Health care financing and managed care
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Health Care Financing and Managed Care. Objectives. To understand the basics of health care financing in the United States To understand the basic concepts of managed care To understand the changes taking place in health care financing and the impact on clinical practice.

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Health care financing and managed care

Health Care Financingand Managed Care


  • To understand the basics of health care financing in the United States

  • To understand the basic concepts of managed care

  • To understand the changes taking place in health care financing and the impact on clinical practice


  • Employer based insurance

  • Government

  • “Self pay”

Employer based insurance
Employer based insurance

  • In recent years, major shift from fee-for-service coverage to various forms of managed care

  • Estimated 80% of plans are managed care

  • Employers provide health insurance for tax advantages, attract employees

Government health insurance
Government health insurance

  • Medicare

  • Medicaid

  • Children’s Health Insurance Program (CHIP)

  • Military based health care (Tricare, VA)


  • Federal program that started in 1965

  • All costs paid by the Federal government

  • Part A paid by a dedicated Medicare tax

  • Part B paid by premiums and general revenue

Medicare covers
Medicare Covers:

  • All U.S. citizens over age 65 years

  • Certain disabled persons under age 65 years

  • All persons with end stage renal disease

Medicare part a
Medicare Part A

  • Covers inpatient hospital services, hospice care, very limited skilled nursing facility care

  • Has deductibles, copays

  • No premiums

Medicare part b
Medicare Part B

  • Is optional and has required premiums (currently $50.00/month)

  • Pays physician services, certain outpatient care, certain home health care, physical therapy, durable medical equipment

  • Has deductibles and copays

Medicare does not cover
Medicare does NOT cover

  • Most prescription or over-the-counter drugs

  • Acupuncture

  • Dental care

  • Health care outside the United States

  • Hearing aid or glasses

  • Routine physical exams or eye exams

Medicare options
Medicare options

  • Medigap policies: optional insurance policies sold by private insurers; cover some deductibles and copays, some cover other services; Medipak is local example

Medicare options1
Medicare options

  • Medicare + Choice: optional managed care plans that Medicare recipients in which may enroll; operated by private insurers; variety of features; may cover otherwise uncovered services such as Rx drugs


  • Health insurance for the poor

  • Program operated by state governments under Federal guidelines

  • Costs shared by both Federal and state governments

  • CHIP: program started in Clinton administration to increase health insurance for children


  • Programs vary by state

  • Typically pay for certain inpatient and outpatient care, prescription and some nonprescription drugs, physician services, nursing home care

  • In traditional Medicaid, there are no deductibles or copays; in CHIP, there are both


  • Traditionally a fee-for-service program in most states

  • More are moving to managed care

  • In Arkansas, it is a centralized managed care, HMO model system; called ConnectCare

The uninsured
The Uninsured

  • 38 million persons in the U.S. without health insurance

  • Most (~75%) are employed; most at small businesses that offer no health insurance

The uninsured1
The Uninsured

  • Less likely to have seen a physician

  • More likely to delay seeking care

  • Three times more likely to have significant adverse outcome

  • Four times more likely to have avoidable hospitalization or ER visit

Evolution of managed care
Evolution of managed care

  • Health insurance traditionally fee-for-service

  • Health care costs increased dramatically in early 1970-80s, much higher than inflation

Medical costs in the u s
Medical Costs in the U.S.

  • $1 trillion spent per year on health care

  • About 14-15% of gross domestic product

  • Approximately $4000 per capita

Evolution of managed care1
Evolution of Managed Care

  • Health Maintenance Organization Act of 1973; provided federal loans to new HMOs, required self insured large corporations to offer an HMO choice

  • Some studies suggested that managed care plans are more cost efficient, some by as much as 25%

Self insurance
Self insurance

  • Most medium and large employers in 1980s began to self insure

  • Often use outside companies to process claims

  • Led, in part, to a large variety of managed care plans

Managed care plans
Managed care plans

  • Health maintenance organization (HMO)

    • Staff model

    • Group model

  • Preferred provider organization (PPO)

  • Point of service plan (POS)

Staff model hmo
Staff model HMO

  • Directly employs physicians and health care staff

  • Usually own their own hospitals and clinics, some use independently owned hospital through contracts

  • Well known example is Kaiser-Permanente

  • None in Arkansas

Group model hmo
Group model HMO

  • Essentially a partnership among a group of physicians, hospital, and the health care plan.

  • Usually a large multispecialty group practice is single source of care for enrollees

  • Physicians agree by contract to terms of HMO

  • Payment via discounted fee-for-service, partial capitation, global capitation

Preferred provider organization
Preferred Provider Organization

  • Contract with several independent physicians or groups and hospitals to provide care for enrollees

  • Usually associated with more provider choices, but may have higher premiums than HMO

  • Enrollees usually have financial incentive to use “preferred provider”

Point of service plan
Point of Service Plan

  • Enrollees have a choice of “points of service” with physicians and hospitals; if they choose certain providers, there is less out of pocket expense

  • For physicians and hospitals, similar to a PPO

Physician compensation
Physician Compensation

  • Discounted fee-for-service

  • Discounted fee-for-service with utilization based financial incentives (bonus or penalty)

  • Partial capitation

  • Global capitation

Utilization management
Utilization Management

  • Use of financial or other incentives to control utilization of health services (really cost!!)

  • Physician profiling: tracking of per member, per month visits, ER visits, inpatient days, charges per visit, pharmacy utilization, specialty referrals, etc.

Pcp gate keeping
PCP Gate keeping

  • Feature of vast majority of health plans

  • Each enrollee chooses or is assigned a primary care physician who oversees and coordinates care

  • Other physician services, hospitalizations, some tests must be referred by PCP

Advantages of managed care
Advantages of managed care

  • Use of primary care physician, “medical home”

  • Cost containment

  • In some systems, well coordinated care

  • Preventive care, screening, immunizations

  • ??? Quality of care

Weaknesses of managed care
Weaknesses of managed care

  • Less freedom to choose physicians, hospitals

  • Less clinical autonomy for physicians

  • Reduced access to specialty care

  • Bureaucracy

  • ? Patient satisfaction

  • ??? Quality of care

Physician challenges
Physician Challenges

  • Coerced change situation

  • Conflict of interest, communication difficulties with utilization based financial incentives

  • Risk sharing agreements

  • Rapid change

  • ? Lower income