H456 Exam 3

Accountable Care Organization (ACO)

A network of doctors and hospitals that shares responsibility for providing coordinated care to patients, with financial incentives tied to quality and cost outcomes.

One-sided ACO

An ACO model where the organization can share in savings if it reduces costs below a benchmark, but bears no financial risk if costs exceed the benchmark.

Two-sided ACO

An ACO model where the organization shares in both savings AND takes on financial risk if costs exceed the benchmark — higher reward potential but also downside risk.

Pioneer ACO

An early CMS innovation model for organizations already experienced in coordinated care; used a two-sided risk model with higher savings potential.

ACO vs PCMH

ACOs are networks focused on accountability across an entire population; PCMHs are primary care practices restructured around coordinated, patient-centered care. Both aim to improve quality and reduce cost but operate at different levels.

Patient Centered Medical Home (PCMH)

A care delivery model where primary care practices are organized around the patient; emphasizes coordinated, accessible, comprehensive care with a personal physician.

Health Maintenance Organization (HMO)

A managed care plan that provides coverage only through a defined network of providers; typically requires a PCP referral to see specialists. Lower premiums, less flexibility.

Preferred Provider Organization (PPO)

A managed care plan that offers a network of preferred providers at lower cost, but allows members to see out-of-network providers at higher cost. No referral required.

Independent Practice Association (IPA)

A legal entity that contracts with independent physician practices to provide services to HMO patients; physicians remain independent but collectively negotiate with plans.

Group Practice Without Walls (GPWW)

A group of physicians who share administrative systems and a legal entity but continue to practice from their own separate office locations.

Physician-Hospital Organization (PHO)

A joint entity formed by a hospital and its affiliated physicians to contract with payers together; designed to give both parties more negotiating leverage.

Integrated Delivery System (IDS)

A network that provides a coordinated continuum of services — hospitals, physicians, long-term care, etc. — under one organizational umbrella.

Provider-Sponsored Organization (PSO)

A managed care entity formed and run by healthcare providers rather than insurance companies; providers bear insurance risk directly.

Messenger Model

A legal arrangement where an intermediary conveys fee information between a payer and individual physicians without the physicians collectively negotiating — avoids antitrust violations.

Arizona v. Maricopa County Medical Society

1982 Supreme Court case ruling that physician price-fixing (setting maximum fees collectively) is a per se violation of antitrust law, even if intended to benefit consumers.

Utilization Management (UM)

A set of techniques used by payers to manage costs by evaluating the necessity, appropriateness, and efficiency of healthcare services, procedures, and facilities.

Prospective Utilization Management

UM conducted BEFORE care is delivered — includes precertification and prior authorization. Goal: prevent unnecessary services from occurring.

Concurrent Utilization Management

UM conducted WHILE the patient is receiving care (e.g., during a hospital stay). Involves case review to ensure continued stay is appropriate and efficient.

Retrospective Utilization Management

UM conducted AFTER care has been delivered. Reviews claims and records to identify patterns of overuse, fraud, or inappropriate care.

Precertification (Precert)

Required approval from a health plan BEFORE certain non-emergency services or hospitalizations occur. Denying precert can result in non-coverage of costs.

Case Review

Clinical review of a patient's plan of care, typically during a hospital stay (concurrent review), to assess appropriateness of continued inpatient status.

Pattern Analysis

Reviewing aggregate data on provider or patient behavior over time to identify outliers, overutilization, or fraud — a retrospective UM tool.

Demand Management

Programs that help patients make better healthcare decisions and reduce unnecessary utilization — e.g., nurse advice hotlines, health risk appraisals, self-care guides.

Nurse Advice Hotline

A 24/7 phone service staffed by registered nurses that helps members decide whether to seek care, manage symptoms at home, or go to the ER. A key demand management tool.

Utilization Benchmarking (in H456)

In H456, utilization benchmarking is primarily used to SUPPORT PAYER MANAGEMENT SYSTEMS — comparing a plan's utilization metrics to industry standards to identify opportunities.

Milliman Guidelines

Evidence-based clinical criteria used by health plans to determine the appropriateness of medical procedures, hospital admissions, and lengths of stay.

Evidence-Based Medicine (EBM)

Clinical decision-making grounded in the best available research evidence, integrated with clinical expertise and patient values.

Benchmarking Health Plan Utilization

Comparing a plan's utilization metrics (admissions per 1,000, ALOS, patient days per 1,000) against industry norms or competitor plans to evaluate performance.

