Chapter 9Chapter 9

Managed Care Managed Care and Managed and Managed

Care Care Organizations Organizations

(MCOs)(MCOs)

NOTE: In Quiz 2 and the final examNOTE: In Quiz 2 and the final exam

this chapter will be a little more this chapter will be a little more heavily weighed than other chaptersheavily weighed than other chapters

What is Managed Care?What is Managed Care?

Core feature: Core feature:

It integrates the functions of It integrates the functions of financing, insurance, delivery, and financing, insurance, delivery, and payment payment

Integration of the Quad Functions - 1Integration of the Quad Functions - 1

Financing – contract negotiations between Financing – contract negotiations between employers and MCOsemployers and MCOs

Insurance – Insurance – The MCO assumes risk The MCO assumes risk

The need for an The need for an insuranceinsurance

company is eliminatedcompany is eliminated

Risk is often shared with Risk is often shared with

the providersthe providers

Integration of the Quad Functions - 2Integration of the Quad Functions - 2

Delivery – The MCO must arrange to Delivery – The MCO must arrange to provide a comprehensive array of provide a comprehensive array of servicesservices

Payment – Payment – CapitationCapitation

Discounted feesDiscounted fees

SalarySalary

Other Characteristics of Managed Other Characteristics of Managed CareCare

Defined group of enrolleesDefined group of enrollees Limits on choice of providersLimits on choice of providers Utilization managementUtilization management Financial incentives to providers for Financial incentives to providers for

efficiencyefficiency Accountability for plan performance Accountability for plan performance

(quality)(quality)

Enrollments in Managed Care: Enrollments in Managed Care: 20022002

Private: Private: 95% 95%

Medicare: Medicare: 13% 13%

Medicaid: Medicaid: 55%55%

Forces Behind Managed CareForces Behind Managed Care

Health Maintenance Organization Act Health Maintenance Organization Act 1973 provided federal funds to start 1973 provided federal funds to start new HMOsnew HMOs

Escalating health insurance costs – Escalating health insurance costs – Figure 9-5, p. 333Figure 9-5, p. 333

The System Before Managed CareThe System Before Managed CareFee-for serviceFee-for service The insured had direct access to any The insured had direct access to any

provider, PCP or specialistprovider, PCP or specialist Itemized billing of charges by the provider Itemized billing of charges by the provider

to the insurerto the insurer Few, if any, controls over the amount of Few, if any, controls over the amount of

paymentpayment Sickness coverage; no coverage for wellness Sickness coverage; no coverage for wellness

and preventionand prevention Insurers functioned simply as passive Insurers functioned simply as passive

payers of claimspayers of claims

Flaws in Fee-for-serviceFlaws in Fee-for-service

Various kinds of inefficiencies – see Various kinds of inefficiencies – see p. 332 p. 332

Moral hazardMoral hazard Overutilization of specialty careOverutilization of specialty care Charges set at artificially high levelsCharges set at artificially high levels Provider-induced demandProvider-induced demand Physicians benefited financially by Physicians benefited financially by

putting patients in the hospitalputting patients in the hospital Inefficiencies were absorbed by Inefficiencies were absorbed by

raising premiumsraising premiums

Cost Control in Managed CareCost Control in Managed Care

Elimination of intermediaries – tight Elimination of intermediaries – tight integration of quad functionsintegration of quad functions

Control over reimbursement – Control over reimbursement – capitation risk sharing or discountscapitation risk sharing or discounts

Utilization management Utilization management

Utilization ManagementUtilization Management

Choice restrictionChoice restriction– In-network accessIn-network access – no open access – no open access– Out-of-networkOut-of-network access, but pay extra access, but pay extra

GatekeepingGatekeeping by a PCP by a PCP Case managementCase management for complex cases for complex cases Utilization ReviewUtilization Review Practice profilingPractice profiling

Utilization Review (UR)Utilization Review (UR)

Case reviewCase review Determine the most appropriate type Determine the most appropriate type

and level of service and level of service Plan subsequent carePlan subsequent care

Three Types of URThree Types of UR

Prospective URProspective UR Concurrent UR and Concurrent UR and discharge discharge

planningplanning Retrospective URRetrospective UR

Types of MCOsTypes of MCOs

HMOsHMOs PPOsPPOs POS PlansPOS Plans

Why Different Types?Why Different Types?

HMOs did not become widely popular HMOs did not become widely popular (except in California and Minnesota) – (except in California and Minnesota) – Figure 9-8, p. 341. The main Figure 9-8, p. 341. The main drawbacks of HMOs were:drawbacks of HMOs were:

– Choice restriction (for enrollees)Choice restriction (for enrollees)– Capitation (for providers)Capitation (for providers)– Utilization management (for both)Utilization management (for both)

HMOsHMOs

Emphasize preventive careEmphasize preventive care Capitation is the method used to pay Capitation is the method used to pay

providersproviders Carve outsCarve outs for certain specialty for certain specialty

servicesservices In-network accessIn-network access GatekeepingGatekeeping Standards of qualityStandards of quality

HMO ModelsHMO Models

StaffStaff GroupGroup NetworkNetwork Independent practice associations Independent practice associations (IPAs)(IPAs)

Study from the textbook what these Study from the textbook what these models are and their main advantages models are and their main advantages and disadvantagesand disadvantages

HMO EnrollmentsHMO Enrollments

Figure 9-9, p. 344Figure 9-9, p. 344

PPOsPPOs

Sickness careSickness care Discounted fees is the method used Discounted fees is the method used

to pay providers (no risk sharing)to pay providers (no risk sharing) Both in-network and out-of-network Both in-network and out-of-network

accessaccess Generally, no gatekeeping Generally, no gatekeeping Generally, loose utilization managementGenerally, loose utilization management

PPO EnrollmentsPPO Enrollments

Figure 9-10, p. 346Figure 9-10, p. 346

POS PlansPOS Plans

Cross between HMO and PPOCross between HMO and PPO HMO features are retained HMO features are retained PPO features are available at the PPO features are available at the

point of servicepoint of service

POS EnrollmentPOS Enrollment

Figure 9-11, p. 346Figure 9-11, p. 346

Trends in Managed CareTrends in Managed Care

Figure 9-12, p. 347Figure 9-12, p. 347

Health insurance premiumsHealth insurance premiums

Figure 9-13, p. 348Figure 9-13, p. 348

Medicaid EnrollmentMedicaid Enrollment

Balanced Budget Act 1997 allowed Balanced Budget Act 1997 allowed states to enroll Medicaid states to enroll Medicaid beneficiaries in managed carebeneficiaries in managed care

Unavailability of managed care plans Unavailability of managed care plans in some geographic locationsin some geographic locations

MCO pulloutsMCO pullouts Primary care case managementPrimary care case management

(PCCM) programs: direct contracting (PCCM) programs: direct contracting with providers by states with providers by states

Medicare EnrollmentMedicare Enrollment

Medicare beneficiaries have the Medicare beneficiaries have the option to remain in the fee-for-option to remain in the fee-for-service programservice program

Capitated Capitated risk contractsrisk contracts MCO pullouts due to reduced MCO pullouts due to reduced

capitation under the BBA 1997 capitation under the BBA 1997 Problem: Medicare capitation is not Problem: Medicare capitation is not

based on based on risk adjustmentrisk adjustment

Impact on cost, access, and qualityImpact on cost, access, and quality