Ahm 250 - Managed Healthcare: An INTRODUCTION (Third Edition) Summary Document

Cognizant
AHM
AHM 250 - MANAGED

HEALTHCARE: AN
INTRODUCTION (Third Edition)
Summary Document
For Internal Use Only
Cognizant
AHM
Table of Contents
The Evolution of Healthcare Delivery and Financing................................................1
Basic Concepts of Managed Healthcare.................................................................8
Managed Care Organizations, Plans, and Products................................................16
Managed Healthcare for Specialty Services..........................................................28
Provider Organizations.......................................................................................34
Health Systems Management.............................................................................38
Medical Management I.......................................................................................46
Medical Management II......................................................................................54
Managed Healthcare Operations I......................................................................65
Managed Healthcare Operations II......................................................................76
Legislative and Regulatory Issues in Managed Healthcare.....................................90
Ethical Issues in Managed Healthcare................................................................111
Cognizant
AHM
The Evolution of Healthcare Delivery and Financing
Reading 1A: The Evolution of Healthcare Delivery and Financing in the United States
Define managed care

Identify the major factors that influenced the evolution of healthcare delivery and
financing in the United States
Describe the role of the government in the development of healthcare delivery and
financing
List and describe some factors that limit accessibility to healthcare
Discuss how the meaning of quality (as it relates to healthcare) has changed
Reading 1B: Basic Concepts of Benefits, Coverage, and Insurance
Explain how traditional indemnity health insurance works
List some characteristics of the fee
-for-service payment system
Define antiselection
Explain how deductibles and coinsurance are used in traditional indemnity plans
Describe some efforts commonly used to combat the rising costs of healthcare
Confidential
Cognizant Technology Solutions
Cognizant
AHM
Reading 1A: The Evolution of Healthcare Delivery and Financing in the United States
Managed Care
System of healthcare financing and delivery or
Various techniques of managing the financing and delivery of healthcare or
Different Kind of organizations that practice managed care techniques
Accepted Definition Integration of both the financing and delivery of
healthcare within a system that seeks to manage the accessibility ,cost and
quality of that care
Historical Factors
Variations of Managed care have been around from the 1900s
Earliest example of Managed Care Org 1910 Prepaid Physicians Group Practices
These offered a range of medical services thru exclusive physicians in return for a
monthly premium.
Blue Cross Plans 1929 for hospital reimbursement
Blue shield Plans 1939 for physicians reimbursement
Individual Practice Associations (IPAs) which contracted with physicians in independent feefor-service practices were established in 1954 as a competitive response to group practice
based HMOs
Statistic 1999 81 million people enrolled in HMOs nearly as many as those in PPOs
and other non HMO plans
Federal HMO Act of 1973
This was designed to reduce healthcare costs by increasing competition in the healthcare
market and to increase access to healthcare coverage for individuals without insurance or
with only limited insurance benefits
4 Key Features
Federal qualification requirement
o This act established a process by which HMOs could obtain federal
qualification.
o This was optional licensing (the state licensing was mandatory for all
HMOs).
o Plans who elected for this option were required to meet a series of standards
related to
Minimum benefit packages
Enrollment and premiums
Financial stability and
Quality Assurance
Dual Choice Provisions
o This required that the employers with more than 25 employees offer a choice
of traditional indemnity coverage or managed care coverage under either a
closed Panel HMO or an open panel HMO.
o Federally qualified HMOs that wanted to be part of this needed to submit a
formal request to the employer
Federal Development Grants and Loans
o This offered funding to support planning and start of new HMOs and service
area expansion for existing HMOs
Confidential
Cognizant
AHM
o Available only to federally qualified HMOs

Exemption from State Laws
o Some state laws restricted the development of HMOs
o This act exempted federally qualified HMOs from these State Laws
Positives
The act did accomplish its goals of reducing costs and expanding access to
healthcare services.
Federal Qualification did offer competitive advantage to HMOs entering the
healthcare market.
They sort of gave them a stamp of approval
Allowed the HMO to participate in Medicare without providing additional
documentation
The dual choice provision gave the HMO access to the Employer Segment of
the market
The Federal grants and loans allowed effective competition to the indemnity
based insurance plans
Negatives
Partly hampered their competitive position

o Needed to satisfy a lot of requirements on Quality and Financial Stability
These did NOT apply to Indemnity based programs or Non-Qualified MCOs
Slow implementation of the laws
Amendments between 1976 to 1996
o These eliminated and reduced the strict requirements imposed on Federally
Qualified HMOs
o Dual Choice Mandate repealed in 1995
o Allowed greater flexibility in designing and marketing these products and
strengthened their emphasis on Quality
Introduction of New Products and Programs
Preferred Provider Organizations

o Services by a network of providers
o Limited services provided by a non-network of providers
o Visit without a specialist referral
Point of Service Products
o Combination of traditional indemnity insurance and managed care
o Can take both In or Out of network providers
o Non Network providers involve more limited benefits and higher out of pocket
expenses
o Visits to network specialists require PCP approval
Physician-Hospital Organizations
o Coalitions of hospitals and physicians
o Vehicles for contracting with MCOs
Carve-Outs
o Organizations that contract with MCOs to provide specific types of services
Mental Health
Chiropractors
Dental
Confidential
Cognizant
AHM
Vision
Pharmacy services thru specialty networks
Government Influence
Financing Medicare, Medicaid, Federal Employee Health Benefits Program (FEHBP) and State
Childrens health Insurance Program (SCHIP)
The government is increasingly turning to managed care as an alternative to traditional fee for
indemnity programs.
Statistic Medicare 6.8 million people enrolled in 1999. Also 17.1 Million Medicaid recipients
enroll in some form of MCO.
Economic Factors
1. Increased in Healthcare Costs
a. Inflation
b. Increased cost of service for providers and insurers
c. Rapidly Expanding Technology expensive procedures
d. Increases in Malpractice Lawsuits
i. Award amounts increased
ii. Practice Defensive Medicine unneeded /expensive tests
e. Consumer Expectations
i. Increased health consciousness
ii. Cover at whatever cost and Freedom to visit who they like
iii. Unnecessary Treatment Medically unnecessary procedures Common
cold
f. Lack of Incentive to Control Costs
i. Traditional fee for service more services more pay!
ii. Payment occurred after service rendered
2. Cost Shifting
a. Some coverage to people who cant pay /can pay at reduced rates
b. Physicians and hospitals receive lower payments for these services
c. Emergency room treatment
d. Spread these unreimbursed costs to other paying patients This
Practice of shifting costs from non paying to regular customers is Cost
Shifting
3. Fraud
a. 100 Billion market annually
b. 10% of national Healthcare bill
c. $966.14 per family excess cost because of Fraud
Technological Factors
Information management has improved significantly

Statistical analysis has helped improve cost and quality
Pharmacists can - Determine eligibility/Adverse reaction to a drug/Formulary
compliance/ Preauthorization requirements/Co-payment, deductible and coinsurance
requirements
Confidential
Cognizant
AHM
Claims Automation
o Reduced Staff/ Increased Accuracy/ Shortened Turnaround times/Turning
health plan data into actual information
Paper to Electronic Costs down by 25%
Future Applications of technology
o Administrative Employee Recruitment/Online formulary/Consulting via email
o Customer Service Physician profiles/Customer feedback/Referral automation
o Clinical Applications health and drug info/ disease mgmt/ Medical Call
Center
Social Factors
Higher emphasis on Quality and access to healthcare has happened
Maturing Population- Increase in median age
o Higher increases foreseen in the 55 64 category
o Higher illnesses and better mechanisms to handle these illnesses
Access to Services 44 Million did not have access in 1998
o Most coverage is thru an employer sponsored group plan as employee or
dependent
o BUT employment status does not guarantee health coverage
o Higher proportion of self employed and private sector firms with < 25
employees are uninsured
High Cost
Inverse relationship between employer size and premiums
o Poor Health Risks
Dont qualify
Could have preexisting conditions
o Uneven Distribution of Medical Services
Very low coverage in rural areas
Hospitals have closed in these areas and in inner city localities these
are disproportionately higher than the rest of the country
Demographically coverage is lower in South Central and South
Western parts with large rural populations
Also lower income/employment/racial and ethnic groups percentage
o Quest for Quality
Employers have become more discriminatory on cost
Consumers want higher quality as the most important factor
How is quality measured
Safety/Preventive Care/ Access to
primary and specialty
care/care for chronic illness
National Committee for Quality Assurance (NCQA)
o Health Plan Employer Data Information Set (HEDIS)
American Accreditation Healthcare Commission (URAC)
Joint Commission of Accreditation of healthcare organizations
(JCAHO)
Reading 1B: Basic Concepts of Benefits, Coverage, and Insurance
Statistic 1988 Traditional indemnity 71% of the market share of Employer Sponsored
group Health Plans
1996 74% were managed care and 26% were indemnity plans
Confidential
Cognizant
AHM
Traditional Indemnity Coverage or Fee-for-service- Payment system

Indemnify means to protect from /provide compensation for loss or damage.
reimburses the insured for amounts paid to cover medical expenses
This
Employer is Policy Holder Pays premiums can collect part/full from employees
Insured visits doctor receives treatment submits a claim to insurer insurer pays
benefit to insured or healthcare provider
Basic
1.
2.
3.
4.
5.
6.
7.
Concepts
Risk
Loss rate number of times a loss occurs in a group
Underwriting / Selection of risks Process of identifying and classifying the potential
degree or risk represented by an insurance applicant
Anti-selection Tendency of higher than average risk people to apply for insurance
than below average or average risk people
Individual insurance evaluation is VERY different from group evaluation
a. Need to provide evidence of insurability in individual insurance
i. Activities, health history etc
b. Group check if the group meets the underwriting requirements
Group
a. Key question Can you predict the Loss rate to a great extent?
b. Can you avoid Anti selection
c. Prove evidence of Insurability if he is a late entrant
d. Prove evidence of insurability in case of small groups
Characteristics of a group checked include
a. Group Size
b. Groups Composition
i. Steady flow in and out of members
ii. Age level of the group
iii. Gender females are more susceptible than men
c. Level of participation
i. Need a 75% or higher to allow otherwise anti-selection danger
d. Level of Benefits
i. Not usually allowed to select benefits
ii. But now Cafeteria plans are allowed
e. Occupational Hazard
f. Geographic Location
Features of traditional indemnity Plans

Deductibles and Coinsurance
o The Coinsurance is calculated on the balance amount after deductible
Preexisting Conditions
o Condition for which insured received medical care 3 months prior to coverage
o Groups policies say that a condition is NO longer preexisting if
The insured has not received treatment within the last three months
for that condition
The insured has been covered under that plan for the last 12 months
HIPAA limits this significantly
Initial Efforts to Control and Manage Care
Confidential
Cognizant
AHM
Cost Sharing
o Coinsurance, Deductibles and Co-payments
o Higher risk for insured if he increased these 3 but lower premiums
Changing Plan Design/Coverage Options
o Use of Coordination of Benefits
Consider one plan as primary, other as secondary
Primary Pays the full benefit amount up to the limit
Secondary pays the difference between the amount of expenses and
amount paid by the primary
Normally Insured can get COMPLETE REIMBURSEMENT of all expenses
including out of Pocket expenses
Now a new Non Duplication of benefits Provision in the secondary
payers plan will limit the amount paid by the secondary payer to the
difference between the Primary payer paid amount and the amount
the secondary payer would have paid if it was the Primary Plan
Implementing Cost Containment Programs
o Outpatient care
o Preadmission testing
o Outpatient Surgery
o Utilization review and case management
o 2nd Surgical Opinion
But carries a high cost of second opinion
Redundant if you have a good utilization review program
Preventive Care and Wellness Programs
o Higher coverage on preventive care checkups, immunizations ,hypertension
screenings , mammograms etc
o Wellness programs nutritional counseling , fitness and exercise programs
Managed Care still emerged despite the best efforts of the indemnity insurers
There had to be a logical link created between the financing and delivery!
Managed provided this link
Confidential
Cognizant
AHM
Basic Concepts of Managed Healthcare

Reading 2A: Managed Care - Benefits and Networks
Define primary care and describe its role in a managed care plan
Define copayment
Define network and explain its importance in a managed care plan
Describe how managed care plans influence and affect availability of healthcare
Reading 2B: Financing Managed Care
Discuss how managed care plans combine the financing and delivery aspects of
healthcare
Define capitation
Explain how capitation differs from fee-for-service compensation
Identify and describe various financing arrangements between managed care plans and
physicians and hospitals
Confidential
Cognizant
AHM
Reading 2A: Managed Care - Benefits and Networks

Managed Care and MCOs
Managed Care encompasses more than just cost containment techniques.
MCO Entity that utilizes certain concepts or techniques to manage the accessibility, cost
and quality of healthcare.
Difficult to define it very clearly The following can be described as MCOs
1. Indemnity Plans with Managed care Components

2.
3.
4.
5.
6.
7.
8.
PPOs
HMOs
POS
Physician Hospital Organizations
Physicians Groups
Physician Practice Management Companies
Utilization review organizations
Please note that increasing changes in laws and regulations, Mergers and Acquisitions has
resulted in the differences between these plans to come down rapidly.
Key Players
1.
2.
3.
4.
Providers Physicians, Nurses, Hospitals, Labs

Payers Employers, Federal Agencies, Insurance Firms
Purchasers Pay the premium for the healthcare plan
Members Enrollees or Customers
Benefits
Provide a comprehensive set of Benefits More than Indemnity
These include Physician Services, Hospitalization, Well Child Care, Prenatal
Care, Periodic Health examinations, Eye and Ear Exams, Immunizations, Home
Nursing, Emergency Care, Diagnostic services, Outpatient Services, Inpatient and
Short Term Rehab services, Physical, occupational and Speech Therapy
A lot of these things were not covered by indemnity but managed care
has found them to be cost effective in the long term.
Some of these services are offered using a small Co-payment.
Other Services Provided by MCOs
i. Ancillary Services Lab, pharmacy, radiology, physical therapy,
medical supplies
ii. Primary care Care without referral from another
iii. Specialty care secondary care care delivered by specialists
outpatient / in patient services provided by acute hospitals
Managed Care have LOWER out of pocket spending than the Traditional
Indemnity Plans
They place GREATER emphasis on Preventive Medicine to improve efficiency
There are nearly a 1000 MANDATED benefits required by law
Legislation is now done by both State and Federal Law
Organized System of Care
Confidential
Cognizant
AHM
Network
Groups of Physicians, Hospitals and other medical care providers that a specific
manage care plan has contracted to deliver medical services to members
Better benefits from choosing in-network providers
Contract also provider the utilization and quality assurance
There is a SHARED financial Risk now!
Location and availability of network providers
o Number of Physicians/hospitals needed
o Geographical location of members
o Combination Services Ancillary and Secondary Care in the same area
Primary Care
This is general medical care that is provided without referral from another physician
Primarily focused on preventive care and the treatment of routine injuries/illness
Contact Point Primary Care Physician - Gatekeeper
o First contact with the healthcare system
o Could be GP, Internist, Pediatrician, OB/GYN, Nurse, Physicians Assistant
o Also called Personal Care Physician, Personal Care Provider
o Manages authorization of all non emergency medical procedures and referrals
to specialists
o Follow up on cases
o Tries to refer people to specialists in the network itself
o Some Plans allow two PCPs women can select an OB/GYN and a normal
practitioner
o Shift from a Gatekeeper role to Coordinator of Care role
Provider Choice
Consumers are feeling that their freedom is restricted
New products which offer lesser restrictions are being introduced
Lots of consumers resisted change initially because of restricted provider choice
But the cost differential started pulling consumers towards Managed Care
Can control costs by
o Giving Member the Incentive to select doctors in their network
o Negotiating favorable rates with these providers
Enhancing Accessibility via the network
There are many ways in which the MCOs can enhance the access to healthcare
1. Premium and Cost Sharing Arrangements
a. There are lower out of pockets as compared to Indemnity plans making the
access easier
2. Emphasis on Primary Care, Prevention and Wellness
a. These are little or no out of pocket expenses
b. Premium discounts to employees with Wellness Programs
c. Greatest incentives to the customers are given if they visit the PCP
d. Till now people who did not have access to the PCP tried to go to emergency
rooms to get treated for things which could more cost effectively be done in a
primary care setting
Utilization and Quality Management
Confidential
10
Cognizant
AHM
Utilization Management is a mechanism that involves managing the use of medical services
such that the patient receives necessary, appropriate, high quality care in a cost effective
manner
UM consists of the following basic techniques
Demand Management
o
Strategies designed to reduce the overall demand for services by providing
information to the users
Utilization Review
o
Evaluation of the medical necessity, efficiency and appropriateness of
healthcare services
Case Management
o
System of identifying members with specific healthcare needs and
developing a strategy to meet these needs and coordinating and
monitoring the delivery of these services
Disease Management
o This is a coordinated method of preventive, diagnostic and therapeutic
measures that focuses on management of specific Chronic illnesses or medical
conditions
Quality Management
Organization wide process of measuring and improving the quality of healthcare provided.
The features of this process include
Quality Assurance program oversight and integrity - Senior Executive

Credentialing
Members rights and complaints resolution process
Monitoring Physician practice
Confidential
11
Cognizant
AHM
Reading 2B: Financing Managed Care

Old System The provider would be rewarded for excessive usage of his service. How does
managed care address this issue?
Sharing of Risk
Financial risk The actual cost of a plan members care is diff from projected cost
This no longer only rests with the healthcare plan alone shared
employers/members/payers also
by
In Fee for Service the cost of medical care is shared by

1. Employer Pays premium
Employee pays premium/deductibles and coinsurance
2. Healthcare Payer
3. Provider Assumes little or no risk
The two ends of the spectrum Fee for Service <----------------- Capitation
Capitation
Method of paying healthcare services based on the number of patients who are covered for
the specific services over a specified period of time Simple terms Per Person Per
Capita.
How does it work?
Critical Metric The Per person per Month payment
Same amount paid irrespective of amount of service
The Provider has assumed a lot of the financial risk
Highly used in the reimbursement of PCPs
Capitation increases
1. Focus on prevent
2. Treatment of illnesses promptly
3. Improve the status of health
a. Health screenings
b. Immunizations
c. Follow up care
Making Capitation Payments
Payments made to
Individual PCPs
Specialty Physicians
Group of PCPs
Multi Specialty groups of physicians
Hospitals and other Providers
Larger the population, more stable is the utilization rates of that population more reliable
estimation of the revenues to cover the costs.
Typical arrangements include
1. Global Capitation Total Capitation. This is a payment that covers virtually all of
the members inpatient and outpatient expenses including physicians, hospitals,
specialists and some ancillary services
2. Partial Capitation A system that may include primary care only (and maybe
secondary care ) but no ancillary services
Confidential
12
Cognizant
AHM
3. Carve out A medical service that is removed from the scope of service covered by
capitation payment and is reimbursed as a separate payment
PMPM payments are influenced by
1. Age
2. Sex
3. Number of members
4. Usage
Capitation for physicians
Need to identify the services to be included in the capitation payment
Typically Preventive Services, Outpatient care and hospital visits.
Other services may be immunizations, diagnostics testing and some surgical
procedures.
There is a written contract on what is included between provider and MCO
1999 76% of all HMO plans used capitation as payment for physicians
Capitation for Hospitals
Clearly define the scope
Enforce the utilization standards through financial benefits
More difficult to manage if the out of network option exists
o Need a DUAL compensation mechanism
o Reduces the in-network Capitation amount to pay for the out of network
usage.
Solution Recalculate the capitation based on % of member hospital admissions
that month
Hospitals which purchase global capitation makes a provision for stop-loss
insurance to transfer risk to a third party
Other Financing Arrangements
These form part of the spectrum between Fee-For-Service and Capitation
Discounted Fee-For-Service
o MCOs seek a discount from the physicians normal fees
o Pay amt BELOW the usual, customary and reasonable Fee (UCR)
o UCR Fee was the fee charged by the old indemnity insurance firms
o UCR fees are determined bu collecting data on charges for specific conditions
based on the Current Procedural Terminology Code
o CPT was started by the American Medical Association
Its a 5 digit code which identifies the procedures performed by
providers
Fee Schedule
o Also called Fee Allowance , fee maximum or capped fee
o MCO determines what it thinks is an acceptable fee for a service
o Similar to discounted fee-for-service
o This transfers financial risk from the MCO to the provider
o The MCO is NOT allowed to bill the balance bill - ie the amount above
the max limit to the member
Resource-based Relative Value Scales
o Relative Value Scales (RVS) or relative value of services
o Assigns a weighted average value to each medical procedure or service as
defined by the CPT code
Confidential
13
Cognizant
AHM
o To determine the amount the MCO must pay to the physician, this is
multiplied by a money multiplier

These multipliers are negotiated between the plan and providers
BIG PROBLEM with straight RVS system Incentive mechanism
Surgery is given more weightage than cognitive services
Disincentive to restrict services provided
o Resource Based Relative Value Scale This attempts to take into account all
the resources that physicians use in providing care to the patients, including
physical, procedural, educational, mental and financial
Diagnosis Related Groups
o Medicare tried to control costs by implementing a Prospective Payment
System (PPS) for medicare reimbursement hospitals
o In the context of medicare, a PPS refers to a system of reimbursement based
on Diagnosis Related Groups (DRGs)
o DRG classifies hundreds of hospital services based on number of criteria like
o
o
Primary and secondary diagnosis , Surgical procedures, Age, Gender

and Presence of Complications
The provider is paid a fixed amount based for each DRG
Payment is made on the average expected usage of hospital resources in a
given geographical area
Medicare PPS saved costs Providers receive a fixed compensation PER
HOSPITALIZATION, regardless of cost/length of stay.
MCOs have started using this route for reimbursing hospitals
o
o
o
Salary
o Pay salaries to physicians
o Based on average earnings and also have performance bonuses and incentive
payments
o Some level of risk sharing
Per Diems
o Pay a specific negotiated rate per inpatient Day
o Differs based on service
o Variation includes a higher per diem charge for the first inpatient day
o There is a Sliding scale of reimbursement with the discount increasing
with patient volume
o Works best in hospitals where the utilization patterns are predictable
Other Provisions
o Use of Withhold
This is a percentage of the providers payment that is held back during
a plan year. This is used to offset or pay for any cost overruns for
referral or hospital services. The rest of the money is then returned
These are most commonly used for capitation and Fee-Schedule
reimbursements
These values range between 5% and 20%
Risk pools for specific services
These could include referral (specialty care), hospital and institutional
care and ancillary services
MCO pays
Capitation amount to each PCP
Additional PMPM into a referral pool
PMPM into a hospital pool and
Confidential
14
Cognizant
AHM
Confidential
PMPM into an ancillary pool

Once these expenses are made, any excess funds are paid to
physicians who participate in the pool
15
Cognizant
AHM
Managed Care Organizations, Plans, and Products

Reading 3A: The Health Maintenance Organization (HMO)
Identify and describe the general characteristics of HMOs

Reading 3B: Types of HMO Models
Differentiate between a closed-panel HMO and an open-panel HMO
Distinguish among the various HMO models in terms of provider relationships and
compensation arrangements
Reading 3C: PPOs, POSs, and Managed Indemnity
Describe a preferred provider organization and explain how it differs from other types of
managed care plans
List and describe two characteristics common to most POS products
Describe one major difference between an EPO and a PPO
Confidential
16
Cognizant
AHM
Reading 3A: The Health Maintenance Organization (HMO)

Health Maintenance Organization is a healthcare system that assumes or shares both
the financial risks and the delivery risks associated with providing the medical services to a
voluntarily enrolled population in a certain area in return for a fixed fee
These are also referred to as Prepaid Group Practices

