Managed Care


Managed care refers to a healthcare insurance approach that integrates the financing of health care and the delivery of care and related services to keep the costs to the purchaser at a minimum while delivering what is appropriate for a given patient or population of patients.[1][2] The precise definition of managed care has evolved over several decades.[3]

Common to most definitions of managed care are several features or components such as:[1]

  1. A limited network of providers (professionals such as physicians and organizations such as hospitals, imaging centers, pharmacies, and laboratories) who are each credentialed and contracted
  2. Utilization management
  3. Quality management
  4. Financial incentives for the patient to use network providers
  5. Some level of financial incentives or risk-sharing by the provider for the care provided

Managed care financial arrangements vary widely and occur along a continuum from retrospective fee for service payments at one end, all the way to prospective, full financial risk-type pre-payments for each member, so-called capitation, paid monthly, as a per member per month (PMPM) capitation rate.[2][4] In between these two extremes are numerous variants that strike a balance between the level of retrospective payment (paid after service is delivered, i.e., fee for service) and prospective payment (paid before the service, i.e., capitation or prepayment/PMPM).[5]

The types of managed care insurance or benefit management approaches have evolved as well. Initially, managed care was synonymous with a health maintenance organization or HMO approach.[6] In the traditional HMO model, patients enrolled select a primary care provider (PCP) who receives a PMPM to provide care and coordinate all services for that patient. The PCP serves as the patient’s gatekeeper for all necessary services and must provide a referral for the patient to be seen by a sub-specialist or to receive imaging or laboratory studies. The PCP is expected to manage and oversee the care so that only appropriate care and services are provided according to available evidence or consistent with standardized care pathways. In an HMO, only network providers are available to the patient, so specialists, hospitals, pharmacies, imaging centers, and laboratories are preselected and credentialed and contracted by the HMO. In the case of an HMO with a gatekeeper model, coverage will only be available for care and services authorized by their PCP.

Over time, some less traditional HMOs emerged where the PCP does not serve as the gatekeeper, and the patient may self-referral to a specialist. However, for the service to be covered and paid for by the managed care plan, the patient is still limited to only receiving care and service from network providers. The utilization and quality management programs in HMOs collect a great deal of data related to the care and services authorized and provided by the PCP and other providers. This data is communicated to the PCP and other network providers regularly as the financial incentives revolve around compliance with the managed care plan’s utilization and quality programs’ targets. For the patients, the financial incentive to them is that they receive insurance coverage only for services that occur within the network.

Not all managed care occurs via an HMO type arrangement.[2] Due to the patient’s desire to have more providers' choices than would be available either in the gatekeeper or non-gatekeeper type HMO, and in part due to provider's complaints about the loss of autonomy in HMO type arrangements, the preferred provider organization (PPO) emerged. In this managed care approach, the insurance company recruits a network of providers in a given geographic region, including both PCPs and sub-specialists along with a set of hospitals, pharmacies, imaging centers, and laboratories who all agree to take a discounted rate in exchange for the opportunity to be listed as in-network and potential be selected by a relatively large group of patients to be their provider. The providers are held to utilization and quality targets. The providers bear some level of financial risk for the population of patients they serve, mostly competing for incentive payments based on utilization and quality performance. The patients have more autonomy around care decisions related to selecting subspecialty providers than in the HMO. However, they are still limited to receiving care from in-network providers. The network, however, is likely more extensive than the network available in the HMO setting.

Finally, in this vein of patients wanting more choices available to them, a point of service (POS) managed care arrangement has emerged, which may appeal to more discretionary income patients. In a POS plan, the patient may use this managed care plan like a PPO and remain to limit their choices to only in-network providers and thus maximize their coverage. However, in a POS, the patient may choose to see a provider outside of the network, but to do so, it incurs more cost-sharing on the patient’s part. Thus, in a POS arrangement, the patient may practically see any provider they chose, either in-network or out-of-network. Still, if they stay within the PPO network, they pay the least, but they will share a higher portion of the care cost and pay more if they go outside the network.

