605: Week 12 Flashcards
1
Q
Manged Care
- Definition (including two objectives)
A
Managed care: organization of health care delivery and financing that attempts to achieve the following objectives:
-
Reduce costs through
- Altering financial incentives to allocate resources more efficiently
- Manage care provided to patients
- includes eliminating unnecessary care
- Provide access to high quality care
**Compared to fee-for-service, managed care shifts more financial risk to providers.
2
Q
Financial risk under managed care
- Fee-for-service financial risk
- Managed care financial risk
A
Financial risk with fee-for-service:
- Risk of pt not reimbursing provider for deductible, coinsurance
Financial risk with Managed Care:
- Insurer pays Managed Care Organization (MCO) fixed $ amount each month for enrollees (= capitation)
- In return, MCO asssumes responsibility for providing all medically indicated care
- If cost of care is greater than monthly payment –> lose money on patient
- MCOs assume more financial risk than in fee-for-service
3
Q
Different players in managed care
A
- Purchaser or payer of health care
- Employers
- Government (e.g. Medicare or Medicaid)
- Individuals
- Insurance companies and health plans (e.g., HMOs & PPOs)
- Providers
- Patients
4
Q
History of managed care
A
- Fee-for-service (FFS) dominated medical delivery before managed care
- rapid increases in health expenditures
- Inability to control costs with FFS
- Pts may seek care from any provider
- No limits on volume of services provided
- No direct control on prices charged by providers
- Focus on illness instead of wellness
- Employers (and gov’t) looked for ways to reduce rapid increase in health costs
- Prepaid group practices (with many elements of managed care) grew in 1930s-1940s
- Examples: Kaiser-Permanente; Group Health Cooperative of Puget Sound
- Strong opposition from AMA
- Ostracized/pressured MDs who participated
- HMO Act of 1973
- Provided federal funds for HMO start-ups
- Required employers with 25+ employees to offer one or more HMO alternative with insurance plans
- As managed care has grown, competition among MCOs has given rise to new forms of managed care plans
- varies geographically (small vs. large citie)
- Medicare and Medicaid often involve managed care
- Medicare (Part C): growing % select HMO (now >30% of all Medicare beneficiaries)
- Medicaid: more states moving to managed care to control health budgeds
- Approx. 2/3 of beneficiaries are in managed care (nationally)
5
Q
Managed care functions
A
A single organization manages several different functions:
- Financing
- MCO paid fixed premium per enrollee (PMPM: per member per month)
- Agrees to provide all medically appropriate services to enrolled populations (legally obligated to do so)
- Insurance
- MCO is like insurance compay; assumes some risk (may share with providers)
- Responsible financially if medical costs > fixed premium received
- MCO is like insurance compay; assumes some risk (may share with providers)
- Delivery of services
- Must provide comprehensive set of services
- directly by own facilities and MDs, or
- contract with independent hospitals and MDs
- Must provide comprehensive set of services
- Payment
- MCO pays providers for services
- Different types of payment possible
- Capitation; salary; discounted FFS
- Different risk borne by providers depending on payment
- Different types of payment possible
- MCO pays providers for services
*There are many different types of MCOs and integrated systems
*MCOs cannot operate effectively everywhere (e.g. doesn’t work well in rural areas), thefore it isn’t the answer to all healthcare problems
6
Q
Possible distribution of insurance premium received by HMO
A
The bar in the pictures shows how the PMPM received by the HMO is divided up and paid out.
