DB 2 Summer

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.

Figure 7-1 Healthcare Insurance

Market

FIGURE 7-1 Healthcare Insurance Market

Four Health Plan Activities

• Underwriting

– HPs 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

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

– HSAs

Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2015.

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

Factors Creating IDS Growth

• Payer negotiation

– Fewer payers drive providers to integrate

• Growing importance of payer referrals

• Increasing importance of capitation

• Outpatient service growth

• Integrate data systems

– Electronic health record

• Vertical and horizontal integration trends

• Productivity

Control Alternatives for IDS

• Physician Hospital Organization (PHO)

– With physician organization

– Without physician organization

• Medical Service Organization (MSO)

• Physician Organizations (POs)

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

–Usually associated with fee-for-

service payment

–Additional payments result when

utilization is below budget

Withholds and Risk Pools

Setting a Capitated Price

• PMPM is the rate • PMPM = Expected encounters per year x Cost per encounter

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Factors to Consider in Setting

PMPM Rates

• What set of services is included?

• Should stop-loss coverage be

purchased?

• What provisions for adverse selection

should be included?

• How to capture “incurred but not

reported” (IBNR) liabilities?

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