Managed Care Course #918

Overview of Managed Care

Prior to managed care, most insurance plans were modeled on the indemnity or fee-for-service type of insurance plan. This meant that the insurance company would reimburse the subscriber a percentage of fees paid, or might pay directly to the hospital a percentage of charges, leaving the patient to be responsible for those charges remaining. The typical plan was provided to employees with little or no choice of plans and would customarily pay 75% to 80% of charges, leaving 20% to 25% as the employee's responsibility.
This method gave no incentive for anyone to reduce prices. The providers (physicians, hospitals, labs, clinics) would receive more income with higher usage. The longer the patient stayed in the hospital, or the more often he or she was seen by the physician, or had laboratory work or x-rays, the more money each of those providers would receive. There was even inducement for the patient to have increased services because the way some of the programs were arranged, if the patient had more than one insurance (such as more than one employee in the family), then the patient might even MAKE money by having medical procedures done. They would simply bill each insurance carrier for the full cost and have the money sent to them directly, rather than to the provider.
This fiscally irresponsible system led to constantly escalating costs for the insurance carriers. They looked hard at ideas for keeping costs under control and were favorably impressed by the concept of managed care that gave incentives for cost-savings.
One definition of managed care is a method of delivering health care which integrates resource utilization, financial expenditures, and desired patient outcomes by having stricter regulation of providers that are used, procedures that are done, and other controllable expenses. Their goal is to control costs by effective use of resources while still providing quality care.
Managed care was first tried as a model plan at the New England Medical Center in Boston in 1980. Its popularity has spread rapidly throughout the country until today nearly every nurse working in the United States is somehow involved with or affected by managed care. In 1976, six million Americans were members of health maintenance organizations. Today, it is estimated that one hundred sixty million (160,000,000) Americans belong to some type of managed care program. Whether the nurse is employed by a managed care company, or works in an acute hospital, long-term care facility, or physician's office, the influence of managed care will permeate his or her professional life daily.
At its core, managed care is an attempt to encourage price competition in the highly competitive health care marketplace. If one looks at the patients as the buyers and the providers of health care as the sellers, the view is somewhat skewed. That is because unlike other industries, both the buyer and seller can ignore the cost of the services that are purchased. That is because only rarely does the patient pay the physician directly for services. In most cases, the insurance companies do that.
This oddity of the system means the market is hindered from controlling the costs. If Mr. Jones is buying aspirin, he may well compare name brands to generic types, look for sales, and use a coupon. However when he is looking for health care services, he understandably seeks the best care he can find and usually doesn't even think about the costs. Even employers who pay the premiums for most insurance plans don't know which plan is the best value. They are hindered by a confusing "cafeteria-style" selection of services, varying premiums, deductibles, and co-payments.
There has been a great deal of confusion between the terms "managed care" and "case management." The terms are often used interchangeably, but that is incorrect. Case management is a method of carrying out managed care. It is not the only way, but it is a common and popular way. Case management may also be carried out for patients with no regard to what insurance carrier is paying the bill for their care. A hospital may choose to have a case management program to implement their oncology services, for example, but this would be used as a method for the hospital to work at improving their quality of care, efficiency, and productivity, not as a specific requirement of an insurance carrier. However, the insurance carrier may indeed also have a case management program developed to smooth their patient's way through the health care system.

As was mentioned earlier, there are several types of managed care programs. The advantages and disadvantages of each will be explained. The characteristics and requirements of some will lend themselves to better fit certain families than others and will mean different things to the nurse who is working with that particular plan. It is therefore critical to understand the differences.

Health Maintenance Organization (HMO)

The earliest and perhaps best known managed care plan is the HMO. This type of health plan is responsible for both the financing and the delivery of health care services for a prepaid premium. Members receive care from practitioners who are either employed by or contracted with the HMO.

There are numerous types of HMOs, and more are being created every week. This guide will help you to understand some of the most commonly seen types.

