SESSION 17 & 18 - 22.11.2020: Health Insurance & Managed Care PGP-HCM (Term V)

HEALTH INSURANCE & MANAGED Dr. Rohit Kumar, Ph.
D, FIII, ACII, C-
CARE RIM, AMT
PGP-HCM (TERM V) Asst. Professor – Strategic Management

SESSION 17 & 18 – 22.11.2020
Copyright @ Prof. (Dr.) Rohit Kumar, IIM
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MANAGED CARE

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DEFINITION
According to the National Library of Medicine (US), the term
"managed care" encompasses programs:
“...intended to reduce unnecessary health care costs through a variety
of mechanisms, including: economic incentives for physicians and
patients to select less costly forms of care; programs for reviewing the
medical necessity of specific services; increased beneficiary cost
sharing; controls on inpatient admissions and lengths of stay; the
establishment of cost-sharing incentives for outpatient surgery; selective
contracting with health care providers; and the intensive management of
high-cost health care cases. The programs may be provided in a variety
of settings, such as Health Maintenance Organizations and Preferred
Provider Organizations.”
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CONTD…
Managed care organizations integrate the financing and delivery of
medical care. Their goal is to provide high quality medical care
services within a predetermined budget to an enrolled population.
The growth of managed care in the U.S. was spurred by the

enactment of the Health Maintenance Organization Act of 1973.
While managed care techniques were pioneered by health
maintenance organizations, they are now used by a variety of
private health benefit programs.

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MANAGED CARE
OBJECTIVES…
 To reduce unnecessary health care costs
 Economic incentives for physicians and patients to select less costly
forms of care
 Programs for reviewing the medical necessity of specific services
 Increased beneficiary cost sharing
 Controls on inpatient admissions and lengths of stay
 Cost-sharing incentives for outpatient surgery
 Intensive management of high-cost health care cases
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MANAGED CARE MODELS
HMO Models
a. Close panel
b. Open panel
c. Mixed model
Preferred Provider Organizations (PPO's)

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HISTORY OF HMO’S
The first of what we now call HMOs were started in the late 1920s in
Elk City, Oklahoma (as a farmers' cooperative), and in Los Angeles,
California (where the Ross-Loos Medical Group offered prepaid
services to employees of the Los Angeles County Department of
Water and Power and their families.)
Over time, more HMO-type systems began to grow, typically

organized by businesses and community groups eager to make health
care available to their workers and members at costs they could better
afford.
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HISTORY OF HMO’S
The first of what are now called Individual Practice Associations
(IPAs) was begun in 1954 by fee-for-service physicians seeking to
compete with the group plans.
In the 1960s, health care costs grew rapidly, and pressure mounted for
federal government intervention. In fact, the term "HMO" was
developed in the early 1970s as part of strategy to promote the growth
of prepaid plans as a way of improving the capacity and efficiency of
the nation's health system
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HISTORY OF HMO’S
New federal legislation, the 1973 Health Maintenance Organization
Act, recognized the promise of HMOs and encouraged their growth
nationwide by removing legal impediments to their development. By the
end of 1978, there were more than 200 HMOs spread over 37 states.
The 1980s were a period of spectacular growth among HMOs. The

number of HMOs more than doubled and enrollment increased fourfold,
largely in response to employers and consumers seeking access to high
quality health care at more affordable prices.
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HEALTH MAINTENANCE
ORGANIZATION ACT OF 1973
The Health Maintenance Organization Act of 1973 (Public Law 93-
222), also known as the HMO Act of 1973
 It provided grants and loans to provide, start, or expand a HMO

 removed certain state restrictions for federally qualified HMOs; and
 Required employers with 25 or more employees to offer federally
certified HMO options alongside traditional indemnity insurance upon
request (the "dual choice provision").
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HEALTH MAINTENANCE
ORGANIZATION ACT OF 1973
HMOs were required to meet three basic requirements.

- to offer a specified list of benefits to all members,
- charge all members the same monthly premium, and
- be structured as a nonprofit organization.

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IMPORTANT FEATURES OF AN
HMO
1. Gatekeeper System
2. Twenty-Four Hour Access
3. Open Enrollment

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HMO MODELS
The standard models are as follows:
 Contracts between payers, health plans and selected providers
(physicians, hospitals and others) that establish a comprehensive set of
healthcare services for enrolled members, usually for a predetermined
monthly premium;
 Utilization and quality controls that contracting providers agree to
accept;
 Financial incentives for patients to use providers and facilities
associated with the designated delivery system; and
 Assumption of some level of financial risk by providers.
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HMO MODELS
The various HMO models are defined according to the relationship between the
health plan and its providers. Over time, the relationship may change: e.g., an HMO
may diversify from one type of provider arrangement to multiple types; or an HMO's
salaried physicians may form a separate corporation to contract with the HMO.
A managed care plan that contracts with physicians on an exclusive basis for
services and does not allow those physicians to see patients from another managed
care organization; this usually refers to :-
- Staff/Closed and
- Group model HMOs.

