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  Discounted fees  Salary  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: 95% Medicare: 13% Medicaid: 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 kinds of inefficiencies – see p. 332  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 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-for- service 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