EVOLUTION OF

HEALTHCARE
DELIVERY AND
FINANCING IN THE
 HMO ACT OF 1973
Federal qualification requirements

Dual choice provision

Federal development grants and

loans

Exemption from state laws

 INCREASE IN HEALTHCARE COSTS
Inflation

Rapidly expanding technology

Increase in medical malpractice lawsuits

Consumer expectations

Unnecessary treatment or defensive medicine

Lack of incentives to control medical costs

Technological factors
 COST SHIFTING

Practice of charging more for services

provided to paying patients or third-party
payers to compensate for lost revenue
resulting from services provided free or at a
significantly reduced cost to other patients is
known as cost shifting
 BASIC CONCEPTS OF THE HEALTH
PLAN INDUSTRY
Loss rate- number and timing of losses that will occur in a given group of
insured's while the coverage is in force

Antiselection

The tendency of people who have a greater-than-average likelihood of loss to

apply for or continue insurance protection to a greater extent than people who
have an average or less-than-average likelihood of the same loss.

Deductible

Annual minimum out-of-pocket expenses that member has to incur before he

can claim

Coinsurance

Fixed percentage of costs that member has to incur

Co-payment - Small fixed fee for every visit

Pre-existing condition

A condition for which the individual received medical care

during the three months immediately prior to the effective
date of coverage
Group policies usually also specify that a condition will no
longer be considered pre-existing—and thus, will be eligible
for coverage—if (1) the insured group member has not
received treatment for that condition for three consecutive
months or (2) the group member has been covered under
the group plan for 12 consecutive months.
 MANAGED CARE
Traditional Indemnity
Complete coverage, freedom-of-choice
Cost varies by level of out-of-pocket
payments (deductibles, coinsurance)
No negotiated discounts with providers
Insurer or purchaser at risk
HMO (Health Maintenance Organization)
Care coordinated through Primary Care
Physician
Limited access to providers
Low member out-of-pocket costs
Shift of risk to providers through alternative
payment mechanisms (target budgets,
PPO (Preferred Provider Organization)
Similar to indemnity programs

Two levels of benefits:

Network (preferred) providers agree to provide

services to covered individuals at a discounted fee
in return for increased volume

Members pay more out-of-pocket to use non-

preferred providers

Increasing risk to network providers due to

POS (Point-of-Service)
Hybrid of HMO and PPO products

Like a PPO, two benefit levels:

Enrollees select PCP who manages all in-network

utilization, as in HMO

Members pay more for access to non-network

providers, no PCP referral required
Constraint Indemnity HMO PPO POS

PCP Not required Required Not required Required

Deductible Required Not required (In-network) not Same as PPO

required
(Out-of-network)
required
Out Of Network Available Not available Available Available
Coverage

Referral for Not required Required Not required Required

specialist visit

Cost (1-5) 5 is 5 1 4 3
max

Freedom (1-5) 5 1 4 3
5 is max.
 Key Players in Managed Care

Providers

Payers

Purchasers

Members
 Utilization Management

Utilization management (UM) is a

mechanism that involves managing the
use of medical services so that a patient
receives necessary, appropriate, high-
quality care in a cost-effective manner.
 UM Techniques

Demand Management

A series strategies designed to reduce the overall demand

for and use of healthcare services by providing plan members
with the information they need to make informed healthcare
decisions

Utilization Review

An evaluation of medical necessity, efficiency, and

appropriateness of healthcare services and treatment plans for
Case management

A system of identifying plan members with special

healthcare needs, developing a strategy that meets
those needs and coordinating and monitoring the
delivery of necessary healthcare services

Disease management

A coordinated system of preventive diagnostic and

therapeutic measures that focuses on management
of specific chronic illnesses or medical conditions
 Financing the managed care

FFS SALARY
Capitation PER DIEM

Global, Partial, Carve out WITH HOLDS

Discounted fee for service DRG

Fees schedule or capped fee RELATIVE

VALUE SCALE
Health Plans and Products
The Health Maintenance
Organization (HMO)
A health maintenance organization
(HMO) is a healthcare system that
assumes or shares both the financial
risks and the delivery risks associated
with providing comprehensive medical
services to a voluntarily enrolled
population in a particular geographic
Federal Qualification
Preempted- State Laws

