Managed care describes a cost-containing approach to healthcare delivery that is less expensive -- and less flexible -- than the approach characterized by traditional, fee-for-service health insurance. There are many different kinds of managed care programs, with a range of flexibility and costs. The two most common types of managed care programs include HMO - health maintenance organization - and the PPO - preferred provider organization.
Health Maintenance Organizations are arrangements between healthcare providers and customers in which preset fees are paid for comprehensive coverage, regardless of treatment costs. In exchange for the preset, monthly premium that's lower than a traditional fee-for-service plan would charge, HMOs generally limit members to a restricted network of participating doctors and hospitals. Because HMO physicians earn the same amount no matter how much time they spend with a patient, they have a built-in incentive to limit care.
HMOs have a utilization review mechanism that scrutinizes treatments to make sure they're medically necessary and cost efficient. HMOs also keep paperwork to a minimum, since they generally don't charge an annual deductible or require employees to file claims forms. When they do require employees to contribute an out-of-pocket payment towards medical services, it's usually in the form of a very small co-payment.Among the many HMO models that have evolved, four are the most common:
- Staff model;
- Group model;
- Individual practice associations (IPAs); and
- Open-access or point-of-service (POS) plans.
These four models share some characteristics that are typical of an HMO. Despite their similarities, however, they vary in flexibility and in price. As a rule, the more flexible they are -- the greater their selection of providers and the more freedom they give members to seek out-of-network care -- the more expensive they are.~
In a staff model, the HMO owns its healthcare facilities and employs its own physicians/healthcare providers on a salaried basis. A company's choice of providers (except in emergencies) is limited to a prescribed network of doctors and hospitals. Upon enrolling, a company is required to select a primary care provider or "gatekeeper" from the generalist physicians offered by the plan. A "gatekeeper" is someone who:
- Is affiliated with the plan and "manages" patients' overall care;
- Determines if and when a referral to a specialist is necessary;
- Approves and coordinates treatments with specialists; and
- Oversees tests and procedures.
Without the gatekeeper's approval, an employee who sees a specialist may not be reimbursed. An employee is also required to first see their primary care physician before seeing a specialist or undergoing special testing or treatment. The primary care physician must evaluate the medical necessity of seeing a specialist, give a referral (whenever possible employee's should see a specialist within the HMO), and oversee specialized care.
A group model HMO contracts with a single independent group practice, and that practice provides services to patients enrolled in the HMO. This means that an employee must go to that contracted professional group for healthcare, except in emergencies.
As in a staff model HMO, a group model requires employees to select a primary physician or gatekeeper when they enroll. Also, an employee must have prior approval from their gatekeeper for any services from out of network specialists. Group HMO providers usually spend the bulk of their time treating HMO enrollees, although they may devote some time to private practice.
Individual (Independent) Practice Associations (IPA) IPAs are groups of private-practice physicians who provide some services to HMO participants, but devote most of their time to treating patients who aren't members of an HMO. IPA-affiliated physicians may contract with more than one insurer or HMO and often are paid on a fee-for-service basis, which reduces their incentive to provide cost-effective care. ~
If a business participates in an IPA, then its employees will be required to work within the network, except in emergencies or with the approval of their gatekeepers. Since IPA-affiliated physicians commonly work out of their own offices, they require less capital investment than staff and group HMOs. They also can offer a selection of physicians and services from a larger geographic area, which is particularly helpful for employees who commute from significant distances.
Open-Access or point-of-service (POS) plans are the fastest growing type of HMO, a possible backlash against concerns and criticisms over the tight restrictions that many HMOs have placed on healthcare providers and eligible benefits.
POS plans attempt to combine the cost-savings of managed care with the open-ended choice associated with traditional fee-for-service plans. While they require members to select a primary care physician from the network, they also allow members to select outside physicians -- as long as they pay a portion of the cost -- any time they want a service.
The name "point-of-service" basically means that patients can choose the provider they want exactly when they need the service, or at the point of service. While a POS plan allows employees to go outside the network of providers, a company will have to pay higher out-of-pocket costs (coinsurance) and deductibles for using non-network providers.
POS plans are generally offered by HMOs and frequently use the same HMO provider networks. A POS plan will likely be more expensive than the other HMOs, since using out-of-network providers typically increases costs. Even if a company's POS plan establishes its own wide network of providers, it will probably cost a company more than the other HMOs, which have greater volume-discounting opportunities.
Preferred Provider Organizations (PPO) contract with networks of independent physicians and hospitals that provide their services at a reduced rate. The PPO, which was adapted from the HMO, also was formed to be cost effective, but with a greater emphasis on providing patients with choice and, therefore, more satisfying care. In fact, some say a PPO combines the cost controls of an HMO with the flexibility of a fee-for-service plan, which gives patients their choice of doctors.~
Some PPO models require participants to select a gatekeeper, and others don't. Even though PPOs encourage participants to choose providers from their own network, in general, they offer participants greater freedom of choice when it comes to choosing healthcare providers. Unlike HMOs, for example, PPOs will partially reimburse participants for certain services they obtain out of network. And unlike HMOs, PPOs almost never require participants to pay for services in advance. Like traditional insurance, PPOs often charge members on a fee-for-service basis, although the fees are discounted. There is no fixed, prepaid premium.
PPOs offer some of the cost-containment mechanisms found in HMOs, such as utilization reviews and negotiated fee schedules. And, although their selection of physicians is limited, many plans choose physicians based on their specialty areas and geographic location, which may explain why they're the most popular form of managed care.
Giving employees the option to seek out-of-network care -- albeit for a higher price -- is what separates PPOs from HMOs and makes them so popular. Not only do participants enjoy a wider choice of doctors than are typically available in an HMO, but they also enjoy greater cost savings. This is because PPO physicians can potentially see such a large volume of patients that they can provide their services at a significant discount.
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