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CLOSED PANEL HMO
Staff/Closed model
- An HMO in which physicians are salaried employees of the HMO.

- Medical services are delivered in HMO owned medical facilities that
generally are open only to HMO members.
- The physicians adopt the principles of managed care and the system
tries to reinforce high quality and cost-effective care with
administrative supports.
- A very small percentage of physicians practice in these settings.
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CLOSED PANEL HMO
Group model
- An HMO that contracts with a single medical group for the provision of
healthcare services to its members.
- The physicians are employed by the independent, physician-owned group
practice, not the HMO.
- The financial incentives driving the individual physicians can vary depending
on the form of compensation: salary, modified fee-for-service, or some risk-
sharing formula.
- Group-model HMOs represent a relatively small sector of the physician
workforce.
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OPEN PANEL HMO
A managed care plan that contracts with independent physicians to deliver
care to health plan enrollees in their own offices. Physicians may contract
with multiple plans to care for members of Managed Care Models and
Products
IPA (independent or individual practice association) model:
- HMO contracts with independent, private-practice physicians or
associations of such physicians
- Most physicians in the U.S. have contracts with one or more HMOs.
- Physicians in this model generally are paid on a fee-for-service or
capitated basis.
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MIXED MODEL
An HMO that uses a combination of the closed panel and open
panel models described earlier.

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INDIAN HEALTH
ORGANIZATION
By Atena…..
A good example of what is possible in the Indian

healthcare landscape from a managed care perspective
Source: https://iho.in/

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https://iho.in/health-hub/popular-health-myths
-need-stop-believing/
PREFERRED PROVIDER
ORGANIZATIONS (PPO)
PPOs are often referred to as a variation of managed care, although
they do not meet the criteria of an HMO.
In this arrangement, the health insurance plan contracts with

independent physicians, hospitals and other healthcare providers who
become the “preferred” or “participating” providers.
Most PPOs are owned by insurance companies or independent

investors; few are operated by HMOs.
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PREFERRED PROVIDER
ORGANIZATIONS (PPO)
Providers typically accept reduced, “discounted fee for service”
rates of reimbursement from the insurer in exchange for access to
the PPO’s enrollees.
PPOs have fewer restrictions than HMOs (e.g., patients are not
required to select a primary care physician or seek prior
authorization for services).
Patients may choose to receive care from providers who do not

participate in the PPO, with higher co-payments and deductibles
attached to services provided by nonparticipating providers.
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S & W OF A PPO
In controlling costs, PPOs hold a number of advantages over traditional
health insurance. First, they reward patients for using efficient
providers.
Second, PPOs contract with providers about price and utilization
review activities before the patient enters the health care system.
PPOs have superior knowledge, bargaining power, and time-to-shop
over individual patients in negotiating more favorable terms.

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S & W OF A PPO
 A major weakness of PPOs is their failure to provide financial
incentives for providers to control health care costs.
 In most PPOs, providers do not bear the financial risk for excessive
utilization.
 PPOs usually reimburse hospitals and physicians on a traditional fee-
for-service basis
 Under fee-for-service payment, a provider’s income grows as the
volume and complexity of services increases. Therefore, PPO
discounts may fail to produce savings if providers are able to induce
increases in the quantity and complexity of services
Comparison Sheet
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THANK
YOU!

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SESSION 17 & 18 - 22.11.2020: Health Insurance & Managed Care PGP-HCM (Term V)

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HEALTH INSURANCE & MANAGED Dr. Rohit Kumar, Ph.

PGP-HCM (TERM V) Asst. Professor – Strategic Management

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

The growth of managed care in the U.S. was spurred by the

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

Preferred Provider Organizations (PPO's)

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

Over time, more HMO-type systems began to grow, typically

The 1980s were a period of spectacular growth among HMOs. The

 It provided grants and loans to provide, start, or expand a HMO

HMOs were required to meet three basic requirements.

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

2. Twenty-Four Hour Access

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

- An HMO in which physicians are salaried employees of the HMO.

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

A good example of what is possible in the Indian

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

In this arrangement, the health insurance plan contracts with

Most PPOs are owned by insurance companies or independent

Patients may choose to receive care from providers who do not

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

Copyright @ Prof. (Dr.) Rohit Kumar, IIM

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