Paper #2

Chapter 9 Managed Care and Integrated Organizations Learning Objectives • To review the link between the development of managed care and earlier organizational forms in the US health care delivery system • To grasp the basic concepts of managed care and how managed care organizations realize cost savings • To distinguish between the main types of managed care organizations • To examine the different models under which health maintenance organizations are organized and to understand the advantages and disadvantages of each model Learning Objectives • To understand why managed care did not achieve its cost control objectives • To study the driving forces behind organizational integration and strategies commonly used to achieve integration • To become familiar with highly integrated health care systems, namely, integrated delivery systems and accountable care organizations • To learn about the provisions in the Affordable Care Act that apply to managed care and other emerging organizations Introduction • Managed care has become firmly entrenched in the US health care system • Other countries have adopted some of its features • Managed care became successful because of failures of fee-for-service, mainly uncontrolled costs • Earlier tighter controls were relinquished in face of a backlash against managed care • Managed care did not evolve as intended, and had limited success in controlling costs Introduction • As managed care gained marketplace power, health care organizations began integrating • MCOs have also consolidated • The ACA assumes that cost control responsibilities will be shared between MCOs and Accountable Care Organizations What Is Managed Care? • An organized approach to deliver comprehensive services • To enrolled members • Through efficient management of services • Negotiation of prices with providers • Core features of managed care: – Integration of financing, insurance, delivery, and payment – Formal control over utilization Integration of the Quad Functions • Financing– negotiation of premiums with employers • Insurance–t he MCO assumes insurance risk • Delivery– MCO’s own physicians and hospitals or contracts with providers • Payment–risk sharing – Capitation – Discounted fees – Salary Objectives Besides Cost Control • Accountability for quality and cost • Measurement of health outcomes and quality • Health promotion and disease prevention • Management of resource consumption • Consumer education • Continuing quality improvement Evolution of Managed Care • Baylor plan (1929) was based on capitation • Contract practice • Prepaid group practice • Managed care—added utilization control to the other features Alternative Forms of Managed Care • Prepaid group practice led to HMOs, which incorporated management of utilization • Competition between HMOs and commercial insurance led to other MCO forms, such as preferred provider organizations (PPOs) Accreditation of MCOs • The National Committee for Quality Assurance (NCQA) • Participation is voluntary, but about half are accredited • A national committee of physicians supervises the accreditation process • A rating system assigns six status categories Quality Assessment in MCOs • Healthcare Effectiveness Data and Information Set (HEDIS) • HEDIS results are used by employers, the general public, public insurers, and regulators • Over 90% of health plans use HEDIS • 2013 HEDIS has 80 measures in 5 domains: – Care effectiveness – Access to and availability of certain services – Client experience of care – Utilization and resource use – Information on the health plan Growth of Managed Care • Two main factors • Flaws in fee for service • Weakened economic position of providers Flaws in Fee for service • Fee for service (indemnity insurance) allowed the insured to get services anywhere, without restraint • Moral hazard prevailed, along with provider-induced demand • Itemized billing of charges by the provider to the insurer • Few, if any, controls over the amount of payment • Insurers functioned simply as passive payers of claims • Sickness coverage; no coverage for wellness and prevention; no control over hospitalizations Employers’ Response to Rise in Premiums • Initially, there was limited appeal for HMOs • Employers were passive • Double-digit premium rises during the 1980 − 1990 period forced employers to abandon indemnity plans Providers’ Weakened Economic Position • Excess capacity in hospitals (brought on by PPS) • Physicians gave in to the momentum of managed care—participate or be left out Efficiencies in Managed Care • Elimination of insurance and payer intermediaries • Risk sharing with providers promotes economically prudent delivery of health care • Monitoring the delivery of services for appropriateness • Delivering care in cost-efficient settings (e.g., outpatient instead of inpatient) Inefficiencies in Managed Care • Complexity for providers of having to deal with numerous plans • Laboratory and some other services are carved out, creating inconveniences for patients and providers • Lengthy appeals for denied services Cost Control in Managed Care • The need for cost control: • 10% of patients with chronic/complex conditions account for 70% of health care spending • Hospital services cost about 50% of all medical care • Utilization management requires: • Expert evaluation of what services are needed • Determination of how to provide services inexpensively without compromising quality • Review of the process of care Cost Control Methods • Choice restriction • Gatekeeping • Case management • Disease management • Pharmaceutical management • Utilization review • Practice profiling Choice Restriction • Choice restriction – Closed panel (In-network access)–no access outside the panel – Open access (Out-of-network access)–outside option is allowed, but at a higher out-of-pocket cost • There is a greater willingness