In staff model HMOs the physicians are employed by the HMO. They often work in the HMO hospital, are paid a salary, and may receive financial incentives for efficient resource utilization. One well-known staff model HMO is Kaiser Permanente. Kaiser subscribers receive their care at Kaiser clinics, Kaiser hospitals, and Kaiser laboratories, all staffed by Kaiser employees.

Group practice model HMO is the name given when the HMO contracts with a group of physicians representing multiple specialties to provide the care given to the HMO patients. This is similar to the staff model except that the physicians are not employees of the HMO, but rather members of a medical group contracting with the HMO.

Network model HMOs contract with several different physicians and physician groups to construct a network of providers from which the patient member can choose. In this plan, the member may or may not have a primary care physician who acts as gatekeeper.

An Independent Practice Association (IPA) is a group of physicians who contract with HMOs, PPOs, and others to provide care to those companies' members at a reduced rate. The IPA will contract with more than one HMO, which differentiates it from the group practice model.

For example, the physicians at City Memorial Hospital may feel their practices shrinking since so many patients are now members of competing HMOs. They band together to form an alliance called City Memorial Physicians Group, an IPA. The administrators of the IPA then market the group to HMOs, PPOs, and others, knowing that the more groups they can contract, the more patients they will have the opportunity to see. The IPA administration also handles the business end for the physicians, freeing them to spend more time actually practicing medicine.

Direct contract model HMO is not seen as commonly as the other forms. In this method, the employer contracts directly with individual physicians to provide care for the employees. There is no insurer involved in the process.

Most patients who participate in an HMO choose a primary care physician (PCP) to act as gatekeeper. This physician tries to improve cost effectiveness by eliminating unnecessary use of services. Therefore, when a patient wishes to have a consultation with a specialist, the physician needs to authorize that appointment. This also helps to cut down on the use of the emergency room as a doctor's office for some patients. If a baby has a fever and is vomiting, the parent needs to contact the PCP who probably will tell the patient to be seen in the office instead of going to the ER.

HMOs vary from many other plans because they cover the entire health care needs of the subscriber. This would include prenatal care, well-baby checks, educational programs, inoculations, and smoking cessation programs. These programs all help to keep the subscriber healthier, so in the long run, save money for the HMO.

Preferred Provider Organization (PPO)

The PPO is an organization that creates a network of healthcare providers by contracting with them for discounted rates. The providers may be physicians, hospitals, laboratories, transportation companies, durable medical equipment suppliers, home health agencies, pharmacies, or others. They will sign a contract with the PPO to provide their services to PPO members at a lower rate, in exchange for the advantage of having more clients.

The patient/subscriber is given a booklet listing those providers participating in the PPO. When he or she sees a physician, the patient's percentage of costs is much lower when using a PPO physician than if a non-PPO physician is used. This contrasts with the HMO where the patient is not given the choice of non-member providers.

John Smith is working in his home workshop when he cuts his hand, which appears to require suturing. His wife, Mary, looks in the PPO directory and sees that there is a nearby family practice physician. With John's plan, if he sees the PPO physician, John will pay only a $5 office visit charge (called a 'co-pay') and the PPO will pay the physician the remainder of the fee. If John chooses to go to his long-time family doctor who is not a member of the PPO, John will be reimbursed 75% of the cost, providing he has already met the yearly out-of-pocket deductible charge of $500.

The PPO is often simply one "product" of several offered by a large health insurance company.

Exclusive Provider Organization (EPO)

EPOs are similar to both PPOs and HMOs. In this type of program, the member is given a directory of providers, but they are limited to using only those providers. Although it is similar to an HMO, there are a few legal differences in their structure that makes them not subject to the same regulations as are the HMOs.

Point of Service (POS)

These plans are one of the newer methods of managed care. They are HMOs, where the patient/subscriber is given the option of going to out-of-network providers at a reduced reimbursement rate. There is still usually a primary care physician acting as gatekeeper as in the HMO.

