EVOLUTION OF HEALTHCARE DELIVERY AND FINANCING

IN THE UNITED STATES

HMO ACT OF 1973Federal qualification requirementsDual choice provisionFederal development grants and loansExemption 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

Maturing population

Access to services

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 INDUSTRYLoss 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 IndemnityComplete coverage, freedom-of-choiceCost varies by level of out-of-pocket payments (deductibles, coinsurance)No negotiated discounts with providersInsurer or purchaser at risk

HMO (Health Maintenance Organization)Care coordinated through Primary Care PhysicianLimited access to providersLow member out-of-pocket costsShift of risk to providers through alternative payment mechanisms (target budgets, capitation)

PPO (Preferred Provider Organization)Similar to indemnity programsTwo 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 discounted payments if increase in volume does not materialize

POS (Point-of-Service)Hybrid of HMO and PPO productsLike 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 required(Out-of-network) required

Same as PPO

Out Of Network Coverage

Available Not available Available Available

Referral for specialist visit

Not required Required Not required Required

Cost (1-5) 5 is max

5 1 4 3

Freedom (1-5) 5 is max.

5 1 4 3

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 a given patient

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 SALARYCapitation PER DIEMGlobal, 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 area, usually in return for a fixed, prepaid fee

Federal QualificationPreempted- State LawsCannot exclude pre-existing conditionsHad 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 local

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 childhood immunizations

Networks Parameters in building a networkAccessCredentialingContractual relationship

Factors to determine no of primary care and specialist in a given areasize and location of the geographic service area network adequacy medical needs of its members employer or other purchaser requirements, including provider education, board certification, and work history

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 JCAHOState 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 HMOIPAStaffGroupNetworkDistinguishing factor is nature of contact relationship and reimbursement

Mixed Model-> characteristics of two or more

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

Compensation->FFS, Capitation

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 healthcareGreater awareness and acceptance of behavioral healthcare issuesIncreased 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 servicesalternative treatment levelsalternative treatment settings alternative treatment methods-> drug therapy, psycho therapy, counseling

crisis intervention Directing patients to appropriate carePCPCentralized Referral SystemEmployee Assistance Programs

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

3. Drug Utilization Review

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 within the same drug class.

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

IntegrationStructural IntegrationOperational Integration

Structural IntegrationCommon ownership and Control (Mergers. JVs, Acquisition)

Operational IntegrationBusiness Integration – Combine one or more separate business functionClinical Integration – Making a variety of services available from one entity

Advantages of IntegrationGreater operating efficiency and effectiveness Improve providers’ contracting position with health plans

Provider Integration Models Physician Only modelIPAs (Least Integrated) Group Practices without Walls GPWW/ Management Services Org (MSO)Physician Practice Management (PPM) companyConsolidated Medical Group

Physician and Hospital modelPhysician Hospital OrganizationIntegrated Delivery Systems (IDS) /Medical Foundation (Most integrated)

Health Systems Management

Health Plan , StructureBasic 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

ResponsibilitiesAuthorization 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 review of the QM plan and feedback to the plan’s medical director and QM committee

Medical DirectorPhysician executive who is responsible for the quality and cost-effectiveness of the medical care delivered by the plan’s providers.

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

Corporate Compliance Directordedicated to overseeing compliance activities Appointment of a corporate compliance director

Committees Standing Committeelong-term advisory bodies on ongoing issues such as financial management, compliance, quality management, utilization management, strategic planning, and compensation

Ad Hoc Committeesspecial 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 breach of fiduciary duty.

Network Structure and Management Market AnalysisMarket MaturityProvider CommunityCompetitive LandscapeEconomic Conditions Characteristics of the Service AreaPopulation CharacteristicsHealth Plan Characteristics Regulatory requirements

Network Structure and Management

Network StructureOpen PanelClosed Panel

Network CompositionPCPsSpecialistsHospitalistsHealthcare FacilitiesAncillary Service Providers

Network SizePlan CharacteristicsProvider Access (Staffing ratio, Drive time, Geographic availability)

Population CharacteristicsPurchaser & Consumer Preference (Quality, Access, Cost)

Plan Goals

Network Structure and Management Credentialing In-house/Third Party Credentialing AgenciesProviders have to submit forms along with supporting docsCheck 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

Re-credentialing for continuous monitoring once in 2 or 3 years

Contract Provisions - ProviderProvider ServicesAdministrative policiesCredentialing and Re credentialingParticipation in UM and QM programsMaintenance 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 provisionForbids providers from seeking compensation from patients if HP fails to compensate the providers Bcoz of insolvency or for any other reason

Provider Manual

Incorporated by reference

Contract Provisions – Health PlanPaymentRisk Sharing and incentive ProgramsTimely PaymentEligibility Info

Termination provisionWithout 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 or the health plan fails to compensate the provider

Cure Provisionwhich 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

cause the right to appeal the

termination.

N/W Maintenance and Provider ServicesOrientationHealth plan give the providers an orientation or introduction to its systems and operations.

Peer ReviewEvaluation of a provider’s performance, usually by other providers who practice within that same medical specialty and within the geographic area.