Most states require them to be classified as a corporation.
Need to comply with regulations in ALL the states they operate.
May be for-profit or not-for-profit type of corporations
Background
Popular in the 1970s because of federal legislations the HMO act of 1973 removed some
barriers
This act allowed them to be Federally Certified and pre-empt state laws in some cases
To be federally qualified the HMO could not
o Exclude preexisting conditions
o Offer the following services
Healthcare delivery in a certain geographic area
Basic and Supplemental healthcare services
Voluntary membership for the enrolled population
Needed to offer mandatory Dual Choice Provisions (both indemnity and Managed
Care options)
This federal route provided market access to national employers
1995 federal law Eliminated the dual choice option
The grants have now died out and dual choice has been eliminated lesser
incentives to form a federally qualified HMO
This is still important for Medicare and large employer contracts
HMOs are heavily regulated to ensure solvency and member access to quality
medical care
The License they get in each state is called Certificate of Authority
Try and assure quality by accrediting to national agencies
Benefits
Membership
Member = Subscriber + dependent
Most of the enrollment is through group plans
o Contracting relationship is with the HMO and Employer
HMO offers an employer an OPEN ENROLLMENT PERIOD (usually 30 days) during
which all the employees are to be given automatic admission
Federally qualified HMOs and some state qualified HMOs must accept the risk for
pre-existing Conditions
Individuals are directly contacting the HMO and picking up insurance also
Financing could be national but the delivery of healthcare primarily local.
Important criteria used for selecting and evaluating HMOs
o Access , Current cost/premium, Satisfaction, Financial strength, Reputation,
Ease of doing business, Outcome of care, Wellness/Prevention Focus, NCQA
accreditation, physician turnover
Their market reach stretches right across employees ,dependents ,individuals ,small
groups ,large groups, medicare / Medicaid.
Confidential
17
Cognizant
AHM
Comprehensive Care
There is a base standard set of benefits given by law

Offer extensive preventive care programs
o Prenatal Care, well baby care, routine examinations, 24 helplines, childhood
immunizations are examples
o Wellness programs and health programs
Comprehensive benefits Comprehensive care and cost effective and timely
Networks
Negotiated Contracts with providers
Form its network of facilities and physicians
Need to consider
o Access
o Credentialing what to verify, when to consider recredentialing and peer
reviews
o Contract relationships
Employ or buy services?
Compensation mechanisms
Physicians
This could be through direct contract or through independent contract

Need to contract with sufficient NUMBER and TYPE of physicians
Based on
o Size, location, network adequacy, medical needs of members, employer or
purchaser requirements, provider education, board certification and work
history
Need to verify his credentials
This is required to maintain clinical competence, professional Conduct and
practice management
Need to select a PCP from the network
o Usually a internal medicine/family practitioner for adults and pediatrician
for children
o Some HMO allow specific conditions like obstetricians to go out of the
network
o Also using nurses for PCP function
Hospitals
Same issues of access/credentialing/contract engagements are considered
Accreditation by the joint committee on healthcare organizations
Ancillary Services
These are auxiliary or supplemental services usually used to support diagnosis and
treatment of a patients condition and include stuff like
Labs
Radiology
Other diagnostic services
Home health services /nursing home centers
Physical Therapy
Occupational Therapy
Pharmacies
Confidential
18
Cognizant
AHM
Surgery Centers
Financing
Prepaid Care
Fixed monthly premium paid in advance of delivery of managed care
This generally covers most healthcare services
HMOs USUALLY dont impose coinsurance or deductible requirements
They will require some level of copayment
Negotiated Provider Compensation
1. Fees or discounted Fee schedules
2. Relative Value Scales
3. Capitation
4. Salary
5. Per Diem
6. Diagnosis Related Groups
Physicians
Typical arrangements include salary, capitation, and FFS compensation
Capitation is used for PCPs
The type of fee arrangements that an HMO uses distinguishes the various
HMO models
Many HMOs use the risk pool mechanism to facilitate risk sharing and
utilization mgmt
Hospitals
HMOs reimburse fees in many ways
Depends on factors like
State laws
Market Competition
Hospital Ownership of HMO
Level of Predictability of data
Incentives like
o Service Bonuses
o Quality bonuses
o Risk Pools
Disincentives
o Exceeding utilization goals
Those providers under DRGs of capitation may negotiate a stop-loss-provision in
their HMO contracts
Costs beyond this point will be reimbursed by a different payment system like
Discounted FFS
Ancillary Service Providers
Range from discounted Fee for service to capitation
Capitation helps share risk with the provider and manage costs
In Return By accepting capitation, the ancillary provider gets a stable and large
income flow
Capitation is good for discrete services like diagnostic testing
But Capitation and discounted fees arrangements are used home healthcare or
hospice care
Utilization Management
Confidential
19
Cognizant
AHM
Physicians
Managed through risk pools, capitation and physician Practice guideline
Referral management, copayments for office visits and options like nurse advice lines
and subacute clinic for emergency care
Hospitals
In-patient utilization review, convurrent and retrospective review of admissions,
precertification for inpatient hospitalization, discharge planning and case
management
COMPLIANCE
o All medicare/mediclaim beneficiaries should comply with utilization
management requirements set forth by HCFA
o Other requirements may come from accreditation agencies and state laws
Quality Management
Credentialing / recredentialing and peer review for PCP /Specialists/ Accreditation
standards for hospitals and ancillary services providers nad overall plan accreditation
standards
Compliance with HCFA is essential for medicare and Medicaid
Employers review a HMOs accreditation status in its health plan employer data and
information set (HEDIS) measures to evaluate plan quality
Confidential
20
Cognizant
AHM
Reading 3B: Types of HMO Models

Closes Panel and Open Panel HMOs
Closed Panel HMO Physicians are either HMO employees or belong to a group of
physicians that contract with the HMO. This panel is closed to other physicians
Closed Access Plan members are not allowed to obtain medical services from out of the
network but only thru PCP.
Open Panel HMO Any physician who meets the HMOs standards of care may be eligible
to contract with the HMO as a provider.
These guys operate from their own offices and see others patients are well as HMO
members. This panel is open to any physician who is selected by the HMO.
Open Access Plan members may self refer themselves to a specialist either in or out of
the network at full/reduced benefit.
Key differences
Closed Panel HMOs
Providers
are
HMO
contracted to the HMO
employees/
Providers operate out of HMO facilities or

group practice facilities
Providers generally see only HMO
members
Select PCP from HMO n/w
Need PCP referral because the services
are only covered if the specialists are in
the network
Open Panel HMOs

Providers are independent and may be
selected to join the HMO if they meet the
criteria
Providers operate out of their own offices
See both HMO and non HMO members
Select a PCP from HMO n/w
Members in a few cases may self refer to
specialists inside or outside the n/w
without going thru PCP
HMO Models
IPA Model
Staff Model
Group Model
Network Model
Distinguished by Contractual relationship, provider reimbursement
Early HMOs were Staff or group model HMOs
Current trend is towards a mixed model HMO combination of characteristics of > 1 HMO.
For e.g. to provider geographic coverage to a multi state employer, an IPA model HMO in
one state may contract with a network model HMO in another state.
Or a staff model HMO may have separate contracts with specialty group
Independent Practice Association
Most comment HMO model today
Contract is with one or more physicians in independent practice who agree to provide
medical services to plan members
IPA is a separate legal entity established to give member physicians a negotiating
vehicle for contracting purposes
Confidential
21
Cognizant
AHM
Physicians who meet IPA criteria for participating providers may be selected to
contract with the IPA which in turn contracts with the HMO
They offer contracts with several parties Individual PCPs, Specialists, MultiSpecialty Groups ( group of physicians with two or more different specialties)
Variation is the IPA model is a direct contract model HMO this is also called
direct model HMO
o The HMO contracts directly with the individual physicians who provider the
medical services to the HMO members
o There is no IPA or legal entity representing the doctors
Structure
This may be a closed panel or Open panel plan
Closed Panel IPA model HMO
o A HMO and Community physicians establish an IPA and recruit other
physicians
o Because the HMO helped establish the IPA, the contract between the IPA and
the HMO is usually an exclusive contract
o Sometimes a hospital helps establish the IPA, which contracts with the HMO
to provider clinical services
o Community based Hospital based IPA is usually a closed panel IPA as
members must be affiliated with a specific HMO/Hospital to be members
Contract
o Nature of physician-patient relationship
o Duties and responsibilities to be assumed by physicians, the IPA and HMO
o Open-panel IPA physicians in the service area independently establish the
IPA
They are free to contract on a non exclusive basis
An Open-Panel HMO may close its provider panel when it finds that
adequate people are on board
o Direct Contract model HMO recruits a wide range of skillsets
Physicians may contract with other MCOs if they wish
This is an open panel HMO because all physicians who are qualify the
criteria can join
Compensation
Usually based on fee-for-service (FFS) or through capitation
IPA then compensates the member physicians
Many IPAs use capitation with PCPs and discounted FFS basis / resource based
relative value scale for specialists
Capitation forms a SIGNIFICANT component of the funds inflow to a IPA
Use withholds and risk pools to share incentives
Direct Contract Model Compensate PCPs through Capitation and specialists
through discounted FFS
HMO assumes MOST of the risk associated with providing medical services to plan
members
Features and Comparisons

They appeals to both HMOs and their members by providing a wide range of
physician services
Have access to medical care at individual physicians offices located throughout the
HMOs provider network
The combination of choice and private physician practice has given the open panel
IPA HMO models a competitive edge over staff and group model HMOs
Confidential
22
Cognizant
AHM
An IPAs participating physicians operate out of their own offices so that the HMO
does not have to incur the expenses associated with buying or building offices
Capitation payments & withholds for PCPs and discounted FFS payment for
specialists offer the IPA model HMO and the IPA cost control opportunity
Open panel can have multi HMO contacts increasing access
However cost control might be an issue difficult to achieve economies of scale
with independent offices
Difficult to achieve consistency in quality and utilization management
Under the direct control model HMOs have to recruitment physicians directly
Utilization management and quality management are other administrative
responsibilities of a direct contract model HMO
Staff Model HMO

This is a closed panel Plan Physicians are employees of the HMO
Contractual arrangements are exclusive and they need to become employees
HMO needs to employ enough specialists and PCPs to meet its members needs
Structure
Most physicians practice in ambulatory care facilities
Definition: An Ambulatory care facility/medical clinic / medical center is a care center
that provides a wide range of healthcare services including
1. Preventive care
2. Acute Care
3. Surgery
4. Outpatient care in a centralized facility
A one stop shop Access to physicians and non physician services
Contract with hospitals and pharmacies to provide non physician services
Compensation
Distinguishing factor is Reimbursement Compensation is primarily Salary
Now begin to offer financial incentives like withholds and bonuses
These are usually tied to medical expenses and other controllable costs
The risk here PRIMARILY is with the HMO
There are very few FFS patients seen in this model
The HMO can achieve economies of scale, manage utilization better and provide
consistent quality and evaluation of performance
Convenience and local access to all facilities in one place is a big draw
More time Consuming to establish and maintain huge capital costs
Not very fast moving owing to capital costs required to make changes
Limited provider choice (for members) and limited access (for providers)
Group Model HMO (Group practice HMO)
Contracts with a multi specialty group of physicians - Employees of a group practice
Group Practice Corporation/Partnership/professional association/ legal entity
Share office space / Support staff/medical records and medical equipment
Consists of both PCPs and specialists
Sub contract non supported services to other doctors
Structure
Physicians are employees of the group practice in which they (may) have an equity
interest
Captive group model
Confidential
23
Cognizant
AHM
Physicians sign management services agreement with the HMO and the practice
primarily focuses on the HMOs members
This is usually exclusive making it a closed Panel
HMO takes care of the management services/admin part
HMO may also own the facilities or equipment used by group practice
Independent Group Model
Established group practice usually a multi specialty group contracts with the
HMO
The physicians may own or sponsor an HMO but may also contract with other
HMOs
Open Panel Plans
Compensation
Negotiated Capitation Rate to the group practice
Group practice determines the physician salaries and incentives
Could include financial incentives for utilization management
Group practice bears the risk of providing medical care
This has lower startup costs vis--vis a staff model
No need to provider a facility/ No fixed expenses on physicians salary
Limited by geographic location of the group practice
Differing quality between facilities unlike staff models with the ACFs
Access may be limited by the closed-panel nature of captive group model
Network Model HMOs
Contract with one or more group practice of physicians / specialty groups
Extension of a group model
Wide range of services
Can be either an Open or Closed Panel
Compensation
Capitation Basis
Physician groups bear most of the risk
Group practice compensates specialists who the PCPs refer the members to
Share profits when utilization is lower and can see non-HMO members
Confidential
24
Cognizant
AHM

Members have access to a broad range of services (particularly open panel ones)
HMO Model
Physician
Location
IPA Model
Separate
physician
offices
Staff
ACFs
Group
Separate
Group
Practice
Network
Separate
Group
Practice
Confidential
Open
Closed
Panel
Physician
Relationship
Physician
Reimbursement
Advantages
to HMOs
Disadvantages
Both
PCPs and specialists

are
both
independent
PCPs: Capitation
and
Discounted
FFS
Specialists:
Discounted FFS
Provider
Choice and
lower
startup costs
Limited
Utilization
and
quality
control
No economies of
scale
Closed
PCPs : Employees
and
Specialists:
employees
or
independent
PCPs: salaries
Specialists:
discounted FFS
Both
Both

are
both
independent

are
both
independent
Group Practice:
Capitation
PCPs:
Salaries
and
Incentives
Specialists:
varied
Group Practice:
Capitation
PCPs:
Salaries
and
incentives
Specialists:
varied
Utilization,
Quality
control,
Economies
of scale
Lower
startup
costs,
utilization
and Quality
Control
Broader
range
of
services and
multiple
locations
Provider
restrictions
Capital Intensive
Provider
restrictions
Potentially
limited
geographic
access
Varied utilization
and
quality
control
25
Cognizant
AHM
Reading 3C: PPOs, POSs, and Managed Indemnity

Preferred Provider Organizations
Healthcare benefit arrangement designed to support services at a discounted cost by
providing incentives for members to use designated healthcare providers (who contract with
the PPO at a discount), but which also allows the member to avail of services out of the
network.
Financial incentives for in-network usage include lower copayments/coinsurance and
maximum limit on out-of-pocket cost for in-network usage
Most PPOs Arrangement between a panel of providers and purchasers

Preferred providers agree to specified fee schedules in return for preferred status
and have to comply with Quality and Utilization Management targets
PPO sponsors vary Physician Groups/ Hospitals/BCBS plans/ TPAs/
employers/HMO/Independent investors/Joint Ventures
However 50% plus of all PPO plans are owned by insurance firms
MOST dont bear any financial risk
PPO may be a decentralized n/w of preferred providers which are established by
employers or it could be leased from some other organization
Or it could be administratively centralized, with not only a PP n/w but also the
capability to manage administrative functions and assume some financial risk
Benefits
Wide range of services including specialty services
o Managed Pharmacy, Psychiatric Mental Health, Chiropractic Care, Podiatry,
Case Management , wellness, vision care, dental care, workers compensation,
dental care, long term care
Networks
Contract with PCPs, specialists/diagnostic facilities/hospitals/ancillary services
On average the 1079 PPOs contracted with 8421 physicians
Less restrictive on the out of network usage
Can Visit specialist without a referral
Financing
Most PPO arrangements did not have providers sharing financial risk
They were paid on a FFS basis and passed on risk similar to a traditional indemnity
plan
Some have started including this into their contracts
PRIMARY FUNCTION: Negotiate contracts between the providers and the
organizations that buy the coverage
Most Common compensation:
o Physicians: Fee Schedule or Capped Fee method
82% of all physicians were paid this way
o Hospitals
52% were paid on Per Diem
31% on discounted Charges
Incentive to join PPO? Increased Patient Volume
In house review of utilization
BLEND HAPPENING WITH HMOS
o Utilization Management being adopted by PPO
Confidential
26
Cognizant
AHM
o Selection of PCP in PPO too

Quality Management
High percentage routinely recredentialed their network physicians
Also Physician Peer Review
Other Types of Managed Care
Specialty PPOs
These work only in defined areas physical therapy, dental care, pharma, lab services,
chiropractor service, behavioral healthcare
Exclusive Provider Organizations
Similar in structure and administration to a PPO

Out-of-network care is not generally covered making it like a HMO
These are developed by PPO corporations to compete with HMOs
LEGAL ISSUE They are regulated by state laws and NOT by state and federal laws
as is true for HMOs
Some states have begun to treat EPOs like HMOs
Point of Service Products

Fastest growing product
This is a hybrid product which combines the traditional group insurance with HMOs and
PPOs
Point of Service product allows the members to choose at the point of service on whether to
go within the plans network or to seek medical care out of the network. This offers a
greater amount of coverage within the network and requires members to pay deductibles
and coinsurance for coverage out of the network
This combines HMO features and out of network coverage with economic incentives (
like copayment instead of coinsurance)
HMOs generally offer POS options
Out-of-network usage is generally a per person cap and the usage is insured as a
fee-for-service-coverage
Most common characteristics
o Freedom of choice customize healthcare
o Cost cutting effort and structure of coverage
o PCP is used for medical services and for referrals within the n/w
Capitation is used to compensate the physician
These are very popular with employers as they act like a bridge between traditional
indemnity plans and the MCOs
DRAWBACK
o Costlier to administer as compared to traditional group health plan
Managed Indemnity Plans

These include managed care overlays like precertification and utilization review
Managed care devices are primarily to control costs
Confidential
27
Cognizant
AHM
Managed Healthcare for Specialty Services

Reading 4A: Managed Healthcare for Specialty Services
Explain how an MCO might carve out the delivery of specialty services
Define specialty HMOs
Describe three types of managed dental plan
Describe the four basic strategies that managed behavioral health organizations
(MBHOs) use to manage the delivery of behavioral healthcare services
List four activities that a typical pharmacy benefit management (PBM) plan uses to
manage pharmaceutical utilization
Confidential
28
Cognizant
AHM
Reading 4A: Managed Healthcare for Specialty Services

These are services that are generally considered outside the standard medical-surgical
services. They involve different types of providers and delivery systems than do standard
medical services
Examples include
Prescription Drugs , Mental health/substance abuse , Dental, Vision ,Long term Care,
Workers Compensation , Chiropractic care, rehab services, home healthcare, cardiac
surgery, Oncology, Care for Patient with Chronic diseases, diagnostic services like
radiology
Two options for employers and health plans wrt Specialty Services
Develop and Maintain their own programs
Carve out the delivery and management of these services
Carve out refers to the separation of a medical service(or group of services) from the
basic set of benefits in some way
These may be through a different compensation mechanism OR
Use of a separate network or delivery system
E.g. AIDS services may be carved
Freq used services: Dental , Behavioral healthcare and Pharma
Carve Outs Emerge
Economies of scale for certain specialties
Key Characteristics
1. An easily defined benefit
2. Defined Patient Population
3. High or rising costs
4. Inappropriate utilization
Comprehensive Carve-out - Manages all the details including network management /
quality / utilization / case management / claims administration
Partial Carve-Out MCO retains the management of the selected activities
Comprehensive Carve-out: Compensation is usually on a CAPITATION BASIS
Partial Carve-out: On a FFS or Fee-plus percentage of savings basis
Legal Challenges Some state require HMOs to retain these services
Some States have provisions for Specialty HMOs
Dental Care
Increasing willingness of Dentists to negotiate with HMOs
Increased admin/overhead costs/oversupply of dentists have moved dentists to this
plan
Managed care products are cheaper than indemnity products
Three types of plans are
o Dental HMOs, Dental PPOs and Dental POS
Dental HMOs
Started in 1950s with the preventive care benefits realized
This is an organization which provides dental benefits to its members in exchange for
some form of prepayment
No benefits for out of network services
This is regulated at state level
Has around 18% of the dental insurance market share
Dental PPOs
31% market share in 1999
Confidential
29
Cognizant
AHM
Provide through network of dentists who offer discounted feeds

Visited out of network you get less benefits
Most compensated on a Discounted FFS basis
Dental POS Option

This is generally offered in conjunction with a DHMO
The consumer chooses at the time of appointment where they want to go
Behavioral Healthcare
Deals with mental health and chemical dependency
This has grown in prominence in the last few decades, the cost of delivery has sharply
increased. Management strategies to tackle this failed.
Initially they looked to cost sharing as a mechanism to manage costs and also had
benefit limits.
Then looked to limitation on services covered for certain illnesses, certain services
or certain patient groups
Tried to limit the ACCESS to services through triage systems and waiting lists
based on priority
Managed Behavioral healthcare organizations emerged in the 1980s
1997 149million people were enrolled
o Specialized knowledge
o Better outcomes and proper diagnosis and treatment
o Techniques used to manage care include
Alternative treatment levels
Offered benefit packages that included full coverage
Developed clinically reasonable care
o Acute care continuous intensive monitoring
o Post acute care continuous monitoring in a structured
environ but < Acute Care
o Partial Hospitalization
o Intensive outpatient care extensive therapy
o Outpatient Care
Alternative treatment settings
Acute is in psychiatric hospitals etc , for high risk patient
Post Acute in Skilled Nursing homes
Partial Hospitalization in rehab centers or halfway homes
Alternative treatment methods
Drug therapy, psychotherapy and counseling
Licenses Clinical Social workers (LSCWs) and Marriage, family
or child counselors (MFCCs)
Crisis intervention
Directing Patients to appropriate Care

Mechanisms to direct individuals to the most appropriate care
PPOs and Open access plans Directly access healthcare services
Most other plans PCPs or other gatekeepers
Need authorization of payment of services before seeing a specialist (278)
Assessment could be through a PCP, centralized referral or employee assistance
programs
PCPs as gatekeepers
Confidential
30
Cognizant
AHM
Focal point for all healthcare need

But PCPs lack the experience necessary to diagnose and treat these
problems.
o Provide educational programs Clinical Practice Guidelines
Centralized Referral Systems
o Telephone or in-person referral
o This can provide faster access to behavioral healthcare than a PCP
o More accurate diagnosis and effective treatment
o Not grassroot linked like PCP disruption in care
Employee Assistance Programs
o This the first point of contact for this kind of care
o Can help trap the problem early
o Lack of expertise is a problem
o
o
Next Generation
Started significantly using outpatient treatment
Clinical practice guidelines
New ideas development of an alternative treatment options, incorporation of
community based resources into healthcare and increased reliance on case
management
LAW Mental Health Parity Act 1996 Treat the Mental or behavioral health
benefits ON PAR with Physical Health services
Pharmacy Benefits
Fastest growing market in the US
Inappropriate usage of drugs is the reason for 25% of all Medicare admissions
A Pharmacy/ Prescription Benefit Management Program
o 88.4% of all HMOs contracted with PBMs
o These screen drug interactions by using integrated databases between the
MCO, provider and pharmacy network
Services Offered
Physician Profiling
o Data on physician subscribing patterns and comparing these actual
prescribing patterns to expected patterns within a select drug category
o Peer Comparison is
Drug utilization Review
o Are the drugs being used safely/effectively/appropriately
o Quality management identify problems related to drug ordering , dispensing
, administration and use of drugs
Inappropriate dosage, overuse , underuse, length of time , duplication,
side effects and drug interactions
o Monitor patient specific drug problems through prospective, concurrent and
retrospective review. Factors identified include
Drug/disease conflict, Drug Control Interactions, Chronic overutilization , underutilization, drug/sex drug/age conflicts and
drug/pregnancy contraindications
Formulary Management
o Formulary is a listing of drugs classified by therapeutic category or disease
class that are considered preferred therapy for a given managed care
population and that are used in prescribed medications
o This is developed by an independent panel of physicians, pharmacists
Confidential
31
Cognizant
AHM
o
o
They can be classified as open or closed

