managed care organizations

Managed Care Organizations
Although there are several forms of Managed Care,
with partially smooth transitions between the different
types, the following three categories can usually be differentiated:
• Health Maintenance Organizations (HMOs)
• Preferred Provider Organizations (PPOs)
• Point of Service Organizations (POS Organizations)
Health Maintenance Organizations Early in the
1970s, Paul Ellwood, MD, proposed a way out of the
US Medicare budget crisis. He suggested that the federal
government should turn to prepaid health plans
to control costs. To do so, it would be necessary for
the government to catapult these insurance plans from
minor to major health care players. For the purpose
of new legislation, these prepaid plans were renamed
“health maintenance organizations” (or HMOs); the
newly coined HMO term had (at that time) greater
appeal. The HMO Act of 1973 was thus designed,
debated, passed, and signed the face of US health care.
As defined in the act, a federally qualified HMO would
allow members access to a panel of employed physicians
or a network of doctors and facilities including hospitals in exchange for a subscriber fee (premium). In
return, the HMO received mandated market access and
could receive federal development funds. In practice,
an HMO is an insurance plan under which an insurance
company controls all major aspects of the health care
of the insured. In the design of the plan, each member
is assigned a “gatekeeper”, a primary care physician
(PCP), often a general practitioner, responsible for
the overall care of members assigned to him/her. Specialty
services require a specific referral from the PCP
to the specialist. Non-emergency hospital admissions
also require specific pre-authorization by the PCP. The
conditions of the contracts between the HMO and the
insured are usually the result of negotiations between
the HMO and payers (employers, medicaid, Medicare).
There are both “for-profit HMOs” and “not for
profit HMOs”, with the latter representing the minority.
Preferred Provider Organizations A preferred
provider organization contracts with independent service
providers to ensure health care delivery of its
members. There are PPOs that cover the insurance risk
and PPOs that transfer the risk to the buyer/financier
of the PPO services, in general a conventional health
insurer or self-insured company. The idea of a preferred
provider organization is the provision of a substantial
discount below the regularly charged rates to the
insured members of the group without significant limitation
of their choice of providers. Preferred provider
organizations themselves earn money by charging an
access fee to the insurance company for the use of
their network. They negotiate with providers to set fee
schedules, and handle disputes between insurers and
providers. PPOs differ from health maintenance organizations
(HMOs), in which insured persons who do
not use participating health care providers receive little
or no benefit from their health plan. PPO members are
reimbursed for utilization of non-preferred providers,
albeit at a reduced rate which may include higher
deductibles, co-payments, lower reimbursement percentages,
or a combination of these. Exclusive Provider
Organizations (EPOs) are similar to PPOs but that they
do not provide any benefit if the insured chooses a nonpreferred
provider, apart from some exceptions in emergencies.
Another feature generally included in a PPO
is utilization review, where representatives of the insurer
or administrator review the records of treatments
provided to verify that they are appropriate for the condition
being treated rather than being performed largely
or solely to increase the amount of reimbursement
due, a procedure that many providers resent as secondguessing.
A pre-certification requirement is also a nearuniversal
feature, in which scheduled (non-emergency)
hospital admissions and in some instances outpatient
surgery as well must have prior approval of the insurer
and often undergo utilization review in advance.
Point of Service Organizations Besides HMOs and
PPOs, Point of Service (POS) Organizations have
gained increasing importance. POS organizations combine
the elements of HMOs and PPOs, as members can
decide if they want to be served within the HMO or
by an external provider at the moment of utilizing the
health care service. When enrolling in a POS plan, the
insured is required to choose a primary care physician
for health care monitoring. This primary care physician
must be chosen from within the health care network.
The primary POS physician becomes the “point of service”
and may then make referrals outside the network,
although only some compensationwill be offered by the
health insurance company in such circumstances. For
medical visits within the health care network, paperwork
is completed for the insured. If the insured chooses
to go outside the network, it is their own responsibility
to fill out the forms, send bills in for payment, and
keep an accurate account of health care receipts. The
advantage for the insured is that they can on the one
hand utilize the broad services offered within the HMO
without or with only minor deductibles, but that on the
other hand they are to a large extent reimbursed when
using an external provider outside the HMO.
Adaptation of US Approach by Other Countries
Some elements of the US Managed Care system have
been adopted by other countries. Switzerland was the
first European country where HMOs characterized by
capitation (per capita lump sum) and gatekeeping in
form of the General Practitioner network systems were
implemented. The development of managed health care
in Switzerland relies on the belief that adequate economic
incentives and competition result in cost reduction
and high quality health care. While both of forms of
Managed Care can reduce hospitalization rates, unlike
US HMOs, Swiss HMOs cannot negotiate on price with
hospitals by establishing preferred provider contracts.The first elements of Managed Care have also been
implemented in Germany, primarily in the context of
introducing integrated service delivery offerings, which
nevertheless, as of today, only play a minor role in the
German health care system. FurtherManaged Care elements
introduced in Germany were Disease Management
Programs for specific chronic diseases, as well
as Diagnosis Related Groups and a hospital reimbursement
system. Other European countries like France, the
UK, and the Netherlands have also introduced Managed
Care elements.