Let's say Mary Jones belongs to a POS plan. She chooses Dr. Brown for her PCP. When she has an asthma attack, she opts to go to her long-time allergist for treatment. Although the allergist is not a member of the HMO plan, she will be reimbursed 80% of charges if she has already met the yearly deductible requirement. If she goes to Dr. Brown, she pays only the office co-payment fee of five dollars.

This may all seem confusing, but what is even more confusing is that one health insurance company may have several "products;" some of these may be managed care and some may not be. Plans may be tailored to fit specific needs of a particular employer who chooses to cover or not cover certain items. One example may be a church-sponsored health plan that would opt to not pay for abortions, or an ophthalmology clinic that wants to be sure all of its employees have vision care covered in their plan. These benefits may be so specific and individualized that an insurance carrier could have more than one hundred different options available, yet all would be included under their company name.

One popular option is a benefit for alternative medicine choices. Nearly all states now require chiropractic coverage, several allow acupuncture and naturopaths, and a few include homeopathy, acupressure, and touch therapy in their plans.

Let's say that A-1 Insurance Company is a traditional health insurance company that has been in business for many years with a traditional indemnity plan that paid 80% of charges, while the subscriber paid 20%. As costs kept rising with no hope of control, A-1 management felt they had no choice but to join the managed care bandwagon. Now they offer several plans.

A-1 Liberty is their traditional indemnity plan; A-1 Freedom is their PPO plan; A-1 Family is their HMO.

Provider-Sponsored Organization (PSO)

Many health care futurists feel that PSOs are the next step in creating a health plan that meets the goals of the patients and the providers. This system is owned and operated by a network of physicians and hospitals rather than by an insurance company. Usually, this is the product of a large, multi-service hospital that can provide any care a subscriber may need. This gives the providers better control and eliminates the middleman (insurance company.)

Super IPAs

Other groups that have been receiving more attention recently are the "Super-IPAs." These are management companies that function as administrators for several smaller IPAs.

When a physician is a member of a managed care group, payment is different from the more traditional insurance plan where a bill is submitted and a percentage of charges is paid. In these plans, a variety of methods may be used to pay the physician.

In staff model versions of the HMO, physicians are paid a salary with some sort of bonus or incentive paid if certain cost effectiveness goals are met. With network and IPA models, the PCP may be paid a monthly fee for managing the health care of a subscribing patient; this is called capitation. There may also be additional bonuses paid for meeting goals.

PPOs are arranged so that they pay a pre-determined charge below the normal fee for a physician to see a patient. If Dr. Brown charges $80 for an office visit, he may contract with the PPO to be reimbursed only $50 for each PPO patient he sees. This saves money for the insurer, but also gives Dr. Brown additional patients due to the referrals to him generated by the listing in the PPO directory.

Similarly, Acme Equipment & Supply may charge $50 a month for rental of a hospital bed, but only $30 will be charged to the PPO.

Hospitals are very different. The PPO and hospital may enter into a variety of plans for payment, including per diem rates, DRG rates, or discounted rates.
Per Diem rates are often all-inclusive. The contract may say that the PPO will pay the hospital a flat fee of $500 a day for any patient who is hospitalized, with no additional charges to be added on. These types of rates are advantageous to the PPO and, often, to the hospital as well. However, there are circumstances when the hospital could lose large amounts of money on such an arrangement.

Some surgeries, such as a hip replacement, require costly prostheses or instrumentation to be inserted. The hospital stay is relatively short, but the expense of the equipment is so high that the hospital with a per diem rate could actually lose money by admitting patients for this procedure.

To combat this problem, many hospitals have come up with flexible per diem rates. The amount may remain $500 a day, but will have a clause allowing an additional reimbursement of the costs of caring for the patient go above a certain pre-determined dollar amount. They may also have a provision to pay for certain high-cost items such as hip prosthesis.

Other per diem plans may differentiate the fee according to service. Medical patients would be paid at an amount separate from surgical patients who are separate from neonatal intensive care, etc. This provides greater equity for specialties that might have a higher intrinsic cost.

