Many people believe that the rising costs of medical care in the United States, and the increasing numbers of ordinary citizens who cannot afford it, have combined to threaten this country's social and economic health. By the year 2000, unless fundamental changes occur in the health care delivery and financing system, these costs will rise to $1.6 trillion, or 16.4 percent of the GNP.
Today's health care reform initiatives will no doubt stress some form of managed competition. Managed competition is an attempt to identify a limited number of qualified managed care networks, within each market, which will sell their products to one or more coalitions of employers. By stimulating competition in the marketplace, the analysts theorize that the cost of purchasing health care services will be brought under control, and services will be delivered more efficiently. Curbing costs, however, will mean less choice --and more limits-- for doctors, their patients, and health care providers.
In the future, both private and public buyers of care will more actively direct patient volume to those providers who agree to accept fixed reimbursement and, at the same time, manage to deliver "acceptable" results. Employers and government purchasers have already shown an increasing willingness to restrict choice in exchange for predictable and manageable health care costs.
How Managed Care Works
Basically, managed care is an agreement by a hospital, group of physicians, or related organization, to provide certain health care services, subject to assurances of proper utilization and quality of care, in exchange for discounted payments by a third-party payor.
Managed care networks restrict their members to care delivered from a specific set of providers authorized by the managed care plan. The provider signs a contract with the network which designates the classes of enrollees the provider may serve, the services covered under the contract, the reimbursement mechanism, and the amount of reimbursement that will be paid.
Historically, a provider was paid a fee for every service performed. In the absence of any third-party payment mechanism, the patient was billed directly for all services. When services are covered by third-party arrangements, the patients may pay their providers and seek reimbursement from third parties, such as indemnity benefit plans. Some third-party payors may reimburse the providers directly, as in service benefit plans.
In a managed care system, however, the health plan shifts some or all of the risk of underwriting payment to the provider, who benefits from a steady stream of revenue. The provider may provide covered services at a discounted rate (either a fixed percentage, different discount for certain services, or reduced fee schedule for services) in hopes that increased patient volume will offset the reduction in individual gross charges. Under a per diem rate agreement, the plan pays a provider a fixed rate for each day of care provided. Per case rates prospectively determine the amount that a provider will be paid for treating a particular case. Under a capitated system, the provider receives a flat payment per enrollee per month. For a monthly fee, the physician or institution must provide all of the specified services to the third-party payor's enrollees. One variation of capitation is the percentage-of-premiums method, in which the provider accepts a percentage of the third-party payor's premium in return for providing all covered services to enrollees during the month.
The primary objectives of managed care are to make the patient a better health care consumer, and to promote the benefits of wellness and preventive medicine. The patient will have less control over provider selection, and may also be responsible for higher deductibles, copayments, and penalties for service outside the network.
From a positive perspective, to the extent that providers reduce or eliminate unnecessary services, tests, and procedures in response to these cost-containment incentives, patients should experience an enhancement in the quality of care they receive. But to the extent costs are contained by reductions in necessary services, tests, procedures, premature discharges and reluctance to try new and expensive technologies, quality of care will decline. Many health care professionals, as well as consumers of health care services, are now claiming that the term "managed care" translates into "discounted care."
Three Basic Models
There are three basic models of managed care networks: PPOs, HMOs and POSs.
The preferred provider organization (PPO) is an arrangement in which providers agree to provide specified services at a predetermined, discounted fee in return for potential increases in patient volume. Network providers typically are prohibited from balance-billing patients for charges in excess of the negotiated level. In a PPO, the patient usually self-refers and determines utilization. As a consequence, a PPO is not as cost-effective as other models.
A health maintenance organization (HMO) is a prepaid health care plan under which a pre-set periodic fee is paid in exchange for a specified range of benefits. Enrollees in HMOs are usually restricted to the panel of providers within the network. The different types of HMOs may employ salaried professionals, or contract with individual practices or a single, multi-specialty medical group to provide comprehensive services. Estimates are that HMOs are 15 percent more cost-effective than traditional forms of health care delivery.
The point of service (POS) plan is a combination of the HMO and PPO models. If the patient confines himself or herself to the network, the primary care physician manages all care, and the patient incurs little or no cost. A POS also allows for patient self-referral and care outside the network, with higher deductibles and copayments and lower benefit schedules.
In assessing the feasibility of any plan from the perspective of an employer or provider, one should consider the scope of covered services, the financial arrangements and claims processing procedures, one's obligations under quality and utilization review plans, the third-party payor's solvency, reputation, and enrollee mix, and rights to terminate the contract in the event it is no longer profitable. At all costs, the provider should avoid any arrangement that shifts liability for a third-party payor's utilization review decisions to the provider.
Recent cases are expanding the scope of professional liability for a patient's injury as a result of a payor's utilization review which limits access to care. In fact, a California jury recently awarded $89.3 million to the family of a woman whose HMO refused to pay for a costly, "experimental" procedure to treat the cancer that eventually caused her death.
In light of the current narrow focus on cost-containment in the health care delivery system, consultation with a managed care expert may be critical to help a provider or employer assess the plan or plans that may be available - and suitable - for that provider, and to limit the potential for financial risk, liability for failure to deliver medically appropriate services, and antitrust and fraud and abuse concerns as well.