Open formulary both preferred and other drugs are covered
Closed Formulary only drugs on the preferred list are covered
These are key tools to get Rebates from the drug manufacturers
Key features of a good Formulary include
Cover all outpatient diseased / Promote Generics/ include all medically

necessary drugs/ include the cheapest single source drugs/minimize
expensive prescribing/ minimize medically unnecessary prescribing /
improve overall cost effectiveness of therapy
Need good communication of the Formulary to physicians and to the
pharmacists on the relative benefits of drugs etc
Two types of substitution
Generic Substitution
o Dispensing of a generic equivalent
Therapeutic Substitution
o Dispensing of a different chemical entity within the same
drug class
Prior Authorization
o Medical necessity review certification of medical necessity prior to the drug
dispensing
Additional Services
Mail order pharmacy programs lower cost delivery
Negotiate discounted rates for the same
Pharmaceutical cards Issued to plan members. These cards must be presented to the
pharmacist before receiving benefits
Electronic processing of claims
Card identifies to which plan the patient belongs
New copayment structure
1. Two tier copayment structure
a. Lower copay for a generic and higher copay for branded drug
2. Three tier Copayment structure
a. Pay one copay for a generic
b. Higher for branded drug included in the plan
c. Highest for branded drug not included in the plan
PBM contractual arrangement
Fee for service
a. Create a retail chain / offer discount on prescribed drugs / perform online
claim adjudication.
b. Receives a claim administration fee
Risk Sharing
a. Agree on a target cost per person per month
b. In case of exceeded/underun of cost PBM shares the losses /savings
Capitation Contracts
a. Provide all the care for a fixed dollar amount per month
b. These are gaining popularity
c. Not that popular as cant project what the pharma requirement will be
Move towards mergers and integration with Pharma firms
Confidential
32
Cognizant
Confidential
AHM
33
Cognizant
AHM
Provider Organizations
Reading 5A: Provider Organizations
Explain what it means for providers to integrate
Describe some of the advantages of provider integration
Discuss some of the types and levels of provider integration
Describe the general characteristics of several types of provider organizations
Confidential
34
Cognizant
AHM
Reading 5A: Provider Organizations

Why integration
Achieve economies of scale
Strengthen their negotiating position wrt MCOs and payers
Provider Integration
Two
or
more
previously
separate
control/ownership/business operations
providers
combine
under
common
1. Structural integration Coming under common ownership or control

2. Operational Integration Consolidate previous separate operations
Structural Integration
Complete Integration Common Ownership AND control e.g Merger/Acquisition
Merger two or more separate entities are legally joined. This could be to create a
new corporation, in which case its called Consolidation
Acquisition One organization buys the other
Partial Integration
Joint Venture / Not a separate legal entity
Execute contracts and agree to act as one body in business transaction
Operational Integration
Business Integration Combine one or more separate business function
Clinical Integration Making a variety of services available from one entity
Physician Only Model
1. IPA (least integrated)
2. Group Practices without Walls GPWW/ Management Services Org (MSO)
3. Physician Practice Management (PPM) company
4. Consolidate Medical Group (MOST integrated)
Physician and Hospital Model
1. PHO (least integrated)
2. Integrated Delivery Systems (IDS) /Medical Foundation (Most integrated)
A high level of structural integration need not mean a high level of operational integration.
But in reality usually both go together
Advantages
1. Greater Operational efficiency and effectiveness
2. Expertise Building Helps in better planning/marketing
3. Improve contracting position with MCOs
4. Good for MCOs as it improves quality and efficiency for their members
Disadvantages
1. Loss of autonomy
Provider Integration Models
Independent Practice Associations
Messenger Model - Simply just negotiate the agreement with MCO and then make its
members directly contract. This model is used with FFS or discounted FFS
Confidential
35
Cognizant
AHM
MCO Contracts with IPA

The IPA then separately contracts with the member physicians
IPA can limit its risk when it uses Capitation as payment by buying a stop loss insurance
protection. If they IPA pays claims more than a defined Maximum for the year, the
insurance firm reimburses it
In case the IPA is seen to assume too much risk, then the regulators may classify it as an
insurance company
Group Practice without Walls (Clinic without Walls)
Legal entity that combines multiple independent physician practices under 1 umbrella
and performs a certain business operation for them
Can be owned by member physicians/hospital/ by a PPM
Physician Practice Management Organization/ Managed Services Org
Owned by hospital / Investors that provides management and admin support to
physicians
Relieve physicians of non medical business functions
Either provide the functions for a fee or they make the Physicians lease the assets
Specific MSO is the Physician Practice Management Company which purchases
the physicians practice assets.
All assets not only tangible ones
Physicians could get some equity in this firm too
Develop a network of either PCPs or specialists
Consolidated Medical Groups
Full structural and operational integration
Operates in one or a few facilities and consolidates the operations
Advantages
1. Lower costs
2. Access to a large group of physicians
3. Creates an ability to monitor and manage quality/utilization
Integration of Physicians and Hospitals
Physician Hospital Organizations JV between hospital and physicians
Primary purpose is contract negotiation with MCOs
Do not merge operations apart from contracting and marketing
Reasons
Better relations / Increased Collaboration / Shared Financial Risk / Contracting with MCOs /
Employer Direct Contracting / Enhancing Quality
Community Contracts with this Physician Hospital Community Org
Two types
1. Open PHO Available to all the hospitals eligible medical staff
2. Closed PHO Limits the number of specialists by type of specialty
a. Specialist PHO Only one type of specialty
Compensation Discounted Fees and Capitation (PCPs) and DFSS (Specialists)
Integrated Delivery System
Operationally integrated maybe not structurally
Employment model IDS the IDS controls the different providers
Confidential
36
Cognizant
AHM
Medical Foundation
Not-for-profit Entity that purchases and manages physicians practices
Need to provide significant benefit to the community
Used to create an IDS in states where IDSs cannot be business corporations
Provider Organizations that Bear Insurance Risk
IDSs / IPA / PHO / CMGs/ choose to bear financial risk called AT RISK
They need to be able to have expertise in the core insurance functions like actuarial /
underwriting / claims / quality etc
May need a HMO or insurance company license
These entities can contract directly with employers or Medicare
The BALANCED BUDGET ACT (1997) gives rights to organizations who meet basic
standards to contract directly with healthcare
o These organizations are known as Provider Sponsored Organizations
Confidential
37
Cognizant
AHM
Health Systems Management

Reading 6A: Health Plan Structure and Management
Describe the most important functions of a managed care organizations board of

directors
Identify a managed care organizations key management positions and their functions
Identify the common medical management committees and describe the committees
general functions
Reading 6B: Network Structure and Management
Describe some of the factors commonly evaluated in a market analysis for network
management
List the types of providers typically included in a MCOs network
List and explain some of the factors that influence the number of providers included in
an MCOs network
Define credentialing and explain why it is important
List some common clauses and provisions in provider contracts
Confidential
38
Cognizant
AHM
Reading 6A: Health Plan Structure and Management

Structure of MCOs
Most of them are Corporations - Can be party to a legal action
MCOs may be under a taxable not-for-profit form, tax exempt not for profit and a
for profit form
This will affect on taxes, effects on regulation, capital raising considerations
Traditionally HMOs and BCBS Not-for-profit
BCBS do not qualify for tax exemption
Adv and Disadv Not for Profit
Plus Tax exemption from federal / state property / state income taxes
Minus
a. Adhere to numerous restrictions like
Operate only for tax exempt purposes
Provide only incidental benefits to private individuals
Not engage in lobbying and political activities
b. Careful in transactions with taxable entities
Not for profit have Limited ability to raise capital
Advantages and Diadv For Profit MCOs
Minus Pay taxes
Plus Can raise capital
Components of organization and organizational structure
Board of Directors
Review the activities and finances of the firm
Minimum number of directors is specified by the organization charter and the
insurance regulations
Inside and outside directors exist
Not-for-profit firms have a restriction on number of inside directors
Key Responsibilities
o Authorization of major financial transactions M&A and capital
o Appointment, evaluation of senior management including CEO
o Participating in Corporate Strategic Planning
o Approval of Organizational operational policies/procedures
o Oversight of the Quality Plan
o Fiduciary responsibility Act in the best interests of organization
Key Management Positions
CEO , Marketing Directors, Finance Director , Director of Operations ,CIO , Medical
Director (Utilization, Quality issues and Operational issues) ,Network Management
Director
Corporate Compliance Director
a. Mandated by HIPAA to have a Chief Privacy Officer and Chief Security Officer
b. Roles
i. Implement written standards and procedures
ii. Assigning upper level personnel to oversee compliance
iii. Communicate Standards to all employees
iv. Enforce standards through disciplinary measures
v. Establish and enforce confidentiality and security rules
Confidential
39
Cognizant
AHM
Committees
Standing Committee Long term advisory on financial, compliance, quality management,
Utilization Management, strategic planning and Compensation
Ad Hoc Committee Convened to address a specific issue
Some
1.
2.
3.
4.
5.
Common Committees include

Executive Committee Organizational policy/ LOB / Employment Policy
Strategic Planning Committee- Direct the MCO strategic direction/goals
Compensation Committee
Finance Committee
Nominating Committee nominations of company offices
Other Committees include

1. Executive Quality Improvement Committee Quality / Accreditation etc
2. Quality management Committee quality assessment/improvement activities
a. Identifies issues to be monitored
b. Evaluates the results of quality studies to identify opportunities
c. Develop / Oversee / Monitor quality improvement action plans
d. Oversee Accreditation efforts
3. Medical Advisory Committee policies in clinical mgmt / contracts / compensation
4. Credentialing Committee policies /review /recredentialing
5. Utilization Mgmt - review the UM program
6. Pharmacy and Therapeutics Committee Formulary and Regulatory reviews
7. Peer Review Committee- review questionable /problematic healthcare services
delivery
8. Appeals Review Committee Medical management or coverage determination
9. Corporate Compliance Committee
Confidential
40
Cognizant
AHM
Reading 6B: Network Structure and Management

Managing of provider networks is one of the Critical Tasks in the MCO process
Designing a Provider Network
Market Analysis
1. Market Maturity determine the level of managed care activity in a market
a. How receptive are consumers less receptive would prefer PPO while more
receptive would prefer HMOs
b. How much competition exists in the area
c. How receptive are providers
2. Provider Community
a. Number of physicians and locations
b. Details on hospital beds/ pharmacies / other ancillary services
c. Accessibility of providers
d. Utilization patterns and average costs for specified services
e. PCPs and their linkages with other specialists difficult to break
f. Associations within the existing community
3. Competitive Analysis
a. Provider Panel Sizes / Premium Levels / cost Containment Strategies
b. Physicians to members ratio in existing network of competitors
c. Levels of provider satisfaction or dissatisfaction with other plans
4. Economic Conditions
a. Size of the employers in the market large adopt MCO easier
b. Growing economy Trigger growth in Young population and medical
community will come in / Vice Versa for declining economy
5. Characteristic of the Service Area
a. Is this an urban/rural/suburban area? Rural areas have fewer hospitals
b. Urban areas have higher proportion of specialists and facilities More choice
but also more cost/quality/satisfaction levels
6. Population Characteristics
a. Age/Income/Ethnic background
7. Health Plan Characteristics
a. Number & Types of products offered by MCO / geographic scope/market focus
/ particular population it serves
b. Use diff providers for diff plans (nested/customized/sub networks)
8. Current and Proposed Regulatory requirements
a. Laws address Network adequacy / Patient Access to medical services /Quality
of care/ mandated benefits/ Providers right to contract
b. Adequacy Extent to which a network offers the appropriate types and
numbers of providers in the appropriate geographic distribution according to
the needs of the plans members
9. Guidelines from Accrediting Agencies
a. These include NCQA / American Accreditation Healthcare Commission
b. Joint Commission on Accreditation of Healthcare Organizations JCAHO
HMO Act 1973
Federally qualified HMOs should
1. Provide geographic accessibility to primary care and most specialty providers with
reasonable promptness and within generally accepted norms for meeting projected
enrollment needs
2. 24/7 access to emergency services
Confidential
41
Cognizant
AHM
3. Detailed description of service areas/provider locations

Federal Employee Health Benefits Program (FEHBP)
Requires health plans offering services to federal employees and their dependents to
provide
1. Immediate access to emergency services
2. Urgent Appointments within 24 hours
3. Routine appointments once a month
4. Average office waiting time of < 30 minutes
NAIC Managed Care Plan Network Adequacy Model Act
Adopted in 1996, this act offers guidelines for states to use in measuring network adequacy.
Includes Standards for
1. Provider Enrollee Ratios
2. Geographic Accessibility
3. Appointment Waiting Times
4. Hours of Operation
5. Volume of Technology/Specialty services available
Any Willing Provider Laws
1. This requires health plans to allow provider who is willing to accept the terms and
conditions of the plan to contract with the plans network
2. Can include economic criteria. This is regulated by state law and sometime applies
to only PPOs and not to HMOs
Mandated Benefits Laws
Require MCOs to
1. Include specific benefits in the plans design Hospice/ maternity/chiropractic
2. Include Specified providers or provider classes (Behavioral)
3. Access to specified provider classes w/o PCP approval (OB/GYN/Pediatric)
Determining the structure Composition and Size of network
Network Structure
Can operate as a closed panel (MCO facilities) / Open Panel (Own facilities)
Network Composition
1. PCPs General practitioners / family practitioners / internists / pediatricians /nurse
practitioners/physician assistants (last 2 under physician guidance)
2. Specialists
3. Hospitalists PCPs dont have time to follow up inpatient care / These physicians
coordinate diagnostic/ treatment services @ hospitals
4. Healthcare Facilities
5. Ancillary Service Providers Diagnostic/therapeutic care/labs/radiology/ physical
therapy/pharma / home healthcare
Network Size
1. Appropriate number of practitioners This is based on
a. Plan characteristics more closely managed fewer providers
i. MCO requires less than PPO or POS
ii. Large plans have fewer providers per 1000 members
iii. Based also on geographical spread
b. Provider Access
i. Staffing ratio number of providers to the number of enrollees
ii. Drive time Time to drive to PCP- 15 min urban / 30 min rural
iii. Geographical Availability number of PCPs within a radius
iv. Population Characteristics Demographic characteristics
Confidential
42
Cognizant
AHM
v. Purchaser and Consumer preferences Quality , Access and Cost

(check which is most imp) / Large PCP panel
vi. Plan Goals Cost Quality Tradeoff / Subdivide the panels based on
quality/utilization and cost effectiveness and incentivise consumers
2. Appropriate Number of Hospitals and Other Facilities
a. Accessibility, Cost and use of resources, service capacity and types.
Reputation within service area, accreditation status , level of participation
Adding Providers to the Network
Recruiting Providers
Information sources include Hospitals already in the network / Provider Directories of
Competitors / Local medical societies / Plan purchasers and members
Selecting Providers
First stage is application form with standard questions education / workex /affiliations etc
Credentialing
Information presented is reviewed and verified in order to determine
1. The current clinical competence of the provider and
2. Fit into the pre-established criteria for participation
This Credentialing process is important
1. Employers want to offer their members high quality providers
2. Ensures certain aspect of their quality program
3. Minimize the liability and other legal risks have good historic record
4. Accrediting bodies require it before the accredit the MCO
Who Performs Credentialing?
1. Varies from plan to plan
2. Some have Credentialing committees / departments
3. Others assign to specific person
4. External Entities called Credentialing Verification Organization
5. Practitioners on committee for review/technical inputs/ peers perspective
How does the Process Work?
1. When the provider submits the application + supporting documentation
2. Review and verification of the documentation
3. Check to see if additional documentation is required
4. Onsite inspection of providers offices
What standards must be met?
1. Have their own guidelines for credentialing
2. Written guidelines which access the ability to deliver care
a. Licensure / Training / experience /Disclosure of any Health issues /
Appropriate Documentation to be verified
3. Need a primary source verification Process of validating the credentialing
from the organization that originally conferred it
4. Selection is based on needs / qualifications / fair and equitable
5. P-PC-7 Standard -American Accreditation Healthcare Commission/ URAC
6. Review any adverse claims / malpractice suits / sanctions
7. National Practitioner Data Bank - This is a database maintained by the federal
government that lists info on malpractice claims / disciplinary action
a. Maintained by the DHHS Started in 1990
b. Scrutiny of areas of practitioner licensure / membership / malpractice history/
record of clinical privileges
Confidential
43
Cognizant
AHM
c. Meant to provide a support to the existing state credentialing/licensing boards

d. Types of Queries
i. Mandatory need to query every two years on practitioner privileges
ii. Voluntary any other general queries
Recredentialing
1. This is done every 2-3 years for changes in licensure / sanctions / certifications/
competence / health status
2. Incorporates quality management and utilization results
3. NCQA data for recredentialing includes
a. CR 9.1 Member complaints , CR 9.2 Information from quality improvement
activities , CR 9.3 Member satisfaction
Contracting
Common Provisions
1. Use the provider manual as a reference in the contract
a. This document contains the providers rights and responsibilities
2. Provisions for Provider Responsibilities
a. Provider Services
b. Administrative Policies Follow the MCOs policies
c. Credentialing and Re-Credentialing
d. Participation in Utilization and Quality management programs
e. Maintenance and submission of medical records for all members
f. No Balance billing and Hold Harmless Provisions
i. Requires Provider to accept the amount the plan pays as payment in
full and not bill plan members apart from (copy/coinsu/deductibles)
ii. Hold harmless Forbids providers from seeking compensation from
patients if payer fails to compensate providers cos of insolvency etc
3. Provisions for Payer Responsibilities
a. Payment how will he compensate
b. Risk sharing and Incentive Programs
c. Timely Payment Max time period is specified
d. Eligibility information will provide 270 and 271 information to the provider
4. Termination Provision
a. Termination without cause like 90 day period
b. Termination with cause if one of the users did follow contract provisions
c. Cure provision (60-90 days) during which the breach an be rectified
d. Extreme situations may require immediate termination of contract
e. Due Process clause contest/appeal the termination
5. Tone of Contract
a. Influences the nature of the business relationship
Network Maintenance and Provider Services
Orientation
1. Parameters of the MCO plan
2. Training in UR / quality /authorization systems
3. Written manual of policies and procedures
4. Communication between MCO & network updates/ bulletins / guidelines / claims
information
Peer Review
Evaluation of performance by other providers
Provider Services
Confidential
44
Cognizant
AHM
Payer staff responsible for maintaining communications with providers
Confidential
45
Cognizant
AHM
Medical Management I
Reading 7A: Basics of Utilization Management
Define medical management and identify its component parts
Describe the strategies MCOs can use to manage member demand for healthcare
services
Identify the kinds of cases for which case management is typically used
Define disease management

Reading 7B: Utilization Review and Authorization Systems
Explain the purpose of utilization review
Define authorization and explain the criteria MCOs use to determine whether benefits
are payable
Describe the types of services that require utilization review and authorization
Identify the three types of utilization review
Describe the utilization review process
Discuss some of the techniques MCOs use to manage utilization review and authorization
processes
Confidential
46
Cognizant
AHM
Reading 7A: Basics of Utilization Management

System that MCOs and their providers use to achieve and maintain both high quality and
cost effectiveness is defined as Medical Management
Three Key Areas exist
Utilization Management use of medical services / regulation / planning
Clinical Practice Management development/implementation of delivery techniques
Quality Management process of measuring and improving QOS
Utilization Management Function
Affects all components of healthcare delivery primary/specialty/inpatient/pharma/ancillary
Application depends on nature of patient population
Preventive Care
70% of healthcare costs come from preventive diseases / injuries
Center for Disease Control & Prevention 12% of all hospitalizations were avoidable
Reduce need for diagnostic / therapeutic / inpatient care
Need to assess individual health risks and ensure targeted care
Health Risk Assessment (HRA)
o Process by which an MCO uses information about a plan members health
status / personal and family health history / health related behaviors / to
predict the likelihood of a specific illness or disease
o Sources Providers / health plan records / HRA surveys
o Use data analysis software to segment the different categories
Preventive Care Initiatives
o Mostly received from PCPs
o Include stuff like Immunization programs
o Health Promotion Programs (wellness programs which educate on lifestyle
choices / maternity management / pre natal care)
o Screening Programs check if a health condition is present blood
pressure/cholesterol checks etc
Self Care Programs
Complement physician services
Teach how do educate members on distinguishing between major and minor
illnesses and how to effectively treat minor problems
Use techniques like members newsletters / how to perform screenings
Decision Support Programs
Need to know what is relevant Decision support programs provide educational
material and advice from physicians
Telephone Triage programs
o Usually give inputs for cough / ear pain / skin problems / chest pain / fever
/headache / sore throat
o Urgent case - Notify the emergency services / Other cases schedule physician
appointments
o Staffed by nurses or nurse practitioners
o Clinical staff in triage use decision support tools
Shared decision making programs
o Provide patients with in-depth info about diseases/procedures/treatment and
encourage them to participate in healthcare decisions
Confidential
47
Cognizant
AHM
Sources Physicians / printed materials / personal or group counseling /

internet/ support groups / interactive computer programs
Utilization Review
UR refers to the evaluation of the medical necessity/ appropriateness/ cost effectiveness of
the healthcare services given to a patient
Can do it in-house or contract with Utilization Review Organizations
o
Case Management
Process of identifying plan members with special healthcare needs and developing a
coordinated effort for monitoring care / needs
Improve / stabilize a plan members overall health status by preventing complications
Optimize use of healthcare resources
Improve member compliance with provider recommendations for care
Improve coordination and continuity of care
Employed with high risk / high cost cases
o High Risk case is one that involves complex / catastrophic illness or injury that
requires extensive medical intervention or treatment plans
o High Cost Case one that requires a large financial expenditure or
human/technology resource commitment
o Chronic Case persists for long periods of time or patients life
Possible Conditions for Case Mgmt include AIDS, Stroke, Burns, Cancer , Neonatal
Complications , brain injuries, congenital defects
Identified by UR process, referrals from providers/ employers / payers
5 Basic steps are Case Identification / Assessment / Planning / Implementation and
monitoring / Evaluation
Factors to determine health status
o Medical condition or diagnosis
o Treatment being received
o Use of prescription drugs
o Level of resource utilization
o Cost of care
o Length and frequency of hospital visits
o Financial / social / psychosocial factors
If selected the candidate is assigned a Case Manager (nurse . physicians / social worker
or any other healthcare professional) These people should be familiar with
o Benefit plans and how benefits are paid to providers
o Legal / regulatory / ethical issues related to case management
o Utilization review processes and techniques
o Availability of community resources and support
o Role of coordinating care and in educating patients and family members
o Evaluation of the overall effectiveness of the case management
Final approval of decisions RESTS WITH THE PHYSICIAN
Disease Management
Disease state management is a coordinated system of preventive, diagnostic and
therapeutic measures intended to provide cost effective quality healthcare for patients who
have risk of chronic illnesses or medical condition. Focuses on comprehensive care over a
extended period of time rather than individual episodes or medical care
Driving force High level of spending on chronic diseases
Confidential
48
Cognizant
AHM
Proactive engagement helps Pharma firms have proved this This was in sharp
contrast to the more traditional practice of addressing acute episodes as and when
they occurred
Conditions which make a disease management appropriate
o High rate of variability in patterns of treatment
o High rate of preventable complications that results in use of costly services
o Show low rates of patient compliance with recommended treatment
o Can be managed on an outpatient basis using non surgical approaches
o Are Chronic in nature
o Likely to result in high costs over time
Differences from Traditional
o Focuses on managing a population of patients and not individual patients
o Highly coordinated and integrate delivery across providers/sites
o Apply TQM and continuous quality improvement methods
Tools 4 specific tools are used
o Disease Modeling life cycle / interventions
o Customized clinical guidelines
o Clinical practice processes
o Measurement and improvement systems
Pharma Industry
o Treatment Guidelines
o Provider Education and Compliance
o Patient education and compliance
o Pharmacotherapeutic outcomes research
Disease Management and Managed Care
o Integration into managed care with the help of Pharma firms
o STILL a NEW approach and its effects on outcomes and cost
effectiveness has not been yet established
o This is usually set up as a voluntary outreach and support program plan
Clinical Practice Guidelines

