Efr ch3 managedcare_sr2.4

CHAPTER 3: MANAGED CARE AND
PERFORMANCE MEASUREMENT
• Point out at least two major differences between
managed care reimbursement and fee-for-service
reimbursement
• Give at least two examples of how managed care
review mechanisms reduce health care costs
• Explain at least three utilization or financial measures
for providers working in managed care settings or
under managed care contracts
• Compare at least two distinct characteristics of
managed care organizations and accountable care
organizations
Copyright © Springer Publishing Company, LLC. All Rights Reserved.
1

HISTORY OF PRE-PAID HEALTH PLANS
• 1880s: Mayo Clinic physician group practice
• 1929: Ross-Loos pre-paid group practice plan
• 1929: Shadid’s first full-risk capitated contract
• 1930s: Dr. Garfield/Kaiser Permanente
• 1930s: IPA-model HMO in San Joaquin Valley
• 1934: PPO Southern California Edison
2

RAPID GROWTH OF HMOS
• HMO Act of 1973 allowed and encouraged
growth
• 1980: health care inflation was double the CPI
• Employers looking for alternatives to FFS
• Prevalence and dangers of unneeded care
• Kaiser and national networks reduce costs
• 1990s: competition, mergers and acquisitions,
new forms of managed care
3

PRINCIPLES OF MANAGED CARE
• Principles address FFS problems such as supplier-induced
demand and moral hazard
• Capitation: a fixed payment established per plan
enrollee and paid to provider for specified services
over specified time period
– Incentives to control costs, as provider may keep surplus
– Quality indicators and regulation protect against under-care
– Stop-loss insurance protects providers from unusual costs
• Gatekeeping: access to specialists must be authorized
by a primary care provider
4

HOW CAPITATION CAN ALIGN INCENTIVES
Fee-for-service:
• The more is done, the more
is earned
• Incentives for over-care,
increased length of stay
• Does not ensure, may even
reduce, quality and access
while increasing costs
• PCP: improves access but
may lead to “churning”
Capitation:
• The less is done, the more
is retained as earnings
• Incentives for under-care—
quality and access
standards must be
established and met while
reducing costs
• PCP: health plan exports
risk but may lead to access
problems
5

REVIEW MECHANISMS
• Prospective review (or preauthorization) involves reviewing a
provider’s plan for care prior to the intervention, and authorizing
whether or not the plan will pay the costs
– For example, elective surgeries
• Concurrent review (or utilization review) occurs during
hospitalization, when the reviewer evaluates the medical record
and determines whether continued hospitalization is medically
necessary for each additional day of hospitalization
• Retrospective review (or claims review) occurs after health care is
provided and the claim for reimbursement is filed. The claim and
other documentation are reviewed to determine whether the
intervention was medically necessary and may be authorized for
payment
6

REVIEW MECHANISMS (CONT’D)
• Review mechanisms are intended to align incentives to reduce
procedures and hospitalizations that are medically
unnecessary
– Providers must demonstrate a rationale for treatment and document
their treatment plan and patient outcomes
– Review mechanisms may lead to disputes between providers and the
health plan around patient care decisions
– Review mechanisms also generate added work for providers as well as
considerable administrative costs for both providers and the managed
care plan
7

OVERALL PRIMARY CARE UTILIZATION AND
FINANCIAL DATA
• Member months: total of all months of coverage for
each health plan enrollee over the plan year
1st Quarter Member Months 2012 =
Members Enrolled January 2012 + Members Enrolled February
2012 + Members Enrolled March 2012
35,000 = 10,000 + 12,000 + 13,000
• P&L (profit and loss) statement: difference between
revenues and costs
1st Quarter of FY 2012 P&L =
1st Quarter Revenues – 1st Quarter Costs
$200,000 = $1,500,000 - $1,300,000
8

OVERALL PRIMARY CARE FINANCIAL
INDICATORS
• Average capitation per member month
– Total Capitation Revenue ÷ Member Months
• Average cost per member per month (PMPM)
– Total Paid Charges ÷ Member Months
• PCP visits per member per year
– Primary Care Visits ÷ Member Months x 12
• Specialty referral visits per member per year
– Referral Visits ÷ Member Months x 12
• Specialty care costs PMPM
– Total Specialty Referral Costs ÷ Member Months
9

OVERALL INPATIENT COSTS AND
UTILIZATION
• Inpatient care costs PMPM
– Total Inpatient Costs ÷ Member Months
• Inpatient admissions per 1000 members per
year (PTMPY)
– Total Admissions ÷ Member Months x 12 x 1000
• Inpatient days per 1000 members per year
– Total Inpatient Days ÷ Member Months x 12 x
1000
10

