Definition of Managed Care

For purposes of this chapter, managed care includes those programs intended to influence and direct the delivery of health care through one or more of the following techniques:

1.  Plan-design features, including incentives and disincentives in the level of coverage, intended to redirect delivery of medical care.

2.  Access restricted to a specified group of preselected providers.

3.  Utilization management (UM) programs, also called utilization review (UR), intended to preauthorize certain forms of medical care use and/or concurrently monitor the use of more expensive forms of care such as inpatient treatment.

This definition includes a broad range of "managed" indemnity plans, HMOs, PPOs, POS and many hybrid plans. There is disagreement within the industry about whether managed indemnity plans are truly managed care, particularly since there are no formal contractual obligations between providers and payers. Some experts like to classify managed indemnity plans and PPOs as "soft-form" managed care, and HMOs and POS plans as "stronger-form" managed care since they commonly rely upon a primary care physican ("gatekeeper") to manage utilization.

While there may be some validity to this perspective, managed indemnity is included here to provide a complete picture of all common forms of group health coverage today. Strong-form managed care arranges for selected providers to furnish comprehensive health care services to members under a set of formal programs of ongoing quality assurance and UM review, coupled with significant benefit-plan incentives for members to use contracted providers. In managed care programs, medical care is delivered by health care professionals who are committed to providing effective and efficient health care services, and who are willing to evaluate their own treatment patterns using medical outcomes data.

The medical provider—whether hospital or physician or ancillary provider—is an integral player in managed care plans. The provider's definition of managed care also differs from that noted above, referring to a patient's treatment program rather than to a specific benefit design or provider reimbursement method. The ultimate definition of managed care may need to be one that embraces some financial risk and responsibility, a particular set of benefits, quality of care mechanisms, and payment initiatives. Unfortunately, employers, payers, consumers, providers, and plan managers all see the puzzle based on their own perspective and experience often without seeing the other pieces. In short, they often define managed care through the lenses of their own self-interest.

The specific definition used for managed care is not as important as having an understanding of the context in which it is applied. Managed care is best understood as a change in the process of health care delivery, rather than as distinct products. The definition of managed care as a process helps the reader understand how a specific product operates and how it can best address a plan sponsor's objectives. This chapter provides the reader with effective tools to analyze the process of competing products and hopefully understand those characteristics that distinguish managed care products.

Health care delivery is a complex business, shaped in the local community and influenced by social environment, clinical culture, and economic realities. Most managed care companies, whether HMO or insurers, recognize the importance of developing an infrastructure in the local markets in which they operate, even if they are headquartered outside of the market. This local perspective means doing the following:

1.  Understanding the local health care delivery systems.

2.  Developing an appropriate panel of providers.

3.  Incorporating the necessary managed care mechanisms in the network.