What Is Managed Care?

In a time in which healthcare providers, payers, insurers and the government are all looking for ways to reform healthcare through lower prices and higher quality of service, it’s no surprise that new ideas and strategies are gaining traction in the industry. One common healthcare delivery method that has been popular in recent years is known as managed care, and it has gained popularity particularly with the government for its potential cost-saving and outcome-enhancing methods. Read on to learn about managed care and how it’s changing the healthcare industry.

What Is Managed Care?

Managed care is a healthcare delivery system that seeks to lower costs and improve outcomes by using a network of providers working together to support patients’ overall wellness needs. It’s different from the Fee-for-Service method in which patients and insurance companies pay directly for whatever services physicians provide (which can lead to overpricing and providing unnecessary services). It’s also different from Value-Based Care, in which payment is dependent on quality of care rather than quantity. Under this model, prices and reimbursement are often set on a per capitation, or per-person, basis in a managed care organization (MCO), resulting in more predictable and lower costs.

Managed health care agencies select a network of providers and primary care physicians (PCPs) for patients to see. They create contracts with these network providers that include reduced fees, care accountability, and coverage of medical services and prescription drugs. There are many forms of managed care scenarios and service plans, such as a Health Maintenance Organization (HMO), a Preferred Provider Organization (PPO), and a Point of Service (POS) plan that allows flexibility in working between the previous two.

In an HMO, the patient works with providers and insurers in a single network to receive care, resulting in lower cost of care as a result. While this does make getting healthcare cheaper for the payer, this also means that insurance won’t cover out-of-network costs except for in certain scenarios. A PPO is similar to an HMO, but is more flexible when it comes to where the patient receives treatment (and therefore more costly). Insurance will pay for out-of-network costs in this care scenario, but the costs will be lower and the financial incentives higher for staying in-network. A POS plan lets you choose whether you want to use an HMO or a PPO when you have healthcare needs.

How Does Managed Care Impact A Healthcare Organization?

Healthcare organizations are always looking for ways to improve patient experiences, lower the cost of care, and keep themselves financially stable. The insurance, deductible, and payment models influence how a hospital operates from the cost of medical care, to the needs of their communities, to their revenue cycle management strategies, and much more.

Managed care is meant to unite medical professionals of all kinds, from independent primary care providers to large organizations, in order to provide a cheaper and more holistic approach to healthcare.

Since an MCO bundles hospitals, clinics, primary care offices, and specialized medical practices into one unified group, there are many ways to experience healthcare under this model, though prices should remain consistent. Being treated in-network means reduced costs for patient and provider alike, along with a smaller pool of healthcare professionals who are able to provide care and referrals to other in-network professionals. And because many people who receive health insurance through their employers do so through an MCO, it gives patients simpler, if sometimes restrictive, options for finding care.

However, one of the most important aspects of a managed care plan for the health care system is its relationship with Medicaid and the ongoing work of the Affordable Care Act.

Managed Care Organizations and Medicaid

Many individuals who rely on health insurance plans like Medicaid for their healthcare are enrolled in managed care scenarios. This involves states making contracts with private healthcare organizations to provide care to Medicaid enrollees, with states paying a set amount of money to these organizations per patient. This is known as comprehensive or capitated care. It’s easier for states to do this because it leaves the finer and more technical details of providing patient care to their providers, under the assumption that people in the healthcare field will know better than states how to manage patient experiences and outcomes.

As of July 1, 2019, 40 states including D.C. rely heavily on MCO health plans to provide Medicaid-subsidized care to patients. Approximately 40 percent of Medicaid patients are enrolled in MCO plans, and as Medicaid expands, these enrollment numbers are also likely to grow. However, many of these patients are those who require long-term care and other more expensive services, which becomes a funding issue that providers must maneuver their way through. This is also one reason why many organizations are beginning to emphasize preventive care techniques. Using MCOs for care programs like Medicaid and Medicare has improved the predictability of healthcare organization operating budgets, but it has not entirely improved the funding issues that many are facing.

Healthcare costs are becoming one of the biggest spending and debating points in the federal government, surpassing even the cost of public education. Because of this and the set reimbursement amounts that healthcare organizations receive per patient, it’s easy to see how even with this model, these organizations continue to struggle to make ends meet. Even with shifts in finances and the MCO model, maneuvering through the logistics and regulations of Medicaid can be difficult for a healthcare organization.