Cannot exclude pre-existing conditions

Had to offer certain services

In 1995, Fed Law eliminated the dual choice

requirement for employer sponsored healthcare and
exhausted federal grants

COA
 Membership
Membership-> Individually or
Group
Under group plan -> no contractual
relationship with HP
Open Enrollment period
Delivery of Healthcare is primarily
 Comprehensive Care
Basic medical Services + offer
extensive preventive care
programs. Prenatal care, well-
baby care, routine physical
examinations, 24-hour telephone
line access to a nurse, and
 Networks
Parameters in building a network
Access
Credentialing
Contractual relationship
Factors to determine no of primary care and
specialist in a given area
size and location of the geographic service
area
network adequacy
medical needs of its members
employer or other purchaser requirements,
including provider education, board
Before an HMO contracts with a
physician, the HMO first verifies the
physician’s credentials. Upon becoming
part of the HMO’s organized system of
healthcare, the physician is subject to
recredentialing and ongoing peer review.
Requirements for a Hospital
Accreditation from JCAHO
State license

Ancillary Services
 Financing in HMO
Prepaid Care
Negotiated provider compensation
Stop loss provision- capitation- FFS
beyond a certain point
Capitation -> discrete ancillary
services
 Types of HMO Models
Closed panel HMO X Closed access

Open panel HMO X Open access

Four models of HMO

 IPA
 Staff
 Group
 Network
 Distinguishing factor is nature of contact relationship
and reimbursement
 IPA

An independent practice association, or individual practice association, is

a separate legal entity established primarily to give member physicians
a negotiating vehicle for contracting purposes

Member physicians, who agree to adhere to the IPA/HMO contractual

requirements, remain independent practitioners who manage their own
offices and medical records and usually see other patients besides HMO
members

Variation-> direct contract model HMO -> contracts directly with

physicians

Closed panel IPA

Open panel IPA- non exclusive

 Staff Model

Closed panel

Ambulatory care facility->” one

stop shopping”

Compensation->Salary
 Group Model

Contracts ->multi specialty group of

physicians who are employees of grp
practice

Captive grp model

Independent grp model

Capitation
 Network Model

Contracts with more than one grp or

physicians or specialty grps
 PPO’s, POS Managed Indemnity
PPO
Specialty PPO
EPO-> regulated by insurance
companies
POS
Managed indemnity-? Pre authorization,
Utilization management
 Health Plans for
Specialty Services
 Specialty Services

Specialty services are healthcare services that are generally considered outside
standard medical-surgical services because of the specialized knowledge required for
service delivery and management.

Workers’ compensation

Chiropractic care and other forms of complementary and alternative medicine

Rehabilitation services

Home healthcare

Cardiac surgery

Oncology services

Care for patients with chronic diseases

Diagnostic services, such as radiology and magnetic resonance imaging

 Carve Outs
Health plans often carve out specialty services that
have one or more of the following characteristics:
An easily defined benefit

A defined patient population

High or rising costs

Inappropriate utilization
 Specialty HMO

DHMO

DPPO

DPOS
 BEHAVIORAL HEALTHCARE
Factors that fueled growth for
behavioral healthcare
Greater awareness and acceptance
of behavioral healthcare issues
Increased stress on individuals and
families
Increasing availability of services
MBHO is an organization that provides behavioral healthcare
services by implementing health plan techniques
MBHO’s use four different strategies to mange delivery of
services
alternative treatment levels
alternative treatment settings
alternative treatment methods-> drug therapy, psycho
therapy, counseling
crisis intervention
Directing patients to appropriate care
PCP
Centralized Referral System
 Pharmacy Benefits plan
Type of managed care specialty service
that seeks to contain the costs of
prescription drugs or pharmaceuticals while
promoting more efficient and safer drug
use
1. Services offered by PBMS
2. Physician Profiling
Formulary management:-is a listing of
drugs, classified by therapeutic category
or disease class

1. Open Formulary

2. Closed Formulary

Therapeutic substitution is the

dispensing of a different chemical entity
Generic substitution is the dispensing of
a generic equivalent

Generic substitution can be performed

without physician approval in most
cases, but therapeutic substitution
always requires physician approval.
 PBM Plans

 Single tier plans

Fixed copy for all types of drugs mentioned in the plan.

