Health Care Financing and Managed Care

Objectives  To understand the basics of health care financing in the United States  To understand the basic concepts of managed care  To understand the changes taking place in health care financing and the impact on clinical practice

Who pays for health care in the United States?

Payers  Employer based insurance  Government  “Self pay”

Health Care Payers in the U.S., 1999

Employer based insurance  In recent years, major shift from fee-for-service coverage to various forms of managed care  Estimated 80% of plans are managed care  Employers provide health insurance for tax advantages, attract employees

Government health insurance  Medicare  Medicaid  Children’s Health Insurance Program (CHIP)  Military based health care (Tricare, VA)

Medicare  Federal program that started in 1965  All costs paid by the Federal government  Part A paid by a dedicated Medicare tax  Part B paid by premiums and general revenue

Medicare Covers:  All U.S. citizens over age 65 years  Certain disabled persons under age 65 years  All persons with end stage renal disease

Medicare Part A  Covers inpatient hospital services, hospice care, very limited skilled nursing facility care  Has deductibles, copays  No premiums

Medicare Part B  Is optional and has required premiums (currently $50.00/month)  Pays physician services, certain outpatient care, certain home health care, physical therapy, durable medical equipment  Has deductibles and copays

Medicare does NOT cover  Most prescription or over-the-counter drugs  Acupuncture  Dental care  Health care outside the United States  Hearing aid or glasses  Routine physical exams or eye exams

Medicare options  Medigap policies: optional insurance policies sold by private insurers; cover some deductibles and copays, some cover other services; Medipak is local example

Medicare options  Medicare + Choice: optional managed care plans that Medicare recipients in which may enroll; operated by private insurers; variety of features; may cover otherwise uncovered services such as Rx drugs

Medicaid  Health insurance for the poor  Program operated by state governments under Federal guidelines  Costs shared by both Federal and state governments  CHIP: program started in Clinton administration to increase health insurance for children

Medicaid  Programs vary by state  Typically pay for certain inpatient and outpatient care, prescription and some nonprescription drugs, physician services, nursing home care  In traditional Medicaid, there are no deductibles or copays; in CHIP, there are both

Medicaid  Traditionally a fee-for-service program in most states  More are moving to managed care  In Arkansas, it is a centralized managed care, HMO model system; called ConnectCare

The Uninsured  38 million persons in the U.S. without health insurance  Most (~75%) are employed; most at small businesses that offer no health insurance

The Uninsured  Less likely to have seen a physician  More likely to delay seeking care  Three times more likely to have significant adverse outcome  Four times more likely to have avoidable hospitalization or ER visit

Why managed care?

Evolution of managed care  Health insurance traditionally fee-for-service  Health care costs increased dramatically in early s, much higher than inflation

Medical Inflation

Medical Costs in the U.S.  $1 trillion spent per year on health care  About 14-15% of gross domestic product  Approximately $4000 per capita

Evolution of Managed Care  Health Maintenance Organization Act of 1973; provided federal loans to new HMOs, required self insured large corporations to offer an HMO choice  Some studies suggested that managed care plans are more cost efficient, some by as much as 25%

Self insurance  Most medium and large employers in 1980s began to self insure  Often use outside companies to process claims  Led, in part, to a large variety of managed care plans

Managed care plans  Health maintenance organization (HMO) Staff model Group model  Preferred provider organization (PPO)  Point of service plan (POS)

Staff model HMO  Directly employs physicians and health care staff  Usually own their own hospitals and clinics, some use independently owned hospital through contracts  Well known example is Kaiser-Permanente  None in Arkansas

Group model HMO  Essentially a partnership among a group of physicians, hospital, and the health care plan.  Usually a large multispecialty group practice is single source of care for enrollees  Physicians agree by contract to terms of HMO  Payment via discounted fee-for-service, partial capitation, global capitation

Preferred Provider Organization  Contract with several independent physicians or groups and hospitals to provide care for enrollees  Usually associated with more provider choices, but may have higher premiums than HMO  Enrollees usually have financial incentive to use “preferred provider”

Point of Service Plan  Enrollees have a choice of “points of service” with physicians and hospitals; if they choose certain providers, there is less out of pocket expense  For physicians and hospitals, similar to a PPO

Physician Compensation  Discounted fee-for-service  Discounted fee-for-service with utilization based financial incentives (bonus or penalty)  Partial capitation  Global capitation

Utilization Management  Use of financial or other incentives to control utilization of health services (really cost!!)  Physician profiling: tracking of per member, per month visits, ER visits, inpatient days, charges per visit, pharmacy utilization, specialty referrals, etc.

PCP Gate keeping  Feature of vast majority of health plans  Each enrollee chooses or is assigned a primary care physician who oversees and coordinates care  Other physician services, hospitalizations, some tests must be referred by PCP

Advantages of managed care  Use of primary care physician, “medical home”  Cost containment  In some systems, well coordinated care  Preventive care, screening, immunizations  ??? Quality of care

Weaknesses of managed care  Less freedom to choose physicians, hospitals  Less clinical autonomy for physicians  Reduced access to specialty care  Bureaucracy  ? Patient satisfaction  ??? Quality of care

Physician Challenges  Coerced change situation  Conflict of interest, communication difficulties with utilization based financial incentives  Risk sharing agreements  Rapid change  ? Lower income