Managed care concepts

What "managed care" means

Traditional indemnity health insurance simply pays claims: the insured sees any doctor, the doctor bills, and the insurer reimburses. Managed care joins the financing of care to the delivery of care, so the plan can influence which providers are used, which services are delivered and what they cost. The goal is to control cost while keeping quality high. Florida's HMO law says the same thing: the Legislature looked to alternative ways of delivering care "with a view toward achieving greater efficiency and economy," and found that such plans, properly operated, "emphasize effective cost and quality controls."

The tools every managed care plan uses

• A provider network. The plan contracts with selected physicians, hospitals and other

providers. Care from those participating (in-network) providers is covered on the best terms; care from nonparticipating providers is covered less, or not at all.

• A primary care physician (PCP) as gatekeeper. In the tighter designs, each member chooses a PCP

who delivers routine care and must issue a referral before the member sees a specialist.

• Preventive care. Routine checkups, screenings and immunizations are emphasized, often with only

a small copayment, because catching problems early is cheaper than treating them late. This is the "health maintenance" in health maintenance organization.

• Utilization review. The plan checks that care is medically necessary and delivered in the right

setting. Prospective review happens before care (preauthorization or precertification of a hospital stay or surgery), concurrent review happens during a hospital stay, and retrospective review happens after care, when the claim is examined.

• Second surgical opinions before elective surgery, and case management for costly,

long-running conditions such as a catastrophic injury.

• Provider payment that shares the risk. Many HMOs pay a primary care physician by capitation:

a fixed amount per member per month, whether that member visits ten times or never. Capitation rewards keeping members healthy. PPOs more often pay a discounted fee for service.

The main plan types

Health maintenance organization (HMO). Members prepay a regular premium and receive a broad range of services from the HMO's own network, inside a defined service area. A PCP gatekeeper and referrals are the norm, cost sharing is mostly small copays, and care outside the network generally is not covered except for emergencies. Florida requires an HMO's application to tell Medicare buyers plainly that services must come from the HMO's designated providers, and that a buyer who uses a nonparticipating provider may have to pay for it. HMOs are organized in several models:

• Staff model: the HMO employs its physicians and usually runs its own facilities.
• Group model: the HMO contracts with one multispecialty medical group.
• Individual practice association (IPA): the HMO contracts with an association of independent

physicians who keep their own offices and also see non-HMO patients.

• Network model: the HMO contracts with several groups.

Preferred provider organization (PPO). An insurer or other sponsor contracts with providers who agree to discounted fees. Members usually need no gatekeeper or referral and may go out of network, but they pay more there through higher deductibles and coinsurance, and may be balance billed.

Exclusive provider organization (EPO). Like a PPO in its network and usual lack of a gatekeeper, but, like an HMO, it pays nothing outside the network except emergencies.

Point-of-service (POS) plan. A hybrid. Members use an HMO-style network and PCP for full benefits, but at the time they need a service they may choose a provider outside the network and accept higher cost sharing. Florida lets a qualifying HMO add this choice through a point-of-service rider, and the rider may not require an HMO referral for its out-of-network benefits.

The trade-off to remember

Every step from HMO toward PPO buys the member more freedom of choice and costs more in premium and out-of-pocket spending. Every step the other way buys lower cost with more plan control: networks, gatekeepers, referrals and review. When a client asks which plan is "better," the honest answer is which trade-off fits how they want to receive care.