Understanding Managed Care

IPEHN presents its version of "Managed Care 101" to soothe the pain and confusion caused by today's healthcare environment

BY SANDY BURK

Spurred by voter outcry, state and Federal governments have begun to mandate reform in managed care. The most visible example is a guaranteed two- or three-day hospital stay for women and newborns following delivery.

Over the years, the rising costs of healthcare—resulting from a rapidly changing healthcare system—have translated into similarly increasing insurance premiums. By the late 1980s, annual increases for health insurance premiums outpaced inflation, reaching as high as 19 percent at its worst point. Employers were finding that providing health insurance benefits was becoming too expensive.

In response, health insurers introduced "managed care," a series of options that manage the cost of healthcare and, thus, help employers keep premiums under control. Managed care quickly became the norm as enrollment in all types of managed care plans at large employers rose from 6 percent of covered workers in 1994 to 73 percent in 1995.

This explosive growth gave rise to a plethora of managed care plans, some of which unscrupulously placed quality in a back seat to cost. As a result, "horror stories" about managed care plans, particularly health maintenance organizations (HMOs), appeared in the media. Spurred by voter outcry, state and federal governments have begun to mandate reform in managed care. The most visible example is a guaranteed two- or three- day hospital stay for women and newborns following delivery.

Unfortunately, the horror stories and mandates have caused many people to equate managed care with less care. But that's like throwing out the baby with the bath water! Through careful planning and investigation by employers, managed care can and does provide quick access, quality of care and competitive cost.

What is managed care?

It's important to remember that "managed care" is a concept. It's not an HMO or any other kind of specific plan. The concept can best be described as a broad spectrum of cost controlling options designed to coordinate the financing and provision of healthcare to produce high-quality healthcare for the lowest possible cost. Managed care has two key components: utilization review and healthcare provider networks/ arrangements. Utilization review serves to screen against medical tests and treatments that are unnecessary. The screening is done by the insurance company's medical staff (using nationally accepted standards of medical practice) to make sure that the treatment is medically necessary and will be delivered in the most cost-effective manner possible. To accomplish this, techniques such as preapproval of hospital admissions and surgeries, review of treatment received, and case management for patients needing high-cost care are employed. Utilization review techniques arc widely used today in varying degrees in most insurance plans.

It is the second component—health provider networks/arrangements—that is most misunderstood and

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viewed with trepidation. Managed care networks represent a variety of arrangements with healthcare provider groups which enable insurance providers to have more control over costs. While these arrangements are constantly evolving, they can be succinctly categorized into three basic plans: health maintenance organizations (HMO), preferred provider options (PPO) and point of service (POS). These plans are basically contracted arrangements which establish alliances between insurance companies and a select group of doctors and hospitals who agree to provide services at a discounted or fixed cost. HMO, PPO, and POS plans all offer employers the ability to control their healthcare expenditures. They range in a continuum which balances cost against freedom of choice among healthcare providers.

At one end are the traditional indemnity plans which are fee-for-service arrangements. In this arrangement, a premium is charged for each covered person. In return, covered individuals may use any doctor, hospital or other healthcare provider of their choice and expect to have medical expenses reimbursed. These plans typically have the highest premiums.

+HMOs

At the other end of the continuum are HMOs, the most tightly controlled of managed care arrangement with the lowest premiums (see chart on page 23). HMO plans are made up of a specific network of doctors and hospitals who agree to care for a group of patients for a fixed cost per member per month (capitation) and assume responsibility for providing all necessary healthcare for a fixed premium payment without regard to the actual cost of providing these services. The HMO establishes a network (or panel) of participating doctors and other providers who meet the plan's criteria for participation, including licensure, training, and practice patterns. The treatments that are covered are much broader than those covered under the traditional indemnity or PPO plans. Preventive care such as wellchild care and routine physicals are cornerstones of these plans. Some HMOs require a deductible for hospital charges and almost all require a minimal co-payment for physician office visits.

Although HMOs offer the greatest control of healthcare costs and thus the lowest premiums, they do so at the expense of freedom to use a provider of choice. HMO members are required to use a plan doctor or hospital in order to have their expenses covered, Treatment provided outside of the network is not covered at all. Use of a primary care physician (PCP), also known as a "gatekeeper," to oversee all care and treatment is common and hospitallzation or treatment by a specialist requires a referral by the PCP in order to be covered.