This is a UM and quality management mechanism designed to aid providers in making the
most appropriate course of treatment for a specific clinical case
The ultimate goal of clinical practice guidelines is to achieve the best clinical result in the
most cost effective manner
Confidential
49
Cognizant
AHM
Reading 7B: Utilization Review and Authorization Systems

Utilization Review
Manage the overall cost effectiveness of healthcare services
Managing the costs of paying healthcare benefits
Information collected includes
o Patient Information Demographic / eligibility / Plan type
o Provider Information PCP / referring Provider/ In-Patient facility
o Service Information Referral service/ date of service / diagnosis
codes/treatment codes / hospital admission and discharge date etc
Reasons for conducting UR
Reduce Unnecessary Practice Variations
o Caused due to reimbursement methods / population morbidity / lack of
scientific evidence and current medical practice information
o Variance will remain Need to however reduce Unnecessary variance
Make appropriate authorization decisions
o Authorization is a health plans system of approving payment of benefits for
services that satisfy the plans requirement for coverage
o Usually Payers pay only if
Service is covered under the benefit plan
Considered medically necessary and appropriate These are
services or supplies as provided by physician or other healthcare
provider to identify and treat a members illness or injury which are
Consistent with the symptoms/diagnosis/treatment
In Accordance with the standards of good medical practice
Not soles for convenience reasons
Furnished in the least intensive type of care required
Authorization could begin from the PCP
Improve the quality of Patient Care
o Use of physician based decision making systems
Physicians have training / experience to determine appropriateness
They are familiar with a wide range of treatment options
Improve the Cost effectiveness of patient care
o Good metrics include Hospitalizations / member/year , hospital bed days/
admission , hospital bed days/ admission , specialists encounter per member,
referrals per PCP per 100 encounters
Number of bed days per 1000 members (normalized for the year)
[A / (B / 365) ] / (C/ 1000)
o A Gross bed days per time unit
o B Days per time unit
o C Number of Plan members
Services that Require Utilization Review for Authorization
Framework to evaluate UR
Access requirements
Frequency of Utilization
Cost per procedure
Total Cost
Level of Inappropriate utilization
Cost of Review
Access requirements
Confidential
50
Cognizant
AHM
o PCP / direct access for OB/GYN or pediatric / dermatology/ DV

o Serious Chronic conditions allowed direct access
o Complimentary and alternative medicine (CAM)
Frequency of Utilization
o Dont target very routine services
o Need authorization for complex procedures
Cost per procedure
o High cost or high risk procedures and treatment
Total Cost
o Cost of service * Frequency of use
Level of Inappropriate utilization
o Higher the denial rate more likely is the service will require UR/authorization
Cost of Review
o Balance Cost of review vis--vis benefit received
Types of UR
1. Prospective Review
Review and possible authorization of proposed treatment plans for a patient
before the treatment is implemented
This is a preferred option
Accomplished through precertification or prior authorization requires plan
members to notify the plan in advance for a particular treatment
Helps evaluate reasons for request / determine most appropriate course of
treatment / intervene to alter the care
Tools include
o Utilization Guidelines accepted approach to care for common problems
o Site Appropriateness listings most appropriate settings for procedures
o Experience Based Criteria based on medical directors / provider
experience ; for procedures which are not performed /documented well
o Length of Stay Guidelines Average length of stay based on a patients
diagnosis, severity of patients condition and types of services
Length of stay number of days (From admission to day of
discharge that a plan member spends in hospital / other facility
Mechanisms to limit LOS include
o Preadmission testing tests before inpatient admission
o Discharge Planning determine what activities must occur before patient
is ready for discharge and conduct them efficiently. 5 key activities
What treatment and procedures have been prescribed
Determine other services required prior to admission
Establish length of stay
Determine where patient goes after hospitalization
Determine what equipment/ services will be needed after discharge
2. Concurrent Review
Treatment is in progress ; Applies to services that continue over a period
of time
Used to evaluate outpatient courses of care chemotherapy /
radiotherapy/ physical therapy / home healthcare and counseling or In
Patient care
Coordinated by the UR nurse who services as a liaison between physicians /
hospital staff / health plans medical management and UR staff
o Gathering information about a members progress
Confidential
51
Cognizant
AHM
o Tracking the total length and Cost of Care

o Continuing Discharge Planning
Plan can intervene in the middle to help direct course of care
Alternative Care Settings and Levels of Care
Primary purpose is to determine the proper setting for patient care. Some are
o Emergency Departments
These are essential to the immediate diagnosis and treatment of
critical illness/ severe injuries
To avoid liability for payments , some plans require the
authorization of payers within 24 hours of admittance
Plans conduct retrospective review of claims for emergency
services to determine the necessity /appropriateness of care
Federal Emergency Medical Treatment and Active Labour Act
1986 says hospitals that receive Medicare/Medicaid grants are
required to screen / stabilize all patients who come to their
emergency depts.
Further some states prohibit precertification requirements for
emergency services
Prudent Layperson Standard of the Balanced Budget Act of
1997 also limits precertification and retrospective review in making
coverage decisions. According to this standard
A condition is considered to be an emergency if a prudent
layperson (person who has average knowledge of health
and medicine) could reasonably expect the absence of
medical attention to put the individuals health in jeopardy
Confidential
26 states have adopted this standard

Urgent Care Centers
Problems that are not life threatening but that require immediate
attention. The cost of care is higher than that in a PCPs office but
lower than hospital ED
Observation Care Units
Designed to address the immediate care needs of patients who
require continuous monitoring but not emergency/acute care
Sub Acute Care Facilities
Addresses continuing care needs of patients who dont need
hospitals but cant be treated from home
Step down Units
Ward or section of ward in a hospital that is devoted to delivering
sub acute care to patients following acute care
Alternative to sub acute care facilities
Intermediate Critical Care units and Regular Nursing Units
Home Healthcare
Need intermittent rather than 24 hour care
Usually used by Medicare patients
Also seen younger people recovering from acute episodes
Services Include
Basic nursing care , Wound care , Pharma care , respiratory
care, rehab services, nutrition care , social work assistance,
provision for durable medical equipment
Hospice Care
52
Cognizant
AHM
Set of specialized healthcare services that provide support to

terminally ill patients and their families
Services address medical / nutritional / social /psychological and
spiritual needs
Medicare Specifies that these benefits come to patients who
have a life expectancy of 6 months or less
3. Retrospective Review
This occurs after the treatment is completed
Evaluation of medical necessity is based on claims data and medical records
Find Coding Errors procedures dont match diagnosis
Upcoding Involved using a procedure code more complex than actual code
Unbundling Separating a procedure into parts
Utilization Review Process
Data Collection
o Prospective review does he satisfy criteria
o Concurrent review Document patients progress
o Retrospective review address utilization of services/ patient outcomes/ costs
Data Transmittal
o Manual transmittal - Manual / Paper Based
Advantage High degree of physician acceptance; can be completed
at their own convenience
o Telephone Transmittal
Requires providers to call a central number and relay authorization via
IVR over the fone
Faster / less cumbersome / less labor intensive
Plans like fone transmittal as its more accurate/complete/error free
o Electronic Transmittal
Faster / less labor / less Error/ > Scrutiny and stringent regulations
Data Evaluation
o Evaluation of Non Clinical Aspects of Coverage
o Evaluation of medical necessity and appropriateness of proposed care
o Administrative Review
Compare the proposed medical care with applicable provisions in the
purchaser contract to determine coverage
If its not satisfied the claim is denied
o Medical Review
In case the above is satisfied there is an evaluation of the medical
necessity and appropriateness
Nurses can approve authorization requests
Physicians can approve and authorization of payments
In case there is a dispute on any issue the authorization is delayed.
This then becomes a PENDED Authorization
Managing the Utilization Review Process
Some more tools to manage the utilization process
Single Visit Authorization - PCPs submit separate requests for each visit to the
specialist
Confidential
53
Cognizant
AHM
Limited Visit Authorization Plan members make a specified number of visits

before approval is required again
Prohibition of Secondary Referrals - Specialists cannot make a referral without
plan authorization.
Exceptions to these rules could be made for chemotherapy and radiation therapy,
mental health and substance abuse therapy
Authorization can be extended to manage complex cases
Medical Management II
Reading 8A: Quality Assessment and Improvement
Identify the two types of quality delivered by MCOs
Describe the methods MCOs use to assess the quality of administrative and healthcare
services
Describe the advantages and disadvantages of using structure measures, process

measures, and outcomes measures to evaluate healthcare quality
Discuss three tools MCOs commonly use to improve performance and quality
Reading 8B: Quality Standards, Accreditation, and Performance Measures
Identify the major agencies that provide accreditation for healthcare organizations
Explain the role of quality standards in the accreditation process
Describe the most important sources and types of performance measures
Confidential
54
Cognizant
AHM
Reading 8A: Quality Assessment and Improvement

Two Key areas Quality assessment activities and quality improvements activities
What is Quality?
Quality in a managed care context refers to an MCOs success in providing healthcare and
other services in such a way that plan members needs and expectations are met.
Quality delivered by an MCO can be divided into two key areas
Service Quality MCOs success in meeting non clinical customer needs and
expectations. Will include details like
o how long a member had to wait to see a doctor
o how friendly office staff are
o how well the MCOs members explain the details of coverage
Healthcare quality is the degree to which health services for individuals and
populations in crease the likelihood of desired health outcomes and are consistent
with current professional knowledge
If a plan member goes to a provider the healthcare quality refers to the manner in
which the physicians treats the members condition
Importance of Quality
Consumers consider it to be an important factor in deciding which health plans to offer
Source of competitive advantage that helps organizations compete successfully
Importance of Quality for Patient Safety

o This enhances patient safety and decreases medical errors
o Medical error occurs when a planned treatment or procedure is delivered
incorrectly or when a wrong treatment or procedure is delivered
o Medical errors are caused MORE by breakdown in the Healthcare
system rather than provider errors
o Adverse Event Harm a patient suffers that is caused by factors other than
the patients underlying condition Need to see if the adverse event was
random or if it was caused by medical errors or deficiencies
What are the factors that contribute to medical Errors
o Faulty or Inadequate Communication
Physicians handwriting is acknowledged as the leading cause of
medical error
Illegible prescription can lead to improper dispensing of medications
Illegible orders can lead to inappropriate procedures and course of
treatment
Inconsistent Quality Oversight
Every state has different licensing requirements for healthcare
professionals. Accreditation programs are also widespread
Very little overlap exists to promote uniform quality oversight
Lack of Compliance with internal and external reporting requirements
Most healthcare organizations have internal systems for reporting
adverse drug interactions and minor medical errors
Any disciplinary action that limits physicians clinical privileges for > 30
days MUST be reported to the National Practitioner Data Bank
95% of the adverse drug reactions go unreported
Lack of Verification Procedures
Confidential
55
Cognizant
AHM
Treatments based on individuals analysis of results, without secondary

verification. Very high error rates are caused by this
IOM report to Bill Clinton Now they required a nationwide mandatory system of
collecting/ analyzing and reporting information on Medical Errors
Other Mechanisms to Combat this include
o Medical Error Reporting Systems that allow healthcare providers and
facilities to analyze common errors and identify error causing processes in
healthcare delivery
o Medical Alert systems that apply preprogrammed online criteria to identify
test results that fall outside acceptable ranges
o Drug Checking systems that link physician and pharmacy order entry
information systems and automatically alert physicians and pharmacists of
possible drug interactions or allergic reactions to prescribed drugs
o Electronic Medical Record systems that allow providers and health plans to
track and analyze clinical data and provide reminders for needed services
Assessing Quality in an MCO

Difficult to define what quality is and based on that definition determine whether an
MCO is delivering that quality
Performance Management can help an MCO determine how well it is doing in meeting
members needs
Quality is in the eyes of the customer Its the patients opinion which matters more
than the physicians or MCOs opinion
Quality Measures
o Structure Measures Relate to the nature, quantity and quality of resources
that an MCO has available for member service and patient care
o Process Measures Methods and Procedures an MCO and its providers use
to furnish services and care
o Outcome Measures Gauge the extent to which services succeed in
improving or maintaining satisfaction and patient health
o Most measures till now have been structure and process measures
o All three measures are interdependent structure and process are important
because the lead or are believed to lead to better outcomes but outcome is
the end result
o The Most useful outcome measures are those that can be related to specific
processes or structures
Assessing Service Quality
o Provider Service quality issues include
Ease which members can get through to a clinicians office by fone
Length of time patients must wait for an appointment
Length of time patients must wait in office to be seen by a provider
Attitude, Competence and efficiency of office staff
Clinicians Bedside Manner friendly/ listener / explanations
o Administrative Service Quality
Phone wait times when calling MCO
Attitude, Competence and efficiency of member services staff
Accuracy and timeliness of claims payment and provider
reimbursements
Speed with which member services representatives can retrieve
needed information from the MCOs IS
Availability of educational material for members
Confidential
56
Cognizant
AHM
o Use structural (no: of service reps, processing capabilities , number of
PCPs) , process linked (length of stay, accuracy , efficiency) or outcome

measures (Member satisfaction, compliant resolution)
Assessing Healthcare Quality
o This can be evaluated using structural ,process and outcome measures
o Structural Measures
Number of PCPs in the network ,
% of providers who are board certified
Education, training and experience of Plan providers
Number of providers accepting new patients
Number and distribution of specialists in the plans service area
Geographic dispersal of providers
Physicians turnover in the plan
Hospitals included in the plans network
Number of hospital beds available
Physical conditions of hospitals and other facilities
Emergency room access
Availability of member education programs
Credentialing
Main advantage Easy to identify and report / intuitively linked
to quality of care
o Process Measures
Some look at illness prevention measures and others look at how the
Providers treat sick patients
Preventive care statistics are the MOST popular measures used
during quality assessment statistics are easy to measure and
understand and they fit well with the emphasis on prevention
% of children receiving immunization
percentage of adults receiving regular checkups
percentage of members receiving screening exams like
mammograms, pap smears or cholesterol screening
% of members receiving advice on smoking cessation
Important factor appropriateness of the care delivered
Inappropriate care can be divided into
Overuse of care antibiotics to treat viral infections etc
Underuse of care provider fails to provide care that would
improve the patients health e.g. Beta blockers not administered
to patients following a heart attack
Misuse of Care wrong treatment is provided for patients
illness or correct treatment is delivered incorrectly
Standards of Care are diagnostic and treatment processes that a
clinician should follow for a certain type of patient/illness/clinical
circumstance
Published by American Medical Association (AMA) , American
Academy of Pediatrics (AAP) etc
Advantages Easy to identify , measure and report
Lead to improved health outcomes in some cases
But no link between process and improved outcome has been
defined for many process
o Outcome Measures
Confidential
3 key activities Clinical Status, Functional Status, Patient Perception
57
Cognizant
AHM
Clinical Status Relates to biological health outcomes e.g. cancer

treatments are judged using 5 year survival rates / change in tumor
rates. Other examples could include
No: of hospital admissions for certain condition
Average length of hospital stay by type of injury/illness
No: of patients contracting infection in hospital
Survival rate of people who received angioplasty
Incidence of certain conditions that commonly afflict long term
diabetes patients foot ulcers , blindness
Occurrence of low birth weight infants or premature births
Functional Status Functional status relates to patients ability to
perform activities of daily living
Patient Perception How the patient feels
o Advantage of outcome Ability to demonstrate improved clinical and
functional status over time
o Outcomes are effective measures of MCO or provider performance only if they
can be linked to structures or processes and only if they are sensitive to
modifications in those structures or processes by the MCO or provider
o Disadvantages
Not feasible in all situations like long treatment plans
Other disadvantages Inconsistency of source data , need to provider
risk adjustment, difficulty & cost of obtaining outcomes data, problems
with incentives
Need to adjust outcomes to account for risk The response to
treatment depends on factors that independent of the quality of care
provided - Risk adjustment or Case Mix Adjustment is the
statistical adjustment of outcome measures to account for these
factors
Evaluation of performance of providers is very difficult in case
outcomes are made public and used to judge providers some might
be reluctant to treat the sickest patients
Collecting and Analyzing Quality Assessment Data
o Financial Data
Describe the costs of physical , technological and human resources
needed to provide administrative and healthcare services to plan
members.
o Clinical Data
This includes both disease specific data and data related to general
health and functional status.
Provide in depth overview of outcomes associated with a particular
healthcare process and structure
Patient records / claims and encounter forms / are primary sources
Tools used include SF-36 and HSQ-39 (health status questionnaire)
o Customer Satisfaction Data
How do members / providers / purchasers view the delivered services?
Telephone or email surveys
Widely used Consumer Assessment of Health Plans (CAHPS) developed
by the Agency for Healthcare Research and Quality (AHRQ)
Reporting Quality Assessment Information
Confidential
58
Cognizant
AHM
Performance reports serve two primary purposes internally , they help

MCOs improve the quality of the healthcare and service plan members
receive by identifying the plans strengths and weaknesses
Externally performance reports address accountability to the health plans
customers and to outside agencies
Quality Improvements
Haphazard Change/ Random Change unplanned/ uncontrolled & produces
unpredictable results e.g. Explosion of healthcare costs resulting from unlimited
utilization
Reactive Change Controlled but leads to positive/negative/unintended results
Planned Change Deliberate, controlled, collaborative and proactive
Need to do the following to make changes effective
Planned Identify where improvement / define desired outcomes/ define

barriers or roots causes for problems / decide what actions are most likely to
achieve the desired outcomes
Communicated Process of Transmitting information and results

upward/downward /horizontally through the organization and outward to its
external customers
Implemented Implementation of quality improvement initiatives turns

intention into action by providing a method for responsible parties to
complete assigned tasks in a specific timeframe
Documented Accrediting organizations and regulatory bodies require

MCOs to provide documentation of three major components of quality
improvement performance assessment , program planning and
program evaluation
Evaluated Provides a measure of how well the MCOs improvement plans

achieved stated goals by comparing performance before and after changes
Strategies and Tools for Improving Quality
Benchmarking
Most effective mechanism Key Tasks include
Identifying best practices and best outcomes for a specific process
Emulating the best practices to equal or surpass the best outcome
Best practices are the latest treatment modalities and accepted by providers
are the most effective and efficacious approach to medical care
Clinical Practice Guidelines
Provide consistent delivered services that will improve plan members health
Jointly developed inhouse plus plan/provider committees or from outside

sources such as National Guideline Clearinghouse (NGC) , a Joint Venture of
AMA, AHRQ and the American Association of Health Plans (AAHP)
Provider Profiling
Involves collecting and analyzing information about the practice patterns of

individual providers
Uses credentialing and recredentialing to determine how well a provider

meets MCO standards
Identifies those providers who practices vary from the norm either because of
Usage of medical resources higher /lower than normal
Use of resources in a manner noticeably different from other providers
Peer Review
Confidential
59
Cognizant
AHM
System in which the appropriateness of healthcare services delivered by a

member are evaluated by a panel of medical professionals
This can focus on a single episode of care or on the entire program of care
Results are used to

Provide Measures of overall quality
Identify opportunities for improvement in provider performance
Serve as a general learning tool for members of the panel
Peer review is REQUIRED for services provided by Medicare and

Medicaid Recipients
Peer review participation is voluntary for services provided to

commercial plan members
Reading 8B: Quality Standards, Accreditation, and Performance Measures
Standards are defined by the Institute of Medicine as Authoritative Statements of

Minimum levels of acceptable performance or results excellent levels of performance or
results and the range of acceptable performance or results
For them to represent valid measures of quality and performance They have to satisfy
three requirements
They must relate to the conditions that are important to the plan/ members
Standards must focus on structures, processes or outcomes that can be influenced
through quality improvement initiatives
Standards should address situations that are controllable by the organization
Internal standards are developed by the MCO and based on their historic performance levels
External Standards are based on outside information such as publishing industry wide
averages or best practices. MCOs use internal standards to measure the quality of
administrative services and External Standards to evaluate healthcare services.
Accreditation
This is an evaluative process in which a healthcare organization undergoes an examination
of its operating procedures to determine if they meet designated criteria as defined by the
accrediting body and to ensure that they meet a specified level of quality
Use a combination of document review, onsite review, interviews, medical record

review and evaluation of member services systems.
External accreditation is becoming more and more important as states and
purchasers are requiring firms to undergo some kind of review process.
Employers use this to determine if the plan meets standards for quality care serves
as a stamp of approval
Accrediting Organizations
Joint Commission on Accreditation of Healthcare Organizations
o Developed in 1951
o Evaluates and accredits nearly 12000 hospitals and home care agencies and
7000 behavioral ,long term care , ambulatory care and clinical lab facilities
o Hospitals receiving Medicare / Medicaid Funds MUST be JCAHO accredited
o JCAHO also accredits MCOs and healthcare Networks
o Accreditation Process
Confidential
Complete Onsite Surveys conducted every three years

