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Getting the Supportive Housing Industry Ready for the Transition to Managed Care:
Introduction to Managed Care
Joel Shalowitz, MD, MBA, FACPClinical Professor and Director, Health Industry Management
Kellogg School of Management andProfessor of Preventive Medicine
Feinberg School of MedicineNorthwestern University
Health Insurance
“Boys, that’s the business you ought to get into. It’s a great business. Why think of it - people paying money before they even know what they were going to get!”
Goldie Balaban To Her Sons - Early 20th Century
DEFINITION
Insurance is a contract between two or more parties whereby, in exchange for a payment (premium), the insurer protects (indemnifies) the insured against a defined peril or loss by agreeing to pay a specified amount of money if that loss should occur.
Purposes of Insurance:
For the insured: Can budget for healthcare expenses by protecting against catastrophic events.
For the insurer: Make money from premiums and investments. In the past, health insurance made money for the insurer as a loss leader by allowing the company to sell more profitable policies, e.g., life insurance, with it.
Conditions for an event to be insurable:
1. It must be neither too frequent nor too rare (issue of frequency); it also must be measurable.
Q: What would be the premiums at these two extremes?2. It must be accidental and sporadic, i.e., a random, unpredictable
event (issue of unpredictability).Q: What would happen if the event were predictable?
Issue of “Moral Hazard”
3. The value of the loss must be measurable, agreed upon by insured and insurer and have a non-trivial value.
4. From the insurer’s viewpoint, large numbers of subscribers are needed who must make sufficient and regular payments.
***INSURANCE IS A NUMBERS GAME***
Russian farmer sues space agency for falling rocketWed Mar 26, 2008 1:58pm EDTBy Natalya SokharevaBARNAUL, Russia (Reuters) - A shepherd is suing Russia's space agency for compensation after he said a 10-foot-long chunk of metal from a space rocket fell into his yard, just missing his outdoor toilet.Boris Urmatov, who is asking for 1 million rubles ($42,000) from the Roskosmos agency, lives in a small village that lies underneath the flight path of rockets taking off from the Baikonur launch pad Russia leases in nearby Kazakhstan."Something woke him up in the night, like something exploded. Since he's visually handicapped he didn't notice the fallen rocket parts," Urmatov 's sister Marina told Reuters from the village of Kyrlyk, in Russia's Altai region."But in the morning in front of the shepherd hut he saw this enormous metal casing, as smooth as an egg," she said by telephone from the village, which is 2,175 miles east of Moscow. "It nearly crushed the outhouse."
Double-digit rate hikes get OK from Moody'sFierceHealthPayer June 24, 2014 Alicia Caramenicohttp://www.fiercehealthpayer.com/story/double-digit-rate-hikes-get-ok-moodys/2014-06-24#ixzz35Zqq5y75
…more competition on the exchanges next year also means fewer new members. But that's okay, according to Moody's: With risk pool uncertainty, less membership--and therefore potentially less risk--is credit positive for insurers.
Monday, Dec. 13, 1954Science: Star on AlabamaThe small town of Sylacauga, Ala., about 40 miles south of Birmingham, was enjoying its noontime peace under a blue sky. In the living room of her one-story frame house, Mrs. Ann Elizabeth Hodges, a pleasant, plump housewife of 32, was napping on a sofa. She was lying on her side, covered with two quilts, one hand resting on her hip. Her mother, Mrs. Ida Franklin, was sewing in the next room. Her husband, Hewlett, a telephone company tree surgeon, was away at work. Suddenly, across the noonday sky from west to east, swept a brilliant fireball. It left a long trail of white (some observers said black) smoke, and it flew so high that it was seen almost simultaneously in Greenville, Miss., Montgomery, Ala. and Atlanta. Over Sylacauga it exploded with a boom like thunder (some said a series of booms). A schoolboy in Montgomery, 50 miles away, insisted that the blast almost knocked him off his bicycle. Mrs. Hodges, napping soundly, missed the overhead fireworks, but she woke from her sleep with an impression that all was not well. "Mama came running in," she reported later, "and asked me if the house was falling down. I said I didn't know. I thought it was the chimney. I got up and started out of the house. Then my hip started hurting.'' Black Stone. The two women looked around the room. In one corner of the ceiling was a jagged hole, and on the floor lay a black, glb. stone. If it had just arrived from interplanetary space, Mrs. Hodges could claim to be the first fully authenticated case of a human injured by a meteorite.*She had no time for wild surmise. Neighbors came flooding into the house, followed by cops and more neighbors. A doctor rushed her to his office, X-rayed her space-inflicted injuries and found no broken bones. But she had bruises on her hip and hand.
Some important terms:• Capitation vs. Fee-for-Service; Service vs.
Indemnity• Defined Benefit vs. Defined Contribution• Copay, Coinsurance, Deductible (Some
examples)• Reinsurance• Community vs. Risk Rating (Individual
underwriting)• Medical Loss Ratio
Annual Family Premium versus Annual Deductible
Source of data: Will Fox, FSA, MAAA | Principal & Consulting Actuary | Milliman
Personal Communication April 28, 2008
Tradeoffs in health insurance:
Other than quality services, holding benefits constant, people in the U.S. want three features from their health insurance:A. First dollar coverageB. Low premiumsC. Freedom of choice of providers
Managed Care
What is managed care?