While many people see the gatekeeper approach as a negative, there are definite advantages inherent in this process. Specifically, there is more emphasis on the patient/physician relationship, preventive services are provided, and the determination of the appropriateness of treatment and site of care is performed before the treatment is received rather than afterwards which optimizes the likelihood of a successful outcome. All parties— patient, health plan and providers—benefit under this methodology.

+ PPOs

PPOs plans came next in the evolution of managed care and were developed to take advantage of the cost controlling strengths of HMOs while providing more freedom of choice. PPOs retain the characteristics of

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the indemnity plans including freedom to choose a provider outside the network who will be reimbursed on a fee-for-service basis. However, PPOs offer a higher co insurance reimbursement for services performed innetwork This steers patients to specific doctors and hospitals who have contracted with the PPO plan to provide discounted fees and results in reduced overall claims costs and lower overall premiums.

Park district and special recreation associations are usually smaller employers and are not able to assume the financial risk that is inherent to self insurance.

+ POSs

Point-of-service (POS) plans are a hybrid of the HMO and PPO, combining the strengths of each. In a POS arrangement, medical providers agree to charge discounted fees. The network of hospitals and doctors is wider than PPO networks. POS plans allows patients to choose any doctor or hospital, but pays a larger benefit when network doctors are used. On the other hand, POS plans provide greater cost controls than PPOs because they function much the same as HMOs, including the gatekeeper provision. A specialist may be used without a referral by the primary care physician but again the coverage is reduced which increases the employee's out of pocket cost, thus providing an incentive to stay within the network.

Traditional indemnity plans have been incorporating several of the managed care techniques in recent years in order to contain costs: utilization review, preadmission certification, and case management for highcost chronic or catastrophic cases. The managed indemnity plans offer the least control of any of the managed care arrangements.

Managed care arrangements are constantly evolving because of changing economic constraints, technological advances and the social environment. As they continue to evolve, specific areas of healthcare such as mental health (also known as behavioral health), prescription drugs, dental service and vision care often are "carved out" and included under single-service or limited-service managed care plans. Many managed care plans now use centers of excellence, medical facilities that provide specialized forms of treatment for highcost chronic conditions such as organ transplants, cancer therapies, cardiac surgery. The centers are chosen based on their outcomes and expertise, location and willingness to negotiate discounted rates. A large number of managed care plans also provide hospice benefits for palliative care for terminally ill patients.

Another cost-saving concept being adopted by large employers (more than one thousand employees) is "selfinsuring," which means the employer self-funds the cost of medical care. Employers find self-insurance desirable because of potential savings that can be achieved. For instance, administrative costs are reduced because employers insurers typically add risk charges onto the administrative fees to protect themselves against adverse deviation in claims. In addition, significant cash flow savings can be realized by taking advantage of the lag between incurring of services and actual payment for them. This lag can average as much as three month and the employer is able to use the cash for an additional three months. Finally, employers have wide latitude designing the benefits of the plan and self-insured plans typically are not subject to state-mandated benefits.

Park district and special recreation association are usually smaller employers and are not able to assume the financial risk that is inherent to self-insurance. They may wish to have the protection of an insurance contract but may find their bargaining power regarding options such as cost, scope of coverage and access are limited because of their size. However, there are intergovernmental self-insured health coverage pools that allow the typically smaller employers of the park and recreation field to take advantage of the additional savings that large employers can generate through self insurance.

With the significant amount of money that employers spend on healthcare plans, it is important to choose a plan that meets employees needs, does not cost more than it should, and yet meets the employer's basic policy objectives. To do this, employers need to make difficult decisions concerning scope of benefits and benchmarks for choosing plan administrators and provider networks. Although the final decision rests with the employer, assistance can be provided by a consultant or broker.

Clearly, managed care doesn't deserve the bad rap! In fact, it has actually served as a catalyst to provide much broader and more proactive care. But caution is in order when making a managed care choice. 

SANDY BURK
is the benefits manager for the Illinois Park Employees Health Network (IPEHN), a self-insured pool of 54 park districts and special recreation associations providing healthcare coverage for its members' employees and dependents.

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