CHAPTER 9
Managed Care and Integrated Organizations
WHAT IS MANAGED CARE?
Managed care integrates the functions of financing, insurance, delivery, and payment within one
organizational setting, and it exercises formal control over utilization.
• Financing—contract negotiations between employers and MCOs
• Insurance—MCO assumes risk
EVOLUTION OF MANAGED CARE
• Financial structure of the Baylor Plan (1929) was based on capitation.
• Contract practice—defined group of enrollees and shifting of some risk to providers.
Alternative forms of managed care
To compete against HNOs, insurance companies formed PPOs. Differentiating factors: greater
Accreditation of MCOs
Quality assessment in managed care
GROWTH OF MANAGED CARE
1. Flaws in fee-for-service (indemnity insurance):
◆ Uncontrolled utilization
• Moral hazard
• Overutilization of specialty care
◆ “Shadow pricing”—HMOs started offering better benefits at lower costs
3. Weakened economic position of providers
EFFICIENCIES AND INEFFICIENCIES IN MANAGED CARE
1. Efficiencies
• Elimination of insurance and payer intermediaries
• Risk sharing with providers to minimize provider-induced demand—indirectly controls
2. Inefficiencies
• Complexity for providers of having to deal with numerous plans
COST CONTROL METHODS IN MANAGED CARE
1. Choice restriction—indirectly controls utilization
• Closed panel (closed access, in-network)—services can be obtained only from providers
2. Gatekeeping
• A primary care physician (PCP) is the portal of entry into the health care delivery
3. Case management
• Coordination of care for complex and potentially costly cases (AIDS, spinal cord injury,
4. Disease management
• A population-oriented strategy, whereas case management is individualized
5. Pharmaceutical management
6. Utilization review (UR)
• The process for evaluating the appropriateness of health services utilization
• It requires a review of each case to
– determine the most appropriate level of services
7. Practice profiling
Evaluation of individual practice patterns by comparing them to a norm. It may
incorporate results of patient satisfaction surveys and compliance with clinical practice
TYPES OF MCOs
Insurance companies offer different types of managed care plans, including triple-option
plans.
HMOs
2. PCP as the first contact
4. Use of in-network services; carve outs for special services
Types of HMOs
1. Staff model
• Employ physicians on salary
• Contracts for only uncommon specialties and hospital services
2. Group model
• Contract with a single large multispecialty group practice
• Separate hospital contracts
3. Network model
• Contract with more than one group practice
• Variations:
3. IPA model (Independent practice association)
• Separate entity from the HMO (IPA acts as an intermediary between the HMO and
physicians)
• HMO contracts with IPA. IPA is the risk bearing entity and is paid a capitated fee
• IPA (not HMO) contracts with providers
• Advantages:
PPOs
• Contracts with preferred providers
• Discounted fee arrangements (generally 25%-35% discount off charges)
• Allows use of open panel, but higher copayments
Point of Service (POS) Plans
• Cross between HMO and PPO
• HMO features are retained (utilization controls, capitation)
TRENDS IN MANAGED CARE
Managed care has become a mature industry in the U.S.
Employment-based Health Insurance Enrollment
Many employers offer a choice of plans with level-dollar employer contribution.
Managed Care and Health Insurance Exchanges
• MCOs are expected to be dominant players
• Consumer Operated and Oriented Plans (CO-OPs) to be established with federal funding
Medicare Enrollment and Payment Reforms
• Options: fee-for-service or Medicaid Advantage (Part C)
• MCO pullouts began in 2000 due to reduced capitation under BBA 1997
IMPACT ON COST, ACCESS, AND QUALITY
Influence on Cost Containment
• Earlier successes
• Backlash from consumers and providers
• Managed care’s full cost containment potential was not realized
• Tight restrictions on utilization are necessary
• Overall, quality of care in MCO plans has been equivalent to traditional indemnity plans.
Actually, most of the evidence suggests somewhat better quality in MCO plans. But, there
BACKLASH, REGULATION, AND AFTERMATH
Backlash:
Three main reasons:
• Employees faced barriers to free choice of providers
Regulation:
• Federal: Newborns’ and Mothers’ Health Protection Act, 1996
• Numerous laws were passed across states, e.g.,
– Limits on utilization-based financial incentives to physicians
Aftermath:
• Better relations with providers
• Relaxed utilization controls
ORGANIZATIONAL INTEGRATION
Purpose: Economies of operation, diversification, or gain market share. The ultimate aim is to
provide a seamless array of services around a hospital.
Integration Strategies
• Mergers and acquisitions: integration of existing assets
• Joint venture—when diversification, but not competition, is desired
• Alliance—agreement to share existing resources without ownership
– simple to form
Service Strategies
• Horizontal integration—a mode of geographic expansion, not diversification
• Vertical integration—to add services along the continuum of care (diversification)
BASIC FORMS OF INTEGRATION
Involve mainly physicians and hospitals; sometimes other entities. The ones that have survived
are mainly management services organizations (MSOs) and physician–hospital organizations
HIGHLY-INTEGRATED HEALTH CARE SYSTEMS
These generally include a hospital, a physician component, and at least one systemwide contract
with a payer, such as Medicare or MCO.
Integrated delivery systems (IDSs)
A network of organizations that provides or arranges to provide a coordinated continuum of
Accountable care organizations (ACOs)
Integrated group of providers who take responsibility for delivering services to a defined
population
– Take responsibility for improving health status
– Provide cost-efficient care
unaddressed.
Payer-provider integration
TERMINOLOGY
• Accountable care organization (ACO)—An integrated group of providers who are willing and
able to take responsibility for improving the overall health status, care efficiency, and
satisfaction with care for a defined population.
• Acquisition—Purchase of one organization by another.
• Alliance—A joint agreement between two organizations to share their resources without joint
ownership of assets.
• Concurrent utilization review—A process that determines on a daily basis the length of stay
necessary in a hospital. It also monitors the use of ancillary services and ensures that the medical
treatment is appropriate and necessary.
• Discharge planning—Planning that focuses on post-discharge continuity of care.
• HMO (health maintenance organization)—A managed care organization that provides
comprehensive medical services for a predetermined annual fee per enrollee.
• Horizontal integration—A growth strategy in which a health delivery organization extends its
core product or service.
• Indemnity insurance—An insurance plan that allows the insured to obtain health care services