Managed Care Contracts and Insurance Companies: A Comprehensive Guide

Managed care contracts are a crucial part of the healthcare system, and they're essential for insurance companies to provide coverage to their policyholders. Managed care contracts are agreements between insurance companies and healthcare providers that outline the terms of care, including payment rates and service delivery.

Insurance companies use managed care contracts to control costs and ensure that their policyholders receive high-quality care. By negotiating with healthcare providers, insurance companies can secure better rates and more efficient care delivery.

In the United States, the majority of healthcare spending is covered by private insurance companies. These companies often use managed care contracts to manage costs and improve patient outcomes.

Managed care has a fascinating history that's worth exploring. The concept of managed care began to take shape in the early 1970s.

Richard Nixon, advised by Dr. Paul M. Ellwood Jr., the "father of Health Maintenance Organizations", was the first mainstream political leader to push for a for-profit model in American healthcare. In 1973, Congress passed the Health Maintenance Organization Act, which encouraged the rapid growth of Health Maintenance Organizations (HMOs).

The backlash against managed care was swift and vocal, with critics arguing that HMOs were controlling costs by denying medically necessary services to patients. Many states responded by passing laws mandating managed-care standards.

Between 1970 and 2005, the share of personal health expenditures paid directly out-of-pocket by U.S. consumers fell from about 40 percent to 15 percent. This shift was largely due to insurers offering more comprehensive care networks in response to public demands and political pressure.

Managed care techniques are a crucial aspect of managed care contracts and insurance companies. They help manage the cost of health care benefits by assessing their appropriateness before they are provided.

One way managed care techniques are applied is through the use of a panel or network of healthcare providers, known as a provider network. Enrollees are required or incentivized to use these designated doctors and healthcare facilities.

Formal utilization review and quality improvement programs are also a key part of managed care techniques. These programs include disease management and case management, which help ensure that care is provided in a way that is both effective and efficient.

Preventive care is another emphasis of managed care techniques. This includes wellness incentives and patient education, which help enrollees take an active role in their health and well-being.

Utilization review, also known as utilization management (UM), is a specific technique used to manage the cost of health care benefits. It involves assessing the appropriateness of care before it is provided using evidence-based criteria or guidelines.

Two commonly used UM criteria frameworks are the McKesson InterQual criteria and MCG (previously known as the Milliman Care Guidelines). These frameworks help payers make informed decisions about the care they cover.

The use of managed care techniques can be applied to both network-based benefit programs and benefit programs that are not based on a provider network. This is sometimes described as "managed indemnity."

Managed care programs come in various forms, each with its own level of restrictiveness. One type of managed care program is the Health Maintenance Organization (HMO), which was first proposed in the 1960s by Dr. Paul Elwood.

An HMO is a coordinated delivery system that combines both the financing and the delivery of health care for enrollees. In an HMO, each member is assigned a "gatekeeper", a primary care physician (PCP) responsible for the overall care of members assigned.

HMOs are licensed at the state level under a license known as a certificate of authority (COA), rather than under an insurance license. They are designed to provide a more cost-effective alternative to traditional fee-for-service models.

Here are some key characteristics of HMOs:

Another type of managed care program is the Independent Practice Association (IPA), which is a legal entity that contracts with a group of physicians to provide service to the HMO's members. In an IPA, physicians are often paid on a basis of capitation, which means a set amount for each enrolled person assigned to that physician or group of physicians, whether or not that person seeks care.

Health maintenance organizations (HMOs) are a type of managed care plan that combines the financing and delivery of healthcare for enrollees.

HMOs were first proposed in the 1960s by Dr. Paul Elwood and were later set in law as the Health Maintenance Organization Act of 1973. This act defined a federally-qualified HMO as a plan that allows members access to a panel of employed physicians or a network of doctors and facilities in exchange for a subscriber fee.

In an HMO, each member is assigned a "gatekeeper", a primary care physician (PCP) responsible for the overall care of members assigned. Specialty services require a specific referral from the PCP to the specialist.

Non-emergency hospital admissions also require specific pre-authorization by the PCP. Typically, services are not covered if performed by a provider not an employee of or specifically approved by the HMO unless it defines the situation to be an emergency.

HMOs are licensed at the state level, under a license that is known as a certificate of authority (COA), rather than under an insurance license. This means that HMOs are subject to different regulations and oversight than traditional health insurance plans.

HMO members must choose a Primary Care Physician or Provider (PCP) who coordinates the medical care, hospitalizations and referrals for specialty care. If you don't choose a PCP, the plan will choose one for you.

HMOs are restricted to operating only in certain counties and zip codes called service areas. There is no coverage outside these service areas unless pre-approved by the HMO. When traveling outside of the health plan’s service area, coverage is limited to life-threatening emergency services.

In an HMO plan, enrollees are required to use in-network providers and cannot receive out-of-network coverage, except in an emergency or after prior authorization.

An Independent Physician Association (IPA) is a key player in managed care, allowing physicians to work together while still maintaining their independence.

IPAs are legal entities that contract with a group of physicians to provide service to HMO members.

These contracts are often based on capitation, which means a set amount is paid for each enrolled person assigned to that physician or group, regardless of whether they seek care.

Physicians in IPAs usually have non-exclusive contracts, allowing them to sign agreements with multiple HMOs.

This means individual doctors or groups can work with multiple organizations, providing flexibility and choice for patients.

Physicians who participate in IPAs also serve fee-for-service patients not associated with managed care.

A Point of Service (POS) plan is a type of managed care program that offers flexibility and freedom of choice. It's a hybrid plan that combines features of both HMOs and PPOs.

POS plans allow enrollees to use out-of-network providers, but they must pay much of the cost themselves unless their primary care physician refers them to a specific out-of-network specialist. This means that enrollees have more control over their healthcare choices, but they may also face higher costs.

One of the key benefits of POS plans is that they don't require referrals to see specialists. Enrollees are free to choose their own specialists, as long as they're willing to pay more for out-of-network care.

Here's a breakdown of the different levels of patient financial participation in POS plans:

POS plans are becoming increasingly popular because they offer more flexibility and freedom of choice than standard HMOs. They're a good option for people who want to have more control over their healthcare choices, but may not be the best choice for those who are looking for a more affordable option.

Private Fee-for-Service (PFFS) plans offer a wide choice of doctors and hospitals.

These plans are traditional and pay medical staff fees for each service provided to an insured patient.

They fall into Basic and Major Medical Protection categories, which provide different levels of coverage.

Basic protection deals with costs of a hospital room, hospital services, care and supplies, cost of surgery in or out of hospital, and doctor visits.

Policies do not cover some services, and Basic and Major Medical Insurance coverage combined are called a Comprehensive Health Care Plan.