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Managed Healthcare

Kirti Udayai

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Traditional Fee For Service (FFS) / Indemnity Model

Insurers would not influence choice of physician

Insurers would not influence choice of treatment

Insurers would not bargain strongly on the basis of price

Problems

Over use

Marginal cost of care exceeds marginal benefit

High Prices

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Managed Care

Integrate provider and insurer function

In theory: insurer controls use and negotiates on price

Requires some power for insurer

Limit provider network

Implement utilization controls

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Introduction

Managed care programs promote the cost-effective use ofhealth care benefits through:

Utilization management -- use of Primary Care Physician

Selective contracting -- small provider networks with heavily-

discounted reimbursement rates

Provider payment/incentive programs -- transfer of risk to providers

Note:Capitation (Cap,Capped,Capitated) - Specified amountpaid periodically tohealth provider foragroupofspecifiedhealth services, regardlessof quantity rendered. Amounts aredetermined byassessing apayment "percovered life" or per member. The method of payment in which the provider is paid a fixed amount for eachperson served no matter what the actual number or nature of services delivered. The cost of providing anindividual with a specific set of servicesover a set period of time, usually amonth or ayear. A payment system

wherebymanaged careplans pay health careprovidersa fixed amount to care for a patient over agiven period.Providersarenot reimbursed forservicesthat exceed theallotted amount. Theratemaybefixed forall membersor it can beadjusted fortheageandgender of themember,basedonactuarial projectionsof medical utilization.

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Cont

Type of Plan What it offers

Method ofCost Control Features

Indemnity Services from anyprovider

None Freedom tochoose anyprovider

PPO(PreferredProviderOrganization)

Services from anyprovider, but at alower cost insidethe providernetwork

Discountsnegotiated withproviders

Freedom tochoose anyprovider

Note: Deductible: Cost-sharing arrangement between an insured person and health insurance company in which the insured

person will be required to pay a fixed dollar amount of covered expenses each year before the health insurance company will

reimbursefor covered health careexpenses. Generally, aninsuredpersonis responsiblefor adeductible eachcalendaryear

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Cont

Type of Plan What it offers

Method ofCost Control Features

HMO

(HealthMaintenanceOrganization)

Services from

network providersonly

Gatekeeper

managing utilizationand referrals

Negotiated providerdiscounts

Preventive care is

covered

Low or nocopayments

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Health Maintenance Organizations (HMO)

Traditionally closed network

Enrollees only see HMO physicians

Now open ended HMOs exist

Four Basic types

Group

Staff

Network

IPA ( Individual Practice Association)

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Health Maintenance Organizations (HMOs)

Definition: An organized system of health care that provides a comprehensive array ofmedical services on a prepaid basis to voluntarily enrolled persons living within a specificgeographic region

Comprehensive Care

Broad package of inpatient and outpatient services

Emphasize preventive careSmall or no copayments

Delivery of Medical Services

Subscribers (except in emergencies) must obtain care from provider affiliated with HMO

Cost Controls

Emphasis on outpatient treatment

Use of salaried employees or control of compensation by capitation or other arrangement

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Types of HMOsStaff Model

HMO owns its own facilities and hires its own physicians

May contract for certain services

Employees are paid a salary and possibly a bonus

Great potential for cost savings but number small because of high start-up costs and high fixedcosts

Individual Practice Associations (IPA)

Participating physicians practice in own office and may see non-HMO patients

Physicians usually reimbursed on basis of fee schedule, but reimbursement may be a flat annual

amount per subscriber

Usually have contractual arrangements with hospitals to provide inpatient care

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Group Model

Physicians work for another entity that has contract with the HMO

HMO usually pays for services on a capitation basis

Mixed Model

A combination of two or more of the previously described plans; usually result from mergers ordecisions to expand into different geographic regions

Types of HMOs

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Preferred Provider Organizations (PPOs)

Discounted Price for Service Arrangement

Governed by different (less restrictive) laws than HMOs

A Three-Part Deal

Physicians and hospitals

Patients

PPO

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Three Part Deal

Physicians and Hospitals

Get name on a list--maintain market share

Get faster payments

Give discounted fees

Patients

Lower cost within network

Get increased freedom to go out of plan but at higher cost

PPO

pays faster

controls use and monitors quality

gets profit

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Point of Service (POS) Plans

Typically choose primary care physician who control referrals (gatekeepers)

Otherwise like a PPO plan (you can get out-of-network coverage for a higher out-of-pocket price)

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Accreditation

Increasing focus by employers, government, and consumers on quality andrequirement that managed care organizations meet some type of standards

Organizations

The National Committee for Quality Assurance (NCQA)

The Joint Commission on Accreditation of Healthcare Organizations(JCAHO)

Utilization Review Accreditation Commission (URAC)

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Provider ContractsTypesof feeschedules

Inpatient:

Per Diem--fixedamount per hospital day

DRG (Diagnostic-RelatedGroup)--fixedamount per casebasedondiagnosis

Percent of Charges

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Provider Contracts

Comparison of Two Methods Fee-for-Service Capitation

Variability Payment depends onnumber and type ofservices provided

Payment does not varywith number or type ofservices provided

Timing Payment received afterservices provided

Capitation is prepaid

Risk HMO is at risk for higherthan expected cost andutilization

Provider is at risk forhigher than expectedcost and utilization

EconomicIncentive toProvider

Perform more servicesand more expensiveservices

Perform fewer servicesand less expensiveservices

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Youcan onlysee adoctor who belongsto the HMO network

Onlyyour primary care doctor can recommend aspecialist

There is a larger number of cost controls elements in the plan such as

authorizations, referrals, etc.

In case of PPO, the premiums and employee contribution are higher thanan HMO plan, but lower than aTraditional Indemnity

If you may choose to see a doctor outside the network without permission

youarelikely to receive onlyanominal payment, if anyat all

Disadvantage

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