3.1 Managed Care and Integrated Systems

Who actually “manages” your health care?

• You

  • Choose when to seek care

  • Share preferences and make decisions

• Your doctor

  • Recommends tests and treatments

  • Coordinates your clinical care

• Your insurance plan

  • Defines provider networks

  • Determines coverage & payment rules

Traditional insurance followed a “pay the bill” model;

patients received care, providers billed insurers, and insurers paid

Why managed care developed?

• Traditional insurance followed a “pay the bill” model: patients received care, providers billed insurers, and insurers paid

• There were limited incentives to control process, service volume, duplication, or hospital use

• From 1980-1990, medical care inflation rose 117%, compared with 59% for general inflation

• Managed care developed to actively manage healthcare costs

Move from simply paying for care to actively managing cost and utilization

The Response —>

Managed care

Managed care changed the question

• traditional insurance primarily asked: “is the service covered?’

• managed care also asks whether the service is medically necessary and appropriate

• it considers who should provide care, including whether the provider is in the network

• it evaluates where care should occur, such as a hospital, clinic, or outpatient setting

• it determines how much to pay through negotiated rates and payment arrangements—combining insurance with active management of care

Not just paying for care

Influences how care:

• Is used

• Delivered

• Paid for

Managed Care:

Insurance + Active management of care

What is managed care?

A mechanism in which one organization manages the financing, insurance, delivery, and payment of health care

• financing

  • How money is collected to pay for care

    • premiums

    • employer contributions

• insurance

  • who assumes the financial risk

    • coverage

    • benefits

    • risk protection

• delivery

  • how and where patients receive care

    • provider networks

    • hospitals

    • specialists

• payment

  • how healthcare providers are reimbursed

    • capitation

    • negotiated fees

    • salary

Why is it called “managed” care?

• Provider networks and referrals shape which doctors and hospitals use and how they access specialty care

• Utilization management and prior authorization assess medical necessity and require approval for certain services

• Drug formularies determine which medications are preferred or covered

• Payment incentives influence how providers are paid and share financial risk

Together, these tools allow managed care organizations to influence who provides care, what care is used, where it occurs, and how much it costs

More Care =/ Always Better Care

The Challenge: Reduce Low-value care without restricting needed care

• More care does not always mean better care; some services may not improve health outcomes

• Managed care aims to reduce unnecessary services, duplicate tests, and avoidable hospitalizations

• It encourages appropriate, lower-cost alternatives when available

• The challenge is to control costs while protecting necessary care, quality, and patient access

WHERE should the line be drawn?

Balance between cost control and patient access + quality

Managed Care Toolbox

• Networks

  • Choose contracted providers

• Gatekeeping

  • PCP coordinates specialty access

• Utilization review

  • Evaluate medical necessity

• Prior authorization

  • approval before selected services

• Formularies

  • preferred medications

• Payment incentives

  • change provider financial incentives

Utilization review: Different time

Utilization review assesses whether healthcare services are medically necessary and appropriate

• Prospective review

  • occurs BEFORE care to evaluate a proposed services

    • ex. “Should this MRI be authorized?”

• Concurrent review

  • occurs DURING treatment to determine whether continued care remains necessary

    • ex. “Does this hospitalization still need to continue”

• Retrospective review

  • occurs AFTER care to assess whether completed services were necessary, appropriate, and consistent with coverage requirements

    • ex. “was this care appropriate?”

Together, these reviews help prevent unnecessary use, manage ongoing care, and evaluate completed care

Provider payment changes behavior: Fee-for-service (FFS)

Providers are paid for each services delivered, so more services generate more revenue

Provider payment changes behavior: Discounted FFS

Providers receive payment for each service, but the managed care organization negotiates lower rates

Provider payment changes behavior: Capitation

Providers receive a fixed payment per member per month, regardless of how many covered services the patient uses

Provider payment changes behavior: Financial risk

Under capitation, providers assume more risk because additional services increase costs without increasing payment

Provider payment changes behavior: Incentives