled for quality reasons
…A member in her third trimester of pregnancy may continue
treatment with said provider until after her first postpartum
visit…A member who is terminally ill (meaning an illness which
is likely, within a reasonable degree of medical certainty to cause
death within one year), may continue treatment with said provider
until the member’s death.”
Pharmacy Freedom of Choice
“An HMO must contract with any pharmacy
willing to accept the terms and conditions of
the HMO’s provider contract, including
reasonable credentialing criteria, rates of
payment, utilization management, and
quality assurance requirements.”
Minimum Maternity Length of
Stay
Any HMO shall provide coverage of a minimum
of 48 hours of inpatient care following a vaginal
delivery and a minimum of 96 hours following a
cesarean section. Any decisions to shorten these
minimum coverages shall be made by the
attending physician in consultation with the
mother. Coverage in the event of an early
discharge shall include necessary home visits,
patient education, and any appropriate tests.
“Hot” regulatory issues (cont’d)
• Due process protections
– Grievance and complaint procedures
– Right of appeal to independent entity
– Provider due rights and process
• Access to prescription drugs not on formulary
• Ability to sue MCOs for medical malpractice
• Provider payment and financial incentives
– prohibition against individual capitation
– mandatory stop-loss protections
– need for risk adjusted payment
“Hot” regulatory issues (cont’d)
• Regulation of providers assuming financial risk
and providers contracting directly with
purchasers
• Privacy of of patient medical information
• Minimum Medical Loss Ratios/”Care Share”
• Disclosure to consumers
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Provider payment methods
Provider networks
Medical necessity and medical management criteria
Quality report cards
Minimum Medical Loss Ratio
“An HMO must spend at least 90% of annual
earned premium on medical expenses. Any
HMO failing to meet this standard shall
refund to its policyholders any amount by
which its medical loss ratio failed to meet
this standard, either by actual refunds or by
offsets against future premiums.”
An Act to protect the privacy of
mental health information
“No health plan shall require consent by a member to the
disclosure of information, other than the patient name,
diagnosis and date and type of service, as a condition to
receiving mental health and substance abuse
benefits….No health plan shall acquire or disclose any
communications by a member to a psychotherapist arising
out of the diagnosis or treatment of a mental condition
without the express and informed written consent of the
member, and such informed consent shall include
notification of the right not to give such consent.”
What should health professionals do to help
realize the possibilities of managed care?
Work to change the US financing system
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Universal coverage
Sharing the financing burden equitably
Publicly accountable health planning processes
Societal affordability (e.g., budgets)
Controls as close to caregivers as possible
Put savings from managed care into systems to
expand coverage and improve health