among enrollees to reduce out-of-pocket costs Gatekeeping • Primary care physician (PCP) as portal of entry • PCP delivers basic and routine care • PCP refers and coordinates when secondary care is needed • Gatekeeping achieves modest cost savings Case Management • Coordination of care for complex and potentially costly cases • A variety of services from multiple providers are needed over an extended period • Secondary and tertiary services are needed more often than primary care (e.g., AIDS, spinal cord injury, transplants, severe injuries, cases, etc.) • Cost savings have been achieved with better delivery of care and reduced hospitalizations Disease Management • Population-oriented strategy for chronic problems • Evidence-based treatment guidelines • Focus on education, self-management training, monitoring of the disease process, and follow-up to ensure compliance–self-care with professional support • Goal: prevent or delay complications • Although cost savings are uncertain, better quality and disease control are achieved Pharmaceutical Management • Three main strategies • Drug formularies • Tiered cost sharing • Pharmacy benefits management companies Utilization Review (UR) • Review each case • Determine appropriateness of services • To ensure cost-efficiency • To plan subsequent care • Quality of care is an important component Three Types of Utilization Review • Prospective UR • Concurrent UR and discharge planning • Retrospective UR Prospective UR • Decision to refer or not • Preauthorization (precertification) • Second opinions • Inform concurrent review about the case • For pharmaceuticals: – Formularies are the first step – Preauthorization for certain drugs and biologics Concurrent UR • Length of stay and when to discharge • Optimal drug therapy and management reduces length of stay and reduce drug utilization and cost Discharge Planning • Purpose: Post-discharge continuity of care – Expected inpatient stay – Anticipated outcomes – Subsequent appropriate setting – Special needs Retrospective UR • Examination of medical records • Analysis of utilization (overutilization or underutilization) • Billing accuracy • Review of practice patterns and feedback to physicians • Drug review: inappropriate use of controlled substances Practice Profiling • Evaluate provider-specific practice patterns • Compare to a norm • Feedback to change behavior • Goal: improve quality and efficiency • Somewhat controversial Types of MCOs • Many insurers offer HMO and PPO plans • Many HMOs offer triple-option plans that combine the features of indemnity insurance, HMO, and PPO HMOs • Emphasize preventive care (under the ACA, however, all health plans must include preventive services) • PCP as gatekeeper • Capitation • In-network access (except hybrid and triple-option plans); carve outs for special services • Standards of quality HMO Enrollment • Rapid growth in early 1990s which peaked in 1996 • PPO and POS plans became popular • Conversely, the majority of Medicaid and Medicare Advantage beneficiaries are enrolled in HMOs HMO Models • Staff • Group • Network • Independent practice associations (IPAs) HMOs—Staff Model • Employ physicians on salary • Contracts for only uncommon specialties and hospital services • Advantages – Exercise control over physicians – Convenience of one-stop shopping • Disadvantages – Fixed salary expense can be high – Expansion into new markets is difficult – Limited choice of physicians HMOs—Group Model • Contract with a single multispecialty group practice • Separate hospital contracts • Group practice is paid a capitation fee • Advantages – No salary or facility expenses (as in staff model) – Well known practice may lend prestige • Disadvantages – Difficulty with service obligations if a contract is lost HMOs—Network Model • Contract with more than one group practice • Variations – Contracts with only PCPs who are financially responsible for specialty services, or – Separate contracts with PCPs and specialists • Advantage – Wider choice of physicians • Disadvantage – Dilution of utilization control HMOs—IPA Model • Separate entity from the HMO • HMO contracts with IPA • IPA (not HMO) contracts with providers • Advantages – Eliminates the need to contract with various providers – Transfers financial risk to the IPA – Choice of providers • Disadvantages – Difficulty with service obligations if a contract is lost – Dilution of utilization control – Generally, a surplus of specialists PPOs • Both in-network (preferred providers) and out-of-network access (an exclusive provider plan does not permit out-of-network use) • Discounted fees are used to pay providers (no direct risk sharing) • Generally, no gatekeeping and other controls • PPOs enjoy the highest enrollment (in employment-based insurance market) of all managed care plans POS Plans • Cross between HMO and PPO • HMO features are retained (utilization controls, capitation) • PPO feature: Open access option available at the point of service • Later, the need for POS plans became less important – HMOs relaxed utilization controls – PPOs already offered out-of-network access Managed Care Trends in Employment-Based Health Insurance • See Figure 9 − 6 for HMO enrollment • See Figure 9 − 8 for PPO enrollment • See Figure 9 − 9 for POS enrollment • See Figure 9 − 10 for share of managed care enrollments in 2013 Managed Care and Health Insurance Exchanges • Managed care plans are expected to be dominant players in the exchanges established under the ACA • Plans must comply with ACA mandates – Must include “essential health benefits” – Must comply with the medical loss ratio requirements • Federal funds are provided to start CO-OPs Medicaid Enrollment • 71% of beneficiaries enrolled in managed care in 2009 • Primary care case management (PCCM) is used in some rural areas – Enrollee must choose a PCP – The PCP is paid extra for coordinating