“A process to maximize the health gain of a community within limited resources, by ensuring that an appropriate range and level of services are provided, and by monitoring on a case-by-case basis to ensure that they are continuously improved to meet national targets for health and individual health needs.”Coopers & Lybrand, European healthcare trends: towards managed care in Europe, May, 1995
Managed Care
I. What is managed care?II. What are the principles that make it work?
Physician’s Control of Health Care Expenditures
Amount spent in Percentage Sectors under physician control 1993 in billions of total
Hospital Care $363 38.6%Physicians $176 18.7%Drugs and devices $ 87 9.2%
Nursing homes $ 76 8.1% Subtotal $702 74.6%
Sections not controlled Other (such as alternate site care) $ 93 9.9% Dental $ 92 9.8% Administration $ 54 5.7% Subtotal $239 25.4%
TOTAL $941 100.0%
Source: U.S. Dept. of Health & Human Services, U.S. Dept. of Commerce, and Alex. Brown & Sons, Inc. Baltimore 1994
HEALTH MAINTENANCE ORGANIZATIONS (HMOs)- the prototype for managed care
DEFINITIONAn HMO is a health care plan that delivers comprehensive, coordinated medical service to voluntarily enrolled members on a prepaid basis.
Source: J. Shalowitz, M.D., 1994
PRIMARY CARE IS THE PROVISION OF INTEGRATED, ACCESSIBLE HEALTH CARE SERVICES BY CLINICIANS WHO ARE ACCOUNTABLE FOR ADDRESSING A LARGE MAJORITY OF PERSONAL HEALTH CARE NEEDS, DEVELOPING A SUSTAINED PARTNERSHIP WITH PATIENTS, AND PRACTICING IN THE CONTEXT OF FAMILY AND COMMUNITY.
THE TERM INTEGRATED IS USED TO DENOTE THE PROVISION OF COMPREHENSIVE, COORDINATED, AND CONTINUOUS SERVICES THAT PROVIDE A SEAMLESS PROCESS OF CARE.Source: Committee on the Future of Primary Care, Institute of Medicine.JAMA 273: 192, 1995
Patient-Centered Medical HomeA patient-centered medical home integrates patients as active participants in their own health and well-being. Patients are cared for by a physician who leads the medical team that coordinates all aspects of preventive, acute and chronic needs of patients using the best available evidence and appropriate technology. These relationships offer patients comfort, convenience, and optimal health throughout their lifetimes. (May, 2008; Board of the American Academy of Family Practice) http://www.aafp.org/online/en/home/policy/policies/p/patientcenteredmedhome.html )
The Medical Home Ad Hoc Task Force on Definition of the Medical HomeThe American Academy of Pediatrics believes that the medical care of infants, children, and adolescents ideally should be
accessible, continuous, comprehensive, family centered, coordinated, and compassionate. It should be delivered or directed by well-trained physicians who are able to manage or facilitate essentially all aspects of pediatric care. The physician should be known to the child and family and should be able to develop a relationship of mutual responsibility and trust with them. These characteristics define the "medical home" and describe the care that has traditionally been provided by pediatricians in an office setting. In contrast, care provided through emergency departments, walk-in clinics, and other urgent-care facilities is often less effective and more costly. We should strive to attain a "medical home" for all of our children.http://pediatrics.aappublications.org/cgi/content/abstract/90/5/774
The Advanced Medical Home: A Patient-Centered, Physician-Guided Model of Healthcare
The advanced medical home acknowledges that the best quality of care is provided not in episodic, illness-oriented, complaint-based care—but through patient-centered, physician-guided, cost-efficient, longitudinal care that encompasses and values both the art and science of medicine. An attribute of the advanced medical home is promotion of continuous healing relationships through delivery of care in a variety of care settings according to the needs of the patient and skills of the medical provider… In the advanced medical home model, patients will have a personal physician working with a team of health care professionals in a practice that is organized according to the principles of the advanced medical home. For most patients, the personal physician would most appropriately be a primary care physician, but it could be a specialist or subspecialist for patients requiring ongoing care for certain conditions (e.g., severe asthma, complex diabetes, complicated cardiovascular disease, rheumatologic disorders, and malignancies). Primary care physicians are defined as physicians who are trained to provide first-contact, continuous, and comprehensive care…Rather than being a “gatekeeper” who restricts patient access to services, a personal physician leverages the key attributes of the advanced medical home to coordinate and facilitate the care of patients and is directly accountable to each patient. Personal physicians advocate for and provide guidance to patients and their families as they negotiate the complex health care system. ( A Policy Monograph, American College of Physicians, Approved by the Board of Regents on 22 January 2006)
Distributing Prepaid Premiums
40% 40% 20%PHYSICIAN CAPITATION HOSPITAL FUND ADMINISTRATION
PHYSICIAN FEES: INPATIENT HOSPITAL OPERATING COSTS
INPATIENT CHARGES
OUTPATIENT PHARMACEUTICALS
REFERRALS SURGICENTER CHARGES
(FACILITY ONLY) REINSURANCE FOR
OUTPATIENT SERVICES: SPECIAL SERVICES:
LABORATORY SKILLED NURSING FACILITY TRANSPLANTS
RADIOLOGY CARDIAC SURGERY
THERAPIES HOME CARE CHRONIC HEMODIALYSIS
PSYCHIATRY/
STOP LOSS INSURANCE DURABLE EQUIPMENT CHEMICAL DEPENDENCY
STOP LOSS INSURANCE
Source: J. Shalowitz
Preferred Provider Organizations (PPO’s)
Definition and Operational Features - No single definition exists for organizations calling themselves PPO’s. The following are some common operational features they share:
•Insurer or third parties contract with a panel of providers
•They negotiate a fee schedule with these providers
•The providers agree to abide by a utilization review process
•Patients are not “locked in,” i.e., if they obtain care outside the panel of contracted providers they will retain some coverage, though not as comprehensive as had they stayed within the network.
Questions?
