Chapter 7 Managed Care

Learning Objectives Define a health maintenance organization (HMO) Describe the four main activities of health plans List the five types of health plans and their characteristics Describe the forces that influenced the development of integrated delivery systems Describe some of the methods by which providers are paid by health plans Describe how managed-care organizations (MCOs) establish their prices Discuss legal and regulatory issues that affect MCOs 2

Figure 7–1 Health Care Insurance Market 3

Four Health Plan Activities Underwriting HP’s receive premiums from buyers and make payments to providers Utilization Review Medical necessity Case management Claims Administration Validate coverage and payment terms Coordination of benefit Marketing 4

Major Types of Health Plans Health Maintenance Organization Staff Model Group Model Individual Practice Association (IPA) Model Network Model Conventional/Indemnity Plans Point of Service (POS) Plans Hybrid HMO Preferred Provider Organization (PPO) Plans Similar to HMO with POS option High Deductible Health Plans with Savings Options Plans HSA’s 5

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Integrated Delivery Systems (IDS) “A strategic alliance among doctors, hospitals, and other ancillary providers to deliver care to a defined population.” An IDS may vary in the nature of services provided. Some have developed their own health plans. Sentara Health System in Norfolk 8

Factors Creating IDS Growth Payer Negotiation Fewer payers drive providers to integrate Outpatient Service Growth Integrate Data Systems Electronic Health Record Productivity 9

Control Alternatives for IDS Physician Hospital Organization (PHO) with physician organization without physician organization Medical Service Organization (MSO) Physician Organizations (POs) 10

Paying Providers in an IDS Capitation Payment usually per member per month (PMPM) Benefits covered must be defined Salary/Budget Only when providers are owned by IDS Fee for Service Payment related to utilization No risk for utilization variances 11

Witholds and Risk pools Usually associated with fee for service payment Additional payments result when utilization is below budget 12

Setting a Capitated Price PMPM is the rate PMPM = Expected encounters per year X Cost per encounter 12 13

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Factors to Consider in Setting PMPM Rates What set of services are included? Should stop loss coverage be purchased? What provisions for adverse selection should be included? How to capture “incurred but not reported” (IBNR) liabilities. 17

Legal and Regulatory Issues Antitrust Price fixing Increment “Commercially reasonable” Licensure as an Insurer Is an IDS required to be licensed as an HMO? Incentives to reduce services by physicians Intentional torts 18