Two tier plans

Lower copay for Generic drugs

Higher copay for Branded drugs

Three tier plans

Lowest copay for Generic drugs

Medium copay for branded drugs

Highest copay for Non formulary drugs

Provider Organizations
Integration

Structural Integration

Operational Integration
Structural Integration
Common ownership and Control (Mergers. JVs, Acquisition)

Operational Integration
Business Integration – Combine one or more separate
business function

Clinical Integration – Making a variety of services available

from one entity

Advantages of Integration
Greater operating efficiency and effectiveness
 Provider Integration Models
Physician Only model
IPAs (Least Integrated)
Group Practices without Walls GPWW/
Management Services Org (MSO)
Physician Practice Management (PPM)
company
Consolidated Medical Group
Physician and Hospital model
Physician Hospital Organization
Integrated Delivery Systems (IDS)
/Medical Foundation (Most
integrated)
Health Systems
Management
 Health Plan , Structure

Basic ways of organizing a business

 Sole proprietership

 Partnership

 Corporation

 Separate legal entity

 Lives beyond the owners

Parent Company

Holding company

For Profit/ Not For profit

Stock/Mutual
 Organizational Structure

Inside Director

Outside Director

Responsibilities
 Authorization of major financial transactions, including mergers,
acquisitions, and capital expenditures
 Appointment and evaluation of senior management, including the
organization’s chief executive officer
 Participation in corporate strategic planning
 Approval and evaluation of the organization’s operational policies and
procedures
 Oversight of the plan’s quality management (QM) program, including
Medical Director
 Physician executive who is responsible for the quality and cost-
effectiveness of the medical care delivered by the plan’s providers.

Network management Director

 developing and managing the health plan’s provider networks
 authority over such activities as recruiting, credentialing,
contracting, service, and performance management for providers

Corporate Compliance Director

 dedicated to overseeing compliance activities
 Appointment of a corporate compliance director
 Committees
Standing Committee
 long-term advisory bodies on ongoing issues such as financial
management, compliance, quality management, utilization
management, strategic planning, and compensation

Ad Hoc Committees
 special committees, are convened to address specific management
concerns. Ad hoc committees are typically disbanded once the issue
has been resolved. For example, a special litigation committee may
be temporarily established to oversee a legal challenge regarding
 Network Structure and Management
Market Analysis
 Market Maturity
 Provider Community
 Competitive Landscape
 Economic Conditions
 Characteristics of the Service Area
 Population Characteristics
 Health Plan Characteristics
 Regulatory requirements
 Network Structure and Management

Network Structure
Open Panel

Closed Panel

Network Composition
PCPs

Specialists

Hospitalists

Healthcare Facilities
Network Size
Plan Characteristics

Provider Access (Staffing ratio, Drive time,

Geographic availability)

Population Characteristics

Purchaser & Consumer Preference (Quality, Access,

Cost)

Plan Goals
 Network Structure and Management
Credentialing
 In-house/Third Party Credentialing Agencies
 Providers have to submit forms along with supporting
docs
 Check for licensure, professional liability history,
medical education and training, disciplinary history
 Sources - State Medical Records, Court Records,
National Provider Data Bank (NPDB)
 Upon successful credentialing contract is negotiated
with the provider
Contract Provisions - Provider
Provider Services
Administrative policies
Credentialing and Re credentialing
Participation in UM and QM programs
Maintenance and submission of Medical
records
No balance billing
Requires providers to accept the amount the
plan pays for medical services as payment
in full and not bill plan members for
additional amounts
Hold Harmless provision
Forbids providers from seeking
compensation from patients if HP fails to
Contract Provisions – Health Plan
Payment
Risk Sharing and incentive Programs
Timely Payment
Eligibility Info
Termination provision
Without cause-either the health plan or the
provider may terminate the contract without
providing a reason or offering an appeals
process. The terminating party is often
required to give notice of at least 90 days.
With Cause-permitted by all standard provider
contracts, occurs when one party does not live
up to its contractual obligations, for example
the provider fails to provide required services
Cure Provision
which specifies a time period (usually
60–90 days) for the party that breaches
the contract to remedy the problem and
avoid termination of the contract.
due process clause which gives
providers that are terminated with
N/W Maintenance and Provider Services
Orientation

Health plan give the providers an orientation or

introduction to its systems and operations.

Peer Review

Evaluation of a provider’s performance, usually by

other providers who practice within that same
medical specialty and within the geographic area.