What is managed care?

Structure and Subtypes

Managed care organizations are health insurance
plans that aim to provide efficient, quality health care by management of services. The main goals of managed care organizations include providing quality health care services and providing the services at the best cost to the insurance company. These goals are met by direct oversight over an individual’s care, such as determining medical necessity of health services and evaluating the appropriateness of specialists’ referrals.

There are three general types of managed care organizations: the health maintenance organization (HMO), the preferred provider organization (PPO), and the point-of-service organization (POS). Each type of insurance plan has its own distinct characteristics and carries its own advantages and disadvantages to its participants. HMOs focus on preventive medicine and place strong emphasis on the role of the primary care physician. HMOs are structured into networks of providers, or physicians and hospitals that participate in their program. Patients pay a set monthly fee and, in order to be covered by the insurance company, must see only physicians within the approved network. HMOs are unique in that they serve as the insurance company (the payer) and the provider at the same time; the physicians, hospitals, and insurers that participate in the HMO are also employed by the organization. The primary care physician serves as a gatekeeper to other physicians in the system. Therefore, the primary care physician must approve and coordinate all contact with any medical care for his or her patients. This includes access to specialists (such as cardiologists, dermatologists, or psychiatrists) and any medical procedures. The only exception to this rule is during an emergency or crisis situation. In this way, HMOs are considered the strictest and most restricting type of managed care organization available.

One advantage of HMOs is low out-of-pocket costs for the patient. The fixed monthly fee that is charged to the patient does not depend on the amount of care given and cannot increase with increased visits. Similarly, HMOs do not have maximum lifetime payouts, unlike some other health insurance structures. Therefore, any amount of care that is deemed necessary will be provided to the patient with no maximum cap. Another advantage of an HMO plan is the focus on preventive medicine and wellness, encouraging visiting a physician regularly and healthy lifestyle choices. However, there are some disadvantages to HMO plans. These can include a limited access to specialty care in a timely manner and no coverage for physicians outside the network.

Health maintenance organizations operate in a variety of subtypes. These subtypes may overlap in style and operation. In the staff model, physicians are salaried and are direct employees of the HMO. Their offices are typically in buildings that belong exclusively to the HMO company and are operated by other physicians in the system. In this type of system, the physicians only see patients under the specific managed care of the HMO. In the group model of the HMO, the company does not employ the physicians directly; they are contracted together. Physicians practice under a group practice format, and the group practice is employed itself by the HMO. Traditionally, the group practice model physicians also only see patients who are part of the HMO program. The last subtype of HMO structure is an independent practice association (IPA), in which the association serves as an intermediary between the physician and the HMO. In this model, the physician may see his or her own patients as well as patients with the HMO plan.

The PPO, also called an open-access HMO, is managed differently than a health maintenance organization. In a PPO, the physicians and hospitals are contracted to provide services only to a specific group of individuals who participate in the PPO. The system is similar to the HMO in that the group of physicians and hospitals form a network for care, but there is no primary care physician who serves as a gatekeeper in the PPO. A patient may see a specialist without approval or management from another physician. Also, in a PPO, patients are permitted to visit a physician outside the network for an increased cost. Therefore, seeing a physician who is in the network usually has a lower out-of-pocket cost for the patient than seeing a physician out of the network. Unlike the HMO, in a PPO the patient does not pay monthly regardless of the services provided but pays out of pocket in deductibles and copays based on how many visits they incur.

One advantage of the PPO system is more freedom in choosing the provider, as well as the ability to see a specialist without prior approval of a primary care physician. Also, out-of-pocket expenses, such as deductibles, are capped each year, limiting the amount a patient or family has to pay for health care services. However, a disadvantage of a PPO system is that there is limited coverage for providers who are outside the network. Also, significant paperwork and time may be involved in reimbursement for services out of the network.

A POS plan is a type of managed health care that integrates features of both the HMO and the PPO. These systems involve in-network (contracted) physicians and hospitals but also enable patients to visit physicians outside of the network. In this type of insurance plan, similar to an HMO, there is no deductible paid by the patient and usually only a minimal copayment when a health care provider in network is used. Also, a primary care physician is chosen who makes referrals to specialists. If one chooses to go outside the network for health care, POS coverage functions more like a PPO. When using an out-of-network provider, the patient may have an annual deductible and be responsible for copays to the out-of-network physician. The advantages of the POS system include the maximum amount of freedom in choosing which physician to see and allowing the patient to control out-of-pocket costs. Out-of-network costs can be significant, however, and serve as a disadvantage to POS systems.

Operation and Cost Containment

Health maintenance organizations manage their costs by restricting covered medical care to their in-network providers. The participating providers, as employees of the HMO, have agreed to practice medicine in accordance with the HMO’s guidelines and restrictions. These guidelines and restrictions may be incorporated into primary care physicians’ decisions regarding approval for specialty care visits.

Another way that HMOs manage costs is through utilization review, a process by which the HMO monitors the physician’s practice. By comparing the physician’s practices with other physicians, in terms such as number of referrals and cost of services, the HMO can measure the most efficient practice techniques.

Another technique for cost containment in HMO systems is case management. In case management, the goal is preventive medicine before a catastrophic event can occur. The theory behind case management is that it is cheaper to prevent a disease than to treat it. Case management may also include disease management, such as management of chronic conditions to prevent them from progressing into worsening conditions.

While many professionals argue that one main goal of health maintenance organizations is to save money, many HMOs themselves argue that they do not have a significant increase in profit over PPO or POS plans. The research supporting this theory suggests that although the out-of-pocket expense is smaller for the patient, the patient may take advantage of the unlimited use of in-network providers and visit more often than those patients who participate in other programs. Therefore, with increased utilization from some patients, the cost to the HMO rises to that of other plans.

Perspective and Prospects

In 1929, the first health maintenance organization in the United States was organized by Michael Shadid. Shadid was a medical and business pioneer who provided medical care for rural farmers in Elk City, Oklahoma. The members who enrolled in his plan paid a predetermined fee and received medical care from Dr. Shadid. In the same year, the Ross-Loos Medical Group was established in Los Angeles to provide prepaid medical services to county employees and employees of the city’s department of water and power. In 1982, the Ross-Loos Medical Group was purchased by CIGNA. The enactment of Medicare and Medicaid legislation in 1965 served as a landmark in the history of managed health care by extending coverage to millions of additional Americans who could otherwise not afford medical coverage.

The first mandated health care act by government was the Health Maintenance Organization Act of 1973, which required employers with twenty-five or more employees to offer federally certified HMO options. Dr. Gordon K. Macleod served as the first director of this program and also performed many research studies in other countries regarding health maintenance organization and structure. In 2010, the United States Congress passed the Patient Protection and Affordable Care Act, which introduced further requirements for health care organizations.

Bibliography

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