Benefit Design as UM Tool

Structuring benefits (copays, deductibles, network restrictions, prior auth requirements) to steer members toward efficient, appropriate care and discourage unnecessary utilization.

Admission Rate (per 1,000)

Number of hospital admissions per 1,000 health plan enrollees per year. Used instead of raw totals to adjust for plan size and enable fair comparisons across plans.

Why use admissions per 1,000?

Raw total admissions can't be compared across plans of different sizes. Per-1,000 normalizes for enrollment, making apples-to-apples comparisons possible.

Average Length of Stay (ALOS)

Average number of days a patient stays in the hospital per admission. Formula: Total Patient Days ÷ Total Admissions.

Patient Day

One calendar day of inpatient hospital care for one patient. The basic unit for measuring inpatient utilization.

Patient Days Rate (per 1,000)

Total inpatient days per 1,000 enrollees per year. Captures both how often members are admitted AND how long they stay. Patient Days Rate = Admission Rate × ALOS.

High admissions + ALOS below benchmark

Suggests high admission frequency with efficient (short) stays — the plan admits patients often but discharges them quickly.

Patient days per 1,000 increases most directly when…

Lengths of stay increase. LOS is the most direct driver of patient days per 1,000.

Formulary

A list of prescription drugs covered by a health plan, organized by tiers that determine member cost-sharing. Managed by the P&T committee.

Drug Tiering

A formulary structure with multiple cost levels: Tier 1 (generics, lowest copay) → Tier 2 (preferred brands) → Tier 3 (non-preferred brands) → Tier 4 (specialty). Higher tiers = higher member cost.

Pharmacy & Therapeutics (P&T) Committee

A committee of physicians, pharmacists, and administrators that evaluates drug evidence and manages the formulary — deciding which drugs are covered and at what tier.

Pharmacy Benefit Manager (PBM)

A third-party company that administers prescription drug benefits on behalf of health plans — negotiates with drug manufacturers, processes claims, manages pharmacy networks.

Generic Medication

A drug containing the same active ingredient, dosage, and form as the brand-name drug, sold under its chemical name at a lower price after patent expiration.

Brand Name Drug

A drug marketed under a proprietary name by the original manufacturer, typically protected by patent. More expensive than generics.

Mandatory Generic Substitution

A policy requiring pharmacists to dispense the generic version of a drug when available, unless the prescriber specifies otherwise.

Dispense as Written (DAW) / Do Not Substitute

Instructions from a prescriber requiring the pharmacist to fill exactly the brand-name drug written — overrides generic substitution policies.

Biopharmaceuticals / Biologics

Drugs derived from living organisms (proteins, antibodies, genes). Complex to manufacture, expensive, and typically require injection. Examples: insulin, monoclonal antibodies.

Bioengineered Drugs

Drugs produced using biotechnology or genetic engineering; synonymous with biologics. Distinct from traditional small-molecule pharmaceuticals.

Carve-Out

Separating the pharmacy benefit from the medical benefit and contracting it out to a specialized PBM or vendor for separate management.

Scheduled Drug

A controlled substance classified by the DEA into schedules I–V based on medical use and abuse potential. Schedule I = highest abuse/no accepted medical use; Schedule V = lowest.

Drug Enforcement Administration (DEA)

Federal agency that regulates controlled substances, enforces drug laws, and assigns schedule classifications to medications.

Food & Drug Administration (FDA)

Federal agency responsible for approving new drugs for safety and efficacy before they can be marketed in the U.S.

Patent Protection (drug)

Gives a brand-name drug manufacturer exclusive market rights (typically 20 years from filing). After expiration, generics can enter the market.

Over-the-Counter (OTC) Medication

Drugs available without a prescription. Generally not covered by health plans unless specifically included in a benefit design.

Lifestyle Medications

Drugs that treat conditions related to personal choices or preferences (e.g., erectile dysfunction, hair loss, weight management). Often excluded from formularies or placed in high tiers.

Direct-to-Consumer (DTC) Drug Advertising

Pharmaceutical companies advertising prescription drugs directly to patients via TV, print, etc. Increases patient demand and prescribing pressure on physicians.

Retail Pharmacy

A community pharmacy (e.g., CVS, Walgreens) where patients fill prescriptions. Distinct from mail-order or specialty pharmacies.