care Medicare Enrollment • Level of participation in Part C depends on the amount of reimbursement; payment cuts prompt HMOs to drop out of the program • Between 2003 and 2007, the CMS rolled out risk adjusted payments based on Hierarchical Condition Categories • In 2013, 28% of Medicare beneficiaries were enrolled in managed care • Payments to MA plans will be reduced under the ACA; this could affect MCOs’ participation in Part C Managed Care’s Impact: Cost • Managed care provides better value than indemnity insurance • Backlash from consumers and providers diluted cost control efforts • Managed care’s full potential was not realized • Future cost reduction efforts may not materialize without tighter restrictions on utilization Managed Care’s Impact: Access • Good access to primary care and preventive services in certain key areas • On a larger scale, impact on access is not well established Managed Care’s Impact: Quality • Overall, quality of care in MCO plans has been equivalent to traditional FFS • No evidence of skimping on care because of capitation • Based on several measures, quality may be higher in MCO plans • No negative impact on care based on race/socioeconomic status • Quality may be lower in for-profit plans vs. nonprofit plans • Higher likelihood of rehospitalization in MA plans Managed Care Backlash: 1990s • Three main reasons – Employees faced barriers to free choice of providers – Employees did not see lower out-of-pocket costs – Physicians reacted negatively to utilization management and lower reimbursement Regulation of Managed Care • Federal: Newborns’ and Mothers’ Health Protection Act, 1996 • Numerous laws across states – Limits on utilization-based financial incentives to physicians – Quick appeals and external reviews – Mandated benefits – Right to seek redress in courts Managed Care Aftermath • Better relations with providers • Relaxed utilization controls • Organizational integration shifted power in favor of providers • Cost spiral has not been cured • The ACA’s promise of lower costs and better access may impact managed care’s future Organizational Integration • Strategies employed to: • Achieve economies • Diversify by offering new services • Gain market share • Gain leverage with health plans Integration Strategies • See Figure 9 − 11 Basic Forms of Integration • Management services organizations (MSOs) • Physician-hospital organizations (PHOs) • Provider-sponsored organizations (PSOs) MSOs • Supply management expertise, administrative tools, and information technology to physician group practices • Mainly used by small groups that cannot employ full-time managers PHOs • An alliance between a hospital and physicians. • A large PHO may contract directly with employers. • Recent trend is for physicians to become hospital employees. Reasons: – Reimbursement cuts – High practice expenses – New demands, such as electronic health records – Younger physicians prefer employment PSOs • A risk bearing entity (incorporation of insurance function) that competes with MCOs • Directly contract with employers and public insurers • PSOs failed in large numbers because of a lack of experience with the insurance function Highly Integrated Health Care Systems • Integrated delivery systems (IDSs) • Accountable care organizations (ACOs) • Payer − provider integration Integrated Delivery Systems • A network of organizations • Coordinated continuum of services • Willing to be held clinically and fiscally accountable • Managed care promoted the formation of IDSs – Cost effective for MCOs to contract with a full service provider – Preference by MCOs to seek cost-efficient providers who will take responsibility for quality – Providers strengthened their bargaining power with MCOs and protected their autonomy Integrated Delivery Systems • Member satisfaction is higher in integrated plans • IDSs have had a positive effect on quality of care, but cost savings have not materialized • Both hospitals and physicians are integrating at an accelerated pace Accountable Care Organizations • Integrated group of providers who take responsibility for delivering services to a defined population – Take responsibility for improving health status – Provide cost-efficient care – Focus on satisfaction with care • ACOs use mechanisms already used by MCOs and IDSs (disease management, care coordination, sharing cost savings with providers, etc.) to improve cost, quality, and population health Accountable Care Organizations • Evidence suggests that ACOs’ impact on cost savings is likely to be limited • Lack of clarity on three main issues – Hospitals and large clinics are joining hands; the fate of smaller practices is unclear – It is not clear how safety-net providers will be included in ACOs – ACOs could dominate a market, reduce competition, and harm consumers through higher prices and lower quality The ACA and ACOs • Medicare is authorized to develop payment methods for ACOs • Payment must include a shared savings program–pay additional moneys to ACOs that achieve targeted cost savings while meeting quality standards • A 3-year contract is required for ACOs that want to participate ACOs and Antitrust • Antitrust laws deal with anticompetitive practices • ACOs may be able to use their market power to inhibit competition by monopolizing patient referrals within the ACO • There could be a tradeoff – ACOs’ size and geographic reach could be limited by antitrust laws, thus increasing competition – ACOs may find it difficult to achieve economies and care coordination, restrained by antitrust laws Payer − Provider Integration • On the rise • Insurance companies are acquiring large practices and health systems to gain greater control over health care delivery • Hence, collaboration between MCOs and providers could be the next major trend • Due to fear of encroachment from a powerful adversary—the government