Lecture 4: Managed Healthcare

Question 1

What were the origins of Managed Healthcare?

Answer 1

• Prepaid medical goup practices (1900-mid 1940s): they had trouble recruiting physicians in rural areas so they said they would pay physicians in advance to provide medical care (early HMO)
• “The Blues”: early provider networks, costs of care negotiated before care delivered Ex/Blue Cross and Blue Shield
• 1970s: HMO formation and enrollment begins and 30-40 prepaid group practices in the US

Question 2

Healthcare costs being to rise faster than costs in teh economy as a whole. What did the government pass to alleviate costs?

Answer 2

Health Mainteance Organization (HMO) Act
* Federal funds provided to establish new HMOs
* Mandated a wide variety of services (primary care, wellness/prevention

By 2015, 99% of Americans with employer provider health insurance enrolled in some type of managed care plan

Question 3

Describe factors that have contributed to the growth of managed healthcare.

Answer 3

1. Fee-for-service insurance: incentive to perform more services to bring in more revenue which are increasing healthcare costs so people are moving more towards HMOs
2. Medical Arms Race: When insurers were relatively weak, pass-through entities, as they were before the era of managed care, hospitals did not compete on price. They competed on technology and amenities. In trying to one-up each other to attract patients, they drove cost and price up
3. Moral hazard
4. Healthcare workforce shortages: need new way to pay healthcare providers
5. Aging of population: people living longer with chronic conditions (good but costing system money)
6. Epidemiological trends

Question 4

What is the “Medical Arms Race”?

Answer 4

When insurers were relatively weak, pass-through entities, as they were before the era of managed care, hospitals did not compete on price. They competed on technology and amenities. In trying to one-up each other to attract patients, they drove cost and price up

Question 5

What are the goals of mangaged healthcare?

Answer 5

• Improve healthcare quality
• coordinate medical care
• increase focus on wellness
• Control costs

Question 6

What are the underlying principles of managed healthcare?

Answer 6

• Contracts with providers and networks of providers
• Prepaid health plan (capitation, discounted fee-for-service)
• Utilization and quality controls: control costs we need to control what we use
• Financial incentives for patients to use networks (lower cost if in-network)

Question 7

To whom is the “financial risk” shifted to in managed healthcare? And explain why

Answer 7

the provider (physician)

***if patients are high ultilizers of healthcare goods and services that exceed the prepaid amount the provider receives, then the provider loses money and is at risk for financial loss. Because of capitated reimbursement, providers assume the financial risk shifting financial risk from teh managed care organization/insurer to the provider

Question 8

What is the Fee-for -Service Provider Reimbursemet Model?

Answer 8

Greater number of services provided, more reimbursement

Question 9

Describe a capitated provider reimbursement model?

Answer 9

healthcare providers are prepaid for providing care to a group of patients

Question 10

Why would insurance companies be losing money and at a risk for financial loss in Fee-for-Service Provider Reimbursement Model?

Answer 10

Patient who use more healthcare services and/or use expensive healthcare services can cost the health insurance plan more than they are getting from teh patient in premiums

Question 11

What is the role of a “gatekeeper” in managed healthcare and which healthcare provider
usually serves in this role?

Answer 11

In a managed care organization, such as an HMO, gatekeepers are typically primary care physicians who serve as the initial point of contact for patients seeking healthcare services. When a patient needs specialized care, the gatekeeper evaluates the medical necessity and appropriateness of the referral. If deemed necessary, the gatekeeper provides a referral to a specialist within the network.

Question 12

What does having a “gatekeeper” help control in the healthcare system?

Answer 12

This gatekeeping model helps control costs by ensuring that patients receive the most appropriate level of care and avoid unnecessary visits to specialists.

Question 13

What is a discounted Fee-for-Service?

Answer 13

Healthcare provider paid a discounted amount (negotiated) each time a service is provided

Question 14

What is Capitation?

Answer 14

Healthcare provider is paid prospectively to provide agree upon services, typically for one year (prepaid fixed amount per month regardless of amount of healthcare services used)

Question 15

How does managed healthcare control utilization and quality controls?

Answer 15

• Utilization Review
• Drug Utilization Review

Question 16

What is utilization review?

Answer 16

Examining patterns of use of medical services and prescription drugs in the propulation

Question 17

Drug Utilization Review

Answer 17

Examining prescription drug use in the insured population
* Retrospective Drug Utilization Review: look at patterns of prescription drug use in the population afte drug is dispensed (physician prescribing patterns patient medication use, pharmacist dispensing)

Question 18

What are the characterisitics of HMO?

Answer 18

*Physicians can be employed by the HMO or HMO can contact with solo/group practitioners
* Place providers at financial risk with capitation
* Typically, no out-of-netowrk coverage
* Gatekeepers/PCP usually selected when choose HMO plan
* Emphasis on PREVENTIVE care (keeping peopel well)
* Usually lower patient copays

Question 19

What are the pros and cons of HMOs?

Answer 19

• Pros: lower copay costs and out of pocket expenses
• Cons: no out of network coverage and PCP for referral has gatekeeprs

Question 20

What are the characterisitics of PPOs?

Answer 20

• a purchaser (insurance company, employer, etc.) arranges contacts with solo/groups of healthcare practicioners
• Usually do NOT use capitated reimbursement instead use discounte fee-for-service reimbursement
• Patients have freedom of choice for health care providers but lower out-of pocket costs in-network
• Patient has coverage out-of-network
• Gatekeepers/PCP not required and usually no referral needed to see a specialist

Question 21

Why is there a recent growth in PPOs?

Answer 21

Because there is more choice and patients will pay for that freedom even though it costs more than HMO

Question 22

What are the pros and cons of PPO?

Answer 22

Pros: no gatekeepers, can go out of network, can choose health care providers
Cons: more expensive (especially if you go out of network)

Question 23

What is POS plan ?

Answer 23

Point of Service plan: allows patients to select providers at the time the service is needed rather than when the patient joins the plan
* Similar to PPOs: freedom of provider choice and some coverage out of network but usually higher cost-sharing
* Similar to HMO: capitated reimbursement, gatekeeping, typically need referral to specialist

Question 24

How is POS plan similar to PPO plan?

Answer 24

Similar to PPOs: freedom of provider choice and some coverage out of network but usually higher cost-sharing

Question 25

How is POS plan similar to HMO plan?

Answer 25

• Have the same utilization controls: capitated reimbursement and gatekeeping, typically need referral to specialist