Some of these plans start blurring the lines between per diem rates and DRG rates. DRGs, or Diagnosis Related Groups, are the categories used by Medicare to reimburse hospitals for the treatment of patients. All similarly-diagnosed patients are paid at a set amount, allowing the hospital to keep any profit made on that admission, but also allowing the hospital to lose money if they spent more to care for the patient than they were reimbursed.

The DRGs have encouraged hospitals to provide cost-efficient care for Medicare patients, so some managed care insurers use that scale for payment for their members. Using this system means the rate of reimbursement for a vaginal delivery is a lower rate than if a Cesarean section had been required. It could mean all patients with an acute appendicitis, non-ruptured, would be reimbursed at the same rate. This method saves the insurer money and still provides the hospital with an opportunity to make a profit.

A plan may offer to pay "costs plus 10%" or "50% of charges." Skillful negotiations by the hospital are necessary to negotiate the most profitable contract.

It is evident from this information that the costs to the hospital of fulfilling the obligations for documentation and billing are increasing every year. For every ten patients admitted, there may be ten different insurers to bill and each has separate requirements. The fees paid by the patients (subscribers) are no less confusing.

It is easy to see why managed care is beneficial to the insurance company. When costs are lowered, profits are increased, so they are happy with the system. What about the subscribers? What about the patients who are the participants in these various types of managed care programs? Do they agree with the positive reviews given by the insurers?

Advantages include coordinated care, lack of paper work, phone access, expanded benefits, and coordinated locations. Coordinated care is achieved by using a primary care physician. Although he or she is functioning as a gatekeeper, the role is even more important because the PCP can build rapport with, and knowledge of, the patients being supervised. This allows better understanding of the health problems that arise and better coordination of needed services.

The patient without a PCP may make an appointment with the wrong type of physician for his ailment, thereby losing valuable time in possible treatment. Should he see an orthopedist or a neurologist? A gynecologist or a gastroenterologist? A dermatologist or an allergist? These are commonly pondered questions. However, when the patient has a PCP, he or she merely contacts that physician, describes the complaint and allows the PCP to guide them to the proper consultants, if indeed a consultant is necessary.

Lack of paperwork is another advantage to managed care programs. Most people dislike filling out insurance forms, but in most managed care programs there are no forms necessary when using providers who are within the program.

Phone access means that many plans provide nurses who are available by telephone to advise patients. This is comforting to the new mother who is unsure what to do about her baby, to the elderly who find it difficult to travel to a doctor's office, and to anyone who is worried and needs reassurance.

Expanded benefits are often the sole reason a person enrolls in a managed care program. Medicare does not pay for prescription drugs and this can be a major expense for a senior citizen on a fixed income. Since most Medicare managed care programs have an allowance for medications, this can be a major cost saving for the subscriber.

Coordinated locations refer to the fact that most managed care programs offer all services at each of their locations. If the patient visits the doctor, then needs laboratory work drawn or an x-ray, it can all be done without going to another site.

Disadvantages. Not everything is wonderful in the world of managed care, however. Complaints about managed care have been described on the television news programs, in newspapers, and in magazines.

Referrals are often difficult to get. Depending on the process used by the particular organization, there may lengthy waits for a referral to go through the process. Some patients feel they are unfairly denied needed consultations with specialists simply because of the long delays.

There are restrictions on service providers. Since only providers with contracts are used, they may be disappointed if the physician of choice is not a member of the plan. In this case the patient can always pay out-of-pocket or choose another physician within the plan network.

Travel restrictions can be a problem when subscribers are traveling out of the immediate service area. If the plan covers only at A-1 hospitals, but A-1 hospitals are only in the Midwest, there could be a problem when the member is visiting family in New York, Florida, or California and falls ill.

