Many physicians misinterpret the term "managed care" as meaning simply a system for providing health care at discounted fees. The definition of managed care is a system of health care delivery that influences utilization of services, cost of services and measures performance. The goal is a system that delivers value by giving people access to quality, cost-effective health care.

Employers pay the health care bill for the majority of people in the US. Very few employers feel they can continue to afford the rising cost of traditional health care and therefore are the driving change to an alternative delivery system. To truly understand the impact of managed care, one must first acknowledge that the conversion to managed care is a market force, not a trend.

WHERE ARE YOU IN THE "MANAGED CARE FOOD CHAIN?" The Employer (Retail buyer) Managed Care Organizations (Wholesale buyer) Primary Care Physician (Gatekeeper) Primary Medical Groups/IPAs (Prepaid Provider) Specialists (Wholesale provider) Hospitals Specialty Hospitals Hospital-Based Subspecialists.

More simply, while the primary care physician gains the power base, the specialists lose power on both pricing and unrestricted ability to perform procedures.

DEFINITION

Adverse Selection. Disproportionate enrollment of persons with adverse risks, such as an impaired or older population, with a potential for higher health care utilization than budgeted for an average population.

Capitation. The amount of money required per person to provide covered services for a specific time period. Capitation is usually expressed on a per member per month basis.

Closed-Panel HMO. A staff-model or group-model HMO in which medical services must be obtained from health professionals employed by the HMO.

Community Rating. A method of establishing health care premiums in which the individual's premium amount is based on the actual or anticipated average costs of health services used by all HMO members in a specific service area. The premium is thus not based on the expected utilization of a specific group, but on the experience or projected experience of the community as a whole.

Coordination of Benefits (COB). A common insurance provision whereby responsibility for payment for medical services is allocated between third-party payers when a person is covered by more than one employer-sponsored health benefit program. This coordination assures that the insured person is not reimbursed twice for the same medical services.

Copayment. A fixed amount of money (not a percentage) to by paid by the insured person when he or she receives medical services. Copayments are usually modest amounts, such as $10 a visit.

Direct-Contract-Model HMO. A type of HMO in which the HMO contracts directly with individual primary care and specialist physicians to provide medical services. These physicians usually continue to see their own non-HMO patient also.

Drug Formulary. A listing of prescription medications which are approved for use and/or coverage by the plan and which will be dispensed through participating pharmacies to a covered person. This list is subject to periodic review and modification by the health plan.

Enrollee. A person enrolled in a managed care plan and entitled to receive benefits; used synonymously with "member", "subscriber", and "covered person."

Federally Qualified HMO. A federally qualified HMO is one that has met the requirements of the federal HMO Act. The requirements concern basic and supplemental health care benefits, fiscal soundness, marketing practices, management, membership representation on the HMO board of directors, rating methodology, quality assurance, and grievance processes for member.

Gatekeeper. A physician to whom a defined group of enrollees is assigned for health care management. Also called a primary case manager. The gatekeeper is required to provide all health care, or authorize care from other specialists, if necessary.

Health Maintenance Organization (HMO). An organization of health care personnel and facilities that provides a comprehensive range of health services to an enrolled population for a fixed sum of money paid in advance. These health services include a wide variety of medical treatments and counsel, inpatient and outpatient hospitalization, home health service, ambulance service, and sometimes dental and pharmacy services. HMOs are organized into four types: group practice model, individual proactive association (IPA) model, staff model and network model.

Holdback. A portion of the managed care plan's payment to the providers that is agreed to be withheld until the end of the contract period, at which time actual health care costs will be calculated to see if they exceeded the budget targets agreed on. If services for the contract period were below the budget target, the holdback is distributed to the providers; if not, the holdback is used to cover actual costs. The term is used synonymously with "withhold"".

Indemnity Insurance. Indemnity insurance typically means coverage offered by insurance companies and Blue Cross plan, whereby insureds are indemnified through reimbursement by the carriers for their medical expenses. Payment may be to the individual incurring the expense or directly to providers. The important point is that expenses are compensated after the fact for specific losses incurred by the insured, and for prespecified amounts.

Incurred But Not Reported (IBNR). A term that refers to the costs associated with a medical service that has been provided, but for which the carrier has not yet received a claim. The carrier to account for estimated liability based on studies of prior lags in claim submission records IBNR reserves. In capitated contracts, Primary Medical Group IPAs are responsible for IBNR claims of their enrollees. This is why capitated PMGs or PCPs must continue to grow their memberships - the "tail" of IBNR claims can be economically damaging without the buffer of growing capitation payments and adequate claims reserving practices.

