Managed Care Organizations (HMO, PPO, etc.)

Oct 31st, 2024

Managed care is a type of health insurance system designed to reduce healthcare costs while ensuring high quality care through coordinated, cost-effective, efficient delivery of services. Broadly speaking, managed care is any healthcare delivery system in which a party other than the physician or the patient influences the type of health care delivered. A managed care system also actively manages both the medical and financial aspects of a patient’s care.

Typically, in managed care, insurers partner with healthcare providers (doctors, hospitals, and other facilities) to create a network that delivers medical services to members at lower costs than traditional fee-for-service plans. Managed care systems encourage preventive care, coordination of care, and cost-effective treatments.

A more precise definition of managed care is difficult because it is an evolving concept made up of disparate organizations. The features once differentiating the various managed care plans have become less distinct as they move forward and adopt similar characteristics. The characteristics most common to Managed Care Organizations (MCOs) such as Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs) include:

• Gatekeeping and Referrals: Primary care physicians (PCPs) often act as gatekeepers in managed care plans, coordinating care and providing referrals to specialists when necessary.
• Network of Providers: Managed care plans have a network of healthcare providers who have agreed to set rates and care guidelines.
• Cost Controls: Managed care uses strategies such as prior authorization, case management, and generic drug promotion to reduce unnecessary services and control costs.
• Quality assurance, utilization review, and outcome measures.
• Incentives (financial or program coverage).
• Penalties to enrollees who do not use selected providers.
• Provider risk-sharing arrangements.
• Management by providers to ensure that enrollees or members receive appropriate care from the most cost-efficient mix of providers.

Reminder: Coverage and limits are determined by both individual payers and the particular plan policy of the beneficiary. In other words, because a single payer typically has multiple types of plans, you cannot assume that a service will be covered in all circumstances for all patients covered by that payer.

Learn as much as you can about the MCO before signing up. You’ll want to consider the following questions:

• What is their financial status?
• What is their reputation for paying bills?
• How stable is their contract with the employer? Know your local market.
• Is the company under pressure to compete? If they have potential problems, signing up might not be a good option. If an MCO goes bankrupt (and they do), your only recourse may be to hire a lawyer and go to court.

Note: Once you are a contracted in-network provider, changing network status can be extremely challenging. Carefully review the network’s contract to understand this component in order to avoid problems changing your network status in the future.

Advantages of Participating in an MCO

• Increased Clientele: Patient requests to their insurance carrier for the name of a provider in their area could be referred to you. This is free “marketing.” Check to see how many providers are currently on their panel in your area. Note that the trade-off to this “free marketing” is that participating providers have been known to have a lower fee schedule than non-participating providers (if the plan includes coverage for out-of-network providers).
• Direct Payment: Payment comes from the HMO directly to the provider, eliminating the risk of the patient not forwarding it to you.

Disadvantages of Participating in an MCO

• Panel Costs: Quite often, there are costs associated with becoming part of a panel. Ask what those costs are, along with their anticipated referral rate. The amount of “participating fees” for their referral rate might not be worth the effort. It may be less expensive to run your own marketing campaign.
• Lower Fees: By participating, you agree to accept their “allowable” amount and only bill the patient for the applicable patient portion or “co-pay” and/or deductible. Ask what the allowable amounts are up front to avoid any unpleasant surprises. Some have very low fee schedules.
• Higher Overhead Costs: There could be additional overhead costs in administering other plans in your office. For example, you would need to maintain separate fee schedules and/or write off disallowed amounts. Be aware of any additional overhead expenses.

Note: CLICK HERE to read about managed care with Medicaid and the Children’s Health Insurance Program (CHIP).