Drug Manufacturer

Company that produces and markets pharmaceutical products. Works upstream from distributors and retail pharmacies in the drug supply chain.

Wholesale Distributor

Intermediary in the drug supply chain that buys from manufacturers and distributes to retail pharmacies, hospitals, and other dispensers.

e-Prescribing

Electronic transmission of prescriptions directly from prescriber to pharmacy, reducing errors and enabling real-time formulary checking.

Point of Sale / Real-Time Claim Adjudication

Real-time processing of pharmacy claims at the pharmacy counter — instantly determines coverage, tier, and member cost-share.

Pharmaceutical Expenditures by Health Plans

Pharmacy costs represent roughly 20–25% of total health plan expenditures and are one of the fastest-growing cost categories.

Medicare Advantage (MA)

Private health plans that provide Medicare benefits (Parts A, B, and usually D). CMS pays plans a risk-adjusted per-member-per-month rate. Plans are accredited by NCQA or URAC.

Medicare Advantage enrollment

Approximately 50%+ of Medicare enrollees now choose Medicare Advantage plans — a majority of Medicare beneficiaries.

CMS payment rates to Medicare Advantage plans

CMS sets payments using risk-adjusted benchmarks based on local fee-for-service costs, then adjusts for the health status (risk score) of each plan's enrollees.

CMS requirements for Medicare Advantage plans

MA plans must cover all Medicare Part A and B services, meet network adequacy standards, submit bids, and be accredited by an approved organization (NCQA or URAC).

Medicaid

Federal-state health insurance program for low-income individuals. Covers MORE people than Medicare. Eligibility fluctuates with income changes.

Churning (Medicaid)

Ongoing problem where individuals repeatedly enroll and disenroll from Medicaid as their income fluctuates above and below eligibility thresholds.

Commercial Insurance

Private health insurance purchased by employers or individuals — not government-funded. Distinct from Medicare and Medicaid.

Consumer Directed Health Plan (CDHP)

A high-deductible health plan paired with a tax-advantaged savings account (HSA or HRA) that puts more cost and decision-making responsibility on the consumer.

High Deductible Health Plan (HDHP)

A plan with a deductible above IRS-set minimums. Members pay more out-of-pocket before insurance kicks in. Usually paired with an HSA.

Health Savings Account (HSA)

A tax-advantaged account (pre-tax deposits, tax-free growth, tax-free withdrawals for medical expenses) available only to those enrolled in an HDHP.

Plan evolution: Indemnity → HMO → PPO → HDHP

Historical evolution of health insurance — from fee-for-service indemnity (maximum freedom, no cost control) to managed HMOs to flexible PPOs to consumer-directed HDHPs.

Health Risk Appraisal (HRA)

A health questionnaire that assesses an individual's health status, risk factors, and behaviors. Used in disease and demand management to target interventions.

Disease Management

A coordinated system of interventions for people with chronic conditions (asthma, diabetes, CHF) to improve health outcomes and reduce costly acute episodes. Population-based.

Case Management

An intensive, individualized process where a case manager (often a nurse) coordinates all aspects of a complex patient's care. Person-specific, unlike population-based disease management.

Case Management vs. Disease Management

Disease Management = population-based programs for chronic conditions. Case Management = individualized coordination for high-complexity patients. DM is broad; CM is deep and person-specific.

Chronic Condition

A health condition lasting 1+ year requiring ongoing medical attention and/or limiting activities. Examples: diabetes, COPD, heart failure.

Pay for Performance (P4P)

Reimbursement model that ties provider payments to quality metrics and outcomes rather than pure volume — incentivizes better care, not just more care.

Value-Based Purchasing

Broad term for linking reimbursement to quality, outcomes, and efficiency rather than volume. Encompasses P4P, bundled payments, ACO shared savings, etc.

Pre-existing Condition

A health condition a patient had before enrolling in a health plan. The ACA prohibits plans from denying coverage or charging more based on pre-existing conditions.

Preventive Services and Wellness

Services (screenings, vaccines, counseling) covered at no cost-share under the ACA to prevent disease before it occurs — tools of both demand management and benefit design.

Electronic Health Record (EHR)

A digital version of a patient's medical record, shared across providers. Enables e-prescribing, care coordination, and utilization management.

Health Management Tools

Resources and programs (HRAs, wellness programs, nurse hotlines, disease management) used by health plans to improve member health and control costs.