Organizations central office and any non JCAHO accredited network
60
Cognizant
AHM
All high risk services provided by the organization and a sample of the
low risk services
A sample of practitioners offices and records
Quality Standards
JCAHO focuses its review of health plan delivery system and proc on
Rights / Responsibilities and ethics
Continuum of care
Education and Communication
Health Promotion and Disease prevention
Leadership
Management of Human Resources
Management of Information
Improving network performance
On Jan 2001 JCAH) introduced new standards on Pain Management and
Patient Safety
Accreditation decisions There are six types of decisions reached
Accreditation without Type I recommendation- Demonstrate

satisfactory performance in all JCAHO performance areas
Accreditation with Type I recommendation Awarded to
organizations that fail to satisfy JCAHO standards in one or more
performance areas. Need to resolve it in a defined timeframe
Provisional Accreditation Comply with a subset of JCAHO
standards based on a preliminary onsite evaluation. This remains
effective till the whole survey is done. That must be done within 6
months of this provisional decision
Conditional Accreditation Awarded to organizations that
Fail to demonstrate compliance in multiple performance areas,
but are considered capable of achieving compliance within a
specified period of time
Persistently unable or unwilling to comply with JCAHO stds
Fail to comply with one or more accreditation requirements
Preliminary Denial of Accreditation Awarded when the JCAHO
determines that denial or accreditation is justified but decision is
subject to review
Accreditation Denial - Awarded when JCAHO determines that denial
of accreditation is justified and all appeal processes are exhausted
Can also place organizations on an accreditation watch when an important
event occurs and the root cause analysis and corrective action have not been
done correctly. This holds till JCAHO deems that it be removed
National Committee for Quality Assurance

o This accredits MCOs, Managed care Behavioral Organizations, Credentials
verification organizations (CVOs) , PPOs , disease management organizations
and physicians organizations
o More than half of the nations MCOs are accredited by them
o Accreditation Process Two parts
Onsite survey of administrative and healthcare services
Offsite evaluation of audited results of selected effectiveness of care
and consumer satisfaction measures included in NCQA Health Plan
Employer Data and Information Set (HEDIS)
Confidential
61
Cognizant
AHM
Consumer satisfaction - NCQA uses a CAHPS 2.0H survey this is

a combination of the original HEDIS member satisfaction survey &
CAHPS survey developed by the Agency for Healthcare Research
and Quality (AHRQ)
The Core CAHPS survey questionnaire are administered separately to
Medicare / Medicaid and Commercial populations
ONSITE review is at least one every three years
HEDIS results are evaluated annually
Quality Standards During onsite review , the following stds are measured
Program structure
Program Operations
Physician Contract Requirements
Availability of Practitioners
Accessibility of Services
Member Satisfaction
Assistance for people with Chronic health conditions
Clinical practice Guidelines
Continuity and Coordination of Care
Clinical Measurement activities
Intervention and follow up of Clinical Issues
Effectiveness of the Quality improvement program
Delegation of QI activity
Reviews processes for reviewing and authorizing medical care, quality of
provider networks, members rights and responsibilities, preventive health
activities and medical records.
Also address Consumer protection issues related to internal and external
systems for reviewing and evaluating medical appeals
Also coordination of access to behavioral healthcare.
Accreditation Decisions
Results are organized into 5 categories
Access and service
Qualified Providers
Staying Healthy
Getting better
Living with illness
The scores are tallied and used to arrive at a accreditation decision
8 Categories exist
Excellent exceed or meet requirements/ HEDIS top results
Commendable meet or exceed requirements
Accredited meet most basic requirements
Provisional meets some requirements but not all
Denied does not meet requirements
Suspended NCQA has withdrawn accreditation till it conducts
review and corrective action taken
Under Review initial decision made but this is being
reviewed under request of the plan
NCQA discretionary review NCQA reviews in order to assess
the appropriateness of its decision
75% weightage Compliance with NCQA 25% - HEDIS results
National Health Plan Report Card Health accreditation status
o
o
o
Confidential
62
Cognizant
AHM
American Accreditation Healthcare Commission (URAC)

o The following organizational and component accreditation program
Health Plans, Health Networks , Health Call Centers , Case
Management Organizations, Credentials verification organization,
health provider organization, health utilization management, Workers
Compensation
network,
utilization
management
for
workers
compensation and external review
Accreditation Process
Desktop review of documentation of plan policies and procedures
Onsite visit to verify the accuracy of documentation and plans
compliance with accreditation
Quality Standards
QM Structure, Organization and Staffing
Nature and Scope of the QM program
Systems for addressing Complaints, corrective action and disciplinary
action
Two types of standards SHALL and SHOULD
Shall address essential issues and define minimum levels of

acceptable quality
Should standards identify desirable levels of quality
Should gets changed to Shall over a period of time
URAC Does NOT include performance data as part of the accreditation
process. However they do require health plans to engage in quality
improvement initiatives
Accreditation Decisions
Need to 100% satisfy Shall standards and 60% Should
Remains effective for 3 years
Performance Measures
This is a qualitative measure of quality of care provided by a health plan or provider
that consumers, payers, regulators and others can use to compare plans or
providers
Foundation of Accountability (FACCT)
This is created and governed by a coalition of consumer organizations, corporate and
government healthcare purchasers
Supports a number of initiatives intended to improve healthcare quality and help
consumers make healthcare decisions based on Quality
The information collected is classified into the following areas
o The Basics delivery of good care including access/skills /Communication
/coordination /follow up
o Staying Healthy avoid illness etc
o Getting better sick ppl getting better
o Living with illness people with chronic / ongoing illnesses reduce symptoms,
avoid complications and maximize quality of life
o Changing Needs caring for people when their need changes dramatically
o They Dont collect / measure performance just guidelines
HEDIS
Administered by NCQA Performance Measurement Tool designed to help healthcare
purchasers and consumers compare the quality offered by different MCOs
Confidential
63
Cognizant
ORYX
AHM
Specified HEDIS effectiveness of care measures are used as part of NCQAs

accreditation program for MCOs
There are 7 key domains for HEDIS
o Effectiveness of Care 16 reporting measures like Immunization status/
screening programs etc
o Access/Availability of Care 5 reporting measures prenatal and postpartum
care / pediatrics / dental visits
o Satisfaction Experienced with Care member satisfaction
o Health Plan Stability practitioner turnover / total membership
o Use of Services well child visits/ cesarean section rate
o Informed Health Care Choices management of menopause
o Health Plan Descriptive information physician board certification
Updated annually to enhance quality evaluation
HEDIS 2000 added measures for chronic conditions / ongoing treatment programs
for menopause / cholesterol management and BP monitoring
JCAHO initiative incorporates the outcome and other performance measures into
the accreditation process.
This focuses on OUTCOME the actual results of care
Participating healthcare organizations collect from at least 6 measures
JCAHO plans to identify standard core performance measures for ORYX
Additional Sources of Quality Standards, Performance Measures and Data

Quality Compass
NCQA offers this - A national database of performance and accreditation information
submitted voluntarily by manage care organizations nationwide
This draws performance measures from HEDIS
Although its voluntary companies are finding it useful to compete effectively
Agency for Healthcare Research and Quality (Agency for Healthcare Policy and
Research)
Primary Research arm of the US Department of Health and Human Services
One imitative is CAHPS
AHRQs Computerized Needs Oriented Quality Measurement Evaluation System (CONQUEST)
Quality Improvement System for Managed Care
Part of the Balanced Budget Act of 1997 Healthcare Financing Administration Service
Quality Improvement System for Managed Care QISMC to monitor quality improvement
efforts of Medicare / Mediclaim
These standards are to be met to be Medicare Contractors
Confidential
64
Cognizant
AHM
Managed Healthcare Operations I

Reading 9A: Healthcare Marketing for MCOs
List the elements of the marketing mix and describe their role in the marketing process
List several forms of marketing research that MCOs use to obtain information about their
customers
Explain the major objectives of benefit design
Describe the market segments that comprise the non-group market
Explain the impact of state regulations on marketing to the Medicaid population
Explain the differences between small groups and large groups that affect marketing
efforts directed to each of those segments
Explain which promotion tools and forms of distribution are used most frequently in the
non-group and group markets
Reading 9B: Underwriting, Rating, and Financing
Define underwriting and explain the differences between new business underwriting and
renewal underwriting
Identify and describe the characteristics of typical rating methods used by MCOs in
setting premiums
Identify and define key accounting and financial reporting terms for MCOs
Explain the differences between fully funded and self-funded health plans
Confidential
65
Cognizant
AHM
Reading 9A: Healthcare Marketing for MCOs

Marketing Terms
Marketing Process of Planning & executing the conception, pricing, promotion and
distribution of ideas, goods, and services to create exchanges that satisfy individual and
organization objectives
Other key terms to know A market,
Marketing Research, Market Segmentation ,
Positioning, Product , branding , product line, promotion , advertising, personal selling ,
telemarketing, sales promotion, publicity, press release
An exchange occurs when one party gives something of value to the other party for
something of value in return.
4 Ps of marketing Product, Price, Promotion and Place (Distribution)
Product - Benefits that MCO designs (through research etc)
Price Premium you charge
Promotion Communicate this to the users
Place Sales reps / employers
Key questions
How should the product be positioned relative to the other products in market?
What promotional tools will be the most effective for communicating?
How will MCO respond to competitors products and service offerings?
Which distribution channel members will be most effective for selling this product?
Customers Role in Marketing Decisions
Customers could be individuals / employers / government / association / broker / employee
benefits consultant / in network or out of network provider
What do employers and employees want in a health plan?

Are members needs being satisfied by their MCOs?
Do physicians and hospitals need additional support or continuing education to help
them provide better quality services?
Are our products being offered at a competitive price?
How can we satisfy our customers demands for quality care and service in a cost
controlled Environment?
Marketing Research for MCOs

Critical issue Markets are local and not national
Different areas have different needs for different healthcare facilities
Techniques used include written /fone surveys , one-on-one interviews , focused
group discussions
Focused group Interview - unstructured informal session in which six to ten people
participate led by a moderator who guides the group
Examples of adv establishment of PPOs / toll free lines
Product
Use branding to distinguish products
Need to develop high quality products that meet consumers needs
Development and Benefit Design
Confidential
66
Cognizant
AHM
Benefit Design and Pricing are two important processes.

Benefit Design is used to determine which level of benefits will be offered to its members,
the degree to which members will be expected to share the costs of such benefits and how
the members can access medical care through the health plan
Definitions will include
Healthcare services covered by the plan and the UR for those services
Any exclusion or limitations that will apply
Requirements on deductibles or copayments
Decide on prescription benefit, level of benefit, form of benefit
Decide on Vision / Dental and other ancillary benefits
Decide on the network providers who will support you / credentialing
Determine which services may be obtained by members to be covered by the plan
Determine the roles and responsibilities of a coordinator of care or PCP in the plan
Decide which benefits will be carved out and delivered to specialty services
Satisfy applicable regulatory requirements
Need to decide the level of benefits to include in the Plan. HMOs typically will have more
benefits included while PPOs are more flexible
Secondly, can exclude experimental procedures and cosmetic procedures from this set
Lastly determine which cost sharing features to include
Copayments differential rates for different levels
Coordination of care PCP appointment / nature of self referral
Deductibles and coinsurance
Coordination of Benefits
Out of Pocket Maximums dollar limits set by MCOs on what you might have to pay
out of pocket for the services
Annual and Lifetime Maximum benefits
Penalty provisions decreased benefits for not complying with the plan e.g.
admission to hospital without notifying the plan
Innovations in benefit design
PCP / POS were innovations
PCP now is a coordinator of care enlarged role and responsibility
Diversification of product offering out of Initial scope Customer want one stop shop
Challenge to provide marketing support for a diverse product line
Price
Discussed in section 9B
Promotion
Inform the consumers about the product and price
Persuade them to buy it and remind them the benefits of choosing our organization
Differentiate on basis of Quality / Customer Service / Cost / Convenience / Accessibility of
healthcare services / Preventive medicine or health promotion services
4 tools used Advertising, personal selling, sales promotion and publicity
Distribution
5 key categories for selling Internal Sales force, agents, brokers, employee benefit
consultants and direct marketing
Confidential
67
Cognizant
AHM
Internal Sales Force

Sales manager directs the roles of brokers and agents. Sales person and sales
support staff are employees of the firm.
Organization of Sales force
o Lines of products like HMOs, PPOs, POS etc
o Market segments sales to groups or non group markets
o Group Size Large , small
o Population Served Medicare / Medicaid / workers compensation
o Geography metropolitan area / rural area
Agents
This is a person who is authorized by the MCO to act on behalf of the insurer to negotiate,
sell and service managed care contracts.
Captive agents represent only the MCO while Independent agents can represent anyone.
They are compensated in the form of Commission.
Brokers
Salesman who has obtained a license to sell and service contracts of multiple health plans
or insurers and who is ordinarily considered to be an agent of the buyer, not the health plan
or insurer
These broker services groups comprise of 2 to 1000 agents and are compensated mostly on
commission basis.
Employee Benefit Consultants
This is a specialist who is hired by a group buyer to provide advice on which plan to
purchase This guy evaluates the proposed benefits plans and recommends the best choice
to his clients. Factors including accreditation etc are also considered.
The consultant is paid a fee by the client. He offers in some sense a more objective
judgment on the various plans
Direct Marketing
Use one or more media to elicit an immediate and measurable action from a client or
prospect. Use tools like direct mail, newspaper, television.
Database Marketing Creation of a DB record of information about each customer or
customer prospect that is used to narrow the focus of the organizations direct marketing
effort.
Segmentation and Positioning for Healthcare Markets
Market segmentation is the process of dividing the market into smaller more manageable
segments. Top level segmentation is generally group vis--vis non group. Others
include Geographic, Product, Demographic and Distribution Channel.
Non Group Market
Three key classifications Individual market, senior market and the Medicaid
Market
Individual Market
o Composed of customers not eligible for Medicare or Medicaid who are covered
under an individual contract for health coverage. These are sub divided into
Former Customers group Guys who retained individual coverage
after changing jobs. This contract is called a non group contract
Regular Individual Market Customers Students / self employed
o Channels used for this market are direct mail /telemarketing / advertising
Confidential
68
Cognizant
AHM
o Sales personnel Agents and Internal Sales force

o
o
MCOs health screen members to prevent anti-selection

Individual market consumers not meeting eligibility requirements alone are
often eligible to enroll through their affiliation with a professional association
such as the Chamber of Commerce
The Senior Market

o The segmentation is generally based on age.
o The HCFA protects the consumers interests by enforcing regulations that
affect the marketing of managed healthcare products to seniors.
o HCFA must approve ALL marketing materials including membership and
enrollment materials used by MCOs to market managed care products to the
medicare population.
o Other
regulations
include
prohibition
of
Door-to-door
selling,
misrepresentation, discriminatory marketing methods, and use of misleading
marketing material or practice.
o Medicare Managed Care National Marketing Guideline Ensure uniform
interpretation and to provide beneficiaries with accurate & clearer information
o Basically the senior market can choose from
Traditional Indemnity Coverage under Medicare
Medicare Part A - provides hospital insurance and
Medicare Part B -Covers cost of physicians professional services
Can purchase a Medicare Supplement to cover the Gaps in this
MEDIGAP Policies cover out of pocket expenses / routine
services like physical examination / prescription drugs / glasses
Managed Care Coverage under Medicare+ Choice
Chose from a variety of plans HMOs / POS /PPOs / Competitive
Medical Plans and private FFS plans.
Cover AT LEAST Medicare A & B - But can offer other packages
Significant benefit is elimination of paperwork, Coverage
of services not covered by Medicare, generally accept all
applicants (irrespective of preexisting conditions)
o Distribution: Informal discussions, direct mail, television, newspaper,

telemarketing
o Sales team: Internal sales force
Medicaid Market
o JV between Federal and States which targets hospital/medical expense
coverage for the low income aged and disabled citizens. Some states require
these people to join a managed care plan.
o Opportunity that is tempered with strict regulations
o Requiring preapproval of all forms of written and verbal communication
between MCO and Medicaid recipient
o Preauthorization of marketing materials , programs, brochures, flyers etc
o Prohibiting giveaways or sales promotion items
o Prohibiting door to door or telephonic solicitation
o Distribution: Informal discussions / direct mail / TV advertising
Confidential
69
Cognizant
AHM
o Sales Team: Some states require Independent enrollment broker / Benefits
counselor should manage enrollment. Other states MCOs can engage

independent brokers / agents / internal sales force
Group Market
The Key groups include
Employer Employee Groups private / public / federal govt
Multi-employer groups trade associations / labor unions /
Affinity Groups Professional associations / business associations / fraternal orgs
Debtor-Creditor Groups people who have borrowed funds from a bank etc
Small Group Market
Classified as 2-99 members
Generally seek basic healthcare products with cost mgmt features
Price is the most critical decision for small businesses lowest price/longest period
with a 2 to 3 year rate lock guarantee
This segment tends to switch frequently
Heavy reliance on the sales representative agent/ broker
Started joining employee purchasing alliances / Health insurance purchasing
Coops / Purchasing Pools / Employer Purchasing Coalitions / Purchasing Coalitions
Offered through the local chamber of commerce or small business dev association
Distribution:
o Personal Selling is the most effective method specifically telemarketing
has proved to be the most effective
o Direct Mail is also another tool
Sales Team
o Agent is most important
o Local Chamber of Commerce discounted rates for all members
Large Group Market
Size > 250 (or 500 or 1000) Members
These plans may be self funded employer bears the financial risk
Two key markets
o Large Local groups manufacturing / municipal / state govts
o National Accounts Large group accounts that have employees in more than
one geographic area
Usually use employee benefit consultant
Want uniformity in price/ product / service
Seek cost management strategies
Important factors: Quality /Diverse product range / access / service / high quality
provider networks/ employee satisfaction / accreditation / self funding capability
Expectations Customized products / high levels of service / continued
enhancements / proof of value / Ability to report utilization data
Distribution:
o Personal selling is the most effective tool
o Dual or multi level need to communicate to employees and employers
Employer target CFO / CEO / Employee benefit consultant
Sometimes ask for RFPs to multiple firms
o Employees Group meetings / Health fairs / promotional info / internet
Sales team
o Internal sales force / Employee benefit consultants
Confidential
70
Cognizant
AHM
Intermediate Group Market

Not too large not too small
Cost and price sensitive but may fully fund their coverage and offer employees only
one type of plan
Negotiate lower premiums as relatively stable claims experience

Limited influence on Benefit design
Reading 9B: Underwriting, Rating, and Financing
Underwriting
The process of identifying and classifying the risk represented by an individual or group is
called underwriting.
Those individuals who have a greater than likely risk of loss are likely to take up insurance
this tendency is known as Anti-Selection or Adverse Selection
Underwriters Key Task Analyze each individual or group applying for insurance in order
to identify the characteristics that contribute to risk, measure the amount of risk and
determine if this is acceptable.
Key tasks
Assessment of typical incidence of illness / injury among individuals of same age/sex
Consider the effect of risks specific to the individual such as occupation/health status
Underwriting Manual document that provides background information about
various underwriting impairments and suggests the appropriate action to take if such
impairments exist
o Underwriting impairments increase an individuals risk above normal level
o Average risk of loss is typically called standard risk
o Lower than average risk is called Preferred Risk
o Higher than average risk is called substandard or unacceptable risks
Group evaluation Focus on the group as a whole
o Reason for groups existence
o Size of Group
o Flow on new members in and out of the group
o Stability of the group
o Number of eligible members who will participate in the plan
o Way in which benefit levels will be determined
o Activities of the group
Does the group represent a good risk as a whole ?
Some states MCOs conduct medical underwriting for small groups give out health
questionnaires submitted by all proposed plan members. Based on the results the
MCO may recommend the following
o Waiting Periods period of time during which the insured groups medical
expenses are not covered
o Preexisting conditions limit or exclude coverage for conditions that arose
before coverage date
o Benefit exclusions coverage for specific health conditions not allowed
Critical balance between very strict and very lenient underwriting
Common underwriting requirement include
o Min participation requirements min % of total emp who should take part
o Benefit limitations - a lifetime max of bed days / dollar amt for a condition
o Benefit deductible
o Coinsurance
o Enrollment restrictions allow members only in certain time windows
o Health statements submitted by members when they join
Confidential
71
Cognizant
AHM
New Business Underwriting

First issues coverage to a group the rating structure is used as a basis for negotiation.
Charges these exact premium rates only if the group satisfies the risk assumptions
The rate is adjusted based on the following information
Age and gender distribution
Level of participation in the health plan
Benefits offered
Occupational hazards common to the group
Group Size
History of persistency with the carrier
Previous claims experience where permitted by state law
Renewal Underwriting
Review all the selection factors that were considered when the contract was issued
Compare the groups utilization rates to those the MCO predicted
Reevaluation of two factors Groups Experience and level of participation in plan
Group experience Cost of providing care to the group during the period
Degree of employee participation to avoid antiselection
Need to track utilization , demographic factors, cost per member
Legal Requirements
Some states prohibit MCO from charging more than base rate listed for specified
products/plans like HMOs.
o First ploy decline coverage to any group with more than average risk
o Some states deny the above right to the firm
o Then need to price the increased risk into the base rates of HMO
Federally qualified HMOs cant medically underwrite any group incl small groups
Non federally qualified HMOs are subject to state laws and can do this
o However they also are restricted in underwriting Medicare risk
Rating
This is the process of calculating the appropriate premium to charge purchasers, given the
degree of risk represented by the individual or group, the expected cost of services, and the
expected marketability and competitiveness of the plan.
The professionals who perform the mathematical analysis for setting up insurance premium
rates are called actuaries
Rating Methods
Managed care uses a variety of rating methods to develop premiums
Community Rating
o This is a rating method which sets the premiums for financing medical care
according to the health plans expected costs of providing medical benefits to
the community as a whole and not any sub group
o Both low risk and high risk are factored and the risk is spread
o Not used for large groups (except when specified by state law)
o This rate is generally used to calculate a reference rate
o Some state and federal initiatives have mandated this for small groups
o Standard Community rating/ Pure Community Rating
Consider ONLY community wide data and establishes same financial
performance goals for all risk classes
No adjustment for age / gender / industry / experience
Confidential
72
Cognizant
AHM
Can vary rates within a plan by dividing members into tiers based on
number of individuals covered. Can have upto four or five tiers.
E.g. Tier 1 employee only tier 2 employee + one dependent
o Community rating by class (CRC) - NIAC in 1991 adopted a Small Group
Model Act that allowed health plans to use a modified form of community
rating to underwrite small groups
Divided into 9 rating classes based on demographic factors / industry
characteristics / experience
The average premium in any class could NOT be more than
120% of the average premium in any other class
o A 1995 amendment eliminated the class rating rules and required plans to
use the Adjusted Community rating (ACR) / Modified Community Rating.
The health plan divided the members into classes /groups
based on geography / family / age
etc and charges all
members of the same class or group the same premium
The Plan cannot consider experience in developing these rates
This law did not repeal the state laws they can still allow
rating based on experience factors
Manual Rating / Book rates
o This is a rating method in which the health plan uses the plans average
experience with all groups to calculate the premium for the group
Experience Rating
o This is a method under which the past record is analyzed and used to
calculate premium partly /completely based on the groups experience
o Lower premium for lower utilization and vice versa
o Use at least two years of experience to calculate these rates
o Most experience rated firms have 1000 plus members
o Two types
Prospective Experience Rating Past experience to estimate the

groups expected experience. Premiums calculated on this expected
experience. Health plan absorbs gains/ losses for variance from this
12 months is a typical prospective experience rating period for primary
care / shorter rating periods happen for specialty services
Retrospective Experience Rating - looks back at end of the rating
period and evaluate gains/losses and pass this onto the group.
Federally qualified HMOs cannot use this rating method
o Pooling Combining a number of small groups and evaluating the
experience of the large group. Lower premiums achieved
Blended Rating
o Not very extensive claims experience.
o Partly on manual rates and partly on experience
o Credibility Factor measures the statistical predictability of groups experience
o Large groups have more credible experiences than small groups
o Blended rate = experience group rate * credibility factor + manual rate * (1credibility factor)
Legal Requirements
Amendments to the HMO act 1973 permitted federally qualified HMOs to use the
community rating, CRC or ACR but not retrospective experience rating.
Federally qualified HMOs need approval for ACR cant charge > 110% of the rate
with pure community rating.
Confidential
73
Cognizant
AHM
Other states force community rating for individuals and small groups. HFCA requires all
health plans to assume Medicare risk using ACR.
To obtain federal contracts for the Federal Employee Health benefit program an MCO cant
charge the government more than it charges other groups of similar size.
NIAC Small Group Act - Rate Spread The difference between the highest and lowest
rates that a health plan charges is to a ratio of 2: 1
Financing
File an annual statement with NAIC for each state they do business in.
Some critical finance terms
1. Income statement
2. Revenues
3. Expenses admin + stop loss premiums + reimbursement costs + utilization costs
4. Assets value of all items company owns
5. Liabilities all debts and obligations of a company. Most significant are the
reserves (estimates of money that an insurer needs to pay future business
obligations). These include Incurred but not Reported (IBNR) Claims.
6. Capital
7. Surplus = assets liabilities
8. Forecasting Predicting an MCOs incoming and outgoing cash flows Primarily
revenues and expenses and predicting the value of its assets, liabilities and capital.
9. Budgeting process that includes creating a financial plan of action that an
organization believes will help it achieve its goals given the forecast
Concerned with statutory solvency ability to maintain at least its minimum amount
of capital and surplus specified by state insurance regulators
NIAC requires at least $1 million.
HMO Model act requires specified % of annual premiums and expected expenses
Variance Analysis difference between budgeted and actual income and expenses
Plan Funding
Method that an employer or plan purchaser uses to pay medical benefit costs.
Health plan may be financed or funded in a variety of ways Fully funded plans and
self funded plans
Fully funded Plans
MCO bears full financial responsibility of guaranteeing claim payments paying for all
incurred covered benefits and administering the health plan this is the traditional
way
Self Funded Plans
o Employer or group Sponsor is financially responsible
o May be partially or fully funded
o ERISA these plans are exempt from specific state insurance regulations
o Mechanism the money is deposited in a Funding Vehicle. Company only
pays for incurred healthcare costs.
o In case of catastrophic medical claims the employer will not have funds.
Then he utilizes Stop Loss Insurance to cover the risk.
o Individual Stop Loss Coverage/Specified stop loss coverage provides
benefits for claims on an individual that exceed a stated amount in a period
Confidential
74
Cognizant
AHM
o Aggregate Stop Loss coverage provides benefits when total claims

o
Confidential
exceed certain amount in a specified period

Administrative functions
Do it themselves
Self pay employer administers the plan by hiring staff/ systems
TPA no financial risk
Administrative Services Only fixed fee per employee
75
Cognizant
AHM
Managed Healthcare Operations II