Issues of Concern

When discussing managed care, the overriding concern is the intermingling of the provider's finances with the amount and type of care they offer to the patient.[1][7] In the traditional gatekeeper HMO type arrangement, the type and amount of care and service provided to the patient directly connect to the provider's financial well-being. In a prospective pre-payment full capitation model, if, on average, the provider gives more care and service to the patient than called for by the targets set by the HMO (i.e., high utilization or overuse), then the provider will have a financial loss. On the other hand, if, on average, the provider gives less care and service than stipulated by the targets set by the HMO (i.e., low utilization or underuse), then the provider would have a financial gain. Guardrails established by the plans mitigate this extreme dichotomy. Expected levels of preventive care that must be delivered with the use of risk adjustment techniques to allow higher expected utilization for patients with chronic conditions such as diabetes or congestive heart failure, which would be expected to need more care and service when compared to a healthy young patient with no medical diagnoses. Ideally, managed care aims to deliver only appropriate care and settle somewhere in the middle of the two extreme situations described above. The optimal managed care plan would be one where the provider offers the optimal, appropriate amount of care and service to each patient, then average out across all the enrolled patients being cared for by that provider and financially beneficial for the provider and clinically appropriate for the patient.   

Another concern that emerges with managed care is the perception of lack of professional autonomy and the obligate burden or hassle factor that arises for the provider who must function in a more structured monitored environment and receive, analyze and act upon utilization and quality reports sent to them from the teams at the managed care plan.[1][4] This added administrative burden inevitably adds to the provider’s administrative costs and is associated with a lessening sense of professional fulfillment on the part of the providers and is, in part, associated with a growing sense of burnout and lack of satisfaction being reported by providers.[5]

As experience with managed care becomes established in the health care setting, a concern arises around the risk that patient access may be limited by providers gaming the system and cherry-picking or seeking to serve only patients in one’s practice that are likely to be healthier, more likely to need less care and service and thus who would make it easier to meet the utilization and quality targets.[4][8] 

This gaming or cherry-picking would then leave patients with chronic conditions or those with some level of medical complexity with less access to care because fewer providers would be available willing to see them in their practices. If this gaming occurs, those providers who are motivated to care for these patients with chronic conditions or with medical complexity would be at a financial disadvantage by merely doing the right thing and making themselves available to those most in need of healthcare. Recognizing this potential disincentive, managed care plans mitigate this potential by risk adjusting their measures and targets so that expected higher utilization that reflects appropriate care for a patient with a chronic condition is factored into the target setting. This risk adjustment provides accommodation to providers who take on the added responsibilities of caring for a more chronically affected patient population.

Clinical Significance

Managed care was introduced with the idea to decrease the overspending on patient care and oversupply healthcare services.[3][9] Various studies have been done to see the differences between fee-for-service and managed care. In a well done comparative study over ten years conducted in Switzerland, managed care produced substantial and sustainable cost savings to the health care system with significant decreases in inpatient mortality, hospitalizations, and length of stay.[10] In this analysis, the cost savings were driven by fewer subspecialty consultations for patients enrolled in managed care plans and shorter lengths of stays for those admitted to a hospital producing improved care measures.[10]

Like any other industry, the health care industry has commercialized over the decades; thus, the cost-cutting has met with continued backlash. This has given rise to the managed competition, which offers the consumer full responsibility to choose the premium costs, overall health care coverage and adjust the care plan based on personal risk. This has helped create an incentive for the physicians to provide better care with controlled costs.[11] In essence, managed care was designed to help centralize health care, contain costs for the patients, improve utilization of resources, and improve the patients' quality of care. Over time, managed care seems to be achieving these goals but still has a way to go before realizing its full potential.[11][12] However, it is still estimated that nearly 25% of health care spending in the US is wasted.[11]

Nursing, Allied Health, and Interprofessional Team Interventions

Nurses and clinical pharmacists are often the health professionals who work at the managed care plan and conduct the utilization and quality management functions. Nurses by way of training and clinical experience are often viewed as well suited to 1) collect the clinical information required for utilization and quality management activities, and 2) help providers interpret the clinical relevance and appropriateness of the information being shared back to the practice.[13] By way of training and clinical experience, pharmacists have unique expertise in collecting and interpreting clinical information related to medication use.[14][15]

To help facilitate the resolution of some of the challenges associated with managed care and how it interacts with the providers delivering the care to the patients, the Academy of Managed Care Pharmacy Professional Practice Committee determined nine concepts to strengthen the provider and pharmacist relationship. It will also improve patients' outcomes and mitigate the use of resources through utilization management criteria, keeping in mind patient safety with clinical decision-making through evidence-based review and providing transparent care to the patients without any roadblocks in the therapy and facilitating collaboration.[16]

Article Details

Article Author

Angelo P. Giardino

Article Editor:

Orlando De Jesus


10/24/2022 7:14:17 PM



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