HAS 3111: Health Care Professions*
Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Topics
Managed Care
Point of Service MCO
Issues in Managed Care
“This debate is about making sure patients get the protections they deserve, ... It's about whether we are going to stop HMOs from making medical decisions”
Senator Ted Kennedy
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care
Previous classes have discussed the history and structure of healthcare and HC financing
Fee for service insurance/provider arrangements had tradeoffs
Patient could receive desirable care
Key decision makers had low financial responsibility for decisions
Costs escalated
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Market Power
In a competitive market multiple buyers and sellers interact and market pressures force prices down to the lowest level that will keep suppliers in business
In a monopoly buyers face a single seller who is able to set their price at the profit maximizing level
In a monopsony a single large buyer deals with multiple sellers and can force prices downward
There are degrees of monopoly or monopsony power possible in a market
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Market Power (cont.)
Physicians and other providers
Buyers include
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Market Power (cont.)
A large insurance company may have monsopony power with respect to physicians and hospitals
Excluding a provider from the approved list can cost the provider enough business to hurt more than adjusting prices downward
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Vertical Integration Efficiencies
Many businesses have a value chain of organizations that contribute to the final product
Coal & Iron Ore → Steel → Auto Parts → Automobile → Dealer → Customer
Each participant needs to make a profit
Each boundary (→) has transaction costs
Negotiations • Monitoring
Communication • Administration
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Vertical Integration Efficiencies (cont.)
Vertical integration is when one organization in the value chain expands operations up or down to control more of the chain
A huge body of economic theory covers the decisions of vertical integration
Key determinants have been
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Recall the elements of a HC system
Patients Providers
Insurers Payers
“…employers grappled with the unaffordable excesses of unrestrained delivery of services that led to spiraling health insurance premiums” (p. 334)
Ditto for government payers
Review what it was about the previous arrangement that was driving costs upward.
Includes Employers
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
“The only way to control runaway costs was to integrate delivery and payment with the other two functions of financing and insurance.” (p. 334)
We want to be alert to how different varieties and aspects of managed care address the cost problems discussed previously
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Economics of Managed Care (cont.)
Hospital mergers
Book cites cost efficiencies as a reason for hospital mergers
What market power issues change if one hospital chain owns a significant part of the hospital capacity in a delivery area?
Staffing Efficiencies (Chapter 8)
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care
Managed Care integrates multiple participants in the traditional HC network under one organizational umbrella
Comprehensive employment of all activities
Contractual arrangements with some activities
Typically combines Insurance and Payment
May include Delivery
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care (cont.)
Health Maintenance Organization (HMO)
Preferred Provider Organization (PPO)
Point of Service Plan
The “Managed” part of MC implies that the organization exercises tighter control over utilization
Addresses the incentive problems in fee-for-service plans
Creates new incentive problems
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care (cont.)
History of MC
HMOs began in some markets in the 1940s
The HMO Act of 1973 provided federal funding for new HMO
Required employers to offer HMO plans
Believed HMO would increase health
Believed HMO would lower costs
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care (cont.)
What are the tradeoffs or costs?
Who realizes each cost, benefit, or tradeoff?
How do “decision rights” changed in a MC environment?
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Controls
An essential objective of the MC approach is to restrict costs through several mechanisms:
Choice restriction
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Control (cont.)
On the “panel”
Providers agree to other service terms
Referral management
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Control (cont.)
PCP must approve secondary services
Specialists
Emphasizes preventive care
What are the changes in incentives and responsibilities of this system?
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Control (cont.)
Variety of services
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Control (cont.)
Disease Management
MCO have the resources and volume of insured to make disease management cost effective
Basically case management for individuals with specific conditions
Asthma • Diabetes • etc.
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Control (cont.)
Prospective Utilization Review
A controversial provision of MCO
Concurrent Utilization Review
Manage ongoing treatment
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
MC Cost Control (cont.)
Analysis of provider practices compared to similar providers in network
Identify practices with larger-than-normal utilization of
Tests • Referrals
Admissions • Relapses
What problems might this practice create?
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Health Maintenance Organizations
From the patient/insured perspective HMO looks like one monolithic organization
All primary care and specialty services
Often includes pharmacy services
Focus on wellness and preventive medicine
HMOs may operate under different models in dealing with the actual providers
Look for differences in
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
HMO (cont.)
Physicians only work for HMO
Uses guidelines and bonuses to align physician decisions with HMO objectives
Easier to monitor physician performance
All records under one umbrella
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
HMO (cont.)
Group Model
HMO contracts with a multispecialty medical group to provide services
Group is independent and contracts with HMO
Group may see other patients
Group is a wholly owned subsidiary of the HMO
HMO is group’s only customer
Group paid on a capitation basis
HMO is a monopsony customer of the group
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
HMO (cont.)
Network Model
Enrollees may select any PCP
Typically only Primary Care Providers in groups
Groups paid a capitation fee
PCP may refer patients to specialists …
…but pay specialist fees from capitation
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
HMO (cont.)
HMO contracts with IPA
IPA contracts with providers
IPA takes on logistics and administrative burdens
56% of HMOs were IPA in 2005
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Preferred Provider Organizations
Create networks of contracted providers
Negotiate prices and practice standards
Prices often 25-35% lower than list prices
Most require insured to use network providers…
…or pay heavy additional costs
Some do not allow out of network providers
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Point-of-Service Plans
Require primary care provider
Allow enrollee to select any provider when services are needed
Fees higher for out of network providers
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care Issues
Widespread expansion of MC in the 1990s managed to alienate almost every group except those paying the bills
Patients/Insured individuals
Legislators
MC represented a major constraint of decision rights and choices for the first two groups
Some cost control measures were perceived as interfering with medical practice and quality of care
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care Issues (cont.)
Mandatory postpartum hospital stays
Insurer liability for denial of service decisions
Mandatory service provisions
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care Issues (cont.)
MCO may be at a crossroads
They may have squeezed most available savings and efficiencies from the system
If external (and traditional) factors continue to push HC costs upward pressures from payers (governments and employers) will remain
HSA 3111: Managed Care & Integrated Organizations
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care Issues (cont.)
Efficiency and market power forces are driving organizations into new behaviors
Hospitals merging and acquiring new service capabilities
Duplicate range of offerings of MCO
Resist market power pressures from MCO
More physicians abandoning small business practice management in favor of different employment status
Work directly for MCO
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Dr. Lawrence West, Health Management and Informatics Department, University of Central Florida http://systems.cohpa.ucf.edu/lwest
Managed Care Issues (cont.)
Economies of scope and scale lower costs
Care may be less personal
Larger organizations are more complex and therefore create additional administrative burdens
But limiting trading partners reduces administrative complexity
Larger organizations make better targets for new information system implementation