Individual Practice Association (IPA). An HMO model in which the HMO contracts with an association of physicians who are members of a separate legal entity, but who practice as solo practitioners or in a group practice. IPA physicians continue to see their own non-HMO patients and maintain their own medical records and support staff. HMOs that contract with an IPA generally pay the IPAs capitation, and the IPA pays its physician members.

Member. A person enrolled in a managed care plan to receive health care benefits; use synonymously with "enrollee", "subscriber," and "covered person."

Member Month. A member month is equal to one member enrolled in an HMO for one month, whether or not the member actually receives any services during the period. Two member months are equal to one member enrolled for two months or two members enrolled for one month. Many internal operating statistics for HMOs are expressed in terms of member months.

Network-Model HMO. A type of HMO in which the HMO contracts for medical services with more than one medical group to provide health care services to HMO members.

Open-Panel HMO. A direct-contract, network-model, or IPA-model HMO with broad opportunity for participation by providers in the community.

Out-of-Area Benefits. The scope of emergency benefits (and related limitations) available to HMO members while temporarily outside their defined service areas. Some HMOs offer unlimited out-of area emergency coverage. Others impose a stated maximum annual dollar benefit. Emergency coverage is usually the only HMO benefit in the total benefit package for which members may need to file claim forms for reimbursement of their out-of-pocket expenditures for care.

Penetration Rate. The percentage of business that an HMO is able to capture in a particular subscriber group or in the market as a whole. For example, signing up 10 enrollees or members out of 100 eligible persons yields a 10 percent penetration.

Per Diem Rate. Under a per diem rate method, a hospital is paid a flat daily rate for services provided per day if actual experience exceeds the projected intensity of services. Per diem rates may be set at different levels for different services.

Point-of-Service Plan. A type of health plan allowing the covered person to choose to receive a service from a participating or a non-participating provider, with different benefit levels associated with the use of participating providers. Point-of-service can be provided in several ways; (1) an HMO may allow members to obtain limited services from non-participating providers; (2) an HMO may provide non-participating benefits through a supplemental major medical policy; (3) a PPO may be used to provide both participating and non-participating levels of coverage and access; (4) various combinations of the above may be used.

Policy Exclusions. Conditions or situations in a health benefit policies that are not considered covered benefits.

Precertification. A mechanism used by managed care plans to control utilization in which the plan approves the provision of medical services before the are delivered. Used synonymously with "prior authorization."

Preferred Provider Organization (PPO). A contractual arrangement between health care providers (professional and/or institutional) and employers, insurance carriers, or their party administrators, to provide health care services to a defined population at established fees that may or may not be discounted from usual and customary or reasonable charges.

Primary Care Network (PCN). A group of primary care physicians who have joined together to share the risk of providing care to their patients who are members of a given health plan.

Prospective Review. The evaluation of a health care service before it is rendered to determine the appropriateness of the service, provider, cost, location, etc.

Reinsurance. A type of protection purchased by HMOs from insurance companies specializing in underwriting specific risks for a stipulated premium. This becomes a cost of ding business for HMOs. Typical reinsurance risk coverage is (1) individual stop-loss, (2) aggregate stop-loss, (3) out-of-area, and (4) insolvency protection. As HMOs grow in membership, they usually reduce their reinsurance coverage (and related direct costs), being in a financial position to assume such risks themselves.

Retrospective Review. The evaluation of health care services provided after the service has been performed, as a method of monitoring and controlling utilization, quality, cost-benefit ratio, etc.

Risk Pool. A portion of the managed care plan's payment to providers that is withheld until the end of the contract period, at which time the total cost of medical services provided are calculated to see if they exceeded budget targets. If costs exceeded the agreed upon budget, the amount of money in the risk pool is retained by the managed care plan; if costs were under budget, the money is distributed to the providers.

Stop-Loss Provision. An arrangement in which a provider and a managed care plan agree on a threshold at which the provider will no longer be obligated to provide services at the agreed upon rate. There may also be stop loss arrangements between a managed care plan and its reinsured.

Third Party Administrator (TPA). A TPA is a party other than the buyer or provider that administers the claims process.

Triple Option Program. An arrangement whereby an organization offers subscribers a choice of enrolling in an HMO, a PPO, or an indemnity insurance program. Subscribers are usually businesses who then offer these options to their employees.

Usual, Customary and Reasonable (UCR). Payment to physicians based on the usual and customary fee for the same service in the same geographic area.