Bureaucracy: One of the issues that upsets some subscribers is trying to find who is actually "in charge." They may feel that Dr. Jones is their doctor, but he is part of an IPA, administered by a Super-IPA, contracted with an HMO, which is one product of a larger insurance company that is actually a newly-formed company created from two or three companies. Each of these layers has administrative costs and each needs to see a profit. This makes it easy to see where the money paid into premiums goes if not to patient care.

Quality issues have been discussed extensively in the media. Some patients and/or their families have felt that medical decisions were made because of financial reasons rather than medical reasons. Whether that was the case or not, there are steps to follow for complaints.

Handling Complaints
When a patient, friend, or family member tells you they have a grievance with a managed care organization, you may be able to suggest the following steps to have the grievance resolved:

Medicare / Medicaid / Champus
Medicare: Senior citizens and those who are disabled and qualify for Medicare benefits are also eligible for managed care programs which expand the coverage offered by the basic Medicare program. In addition to the usual Medicare benefits, many managed care programs also provide vision care, prescription drugs, and disease prevention programs that are not part of the regular Medicare benefits package. They are required by law to provide at least as much coverage as the basic Medicare benefits offer. An HMO cannot add prescription coverage, for example, but then also eliminate home health care from the benefits offered.

There are two types of managed care plans available for Medicare recipients - risk or cost plans. These names are derived from the method by which the federal government pays the managed care plan for the care of the subscriber. About 75% of all Medicare managed care plans are the risk type and their members account for close to 90% of patients enrolled in a Medicare managed care plan.

The Risk Plan - As the name implies, the risk contract causes the managed care plan to be financially at risk for meeting the health care needs of the Medicare recipient member. Medicare pays a fixed amount of money each month to the plan to provide care for the members. The subscriber may be required to pay a small share of cost with each visit, typically five or ten dollars per office visit, but then they have no other charges for their health care costs. The managed care company's profits are substantial enough with this plan to be able to provide the care needed by the subscribers.

The risk plan requires the subscriber to receive care only from the providers who are part of the plan, but charges are usually much less than typical deductible and co-insurance rates. There is no benefit for choosing an out-of-network provider, although an exception is made for emergencies, or when the patient is traveling outside the plan's service area.

A few of the risk contract plans allow the purchase of a POS option, which allows the subscriber to receive out-of-network care at a different rate of reimbursement, similar to the non-Medicare POS plans.

A disadvantage to the "risk" system is leaving the plan. To end enrollment, a signed request must be given to both the plan and the Social Security Administration office. Then the program will be discontinued at the beginning of the following month. This may work for some subscribers, but is not always what the patient desires.

The Cost Plan - The "cost plan" is seen less frequently. It is so unpopular that a federal law was passed which will eliminate this method after the year 2002. This plan allows the member to receive care from out-of-network providers. Reimbursement is based on services received.

Ted Thomas was a member of Super Seniors, a risk plan HMO. During a routine examination on June 2, prostate cancer was discovered and subsequently surgery was planned. Ted's brother-in-law, a urologist, disagreed with the planned surgery and encouraged Ted to come to his hospital where a colleague could do a different procedure. Ted immediately submitted the forms to un-enroll from Super Seniors, but had to wait until July 1 before his regular Medicare would be restored and he could go ahead with the surgery.

The cost plans to do not have the "lock-in" requirements of the "risk" plans. When a Medicare recipient enrolls in a cost plan, he or she can utilize providers either within or outside the plan. If they go outside the plan, the plan does not have to pay; Medicare will pay, just as if there were no other company involved.

This is perfect for Mary Mathews who travels extensively. When she is at home, she can use her plan physician, but should she fall ill in another state, she can use her regular Medicare plan, and be responsible for the coinsurance, deductibles, and other charges.

When there are complaints about Medicare managed care programs, there is an additional source of assistance. The Peer Review Organization (PRO) for each state is contracted by the Health Care Financing Administration (HCFA) to oversee the Medicare program. If the subscribers are not receiving appropriate care, this is an issue they can investigate.