Reading 10A: Information Management
Describe the kinds of information and information systems capabilities needed by

managed care organizations
Discuss some of the primary challenges for managing data and information
Discuss the use of the following information technologies in managed care

environments:
- Electronic commerce
- Electronic data interchange
- Decision support systems
- Data warehouses
- Electronic medical records
- Health information networks
Reading 10B: Claims Administration for Managed Care
Define encounter
Describe some of the key positions in a claims administration department
Explain the steps followed to process a managed care claim
Describe some types of information an automated claims database needs to contain

Reading 10C: Member Services
Describe four types of member services activities commonly conducted by MCOs
Describe several ways in which MCOs use technology to facilitate the delivery of
member services
Explain how MCO arrangements for providing member services vary from company to
company
Describe the considerations for managing accessibility, people, processes, technology,

and performance for member services
Confidential
76
Cognizant
AHM
Reading 10A: Information Management

Information Technology Needs
Information Management is a combination of systems, processes and technology that an
MCO uses to provider the Companys Information users with the Information they need to
carry out their job responsibilities
Typical information used will include
Description of benefits structures for the products
Member eligibility rosters
Current information about provider networks
Reimbursement arrangements with participating providers
Information to support authorization processes
Reports on Utilization and Quality Management Programs
Member satisfaction surveys
Claims processing / billing and payment information
Performance measures of various departments
Financial information for accounting and reporting purposes
Needs for Information System Capabilities
An information system is an interactive combination of people, computer hardware and
software, communication devices, and procedures designed to provide a continuous flow of
information to the people who need it
Need to assist people in the day to day operations and need to support analysis and
accumulated data and information and report the results of this analysis
Other specialized systems include
1. Credentialing System Plan Managers need to review documentation of the
healthcare professionals and institutional providers
a. Licensure, Certifications, evidence of malpractice insurance, history etc
b. Need to track the credentialing information and regularly update it
2. Contract Management Can be very complex (esp with Capitation)
a. If costs are not calculated properly, the are likely to lose money in bidding for
future contracts
b. Need to have access to accurate lists of covered individuals
c. MCOs need to reconcile capitation payments and manage risk pools
d. Need to check the eligibility status very carefully
e. Contract Management System incorporates membership data and
provider reimbursement data and analyzes transaction according to
contract rules
f. Systems have support of decision making, modeling and forecasting, cost
reporting an contract Compliance Tracking
3. Utilization Management Software
a. Need to manage authorization transactions and utilization
b. Pre-established Guidelines determine authorization and payment
c. Can automate this process and monitor the actual costs of care
d. Need systems to manage access, utilization and quality of care under care
management or disease Management programs
4. Quality Management
a. Positive outcomes of treatment or lower incidence of illness are valued by
members
b. Need to store, analyze and report large amounts of clinically significant data
over time to support development of quality indicators, outcome measures
and clinical protocols and guidelines
5. Provider Profiling
Confidential
77
Cognizant
6.
7.
8.
9.
AHM
a. This helps detect under/over utilization and inappropriate utilization of

medical resources
Enterprise Scheduling
a. Need to control usage of resources like MRI and surgery
b. Enterprise Scheduling System permits users within an enterprise to function
as a single organization in arranging access to facilities / resources
Claims Processing
a. Need a vast amount of data accumulated
b. Used by all segments of the company
Marketing
a. Need to communicate information to purchasers and members
Member Services Fast/Convenient access to information, transaction processing
and other types of services for members
Challenges
1. MCO needs to manage large volumes of internal and external data
2. Need to manage different types of data clinical/regulators/legal /quality/
3. Need to acquire complete, accurate and consistent data different codesets etc
4. Data that is readily available and easy to collect may not be the most relevant
may need to modify the data through additional analytic tools
5. Need to manage different data formats from providers and plans / diff databases
/ paper transactions /
6. Need to produce many different reports at different frequencies format/ length /
type of information / level of detail all can vary
7. Laws which are stringent on the usage of e-PHI and protecting it
Information Technology
This refers to the wide range of electronic devices and tools used to acquire, record, store,
transfer or transform data or information. Devices and tools used include
1. Electronic Commerce
2. Electronic Data Interchange
3. Decision Support Systems DSSs
4. Data Warehouses
5. Electronic Medical Records (EMRs)
6. Health Information Networks (HINs)
Electronic Commerce
MCOs use of Computer Networks as a means to perform Business Transactions and
to facilitate the delivery of healthcare and Non Clinical Services to MCO members
Use it to communicate within the Health plan and with plan members/purchasers /
providers / regulators / accrediting bodies / and potential members and purchasers
E-Commerce helps expand document access
Long term cost savings Increased speed / access to information
Most of the traffic is via the internet
Use of websites Informational Purposes and Transactional Purposes
Informational Marketing / Explaining Plan benefits / Lifestyle / Reporting info/
Eligibility information , Clinical Practice Management and Formularies
Transactional Changing members information / changing PCP / Prescriptions/
Status of Claims / Processing authorization requests / update eligibility / payment
E-Health Used to refer to concept of and strategies for providing health related
information, products and services online
Advantages of the Internet
o Worldwide use
Confidential
78
Cognizant
AHM
o Growing usage among the general population

o Cooperative oversight and ready availability no one dominates the net
o Interoperable Communication
o Low Cost
o Direct access to current and potential consumers
Potential Disadvantages of Internet Usage
o Concerns about Security need to have secure enterprises
o Use secure internet and intranets
o Extranets are used to connect providers / members / regulatory bodies
o Types of securities employed include
Firewalls unauthorized access to internal network
Anti virus programs
Encryption
Digital Signature
Electronic Data Interchange

Computer to Computer transfer of data between organizations using a data format agreed
upon by sending and receiving parties. Information is routed through network systems and
follows standards and procedures that allow output from one system to be processed
directly as input to other systems
Organization who do business using EDI are called Trading Partners
EDI is used for
1. Transmission of claims and encounter reports from providers to health plan
2. Transmission of data from Claims database Medical management departments
3. Transmission of data among different MCO departments or geographic locations
4. Exchange of data between MCO and regulatory body or accrediting agency
5. Transmission of member eligibility data from an MCO to its providers
6. Exchange of information between an MCO and its providers regarding requests for
authorizations of services and referrals
Advantages of EDI
o Speed of data Transfer and Improved Data Integrity
o Elimination of unnecessary paperwork Cost saving in administrative costs
Largest cost of claims processing is labor Data entry and
examination functions
o Reduction in processing time increased productivity
o Improved Business Methods Focus on improving the details of repetitive
transactions and to upgrade the internal procedures
Technology requirements for EDI
o Internet serves as the communication link
o Standardized Data format is essential
o Set of syntax / Grammar that forms part of the basis of standard usage
o Need an industry agreement on standards examples include
Confidential
ANSI Voluntary national standards organization creates a

consensus based process by which fair and equitable standards can be
developed. This serves as a legitmizer of standards
ASC X12 ANSIs Accredited Standards Committee X12 was
created in 1979 to develop the EDI standards. X12 operates with
committees and subgroups. Insurance Subcommittee came in 1989
American Health Information Management Association Focuses
on EDI standards for exchange of clinical data
79
Cognizant
AHM
American College of Radiology and National Electronic Manufacturers

Association ACR-NEMA Xray imaging standards DICOM 3
HL7 Health Level 7 - Scope is information exchanges among
computer application systems. HL7 developers are working with X12
standard developers and with the American Society for Testing and
Materials to coordinate interchange of Clinical Health Data
American Dental Association Reporting standards/Guidelines / for
the dental system
Computer Based Patient Records Institute CPRI These
standards are related to the Computerization of Medical Records
Decision Support Systems

This uses databases and decision models to enhance the decision making process for
MCO executives / managers/ clinical staff and providers
Use Identify the most effective medical intervention, provider profiling and tracking
of provider reimbursement
Expert System knowledge based computer system Purpose: Provide expert
consultation to information users for solving specialized and complex problems
Primarily used in Claims Administration but also used in medical management
decisions
In case of providers, the focus is on supplying the providers with information they
need at the time clinical decisions are made one e.g. is embedding clinical decision
support criteria into decision support software
This helps develop treatment guidelines based on specific diagnosis of problems,
warnings of drug interactions.
Facilitators not replacement!
Data Warehouses
Legacy systems need for function / high cost of replacing
Searching from multiple unlinked DBs is time consuming
A data warehouse is a specific database containing data from a variety of sources
that are linked by a common subject
This data is integrated and presented in a non repetitive standard format
Data can be from both internal and external sources and can be queried from a
single interface
A consistent format for data helps them compare data across different types of MCO
products and against other MCOs
Advantages and disadvantages
o Pros
Simplify the process of extracting useful information
Relieves the individual DBs from having to store large amounts of
redundant data not needed for daily operations
Help detect trends or relationships between data that is not
immediately obvious
o But
Very Costly and Complex to implement
Time consuming and requires technological expertise and cash
The ROI might not be realized very quickly
Electronic Medical Records / Computer Based Patient Record
Computerized record of a patients clinical, demographic and administrative data
Confidential
80
Cognizant
AHM
Include Medical History, Current and past medications, diagnoses of illness, test
results and current treatment status
Could also include Digital Images, MRI images, X Rays etc
Organized along Individual Patients and not providers
EMR software can be designed to Alert a provider to possible drug interactions in
case of patient receiving multiple medications
Health Information Networks

This would be more efficient if it is transferred across the entire network of providers
Health Information Network is a computer network that provides access to a
database of medical information Proprietary to the Organization
Community Health Information CHIN its used by several organizations
Health Data Network HDN links to the data warehouse that stores very large
amounts of data that reside in the medical records of an entire provider network
Access to this using a secured extranet / distributed database
Most HINs are internet based rather than built on proprietary computer networks
Advantages and Disadvantages of HINs
o These have the potential to increase the quality of Medical Care
o MCO reviews claims, can match diagnosis treatment codes/ verify
authorization, and record utilization information
o Allows Multiple professionals at different locations to access a member
chart simultaneously
Key Benefits
o Improved Care and Service to Members Timely cost effective
o Lower Costs of Information administration o Improved outcomes measurement Extract trends/ develop guidelines
o Better Measurement of provider performance
o Increased efficiency and accuracy of information about healthcare services
rendered to members
o Reduced Exposure to liability for poor care
o Improved ability to meet reporting requirements
Disadvantage
o Significant costs and risks including
Cost of equipment
Cost of planning , installing and maintaining network and software
Extreme technical complexity of achieving the reliability and speed
Labour costs for training providers and their staff
Lack of standardization of the EMRs
Resistance to change among the providers
Security issues concerning privacy , protection of the MCOs
proprietary information and external interference with MCOs systems
Outsourcing Information Management
Hiring external vendors to perform specified
management activities
Confidential
functions
like
data
and
information
81
Cognizant
AHM
Reading 10B: Claims Administration for Managed Care

Claim is an itemized statement of healthcare services and their costs provided by
physicians organizations and other providers.
Claims are submitted to the insurer or managed care plan by the member / provider.
Claims in Managed Care
Claim form is the application for payment of benefits to the health plan
The nature of claim function varies with the type of plan and compensation
arrangements that the plan has made with its providers.
PPO would be like a traditional billing approach, while HMO Capitation would simply
require the HMO to state the services provided
An Encounter is a healthcare visit of any type by an enrollee to a provider of
healthcare services. HMOs receive an encounter report supplies management
information about the services provided each time the patient visits a provider and
these could be considered as surrogates for insurance claims.
These can be used to track utilization of services
Claims Administration
This is the process of receiving, reviewing, adjudicating and processing claims
This is the Primary information source for the MCO for compensation, utilization, financial,
provider, marketing, information management, medical management, provider relations,
contracting etc
Claims Administration Department
Generally a Director / VP as a head
Oversees entire claims function from planning and management perspective
Claims Manager - Oversees the day to day running of the claims department,
including staffing functions and managing the people and systems
Claims Supervisors Oversee the work of several claims examiners support their
staff and establish efficient claims handling procedures. Further, they may handle
difficult and large amount claims and make work assignments for claims examiners
Claims Examiners / Analysts consider all the information pertinent to a claim and
make a decision about the MCOs payment of the claim. Key responsibilities include
o Analyzing claims to determine the type of coverage held
o Assessing medical information
o Requesting additional information needed to determine benefits
o Determining the person or entity to pay
o Calculating payable benefits
o Explaining claims denials, payments and contract provisions
Other posts include Claim reviewers, quality control reviewers, claims adjudicators,
nurse or utilization reviewers, clerks and admin support function
Functions might be organized on
o Lines of Business PPO, HMO, POS , EPO
o Claim function COB etc
o Type of Claim Hospital , physician, outpatient surgery
o Client Grouping MCOs with large clients
o Origination of the claim in network or out of network
Claim Decision Process
Key steps
1. Was the member eligible to receive coverage under the plan at the time of service?
Confidential
82
Cognizant
2.
3.
4.
5.
6.
7.
AHM
Was the provider in the network of the plan?

Was treatment provided medically appropriate and necessary?
Was a preauthorization or referral given for the service or treatment?
Is the service covered under the plan?
What benefits are payable?
Does the member have other health insurance coverage?
Verifying Members Status

Routine step happens automatically as it is electronically maintained
Verify Provider Status
Most plans give higher level benefits in the network than outside
Determining Appropriateness of treatment provided
They determine this by developing edits into the claims decision processing system.
Edits are criteria that if unmet will prompt further investigation of a claim These in
effect KICK OUT claims for further review.
This may be triggered if
o Missing or conflicting information
o Illogical responses or codes contained on the claim form
o Treatments or procedures not covered by the health plan.
o Verification of member eligibility
o Prior authorization requests
o Appropriateness of medical care.
These are programmed into the claims processing system
Verifying Authorization
Could be issues like pre-admission testing before surgery or referral to specialist by PCP
Verifying that the Service is covered by the Plan
Verifying that the Service was actually provided
The Claimant supplies on the claim form much of the info to verify this
The standard terms used for this are Diagnostic and Treatment Codes. These are
brief, specific description of each diagnosis or treatment and a number used to
identify each diagnosis and treatment.
These include ICD 9-CM (diagnostic codes) and CPT (Treatment Codes)
Can explain conflicts between diagnostic codes and treatment codes
The standardized claims forms are
o UB -92 requires hospitals to follow specific billing and itemization procedures
o HCFA 1500 Providers to bill professional feeds to HMOs, insurers etc
o Superbill this lists the specific procedures or medical services provided by a
physician. It has check boxes
Determining the Amount of benefits to Pay
The factors considered include compensation arrangements, authorization requirements,
any copayment or coinsurance requirements, Coordination of Benefits
Automation of Claims Process
Used to verify member eligibility and provider status
More sophisticated plans get claims through EDI
Data that is potentially required includes
Confidential
83
Cognizant
AHM
1. Member data age / sex/ PCP / dependents

2. Predetermined Fee Schedules for service types
3. Provider Information profiles that contain information on the provider who
participate in the plan, type of compensation arrangement , presence of any risk
pooling arrangements, any special discount that applies to provider fees, and
restrictions on the type of service provided
4. Authorization requirements and utilization information
5. Use of coordinator of care function (Use of a provider such as PCP)
Still collect information about he medical condition that prompted an encounter to analyze
utilization and provider practice patterns. This data is used as a basis for next years
capitation payment
Nowadays we use a combination of discounted FFS and capitation
Investigation of Claims
This is the process of obtaining information necessary to determine the appropriate
amount to pay on a given claim. The majority of claims do not require investigation
Extent of investigation depends on exact type of claim, information needed to
make an appropriate decision and the difficulty encountered in obtaining information
Sources of info attending physicians, labs, Medical directors and members
NIAC Unfair Claims Settlement Practice Act Specifies standards for the
investigation and handling of claims. A practice is considered improper if
o Committed Flagrantly and in conscious disregard of the Act
o Committed so frequently that a general business practice to engage in that
type of conduct is indicated
Need to obtain a valid authorization from the member to obtain the claims
investigation data from various sources and certain investigation techniques may be
prohibited by federal or state statutes and regulations. Violations of such laws and
regulations subject the MCO to liability for payment of legal damages
Claims Administration as a Customer Service Function
Information resource for the rest of the firm and is vital customer service role
First contact point apart from enrollment
Prompt processing makes a lasting impression on a customer
Confidential
84
Cognizant
AHM
Reading 10C: Member Services

Member services is a broad range of activities that an MCO and its employees undertake to
support the delivery of the promised benefits to members and to keep members satisfied
with the company.
There are two key segments
Inbound member contacts member initiated requests for information, transactions,
service and assistance with problems
Outbound member contacts initiated by the MCO
Type of Member Service Activities
Member Education
Need to understand their roles and responsibilities

Need information that would help manage & improve their health
Education is in the areas of benefits, cost sharing responsibilities, health plan
authorization systems BEFORE they need the services is a good way to reduce
member confusion about access and payment
Reduce the incidence of disputes and claims
Preventive care measures are proactively pitched Member OUTREACH programs
o Focus on the administrative information about the plan
o Health related information or both
Typically the following information is provided to all plan members
o Description of services covered and excluded for diff types of care
o Responsibilities in the care delivery process copay/ deductible / referrals /
authorization
o Differences between in network and out of network benefits
o Services requiring authorization of payment and guidelines for the same
o Preventive care / screenings / disease management / triage services details
o Health related information of interest to the general population
o Options for resolving complaints and appealing to health plan decisions
Another mechanism is identification of groups of members with common
characteristics (sex / age / ethic background) and sending them health related info
Communication channel
o Mass mailing of letters and Health plan newsletters
o Internet email
o Websites FAQs , directions , general wellness and prevention information
Need to customize the educational information based on target audience
Assistance with Questions, Transactions and other Service Requests

Four key areas
Administrative Issues some e.g.
o Identity card out of date
o Please send me new provider directory
o PCP moved out of an area
o Mailing address for claim?
Coverage Issues
o What type of benefit do I have for so and so?
o Does the plan pay for prescriptions from out-of-network providers?
Health Plan Programs
Confidential
85
Cognizant
AHM
o Who do I call if I am not sure abt the care I need?

o What are the preventive care and wellness programs?
Access Issues
o How do you get authorization for so-and-so?
o Do you need a referral for so and so?
Telephone is the preferred communication channel need a toll free line
Use Computer / Telephony Integration CTI a technology that unites a
computer system with the telephone. Two common applications include
o Automatic Call distributor ACD
Device that answers calls with recorded messages and routes to the
appropriate department
User keys in the info for identification etc
This prevents receiving a busy signal and expedite the connection
o Interactive voice response (IVR) Is an automated system that answers
calls with recorded or synthesized
Self service for a certain set of transactions
Can switch to an operator in case not satisfied
Paper mail is a substantial part of MCOs inbound and outbound contacts
MCOs use letters to send updates to its members
Also used to deliver important notifications, and handle payment updates, address
changes, claims processing and EOB
Fax is another common communication tool
Combine IVR + FAX to create a fax-on-demand system e.g.
o Description of health plan, benefits and how it works
o Forms for filing for claims or filling prescriptions
o Descriptions of common injuries and their treatment options
Websites are used to enable changes to profile etc
Email Some transactions are restricted for security and privacy
Complaint Management
Complaints about the Plan
o Rudeness, payment authorization, PCP selection
Complaints about Providers
o Late appointments, non returning of calls, waiting times, staff, service levels
Unresolved complaints move to appeals kill it early
Need a Complaint Resolution Process (CRP)
Need to address informal complaints as well as formal appeals
Employer Sponsored health plans must provide avenues for appeal
o Otherwise they breach the ERISA Employee retirement income security act
State laws for CRP requirements include
o Inform all members about the CRP
o Track and report complaints
o Comply with specific timeframes when responding to complaints
o Provide an option for independent external review of complaints when internal
reviews are exhausted
The Appeal Process
o A dispute is reviewed and resolved by a party other than the person who
made the initial decision or performed the service that lead to the complaint
o There are at least two levels of appeals
Confidential
Level One Appeal to the Medical Director or other officer of the MCO
to review the original decision and any additional supporting
86
Cognizant
AHM
information submitted by the complaining member. Decision

communicated to all members
Level Two Appeal Level Two appeals are handled by an appeals
committee which consists of people from various areas including
utilization review, member services, health plan operations and legal
affairs and physicians (in case a medical opinion is required) and from
plan members
o Have a maximum time frame for conducting the inquiry
o Arbitration appeals to government agencies or independent external review
are often available to the member
This is the process of parties to a dispute submit their dispute to an
impartial third party for final binding decision
o Commercial health plan members appeal insurance dept for a state
o Federal Employees may appeal to the Office of Personnel Management
o HCFA hears appeals regarding Medicare Plans and State Departments
handle Medicaid appeals
Independent External Review Conducted by a third party that is not affiliated to the
health plan or provider These are called independent review organizations (IROs)
Considers all info abt the dispute and may seek additional info from the plan/
member/ provider
Either mediate the process of appeal OR provide a decision which is binding
Member Satisfaction Measurement and Reporting

On Details like
o Satisfaction with the Plan as a whole
o Their access to healthcare services
o Quality of the medical care received from providers
o Quality of non clinical services received from the plan and its providers
o Plans administration
The results are benchmarked with the company / industry / external stds
Two Primary Way of measuring it
Member Satisfaction Surveys
Parameters like
o
Satisfaction with the authorization processes for hospital admission
o
Satisfaction with care from hospital staff
o
Aspects of experience that can be improved
3 imp purposes
o
Assessment of members satisfaction with various aspects of a health plan
o
Method for collecting data to assess quality and identify opportunities
o
Facilitates relationship building with plan and member
Survey the general member population also low utilizers cross subsidize the higher
ones so need to take care of them so they dont leave!
CAHPS Most popular Consumer Assessment of Health Plans
o
Questionnaires, directions for interviews and reporting results
Complaint Monitoring
Members complaints as opportunities for improvement
Encourage members to give positive and negative feedback
Categorize, report and monitor or complaints by type
Helps improve the quality and service delivery
Identification , investigation and resolution of serious or recurring problems
Confidential
87
Cognizant
AHM
Methods of Delivering Member Services

Some - dedicated member services, others source personnel from diff departments
Plans with defined networks, authorization systems and a variety of programs to
manage quality and utilization have separate member services department
because the receive a high volume of inquiries and services requests from members
Fewer member services like PPOs generally have these handled through other
departments
Some have specialized member services for different products or particular accounts
An MCO can divide its member services into groups specialized in different means
of communication like telephone, email , fax, correspondence, websites or
Groups specified in terms of Function Claims or Authorization
Managing Member Services
Need to display attributes like
1. Competence
2. Strong Communication Skills
3. Professional Demeanor
4. Empathy understand the members emotional condition
Need to manage the following aspects of member services
Accessibility what communication channels? Hours of operation? Staffing Levels?
o Members and purchaser Expectations? Competitor Levels of accessibility?
o Most Member services are available only during business hours
o Some plans extend these services for phone and faxes beyond these hours
and on weekends
o Off hours provide limited services through IVR or websites
o Staffing levels will determine the wait time / these are affected by the service
reps responsibilities, nature of the plan, availability of self service options,
and members willingness to use these options
o A broad scope of responsibilities, a complex benefit structure and complicated
authorization requirements can increase the staffing needs
o
Effective use of telephones and computer technology can reduce staffing
needs
o Average Staff to member ratio is 1:5000
Personnel who have contact with members
o Need to have an aptitude and attitude for providing services
o Need months of training before they are put in stream
o Need to educate them on Company products/procedures/computer and
phone systems/ general principles of customer service / sensitivity training/
active listening / problem solving / dispute resolution / handling angry
customers
o Subjected to high stress and a burn out need to create incentives
Processes for Delivery
o Need to support the member service reps with strong workflow processes
This could include
Fulfilling requests for provider directories
EOB for different types of services
Changing a members PCP
Assisting in getting authorizations for payments
Investigating claims
Welcome calls to new members
Confidential
88
Cognizant
AHM
Handling Complaints
Supporting Technology
o CTI helps improve productivity
o Technology is expensive in the short term
Performance of services
o This addresses the quality and cost effectiveness of services
o Satisfaction surveys and complaint reports
o Key statistics include
Turnaround time
First contact resolution - % of transactions completed in the initial
point of contact
Error rate accuracy of information given and transaction proc
Wait time length of time on average members stay on hold
Call abandonment rate how many members hang up before receiving
assistance
o There is sometimes listening in on calls
o Measures of Cost Effectiveness Typically focus on productivity of the team
Time per call
Amount per each customer contact
Amount on admin duties like documenting / follow up/research
o Set Service Levels based on industry /company benchmarks
o Try to use First Contact Resolution at the cost of wait time to improve service
levels and solve the problem first up
Confidential
89
Cognizant
AHM
Legislative and Regulatory Issues in Managed Healthcare

