Managed care concepts

What managed care is

Managed care is any system that combines the financing of health care with the delivery of health care. A traditional indemnity plan simply reimburses covered bills after the fact. A managed care plan instead actively shapes the care: it contracts with a network of providers, steers members toward that network, controls how services are used, and emphasizes preventive care to keep members healthy and costs down.

The goals are cost control, access to appropriate care, and quality. Most of the concepts tested on the exam are tools for reaching those goals.

Provider networks

A plan's participating (in-network) providers are doctors, hospitals and other professionals who have contracted with the plan, usually at negotiated or discounted rates. Using the network costs the member the least; using out-of-network providers costs more or, in some plan types, generally is not covered except for emergencies and out-of-network care the plan has authorized.

Because the network is the product, plans must keep it adequate: large enough to meet members' health needs and to offer an appropriate choice of providers. Plans also credential providers, reviewing each applicant's qualifications before admitting them to the network.

How providers are paid

• Capitation: the plan pays a provider a fixed amount per member per month, regardless of how many services that member uses. The provider shares the risk of overuse, which rewards prevention and efficiency. Capitation is the classic HMO payment method.
• Fee-for-service: the provider is paid for each service performed, often at a discounted fee schedule negotiated with the plan. This is typical of PPOs.

The gatekeeper

Many managed care plans require each member to choose a primary care physician (PCP). The PCP acts as a gatekeeper: the member's first stop for care, who coordinates treatment and issues referrals to specialists. Without a referral, a gatekeeper plan generally will not pay for specialist care (emergencies excepted).

Cost containment and utilization management

Utilization review is the plan's evaluation of whether care is medically necessary and appropriate. It comes in three timings:

• Prospective review happens before care, as preauthorization (precertification) of planned admissions or procedures.
• Concurrent review happens during care, for example monitoring the length of a hospital stay.
• Retrospective review happens after care, by examining claims and records.

Other standard tools include second surgical opinions for elective surgery, case management of high-cost or catastrophic cases, outpatient and ambulatory surgery in place of inpatient stays, and member cost sharing such as copayments that discourage unnecessary use. Plans must also give members a way to challenge a denial: a grievance process for contractual denials and a utilization review appeal for medical-necessity denials, with an external appeal beyond that.

The main plan types

Rule of thumb: the more freedom a plan gives you to go outside the network, the higher the premium and out-of-pocket cost.

• Health Maintenance Organization (HMO): members receive care from the HMO's own network, usually through a PCP gatekeeper, and the HMO generally pays only for in-network care, apart from emergencies and out-of-network care the plan has authorized, such as a referral when no network provider has the training and experience the member needs. HMOs are prepaid, stress preventive care, and charge modest copayments. In a staff model the physicians are HMO employees; in a group model the HMO contracts with a physician group; in an individual practice association (IPA) model it contracts with independent physicians who keep their own offices.
• Exclusive Provider Organization (EPO): like an HMO, it generally covers in-network care only, apart from emergencies and out-of-network care the plan has authorized, but it usually has no gatekeeper requirement.
• Point-of-Service (POS) plan: an HMO-PPO hybrid. Members choose a PCP and use the network for the lowest cost, but at the point of service they may go out of network and accept higher deductibles and coinsurance.
• Preferred Provider Organization (PPO): a network of providers who accept discounted fees. Members need no PCP and no referrals, and may use any provider, but in-network care costs less. PPOs are usually paid fee-for-service.

Why it matters

Exam questions in this area test recognition: matching a feature (gatekeeper, capitation, out-of-network coverage, referral requirement) to the plan type that has it, and naming the right cost-containment tool for a scenario.