• Integrated delivery system—A network of organizations that provides or arranges to provide a
coordinated continuum of services to a defined population and is willing to be held clinically and
fiscally accountable for the outcomes and health status of the population within its geographic
service area.
• Integration—Various strategies that health care organizations employ to achieve economies
small medical group practices, and independent practitioners, most of whom have contracts with
a number of managed care organizations.
• MSO—Management services organization. An MSO is an organization that brings management
expertise and, in some instances, capital for expansion to physician group practices.
• Network model—An organizational arrangement in which an HMO contracts with more than
option to go to out-of-network providers at a higher level of cost sharing.
• Practice profiling—Use of physician-specific practice patterns and comparing individual
practice patterns to some norm.
• Primary care case management (PCCM)—A variation of the managed care arrangement in
which a state contracts directly with primary care providers who agree to be responsible for the
• Triple-option plan—A health insurance plan that combines the features of indemnity insurance,
HMO, and PPO; the insured has the flexibility to choose which feature to use when using health
care services.
• Utilization review (UR)—The process of evaluating the appropriateness of services provided.
• Vertical integration—Linking of services that are at different stages in the production process
REVIEW QUESTIONS
1. What are some of the key differences between traditional indemnity insurance and
managed care?
Traditional insurance
a) Healthcare functions are fragmented.
b) Little or no control over utilization. Insurance companies are generally passive payers of
claims.
Managed care
a) Managed care integrates the financing, insurance, delivery, and payment functions.
b) Employs various methods to control utilization.
2. What are the three main payment mechanisms managed care uses? In each mechanism,
who bears the risk?
MCOs use three main types of payment arrangements with providers: (1) capitation, (2)
discounted fees, and (3) salaries. Under capitation, the provider is paid a fixed monthly sum per
3. Explain how the fee-for-service practice of medicine led to uncontrolled utilization.
Under fee-for-service practice of medicine, moral hazard prevailed. An absence of primary
4. How do MCOs achieve cost efficiencies by integrating the quad functions, risk sharing
with providers, and care coordination? What are some of the inefficiencies created by
managed care?
By integrating the quad functions of health care delivery, MCOs eliminate insurance and
payer intermediaries and realize some savings. Risk sharing promotes delivery of health care that
is economically prudent. Hence, risk sharing is an indirect method of utilization control. Cost
5. Discuss the concept of utilization monitoring and control.
Utilization monitoring and control (utilization management) should include three key elements:
(1) expert evaluation of which services are medically necessary in a given case so that only
6. How does case management achieve efficiencies in the delivery of health care? How does
case management differ from disease management?
Patients with complex health problems need expensive secondary and tertiary care services
more often than primary care. A knowledgeable case manager coordinates an individual’s total
health care. Based on the patient’s needs which change over time, services are arranged so that
7. Explain how MCOs engage in pharmaceutical management. How does utilization review
apply to drug management?
Health plans use three main strategies: (1) Use of drug formularies. A formulary is a list of
prescription drugs approved by a health plan. Drugs not listed on the formulary are not covered
8. Describe the three utilization review methods, giving appropriate examples. Discuss the
benefits of each type of utilization review.
Prospective Utilization Review—Under this method, appropriateness of utilization is determined
before the care is actually delivered. The decision by a primary care gatekeeper to refer or not
refer a patient to a specialist is a type of prospective utilization review. Other examples include
9. What is an HMO? How does it differ from a PPO?
HMO stands for health maintenance organization. It is a type of managed care organization that
provides comprehensive medical care for a predetermined monthly fee per enrollee.
HMO
a. Capitation is the primary method of payment; risk is shared with providers
PPO
a. Discounted fee-for-service is the primary method of payment; there is little or no risk
sharing with providers
b. Does not use gatekeeping
paid a capitation fee based on the number of enrollees. The group is responsible for providing all
physician services. The group can make referrals to specialists, but is financially responsible for
reimbursing them for any referrals it makes. Advantages of this model: (1) The model is
11. What is a point-of-service plan? Why did it grow in popularity? What caused its
subsequent decline?
A point-of-service (POS) plan combines features of classic HMOs with some of the
characteristics of patient choice found in PPOs. The features borrowed from HMOs are
capitation, or other risk-based reimbursement to providers, and the use of the gatekeeping
12. What role is managed care expected to play under the Affordable Care Act?
Managed care is expected to be a dominant player in offering health insurance through the
exchanges established under the ACA. In addition to the MCOs that have served primarily the
13.
To what extent has managed care been successful in containing health care costs?
The belief that managed care provides cost savings and better value for money than traditional
indemnity insurance has been widely-held, even though any cost savings have not been
14. Has the quality of health care gone down as a result of managed care? Explain.
Overall quality of care in managed care plans has been found to be at least equivalent to that in
15. What is organizational integration? What is its ultimate aim? Why did health care
organizations integrate?
Integration refers to various strategies that health care organizations employ to achieve
economies of operation, diversify existing operations by offering new products or services, or
16. What is the difference between a merger and an acquisition? What is the purpose of these
organizational consolidations? Give examples.
Mergers and acquisitions both involve integration of existing assets. In an acquisition, the
acquired company ceases to exist as a separate entity and is absorbed under the name of the
17. When would a joint venture be considered a preferable integration strategy?
A joint venture would be the strategy of choice when the new service can benefit all the
participants and when competing against each other for that service would be undesirable.
18. What is the main advantage of two organizations forming an alliance?
Alliances are relatively simpler to form than mergers. An alliance is commonly a first step that
19. State the main strategic objectives of horizontal and vertical integration.
20. What is antitrust policy? What type of business practices does antitrust law prohibit?
How might antitrust policy play out in the formation of accountable care organizations?
Antitrust policy consists of federal and state laws that make certain types of business practices
illegal. The business practices prohibited or regulated by antitrust laws include price fixing, price