7
Q
Provider payment under managed care
- Capitation
- Discounted fees
- Salary
A
Capitation:
- Provider receives fixed payment per month for each person enrolled
- PMPM: per member per month
- Receives payment regardless of how many, or even whether, services provided
- Profit under capitation = reimbursement received - expenses (increased expenses >>> reduced profit)
- Agrees to provide all [contracted] medically necessary care
- Provider bears financial risk of cost over-run (intentionally shifts some of risk to providers, which incentivizes providers to keep costs low)
- Whether provider will lose money or make a profit depends on average patient cost compared to level of capitation
- Variation in cost of patients treated - normal distribution safest (some high expense, some low expense, most mid-range); more predictable
-
Advantage: Incentive to limit services and control costs
- fixed payment to MD per member, so higher profit by providing fewer services
-
Disadvantages:
- Incentive to reduce costs any way possible
- reduce unnecessary (or even necessary) care
- reduce quality of care
- Law of large numbers
- MDs with few capitated members stand larger chance of drawing a relatively healthy OR unhealthy member population that those with large number of members
- Payment received is somewhere amount the median or mean for a large population, so if your patients tend to be high expense pts (on the right tail of the normal curve) you will lose money (opposite is true for low expense patients on left tail of normal curve)
- The more managed care patients you enroll, the more likely your costs/expenses will be predictable (normal distribution) - (one reason that managed care doesn’t work as well in rural areas with few people)
- Incentive to reduce costs any way possible
Discounted fees:
- Similar to FFS, except payments to provider based on prenegotiated contracted rates
- Providers ususally discount their regular fees; hope to recover lost revenue through greater patient volume
- Risk borne primarily by MCO (provider receives payment per service, regardless of # services)
- Some risk by provider; nonpayment of dedcuctible or copayment by pt
- Overall, minimizes risk to provider since they receive a payment every time they provide services (although the payment is discounted)
Salary:
- Provider usually employee of MCO
- May also receive bonus (based on performance of MCO and individual MD)
8
Q
Other managed care payment features
- Withholds
- Carve outs
- Stop-loss (upper thresholds)
A
Withholds:
- Primary care MD (“gatekeeper”) does not receive full monthly capitated rate allocated to PCP
- Some % of this may be withheld
- Used by MCO if higher costs than expected for referrals, hospitalization, etc.
- PCP receives unused portion from withhold account at end of year
- Incentive to PCP to minimize referral costs, hospitalizations, etc.
Carve outs:
- Some services not included in PCP capitation rate
- Reimburse separately for these services - usually FFS
- This is appropriate for services that
- should not be subject to discretionary utilization
- expenses not easily (or don’t want to be) “managed”
- e.g. immunizations - want to encourage use
- e.g. mental health - tx unpredictable and costs possibly high (but MCO may contract separately with behavioral health organization and pay them a separate capitation)
Stop-loss:
- Limits financial risk-sharing by individual MD
- Reasonable so don’t penalize MD if they have several pts with severe high-cost diseases where managment is not discretionary
- attractive to MDs, especially where may have higher than average risk due to enrolling relatively small numbers of individuals
9
Q
Cost advantages of managed care
A
- Managed care has potential to reduce costs
- eliminates insurance intermediaries; assumes insurance and payer roles
- payment usually involves risk sharing with providers (at least if capitation used)
- incentives to reduce volume of services
- active management and coordination of care
- try to ensure least costly settings; types of services; etc.