Reading 11A: Federal Laws and Regulations
Identify and describe federal laws and regulations that apply to MCOs
Explain the role that federal laws and regulations play in protecting consumers
and maintaining a level playing field in the marketplace
Reading 11B: State Laws and Regulations
Compare the key components of state regulations for HMOs and other MCOs
Describe the major functions that MCOs perform that are subject to state
regulation
Reading 11C: Government-Sponsored Programs
Describe the role of the federal government as purchaser of managed healthcare

benefits for the elderly (Medicare), those with low income (Medicaid), federal
employees and dependents (Federal Employee Health Benefits Program
[FEHBP]), and inactive and retired military personnel (TRICARE)
Discuss the application of managed care principles to workers compensation
Confidential
90
Cognizant
AHM
Reading 11A: Federal Laws and Regulations

General Business Legislation
There are a lot of general laws which affect the structure and operation of MCOs These
include Federal Antitrust Laws, employee benefits legislation and financial services
legislation
Legislative Act
Who
Comply
must
Protected Class
Age
Discrimination
in Employment
Act (ADEA)
Employers with
> 20
employees
Employers aged
over 40
Title VII of the

Civil Rights Act
Employers >
15 employees
engaged in
interstate
commerce
All employees
Employers that
have > 50
Employees
Birth/adoption
or provide care
to seriously ill
family
members /
themselves
Family and
Medical Leave
Act FMLA
Effect of Legislation on Healthcare

All active employees irrespective of age
must be eligible for the same healthcare
coverage and cannot be required to pay
more than the younger guys
This Prohibits discrimination based on
race, color, religion, sex or national
origin. Need to be sure that their
policies dont impact one protected
class. Pregnancy Discrimination Act (an
amendment to this act) requires health
plans to provide coverage during
childbirth and related medical conditions
on the same basis as they provide
coverage for other medical conditions
Can take upto 12 weeks of unpaid leave
in a 12 month period. Employers need
to maintain the coverage of group
health insurance during this period
Anti Trust Legislation

The federal government protects the business environment through antitrust legislation.
These laws are designed to protect commerce from unlawful restraint of trade, price
discrimination, price fixing, reduced competition and monopolies.
Three most important acts are
Sherman Antitrust Act (1890)
Establishes as the national policy the concept of a competitive marketing system This
prohibits the companies from
Monopolizing any part of trade or commerce
Engage in contracts, combinations and conspiracies in restraint of trade
Applies to all companies engaged in interstate commerce and foreign commerce
Clayton Act (1914)
This act forbids actions that lead to monopolies. These include
Charging different prices for different purchasers of same product without justification
Giving distributors rights to sell a product only if he agrees not to sell a competitor product
The act applies to insurance companies to the extent that the state laws do not regulate it
Federal Trade Commission Act (1914)
Establishes the FTC and gave it power to enforce the Clayton Act. Key functions include
Regulation of unfair competition and deceptive business practices, also to pursue violators
Confidential
91
Cognizant
AHM
of the Sherman Antitrust Act

McCarran Ferguson Act 1945 placed the primary responsibility for regulating health
insurance companies and HMOs on the State
The state laws apply sometimes over these national laws in some cases. But they need to
comply with provisions of the Sherman Antitrust Act relating to boycott, coercion and
intimidation.
The following areas would warrant violation of the antitrust agreement
1. Price fixing two or more competitors on the prices or fees to be chargedfor e.g. they cant cooperatively agree to accepting ONLY capitation
payments
2. Horizontal Group Boycott two competitors agree not to do business
with another competitor or purchaser
3. Tying arrangements Conditions on the sale of one product on the other
4. Horizontal Division of Markets two companies decide to divide areas
5. Use of Exclusive Provider Contracts In most cases it is legal for MCO
to contract only with selected providers. The regulation only restricts this if
it creates a restraint on trade. The MCO cant prohibit its provider from
contracting with any other MCO. MCOs can prevent anti trust claims by
establishing alternatives to exclusive contracts by dealing with IPAs or PHOs
Ethics in Patient Referrals Act 1989 Starks Laws
These guard against anti trust activities in the healthcare market
This prohibits physicians from referring patients to a lab/radiology/
diagnostic/ home health/ pharma / therapy services in which he has a
financial interest
Some exceptions have been bought in for rural providers, HMOs and group
practices.
Healthcare Quality Improvement Act
Exempts Hospitals, group practices and HMOS from antitrust provisions
applying to credentialing and peer review as long as these entitlements
adhere to due process standards that are outlined by the HCQIA
An MCO who declines to retain a physician must provide due notice of the
same and also inform the National Practitioner Data Bank of its decision
Other laws cover the MCOs Medicare and Mediclaim contracts
Employee Benefit Legislation
Employee Retirement Income Security Act
This is a broad reaching law that establishes the rights of pension plan participants,
standards for investment of pension plan assets, and requirements for the disclosure of plan
provisions and funding. This applies to all employer sponsored pension plans and to all
benefit plans that provide healthcare services.
Key facts
Confidential
Strict reporting rights to all employers and plan fiduciaries (persons

who have discretionary authority over other peoples money)
Requirement to distribute summary plan descriptions and file reports with
the department of labor and IRS
Most SIGNIFICANT feature Preemption Provision It takes precedence
92
Cognizant
AHM
over state laws that regulate employee welfare benefit plans

o The preemption provision leaves to the state the authority to regulate
insurance, banking and securities
For e.g. State laws apply to group plan if it is insured but not
to self funded group plans
Self funded plans are exempt from paying premium taxes @
state level (State income taxes leveled on insurers premium
income)
This encourages large employers to create their own insurance
like mechanism on a self funded basis
Employees who legally challenge authorization of payment decisions must file
their case at a federal level and ERISA governs this
This is GOOD for MCOs as ERISA limits the damages that can be
awarded in lawsuits to the cost of non authorized treatment. No
punitive damages are allowed to be claimed
There is a call for proposals to remove this preemption privilege
Consolidated Omnibus Budget Reconciliation Act of 1986

This deals with the continuum of healthcare coverage on termination of
employment
The original HMO act contained these provisions but they were only being
applied by HMOs a need to change this caused the law to be passed in 1986
COBRA requires each group health plan to allow employees and certain
dependents to continue their group coverage for a stated period of time
following a qualifying event that causes the loss of group health coverage.
These could include
o Reduced working hours
o Divorce or death of a covered employee
o Termination of employment
Applies to firms with > 20 employees
After the qualifying event has occurred there is a specified timeframe in which
the member must apply for continuation of group benefits
This must be identical to the benefits received by the members of the group
plan
Allowed to continue coverage for UPTO 18 MONTHS
Spouse and Dependents are covered UPTO 36 Months following an
employees death or divorce
Dependent child who ceases to be eligible can continue for UPTO 36 months
Following the last month of eligibility under COBRA the employees have a
right to convert to individual health plan IF they dont have any other
coverage
The Plan administrator may add the admin fee of 2% to the cost of plan
Financial Services Modernization Act of 1999 Gramm Leach Bliley Act
This allowed the Convergence of the various components of the Financial
Services industry banks, securities firms and insurance companies
MCOs are considered part of the financial services industry
This act looks at
o How financial services industry will be structured in the future
o How the financial services industry will be regulated and supervised
o The rights of customers to protect the privacy of financial information
Confidential
93
Cognizant
AHM
and remedies for violations of the privacy provisions

Title V of the BGLB Act
o Disclose their privacy policies regarding the sharing of non public
personal information with both affiliates and third parties
o Notify customers of any sharing of non public personal information
with non affiliated third parties
o Provide customers with an option to opt out of non public sharing of
personal information subject to certain regulations
NIAC has come out with a Privacy of Consumer Financial and Health
Information Regulation to govern the activities of healthcare organizations
and insurers
Healthcare Legislation
HMO Act of 1973
Instrumental in defining the structure and operations of HMOs and paved the
way for HMOs to enter the healthcare market
Requirements were established to become federally qualified they include
o Benefits need to offer a comprehensive benefits package which
includes inpatient and outpatient services, unlimited home healthcare
benefits, outpatient behavioral healthcare these services are
deliverable only through Staff or Group Models, IPAs or direct practice
arrangements
o Enrollment Need to enroll individuals eligible for group coverage
without regard to health status
o Financing Need to be financially sound and protect against
insolvency
o Quality Assurance Establish ongoing quality assurance program in
line wth HCFA
300 HMOs meet these requirements even though it is optional
HIPAA 1996
Outlines the requirements that employer sponsored group insurance plans, insurance
companies and MCOs must satisfy in order to provide health insurance coverage in the
individual and group markets
Two main categories
Title 1 provisions are designed to increase the continuity of coverage
o These are not preemptive of state laws they only apply when the
state laws do not cover this topic or are not very comprehensive
Title 2 calls for administrative simplification
Title 1
Confidential
These are divided into group and individual health coverage

Individual Coverage Provisions
o Guarantees the availability of coverage for individuals who meet
specified qualifications
o Specifies that all qualified individuals who apply for insurance from a
private insurer must be issued a policy automatically without a medical
examination and without regard to preexisting conditions
o Someone qualifies for this is he has in the last 18 months group
coverage but is now ineligible for either group coverage or Medicare/
Medicaid
94
Cognizant
AHM
If he loses job and new job does not give coverage he qualifies for
individual coverage
Group Coverage Provisions
o Limitations on the use of preexisting conditions
Preexisting condition treatment/diagnosis should have been
received 6 months prior to enrollment date
The period for which a preexisting condition is exclude should
not exceed 12 months after enrollment date (18 months for
late enrollees)
Need to reduce the length of preexisting condition based on the
creditable coverage received uner previous group plans, or
benefit programs from the sate and federal government.
The Creditable coverage is credited only if the period was not
followed by a break in coverage of 63 days or more.
Waiting period under employee sponsored plan does not
constitute a break in coverage
Pregnancy cannot be treatment as a preexisting condition
Cant impose preexisting conditions on a newborn child /
adopted child < 18 if the child is covered within 30 days of
birth/adoption
o Guaranteed availability of coverage for small groups
o
Small groups are defined as 2 to 50 employees cant

exclude employees or employee dependents based on health
status
o Guaranteed Renewability of coverage for all groups
Need to renew group policies for all big and small groups
Renew individual policies also they can be modified only if the
whole class of policies is being modified and CANNOT be on the
basis of health status
o Special enrollment
Need to allow employees who declined health coverage initially
but experienced a qualifying event to accept group coverage
ant any time
In cases like child birth coverage obtained can be retroactive
Modifications to this
o Mental Health Parity Act MHPA of 1996
Prohibits group health plans from applying more restrictive
annual or lifetime limits on coverage for mental illness than for
physical illness
DOES NOT require health plans to offer Mental health but
imposes restrictions on those who do
o Newborns and Mother Protection Act (NMHPA ) 1996
Group health plans or insurers cannot mandate that hospital
stays following child birth be less than 48 hours for normal
deliveries or 96 hours for cesarean birth
Does not require group plans and insurers to offer maternity
hospitalization benefits instead it imposes requirements on
those plans that do offer these benefits
o Womens Health and Cancer Rights Act 1998 Health plans
offering medical and surgical benefits for mastectomy to provide
reconstructive surgery following mastectomy
Confidential
95
Cognizant
AHM
Title II Administrative Simplification

EDI Standards, Privacy and Security Regulations
Clearinghouse Public/Private Entity which converts provider data into
correct format for each health plan and coverts health plan data into provider
format
Billing services, repricing companies, community health MIS and value added
networks are considered to be healthcare clearinghouses
Large health plans > $5 million will have 24 months to comply while small
health plans get 36 months to comply
Penalties could range from $100 per violation to $250,000 and imprisonment
for upto 10 years for violating privacy standards
Electronic Transmission and Codesets
The Data covered includes
1. Health claims or encounter data
2. Health Plan eligibility inquiries and responses
3. Provider referrals and authorizations
4. Claims status inquiries and responses
5. Health plan enrollment and disenrollment requests
6. Claim Payment and remittance
7. Health Plan premium payment
8. Coordination of Benefits Information
At the moment ICD9-CM must be used along with CPT-4
Privacy and Security
Need an individuals written consent to use e-PHI for treatment, payment or
health operations
Generally prohibit transmission of identifiable e-phi for purposes other than
medical treatment, payment or healthcare operations without the patients
written authorization
Allow patients to access medical records and request amendments or
corrections for incomplete medical information
Allow patients to request restrictions be placed on the accessibility and use of
PHI
Require entities that request, use, or disclose protected health information to
limit themselves to the minimum amount of information necessary
Security Standards are meant to be scalable irrespective of size and scope
of firm
Confidential
96
Cognizant
AHM
Reading 11B: State Laws and Regulations

Key entities are the state Department of Health, State department of insurance and the
NIAC the former looks at healthcare delivery and quality issues while the latter looks at
financial issues in regulation
State Regulation of HMOs
Before the HMO act of 1973, managed care laws were designed to regulate insurance
companies or hospitals
NIAC Health Maintenance Organization Model Act HMO Model Act
This regulates HMO operations in two critical areas financial responsibility and healthcare
delivery. These are addressed through licensing requirements and financial standards. It
addresses healthcare delivery by establishing requirements related to network adequacy,
quality assurance and grievance procedures. This also looks at filing and reporting
requirements to HMOs
Financial Responsibility Requirements
Need to obtain a Certificate of Authority (COA) from the state
Provides proof that the organization has met the licensing requirements and
demonstrated that it is dependable, fiscally sound and able to meet quality
standards
Have financial standards on net worth, financial reporting, liquidity,
accounting and investment practices
COA requires $1.5 Million of net worth.
Insolvency occurs when an organizations assets are not enough to cover its
obligations
MCO is insolvent if it cant pay its current and future obligations
In case the HMO is insolvent the NAIC commissioner will intervene and
o Monitor a corrective plan developed by the HMO
o Reduce the volume of new business they accept
o Take steps to reduce their Expenses
o Prohibit from writing new business for a specified period of time
In case these are inadequate they will allow the commissioner to take over
the management of the HMO
o Administrative supervision involves placing the HMO operations
under the direction and control of the state commissioner of insurance
or a person appointed by him
o Receivership the state commissioner (with directive from the court)
takes control of and administers the assets and liabilities of the HMO
o In case these dont work the organization is liquidated and all the
business and assets are transferred to other carriers
Healthcare Delivery Requirements
Three key aspects are focused on
o Network adequacy
o Quality Assurance
Statement of HMOs goals and objectives
Documentation for all QA activities
System of periodically reporting program results to HMOs
stakeholders
o Grievance procedures
Reporting Requirements
Satisfy a variety of filing and reporting requirements - e.g. submitting copies
Confidential
97
Cognizant
AHM
of proposed provider/ group contract forms, evidence of coverage forms and

premium methodology as part of the COA process
All these programs are examined and reviewed every 3 years
Laws Governing Preferred Provider Arrangements
PPA - This is a contract between a healthcare insurer and provider or group of
providers who agree to provide services to persons covered under the
contract
PPOs and EPOs are examples of health plans who are using this arrangement
Laws vary according to the state in which the contracting plan operates and
structure of the plan
For e.g. HMOs offering a POS product and PPOs both provide enhanced
network benefits but are subjected to different regulatory requirements
o HMO is linked to State HMO laws
o PPO are regulated by state insurance laws
o HMO by state HMO laws and EPOs by state insurance laws
Differences between these laws could include premiums difference, covered
services, benefit levels and nature of funding
To bring some uniformity, the NAIC proposed a Preferred Provider
Arrangements Model Act PPA Model Act. This requires PPAs to
o Clearly identify any differences in benefits levels for services of
preferred providers and non preferred providers
o Establish the amount and manner of payments to preferred providers
o Include the mechanism for minimizing of the cost of the healthcare
plan
o Provide plan members with reasonable access to covered services
o Also need to give adequate benefits to coverage outside this network
o Not many states have similar to this law but have some legislation
on PPOs
Laws Regulating other Types of MCOs
Increasingly HMOs are being allowed to offer POS options
It can be offered directly in some states while other states it can be offered
with an Indemnity Wraparound Policy out of plan product offered
through an agreement with an insurance company
This is a regulatory challenge POS products have features of regular HMOs
and indemnity insurance and can be subject to sate HMO laws OR state
insurance laws
There are also certain functions regulated by laws
Utilization review Laws
Entities that perform utilization review are called Utilization Review
Organizations (UROs) They can be in house departments of the MCOs or
they can be external entities. Utilization Review is generally subjected
regulation if the recommendations affect an MCO decision to cover a specific
service
UROs laws vary but most states require them to be licensed and to obtain
certification, the personnel of a URO must satisfy certain criteria related to
education, training and experience
Need to meet accessibility standards of medical information
NAIC approved a Utilization Review Model Act in 1996 All UROs must
o Implement a written utilization review program sources / review
criteria / and appeals process and report annually on the program
Confidential
98
Cognizant
AHM
o
o
o
o
Use and make publicly available upon request , documented clinical

review criteria
Use qualified health professionals including clinical peers where
appropriate , to administer the program
Not tie reviewer compensation to the number of adverse
determinations
Establish written procedures for adverse determinations and appeals
Cover emergency services necessary to screen and stabilize a covered
person, without preauthorization, if a prudent layperson would
believe an emergency exists. Health carriers would also be required to
pay non contracting providers for such services if a prudent layperson
believes that using a contracting provider would result in delays that
would worsen the emergency or if a federal state or local law requires
the use of a specific provider
Third Party Administrator Laws

Provide administrative services to MCOs, employers, or other plan sponsors
Some of these services include underwriting and claims and so these TPAs
are subject to state regulation
The important act here is NAIC Third Party Administrator Model Act
In order to act as a TPA
o Obtain a certificate of authority form the state insurance department
designating the organization as a TPA
o Maintain as a business record for each client organization, a written
agreement describing the duties the TPA will perform, the
compensation it will receive, and the standards that pertain to the
business the TPA is in
MCO is still responsible for the premium rates, benefits, underwriting criteria
and claim payment procedures for ensuring that its plan is administered
properly
The TPA serves as fiduciary
TPA Model Act specifies the mandatory suspension or revocation of a TPAs
COA if
o The TPA in financially unsound
o Using practices that are harmful to the insured persons or the public
o Failed to pay any judgment rendered against it within 60 days of
judgment
The State insurance department has discretionary authority to suspend or
revoke a TPAs COA if the TPA has
o Violated State Insurance Laws
o Refused to be examined or to produce its records for examination
o Refused without just cause , to pay claims or perform Services under
its agreement
o Been placed under suspension or revocation in another state
Health Plan Accountability Laws
NAIC models include
Health Care Professional Credentialing Verification Model Act
Specifies requirements MCOs must satisfy in order to ensure that the network
providers meet minimum standards of professional qualification. These
requirements include the following
o Verification of the credentials of all contracted healthcare
Confidential
99
Cognizant
AHM
o
o
o
o
professionals in accordance with written procedures that must be

disclosed upon written request to any applying healthcare professional
Providers should be given an option to review and correct any
information submitted for verification
Collection of a minimum set of credentialing information by either
primary or secondary verification.
Recredentialing must be done every 3 years
Establishment of a process for providers to use to review and correct
credentialing information
Quality Assessment and Improvement

By 1998 27 states introduced bills to create or expand quality standards for
MCOs
These laws have been patterned after the NAICs Quality Assessment and
Improvement Model Act which requires MCOs to establish and report their
systems for assessing the quality of care and services that they provide. They
are required to
o Establish an appropriate system for assessing the quality of care
that they provide for each type of network
o Report to licensing authorities any problems that would offer
grounds for termination of a providers license
o File a written description of quality assessment programs with
state Commission for insurance
o Describe quality programs to consumers through marketing and
education materials
o Meet specified data confidentiality requirements
o Closed Plans
Those MCO plans which the member is required to use the
participating providers under the terms of the Managed care
plan
Closed plans need to develop treatment protocols, practice
guidelines and other quality improvement strategies and to
report annually the impact of these strategies
NIAC Network Adequacy and Accessibility Model Act
All managed care plans would be required to
Meet specified adequacy and accessibility standards
Hold covered persons harmless against provider collections and provider
continued coverage for uncompleted treatment in the event of plan
insolvency
Develop standards to use in selection of providers
Adhere to specified disclosure requirements including 60 day written
notice to providers before terminating a contract without clause and 15
day notice to patients of provider contract termination
File written access plans and sample contract forms with the State
Commissioner of Insurance
Not induce provider to deliver medically necessary care, prevent provider
from discussing treatment options with patient or penalize providers for
whistleblower activates against the plan
Need to implement this within 18 months of the effective date of the act
NAIC Health Carrier Grievance Procedure Model Act
Written procedure for handling all subscriber grievances
Confidential
100
Cognizant
AHM
Internal 1st level grievance review

nd
2
level review in which the covered persons are allowed to review the
relevant information and make a representation
Privacy of Financial Healthcare Information Nov 13th 2000
GLB act calls for state regulators to enact laws to regulate insurance activities
and govern the use of e-PHI.
The NAIC has Privacy of Consumer Health and Financial Information
Regulation
Rules governing the use and disclosure of health information are included in
Article V of the regulation
o When authorization is required for disclosure of non public PHI
o Requirements for a valid authorization
o Conditions under which authorization requests and authorization forms
must be delivered to customers
This regulation would apply to all licensees of state insurance department,
including MCOs
MCOs and other licensees that comply with the GLB act are exempt
from the provisions of the Article V of the regulation
The regulation does not supercede any existing regulation on privacy &
health
Only Nevada has adopted this yet
Reading 11C: Government-Sponsored Programs

Federal Programs have encouraged innovation
Government is a very big Payer too!
Established Standards for Medicare Providers, federally qualified HMOs and health
plans for federal employees
At the moment most beneficiaries receive care through FFS but this is changing
HFCA (part of DHHS) administers Medicare and Medicaid
Medicare Federal and Medicaid Federal and State Partnership
Medicare
Federal program established under Title XVII of the Social Security Act of 1965 to
provide hospital expense and medical expense insurance to elderly and disabled persons
Benefits are available to
Persons > 65 and eligible for social security or railroad retirement benefits
Persons with qualifying disabilities (regardless of age)
Persons with end-stage renal disease (ESRD) or their dependents
HCFA has delegated the claims processing and related tasks to third parties.
These 3rd parties are called intermediaries under Medicare Part A and Carriers under
Medicare Part B and are usually insurance companies
Program components
Medicare Part A
This provides basic hospital insurance that covers
1. Cost of in patient services
2. Confinement in nursing facilities / extended care facilities
3. Home care services
4. Hospice Care
Anyone who satisfies Medicare eligibility is automatically enrolled here
Funding Primarily comes from a Payroll tax imposed on employers and workers +
from social security taxes
Confidential
101
Cognizant
AHM
No premium is paid for Part A

