Managed Care

Managed Care
The current buzzword with respect to cost containment is managed care. In a general sense, the term can be defined to include any medical expense plan that attempts to contain costs by controlling the behavior of participants. However, in practice the term is used by many persons to mean different things. At one extreme are traditional indemnity plans that require second opinions and/or hospital precertification. At the other extreme are HMOs and PPOs that limit a participant's choice of medical providers, negotiate provider fees, and use case management.

Managed care plans have evolved over the last few years. Today, it is generally felt that a true managed care plan should have five basic characteristics:

Controlled access to providers. It is difficult to control costs if participants have unrestricted access to physicians and hospitals. Managed care plans attempt to encourage or force participants to use predetermined providers. Because a major portion of medical expenses results from referrals to specialists, managed care plans tend to use primary care physicians as gatekeepers to determine the necessity and appropriateness of specialty care. By limiting the number of providers, managed care plans are better able to control costs by negotiating provider fees.

Comprehensive case management. Successful managed care plans perform utilization review at all levels. This involves reviewing a case to determine the type of treatment necessary, monitoring ongoing care, and reviewing the appropriateness and success of treatment after it has been given.

Preventive care. Managed care plans encourage preventive care and the attainment of healthier lifestyles.

Risk sharing. Managed care plans are most successful if providers share in the financial consequences of medical decisions. Newer managed care plans have contractual guarantees to encourage cost-effective care. For example, a physician who minimizes diagnostic tests may receive a bonus. Ideally, such an arrangement will eliminate unnecessary tests, not discourage tests that should be performed.

High-quality care. A managed care plan is not well received and selected by participants if there is a perception of inferior or inconvenient medical care. In the past, too little attention was paid to this aspect of cost containment. Newer managed care plans not only select providers more carefully but also monitor the quality of care on a continuing basis.

There seems to be a reasonable consensus among employers and benefit specialists that there is a negative correlation between benefit costs and the degree of managed care—that is, the greater the degree of managed care, the lower the cost. For example, studies generally rank benefit plans in the following order (from highest to lowest) with respect to annual benefit costs:

- Traditional insurance company and Blue Cross and Blue Shield plans without case management

- Traditional insurance company and Blue Cross and Blue Shield plans with case management

- PPOs

- Point-of-service plans

- Independent practice association HMOs

- Closed-panel HMOs

It is interesting to note that the degree of managed care increases as one goes down the list. There also seems to be a high correlation between annual benefit costs and the rate of cost increases. For example, the cost of traditional benefit plans has been increasing recently at an annual rate in excess of the annual increase in cost for closed-panel HMOs.