10
Q
Types of managed care organizations (MCOs)
A
- No single type of MCO
- really a continuum of MCOs with different characteristics
- Many different methods used to reimburse providers
Different types of Managed Care Organizations (MCOs):
-
Health Maintenance Organizations (HMOs)
- Staff Model
- Group/Network Model
- Independent Practice Association (IPA)
- Preferred Provider Organizations (PPO)
- Point-of-service plans (POS) - part HMO and part PPO
11
Q
Staff Model
A
HMO: Staff Model
- HMO receives capitation
- MDs are employees of HMO and are paid a fixed salary (total compensation often includes bonus)
- Usually many ambulatory clinics that are geographically dispersed (so more convenient and therefore attractive to patients)
- HMO owns hospital or contracts with one or more community hospitals
Advantages:
- Greater control over utilization and costs than other types of HMOs
- Many or all services (e.g. pharmacy, lab, specialty care, diagnostic testing) often available in one location (“one-stop shopping”)
Disadvantages:
- May be more limited choice of providers
- More costly to develop than simply contracting with existing MDs in the community (may be costly to expand in new area since it requires building facilities)
- Salary compensation may limit incentive to be productive (results in higher costs)
12
Q
Group or Network Model
A
HMO: Group or Network Model
- HMO contracts with MD group practices in community; pays them capitation based on # enrollees
- Group’s member MDs provide all medical services to HMO members (usually responsible for some or all of referral cost)
- MDs are employees (or at least members) of the group; not the HMO
- HMO contracts with community hospitals and other providers to deliver needed services
- Generally have to pick a PCP (this is who they pay the PMPM to and who acts as the gatekeeper)
Advantages:
- Possibly greater choice of MDs for enrollees (compared to staff model HMO)
- HMO does not have to construct own facilities
Disadvantages:
- Less control over utilization and cost as number of groups increases
13
Q
Independent Practice Association
A
Independent Practice Association (IPA) - falls under HMO, but separate entity
- Separate entity from HMO
- Members of IPA include community MDs
- May not belong to formal group practice
- Band together (through IPA) to compete for managed care contracts (otherwise individual/solo doctors wouldn’t be able to get managed care pts)
- MDs practice in their own offices
- HMO contracts with IPA (instead of individual MDs or medical group)
- IPA network must include PCPs as well as specialists
- IPA may act simply as negotiating organization, or may assume some duties of the HMO (e.g. manage utilization)
- IPA usually has “stop loss” reinsurance to prevent bankruptcy (if unusually large # of high-cost patients)
- (HMO contracts with community hospitals in addition to the IPA)
Flow of funds in IPA:
- HMO paid by employers and subscribers (based on capitation)
- >>> HMO turns around and pays all-inclusive capitation to IPA
- HMO retains some % of original capitation for admin costs, hospital costs, etc.
- >>> IPA retains some % for admin costs and pays MDs in different ways
Advantages:
- MD retains autonomy; not member of group
- Allows private MDs in small practices to compete for managed care pts
- Potentially wider range of provider choice for patients
Disadvantages:
- More difficult to control costs
- Less leverage over individual MD practice behavior
- Greater financial risk for IPA & HMO
14
Q
Preferred Provider Organizations (PPOs)
A
Preferred Provider Organizations (PPO)
- Different form of managed care than HMOs (PPOs are not HMOs - they are managed care, but not paid by capitation)
- PPO contracts with selected group of MDs and hospitals - network of “preferred” providers
- MDs and hospitals agree to accept discounted payment from PPO
- “Channeling” - hopefully increases volume of patients (incentive for doctors in the network - smaller payments, but more pts)
- Don’t bear financial risk for services like capitation (since paid discounted fee-for-service)
- **The discounted payment is a major benefit for PPO enrollees - in-network doctors, labs, hospitals, etc. cannot bill patients for amounts above PPO approved amount
- Pts pay lower share of cost if they receive services from provider on PPO panel
- Using providers outside panel of preferred providers results in higher pt cost (might not be covered at all)
- Typical pt cost sharing (after deductible):
- 20% of approved charge if PPO provider (contracted rate limits pt’s out-of-pocket expenses)
- 40% of approved charge if out-of-network provider (no contracted rates; so may be responsible for higher total charge)
Advantages:
- Wider selection of providers than HMOs (the bigger the selection, the larger your premium will likely be)
- Lower cost sharing if use PPO-selected MDs
- No gatekeeper; patient able to choose provider
Disadvantages:
- MDs paid discounted FFS; may lack incentive to manage care and control costs (as compared to HMO)
- No HMO-like organization to monitor and evaluate services provided (although insurance company may include some provisions to do this)
15
Q
Point-of-Service (POS) Plans
A
- Combination of HMO & PPO elements
- Core of plan an HMO
- but pts may opt to seek care outside HMO
- pts pay higher amount if care delivered outside HMO network
- Evidence: most utilization is still within the established provider network
Advantages:
- Patients like opportunity to select from wider range of MDs if necessary (i.e., outside restricted HMO panel)
Disadvantages:
- If out of network care, more difficult for POS plan to manage costs
- Higher costs for patients