Need to pay an Annual Deductible for Inpatient Care
Coinsurance for inpatient and skilled nursing care
These requirements are reviewed annually
Medicare Part B
Covers
o Cost of physicians professional services in hospitals / physicians offices /
extended care facilities / nursing homes / insured homes
o Ambulance services
o Medical Supplies and equipment
o Hospital outpatient services
o Diagnostic tests
o Other services necessary for diagnosis or treatment of illnesses
Voluntary Program need to enroll for the service
Most eligible people do enroll
Funding comes Primarily from enrollee premiums and copayments
Pays monthly premium deducted from Social security benefits
Also annual deductible and coinsurance
Pay 20% of all incurred costs Medicare pays other 80%
Additional funding general tax revenues
o These pay 65% of the costs not covered by premiums + copays
Medicare+ Choice
rd
The Balanced Budget Act 1997 created a 3 component
This addresses how the covered services are delivered to enrollees and increases
the number and type of organizations allowed to participate in Medicare
Successor to the Medicare Risk program
Initially Medicare available only on FFS Medicare+ Changes this to
o Coordinated Care Plans CCPs HMOs (with/without POS) , PPOs and
Provider sponsored organizations
o Private FFS plans Coverage provided by private insurers
o Medicare Medical Savings Account Plans High deductible catastrophic
insurance policy and a tax preferred medical savings account MSA
Purchase a catastrophic healthcare policy with a high deductible and
out of pocket plan not more than $6000 annually
HCFA deposits the difference between the specified Medicare payment
and policy premium into the beneficiary MSA
Beneficiaries can use the MSA funds to pay the catastrophic policies
required deductible and out of pocket expenses
After the beneficiary has paid deductible and out of pocket expenses
out of the MSA funds the Medicare covered services are paid 100%
st
No new enrollees to MSA plan Is suspended as of Jan 1 2003
All Medicare + plans should cover part and part b benefits
These plans have federal exemption from state mandated benefits & provider
requirements
Medicare Supplements
Deductibles and Coinsurance costs exist
FFS Medicare does not pay for prescription drugs, glasses, hearing aids, routine
physical examinations and basic dental services
To cover this gap between the FFS Medicare and actual cost
Not necessary for Medicare+ Choices - they are COMPREHENSIVE benefits packages
Confidential
102
Cognizant
AHM
Two choices
Medigap Policies individual medical expense policies sold by state licensed private
insurance companies
o These are developed by the NAIC and are 10 standard policies A J
o Benefits vary by plan, but not by state or insurer
o Costs can vary
o Coverage - Offer balanced policies that include the following
Coverage for Medicare A and Medicare B coinsurance
Coverage for 365 hospital days after Medicare benefits end
Coverage for the 1st three pints of blood used every year
o Plan A Simplest and coverage increases in complexity with alphabet
o Plan J All benefits including prescription drugs and preventive care
COBRA Access to Medicare SELECT Medicare Supplement that can be used in
a PPO to supplement Medicare B coverage but Does not apply to Medicare A benefits
Medicare and Managed Care

Introduced cos of the Tax Equity and Fiscal Responsibility Act TEFRA 1982
MCOs enter into contracts with Medicare to provide Part A and/or Part B coverage at
a cost basis or risk basis
Cost contracts
o Monthly payments from government for covered services these based on
reasonable cost of delivering the services, but could be adjusted to reflect
actual costs
o The MCO accepted NO risk and allowed beneficiaries to use any provider
o Enrollees were required to pay a large part of healthcare expense through
premiums and deductibles
o Could Contract for Only Part B or for both part A and Part B
Only Part B Healthcare Prepayment Plans (HCPPs)
Risk Contracts
o Monthly payments from HCFA PMPM
o Available to federally qualified HMOs and health plans and heath plans
classified as Competitive Medical Plans
The above is a federal designation which exempts MCOs from
needing federal qualification as a HMO before entering Medicare
The Balanced Budget Act replaced all TEFRA RISK contracts in 1999 by
Medicare+ Choice Contracts all contracts were phased out by 2002
Medicare+ is the most popular choice now
Service Requirements established by the BBA
Enrollment and Disenrollment procedures
o Option to enroll and disenroll from Medicare+ Choice CCPs each month
o This was phased out from 1st July 2002 to an annual period
o If you fail to make a choice default is traditional FFS Medicare
Utilization of Services
o Higher incidence and chronic illnesses
o 2-3 times the care of a normal commercial member
o Need better UM / communications / IS and personnel
Benefits Packages BBA mandates that
o Access to 24 hr emergency services
o Coverage for unforeseen non emergency services outside plan service area
Confidential
103
Cognizant
AHM
Coverage for renal dialysis treatment outside service area
o Extended coverage of preventive benefits including annual prostate cancer
o
o
o
Total
o
o
o
o
screenings to males > 50 and older mammograms / pelvic exams and pap
smears with Part B deductibles waived
Out Patient self Management training services & equip for diabetic patients
Coverage for bone density exams for high risk people
Vaccine outreach program for seniors
Care Management Approach includes
Prevention and Early detection of disease identify potential conditions/
promote effective chronic illness care/ delay disability
Coordinated Patient Care CCPs place primary care at the center of the
delivery system and focus on managing patients care at all levels
Alternatives to inpatient hospitalization for acute and chronic needs
use case management and disease management programs home health /
step down units / community based services
Coverage for services not available under Part A and Part B
Quality Review Need to do this periodically as part of the Healthcare Quality

Improvement Program. This is initiated by HCFA to improve quality of care
o Agree to a quality review and improvement organization called Peer Review
Organization for each Medicare Plan they operate
o Peer Review Organization PRO is a organization or physican group that iis
paid by the federal govt to review the serices of other practitioners and
monitor the quality of care to Medicare patients
o This review could be waived if a plan has excellent quality record and
complies with Medicare+ Choice requirements
o Plans are deemed to have met these requirements if they are accredited by
an organization that meets HCFA standards
Performance Management
o Quality assessment programs CCPs should report results to HCFA on HEDIS
measures that apply to a Medicare Population
o Includes Flu vaccinations, mammography screenings, diabetes retinal
screenings, smoking cessation programs
o Also submit CAHPS data to HCFA
o HCFA - Health of Seniors Survey to measure patients functional status
o HCFA has developed a Health Plan Management System a database of
information on Medicare Part A and Part B recipients who are enrolled in CCPs
o Went into effect in 1998
Quality Improvement
o 1996 HCFA established the Quality Improvement System for Managed Care
(QISMC) to strengthen MCOs efforts to protect and improve the satisfaction
of Medicare and Medicaid enrollees
o Requires CCPs to follow series of quality standards and guidelines
Operate a quality assessment and performance improvement program
that achieves demonstrable results
Collect performance data using standard measures of health quality
Comply with admin structures and operational requirements for quality
of care
o HMOs PPOs PSOs are expected to satisfy this
Confidential
104
Cognizant
AHM
MSA and PFFS have to meet a subset of these standards

PPOs are required to meet only those standards which apply to PFFS and non
network MSAs
Came into effect in 1999
o
o
Medicaid
Title XIX of the Social Security Act of 1965 Medicaid
Joint State and Federal Program that provides hospital expense and medical expense
coverage to low income population and certain aged and disabled individuals
The guidelines have been established through HCFA and partial funding for the
states is provided and minimum eligibility standards and provider participation and
reimbursement
Program Funding
Federal Funding is based on Per capita income in each state
Payments range from a minimum of 50% of total Medicaid costs to 83% of total
costs with poorer states receiving a higher percentage of funding
Individual states contribute additional funds and determine the reimbursements for
individual providers and health plans
Eligibility Requirements
Grafted into the state Welfare Program and Eligibility was based on monthly income
and financial resources
Individuals who received Medicaid benefits because of their welfare status and were
classified as Categorically Needy Individuals These include
o Children and low income adults who qualify for Aid to Families with
Dependent Children (AFDC) benefits
o Low income aged / blind / disabled individuals who qualified for supplemental
security income benefits
Medically needy Individuals are those people who meet the financial
requirements of categorically needy individuals but whose monthly income exceeds
specified maximums
States could provide coverage for people whose incomes are upto 100% of the
federal poverty level or who spent excess income on medical care to reach the
threshold
Dual Eligibles - Those elderly people who qualify for Medicare coverage also
New plan which partially replaces AFDA - called Temporary Assistance for Needy Families
TANF
Benefits
Fairly comprehensive Federally Mandated Benefits include
Physican Hospital services
Lab services
Home healthcare visits
Long term custodial care
Others include
o Prenatal Care
o Vaccines for children
o Family Planning services and supplies
o Nursing Midwife
Confidential
105
Cognizant
AHM
o
o
o
o
Pediatric and family nurses

Rural Health Clinic Services
Federally qualified Health center (FQHC) services
Ambulatory services of a FQHC that would be available in other settings
States can increase benefits to cover dental /vision / prescription drugs

Medicaid is the SECONDARY payer of benefits
Medicaid and Managed Care
Pre BBA contract to three types of organizations
o MCOs and health insuring organizations , Prepaid Health Plans, and Primary
Care Case manager programs
o HIO is an organization that contracts with state Medicaid agency as a fiscal
intermediary does not provide services directly
o Primary Care Case Manager PCP who contracts with the state to provide
case management services receive a case management fee plus a
reimbursement for medical services on FFS basis
Post BBA Included Provider Sponsored organizations
Most used plan type Comprehensive MCO
Some states make managed care enrollment Mandatory through waivers provided under
Section 1915(b) and Section 1115 (b) Waivers Freedom of Choice waivers allowed
states to manage Medicaid recipients access to providers by assigning recipients to a
Primary care Case Manager. The Goals was to reduce emergency department use, increase
preventive care and improve overall effectiveness by fostering a close physician patient
relationship between PCP and Medicaid Patients.
Section 1115 waivers allow the state to offer more comprehensive services to
specified categories of Medicaid recipients through demonstration projects
BBA no need for mandatory enrollment of Medicaid recipients in managed care
programs No need to submit formal applications for section 1915(b) and section
1115 waivers
Existing waivers and demonstration projects that started as a result of Section 1115
Waivers are still an integral part of Medicaid managed care
In place of waivers states that wish to mandate managed care enrollment must
give Medicaid recipients a choice of enrollment options.
Enrollment in non rural areas given a choice of at least 2 managed care plans.
Enrollment in rural areas must be given a choice of at least 1 PCCM MCOs and PCCMs
that contract with Medicaid to provide healthcare services to Medicaid recipients
must satisfy BBA mandated contractual and quality requirements
Contractual Requirements BBA imposes contractual requirements on organizations
Eligibility
o BBA grants states the authority to provide Medicaid coverage to individuals in
expansion populations
o Expansion populations include individuals who do not meet categorically
needy or medically need criteria this could include
Children eligible for medical benefits under the State Childrens Health
Insurance Program (SCHIP)
Individuals who do not satisfy federally eligibility criteria and do not
qualify for federal funding can provide out of state funds
Elderly individuals eligible for long term care under Programs of All
Inclusive Care for Elderly (PACE)
Confidential
106
Cognizant
AHM
Initially set up for Medicare beneficiaries but now its scope is

extended to Medicaid eligible enrollees
Individuals are not required to be enrolled in Medicare to
receive these benefits
Access to services
o Adequacy of Network / hours of operation / location / referral to providers /
no discrimination against enrollees based on health status
o Need significant outreach to connect to PCP rather than emergency rooms for
primary care
o PCCM / availability of extended Primary care hours, expanded out patient
hospital facilities , transportation arrangements to PCP operations, are some
methods used to reduce over-utilization
o Other things include child care, early detection of diseases
Benefits
o Unique features Provision of early and periodic screening, diagnostic
and treatment services for children under 21
Early and periodic screening, diagnostic and treatment (EPSDT)
services cover vision hearing , dental services
Reimbursement for Providers
o Accept Medicaid payment as payment in full
o Nominal out of pocket expenses
o No copay for emergency services and pregnant women, children < 18,
hospitals or nursing home patients, or categorically needy HMO enrollees
Marketing Practices
o Direct and individual community service agencies
o Independent third parties enroll plan members
o Need state approval for distributing marketing information
o No Door to door or telephonic solicitation
o QISMC from Medicare Applies here also
o This is not mandatory for Medicaid MCOs depends on state laws
o Can accept accrediting by private agencies
Programs for All inclusive Care for the Elderly (PACE)
Grants waivers of certain Medicare and Medicaid requirements to a limited number

of public and non profit community based organizations providing integrated care to
the elderly.
o Comprehensive long term and acute care to individuals > 55 years and
nursing certifiable based on the patients care and needs
o No limits on the amount ,duration, scope of service and requires no
deductibles, coinsurance, copayment or other cost sharing features
o 24x7 Access
o BBA granted this permanent program status and an optional for Medicaid
State Childrens Health Insurance Program
BBA established the state childrens health insurance program
o Designed to provide health assistance to uninsured, low income children
either through separate programs or through expanded eligibility under state
Medicaid programs
If the state has separate program
Confidential
107
Cognizant
AHM
Benchmark Coverage
Equivalent to standard BCBS PPO under the federal employee health
benefits program
A health benefit plan that is offered and generally available to state
employees or
HMO plan with he largest commercial enrollment in the state
o Benchmark Equivalent Coverage
Aggregate actuarial value at least equivalent to one of the benchmark
packages and must include basic services like in patient and out
patient services, labs , xrays, well baby and well child care, including
immunizations
o Existing Comprehensive State based Coverage
Range of benefits funded and administered by the state
o Secretary approved coverage
Any coverage tat the secretary of the DHHS approves
No favouring of richer kids
No preexisting conditions exclusions
States need to file a State Child Health plan with the Secretary of HSS
Funding is based on the total number of uninsured low income children in the state
and geographic cost factors
SCHIP available to children who meet
o Under 19 years old
o Not currently eligible for Medicaid or other insurance
o Resides in a family with income below the 200% of the federal poverty level
or 50% points above the states established eligibility limits
o
Federal Employee Health Benefits Program

Voluntary health insurance program for federal employees, retirees, and their
dependents
Administered by the Office of Personnel Management
Choice of FFS or MCO to 10 million people
15 FFS health insurance plans and 350 MCOs participating in this
Largest employer sponsored group healthcare plan in the US
Need to meet federal and state licensing agreements
Satisfy OPM requirements on access of care, benefit design and patient safety
Some provisions
o Federal requirements on maternity under Newborns and Mothers health
protection act
o Pregnancy is not a preexisting
o Mental health parity act
o Meet Womens health and Cancer Rights Act
o Develop patient safety initiatives
Tricare
Military Health System Worldwide healthcare system operated by the US DoD
Integrates the service delivery of healthcare services for active duty personnel,
retirees and families of the same
Active personnel get treated through Military Treatment Facilities Army, Navy,
AirForce, Coast Guard Operate Exist in 11 TRICARE regions in US and 3 overseas
TRICARE was called CHAMPUS
o Integrates the Military and Commercial networks
Managed by TRICARE Management Activity (TMA)
Confidential
108
Cognizant
AHM
Coverage
o Most inpatient and outpatient services, physicians and hospital charges,
medical supplies and equipment and mental health services
Three Plans
o TRICARE Standard FFS use authorized providers or non network providers
Deductible and Coinsurance
Out of pocket under this are higher than other options
o TRICARE Extra Reduced FFS plan similar to the network part of PPO
Deductibles and coinsurance
In network costs are lower than out of network
Out of pockets lower than TRICARE standard
No need to enroll to participate in TRICARE extra
o TRICARE Prime - enrollment based MCO to provide care using a Primary care
Manager similar to PCP
No out of pocket for military doctors
Services from civilian providers have copayments
o Active Duty personnel are automatically in TRICARE prime while their
dependents and eligible retirees are covered under TRICARE prime only if
they enroll
o Retirees and family need to pay enrollment fees
Managed Care Features
Preventive Care , self care and decision support programs
o Review
o Discharge planning
o Disease/condition management
o Demand Management
Case Management broad spectrum case management - needs of groups along the
entire healthcare continuum
BCM includes
o Population based case management
o Disease Management approach
o Care Coordination
o Individual Case Management:
Appeals and Grievances
Quality Initiatives
Accreditation and Performance measures
Workers Compensation
State mandated program that provides healthcare benefits for costs and lost wages
to qualified employees and dependents in case the employee is injured
Every state has this and 47 states require that employers offer this
Employers purchase workers compensation insurance
It is mandated that coverage be provided for all employees including part
time workers
No deductibles and Coinsurance
Do not specify a life time maximum benefit for medical costs
Cant limit provider choice for work related ailments
ONLY BENEFITS for work related injuries
Employers are NOT allowed to deny liability if they are not at fault
In exchange for this need employees to comply with Exclusive Remedy
Doctrine they cant sue employers for additional amounts
Confidential
109
Cognizant
AHM
Additional Benefits Workers Compensation Indemnity Benefits for loss of pay
Manage Workers Compensation

24 hour Coverage Employers group health plan, disability plan and workers
compensation program are merged and integrated (or coordinated) depending on a
states regulation into a single Health benefit plan that covers employees 24 hrs/day
Advantage : This helps in coordination of claims processing
Disadvantage: Administrative cost of coordinating separate plans is often handled by
different departments need to work with employers benefits department and risk
management department
Confidential
110
Cognizant
AHM
Ethical Issues in Managed Healthcare

Reading 12A: Introduction to Ethics in Managed Healthcare
Define ethics and explain the difference between ethics and laws
Describe some ways that MCOs can foster an ethical corporate culture
Reading 12B: Ethical Issues in Managed Healthcare
Explain the Patient Bill of Rights
Discuss some of the ethical issues MCOs are currently confronting
Confidential
111
Cognizant
AHM
Reading 12A: Introduction to Ethics in Managed Healthcare

Ethics are not the same as laws - Both Reflect the values of the Community but laws are
enforceable while ethics are not
Hippocratic Oath Patient above all else
5 Key Principles
1. Autonomy The patients should be able to make decisions on their lives
2. Non-Maleficence MCOs cant harm their patients
3. Beneficence Promote the good of the members as a group
4. Justice/Equity Fairly distribute the benefits and burdens among members
5. Promise Keeping/Truth telling be truthful!
Further Virtue
Creating an Ethical Corporate Culture
1. Better communication between entities
2. Honor codes
3. Educating members on the system
4. Educating employee/providers and members about the issues
5. Policies or procedures which provide guidance when confronted with ethical
issues
6. Culture where ethical considerations are integrated into decision making
7. The contracted organization must have similar systems in place
8. Make a formalized method for managing ethical conflit ethics task force or
bioethics consultant
Reading 12B: Ethical Issues in Managed Healthcare
1. Patients Bill of rights
a. Information , choice , access , participation , respect and non
discrimination, confidentiality , complaints , responsibilities
2. 5 issues to take care of
a. Resource Allocation fair/equitable
b. Financial Incentives to providers
c. Clinician Patient Relationship
d. Confidentiality
e. Employee trust
Confidential
112
Cognizant
AHM
Key Concepts Tested in Sample Test

Case Mixed Adjustment or Risk Adjustment Statistical adjustment of the
outcome based on factors like patients age and seriousness of patient
condition
Adverse Event
Cost Shifting
Receivership state commissioner takes control of assets and liabilities
primary goal is to rehabilitate the organization
COA Need proof that MCO has met the state licensing requirements,
specified quality standards and also financial standards on net worth, capital,
liquidity and accounting standards initial net worth of 1.5 million Dollars
HMOs needs to be licensed in each state it does business in and MOST HMOs
are subject to state enabling statutes and requirements of the state
department
Pooling Grouping a large no: of small groups- Experience rate and offering
lower premiums to all small groups
JCAHO evaluate central office and non JCAH) accredited networks, all high
risk services provided and a sample of the practitioners offices and records
Hospitals receiving Medicare Funds must be JCAHO accredited
JCAHO places organizations on a accreditation watch when a sentinel event
occurs and root cause analysis and corrective action have not been completed
in time
WHCRA does NOT require plans to have mastectomy benefits but does
require medical and surgical benefits for mastectomy to provide coverage for
reconstructive surgery following mastectomy
HCQIA exempts hospitals, group practices and HMOs from certain antitrust
provisions as they apply to credentialing and peer review so long as these
entities adhere to due process standards that are outlined in the HCQIA
NMHPA 48 hrs min for child birth and 96 hours min for cesarean
Does not require group plans to have maternity benefits but regulates those
which do
Therapeutic different chemical entity and same class needs physician
approval
Generic same chemical composition - no physician approval
GLB Disclose privacy policies / notify customers if info is shared / opt out
provision
GLB Financial information NAIC amendment Health Information also
HIPAA preexisting condition cannot be excluded from coverage 12 months
after enrollment 18 months for late enrollees
The CREDITABLE coverage reduces this preexisting condition limit and can
make it zero if he has stayed for a year
HMO Act - Network adequacy / Quality Assurance / Grievance Procedures
Process Methods and Procedures that an MCO uses to Furnish Care
Structure - Measures of healthcare performance that relates to the nature,
quality and quantity of resources that an MCO has
Outcome - Extent to which the MCO succeeds in improving or maintaining
satisfaction and patient health
Non Duplication of Benefits Provision
TPA Get COA from the state insurance department and not federal
Federal Qualified HMOs cannot use Retrospective Rating
1995 NAIC Small Group Act Amendment Eliminated class rating rules and
required plans to use ACR for small groups
Pure & Std Community rating are the same thing ONLY GEOGRAPHIC
Confidential
113
Cognizant
AHM
Confidential
DATA
Messenger Model IPA
Medicaid PCCM Programs are exempt from HCFAs Quality Improvement
System for Managed Care Standards
Indemnity Wraparound Option Out of plan product that a health plan
offers through an agreement with an insurance company In some states
HMOs can offer POS ONLY as an indemnity wraparound option
114

Ahm 250 - Managed Healthcare: An INTRODUCTION (Third Edition) Summary Document

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Ahm 250 - Managed Healthcare: An INTRODUCTION (Third Edition) Summary Document

Uploaded by

Copyright:

Available Formats

Cognizant

AHM 250 - MANAGED

The Evolution of Healthcare Delivery and Financing

Define managed care

Reading 1B: Basic Concepts of Benefits, Coverage, and Insurance

Explain how traditional indemnity health insurance works

List some characteristics of the fee

-for-service payment system

Cognizant Technology Solutions

Cognizant Technology Solutions

o Available only to federally qualified HMOs

Partly hampered their competitive position

Introduction of New Products and Programs

Preferred Provider Organizations

Cognizant Technology Solutions

Information management has improved significantly

Cognizant Technology Solutions

Cognizant Technology Solutions

Traditional Indemnity Coverage or Fee-for-service- Payment system

Features of traditional indemnity Plans

Cognizant Technology Solutions

Cognizant Technology Solutions

Basic Concepts of Managed Healthcare

Define network and explain its importance in a managed care plan

Explain how capitation differs from fee-for-service compensation

Cognizant Technology Solutions

Reading 2A: Managed Care - Benefits and Networks

1. Indemnity Plans with Managed care Components

Providers Physicians, Nurses, Hospitals, Labs

Organized System of Care

Cognizant Technology Solutions

Cognizant Technology Solutions

Quality Assurance program oversight and integrity - Senior Executive

Cognizant Technology Solutions

Reading 2B: Financing Managed Care

In Fee for Service the cost of medical care is shared by

Cognizant Technology Solutions

Cognizant Technology Solutions

multiplied by a money multiplier

Primary and secondary diagnosis , Surgical procedures, Age, Gender

Cognizant Technology Solutions

PMPM into an ancillary pool

Cognizant Technology Solutions

Managed Care Organizations, Plans, and Products

Identify and describe the general characteristics of HMOs

Differentiate between a closed-panel HMO and an open-panel HMO

List and describe two characteristics common to most POS products

Describe one major difference between an EPO and a PPO

Cognizant Technology Solutions

Reading 3A: The Health Maintenance Organization (HMO)

These are also referred to as Prepaid Group Practices

Cognizant Technology Solutions

There is a base standard set of benefits given by law

This could be through direct contract or through independent contract

Cognizant Technology Solutions

Cognizant Technology Solutions

Cognizant Technology Solutions

Reading 3B: Types of HMO Models

Providers operate out of HMO facilities or

Open Panel HMOs

Cognizant Technology Solutions

Features and Comparisons

Cognizant Technology Solutions