PRIMARY CARE UTILIZATION, FINANCIAL
DATA, AND INDICATORS BY PCP
• Primary care visits by PCP
• Paid charges by PCP
• Other primary care paid charges by PCP
• Average cost per primary care visit
– Paid Charges by PCP ÷ PCP Visits
11

COST AND UTILIZATION DATA AND FINANCIAL
INDICATORS BY SPECIALTY CARE SERVICES
• Referral costs by specialty, by PCP, and by specialist
• Total number of referrals and referral rates per 100 (or
1000) PCP visits by PCP
– Referral Rate = Referrals ÷ PCP visits x 100 (or 1000)
• Referral visits per referral by specialist
– Referral Visits for each Specialist ÷ Total Authorized Referrals for
each Specialist
• Referral visits per referral by each specialty
• Average referral cost by PCP
– Total Referral Costs ÷ Referrals by PCP
• Average cost per visit by specialist
– Referral Costs by Individual Specialist ÷ Referral Visits by
Individual Specialist
12

UTILIZATION DATA AND FINANCIAL
INDICATORS BY INPATIENT CARE SERVICES
• Inpatient costs by PCP
• Admissions and admission rates per 100
(or 1000) PCP visits by PCP
– Admission Rate = Admissions ÷ PCP Visits x 100
(or 1000)
• Inpatient LOS and inpatient days by PCP
• Average inpatient LOS (ALOS)
– Total Inpatient Days ÷ Total Admissions
• Average cost per admission by PCP
– Inpatient Costs ÷ Admissions by PCP
13

OUTLIER EVALUATION
• Important to identify why the outlier occurred
to manage costs and utilization
• Helps focus on reasons for costs or utilization
higher than anticipated
14

COMPARISON OF DATA AND INDICATORS
OVER TIME
• Compare past performance to current
performance
• Identify trends
• Identify unexpected changes
• Monitor PCP, specialty services, inpatient
services, and other areas generating costs and
utilization
15

ACOS
• ACOs share the same goals as MCOs of controlling costs while
ensuring access and high-quality patient care
• ACO reimbursement is on a per-episode, bundled basis
– For example, care provided for a total hip replacement would extend
from hospitalization and surgery through skilled nursing care and
rehabilitation, on through home health care and transition to the
home setting
• Another feature of ACOs is shared savings, shared risk, or
gainsharing
– When providers such as physicians and hospitals work together to
reduce health care costs, a negotiated portion of the savings is
returned to the providers as an incentive
16

ACOS (CONT’D)
• A key provision of ACOs is value-based purchasing, which directly links
payment to quality of care
– For example, EBP, care coordination, reporting quality indicators, and quality
improvement efforts
– In addition, ACOs must develop processes ensuring patient engagement and
patient centered care
• ACOs establish a patient-centered medical home for culturally sensitive,
comprehensive health care
• ACOs address problems of under-care by ensuring open access and a well-coordinated
vertical system of care from hospital to community
• ACOs address problems of over-care by implementing strategies such as
bundled payment for episodes of care, which aligns all the providers
17

ACOS VS. MCOS
• The emphasis on care coordination throughout a
patient episode, payment based on disease episodes,
evidence-based care, and patient engagement set
ACOs apart from MCOs
• In addition, ACOs are prohibited from gatekeeping
18

MANAGED CARE TERMS AND CONCEPTS
• Capitation revenue is the amount of authorized capitation reimbursement
• Paid charges or the charges authorized by the capitation plan and used as
a measure of costs
• Incurred but not reported (IBNR) or unreported expenses for which the
IPA or MCO will be liable, estimated to ensure an adequate reserve of
funds to pay those expenses
• Administrative costs are the indirect costs of running a program or service,
also referred to as overhead
• Medical loss ratio (MLR) represents the portion of a health plan’s
expenses allocated to clinical services compared to total revenue
• Administrative loss ratio (ALR) represents the portion of a health plan’s
expenses allocated to administrative costs and profit compared to total
revenue
19

MANAGING MEDICATION COSTS
• Formulary, or approved prescribing list
– Often established to manage medication costs
– Consumers might pay out-of-pocket or share costs of
non-formulary or brand-name medications if generic
medications are available
• Generic medications are equivalent to brand-name
drugs but are not associated with a
pharmaceutical company
• Brand-name medications are pharmaceuticals
for which the drug company retains the patent
20

Efr ch3 managedcare_sr2.4

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