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   Managed care

Managed care is a concept in U.S. health care which rose to dominance during the presidency of Ronald Reagan as a means to control Medicare payouts. As a major Medicare claims administrator, the Blue Cross-Blue Shield insurance firm was a major architect of managed care. It spread fairly quickly to the health insurance industry in the private sector.

Managed care is based on a effort to control escalating health care costs by the health insurance industry, which supposedly defines a reasonable maximum fee which health care providers may charge for any given service. Providers are ostensibly bound to accept these maximum fees if they wish to be listed in directories of specific insurance companies, which are provided to their policy holders as referral directories of "approved" physicians. An unsupported assumption inherent in these "directories", is that the policy holder is receiving a list of fully reliable, experienced and competent physicians whose agreement to accept limits on their fees indicates highly altruistic natures.

The rise of managed care was credited by the health insurance industry for the lessened rate of medical inflation seen in much of the 1990s in the U.S., which in some years of that decade the rate of increase in price of medical goods and services was little more than the overall rate of general inflation. However, this effect now seems to largely have ended, and U.S. medical inflation is once again two or three times the rate of overall inflation, as it was during much of the 1980s.

   Forms of Managed Care

There are several forms of managed care. Ranging from more restrictive to less restrictive, they include:

    Health Maintenance Organization (HMO)

Proposed in the 1960s by Dr. Paul Elwood in the "Health Maintenance Strategy", the HMO concept was promoted by the Nixon Administration as a fix to rising health care costs and set in law as PL 93-222. As defined in the act, a federally qualified HMO would in exchange for a subscriber fee (premium) allow members acess to panel of employed physicians or a network of doctors and facilities including hospitals. In return the HMO received mandated market access and could receive federal development funds.

In practice, an HMO is an insurance plan under which an insurance company controls all aspects of the health care of the insured. In the design of the plan, each member is assigned as "gatekeeper", a primary care physician (PCP) who is responsible for the overall care of members assigned to him/her. Specialty services require a specific referral from the PCP to the specialist. Non-emergency hospital admissions also required specific pre-authorization by the PCP. Typically, services are not covered if performed by a provider not an employee of or specifically approved by the HMO, unless it is an emergency situation as defined by the HMO. Financial sanctions for use of emergency facilities in non-emergent situations were once an issue; however, prudent layperson language now applies to all emergency-service utilization and penalties are rare. A leading example is the Kaiser Permanente Plan.

Physicians, nurses and other healthcare providers on the staff of HMOs work as salaried employees. They are generally housed at a central office location, rather than seeded throughout the community. They render care according to guidelines established by the corporate managers of the HMO, and may receive additional instructions in specific cases. The nature of these guidelines and instructions are invariably to provide the least costly and uncomplicated form of care for patient diagnosis, which is usually made on the basis of the least costly diagnostic procedures, moving to more costly procedures only as a last resort. Since the 1980s, HMOs have been protected by Federal law from malpractice litigation on the grounds that the decisions regarding patient care are administrative rather than medical in nature.

   Preferred Provider Organization (PPO)

PPOs are insurance plans in which the policy-holder is free to chose his/her own physician, although they will generally receive greater benefits returns (possibly including lower deductibles, lower copayments, and higher reimbursement percentages) if a pre-approved "network" of caregivers and facilites is utilized in non-emergency situations, and a PCP is identified and consulted. These "network" caregivers and facilities are independent of insurance company ownership, and may hold contracts for reimbursement with multiple insurors. "Pre-certification" (prior approval) may be required before nonemergency hospital admissions, testing, consultations or outpatient surgery under many plans. Providers remain liable for malpractice.

While not employees of the insuror, PPO healthcare providers do hold contracts with each insurance company for which they are designated as "preferred", under which they agree to capitate their fees at a level approved by the insuror. In the beginning, the insurance companies used actuarial tables to determine a "reasonable and customary fee" for each service and the provider, if he/she generally charged more, was obligated to write off the difference. The insuror would then pay a percentage of the balance to the provider, and the rest would become the responsibility of the insured. But during the 1990s, many providers engaged the services of medical office management services to handle these contracting arrangements on *their* behalf, with the result that full fees, writeoffs, and percentages due from insuror and insured are jointly agreed-to amounts between the insuror and the provider on a plan-by-plan, provider-by-provider basis, which amounts are protected as corporate secrets and are not available to consumers who wish to compare benefits offered against premiums charged on a dollar basis. Furthermore, in the event the insuror defaults on payment by claiming a service provided was "not necessary" under the plan, the provider is free charge any amount he/she deems desirable to the patient, instead of any generalized, capitated "reasonable and customary fee" determined by the insuror.

   Point of Service (POS)

A POS plan utilizes some of the features of each of the above plans. Members of a POS plan do not make a choice about which system to use until the point at which the service is being used.

   Managed care in indemnity insurance plans

Many "traditional" or "indemnity" health insurance plans now incorporate some managed care features such as precertification for non-emergency hospital admissions and utilization reviews.