Private Payers Serving Individuals with Disabilities and Chronic Conditions. A. Characteristics of Managed Care


The term managed care means different things to different people. Because of this, its definition may seem somewhat vague and its operational features in one site may be quite different than its operational features in another site. The Managed Health Care Dictionary (Rognehaugh, 1996) defines managed care as "any method of health care delivery designed to reduce unnecessary utilization of services, contain costs, and measure performance, while providing accessible, quality, effective health care" (page 109). Rognehaughgoes on to note that managed health care plans do the following:

  • "integrate the financing and management with the delivery of health care services to an enrolled population;
  • employ or contract with an organized provider network which delivers services and which either shares financial risk or has some incentive to deliver quality, cost-effective services; and
  • use an information system capable of monitoring and evaluating patterns of members' use of medical services and the cost of those services" (p. 110).

Because the methods used to produce managed care vary widely and are limited only by fairly broadly written statutes or regulations, the term 'managed care' should not be viewed as a binary (yes or no) construct. Peter Fox (1997) notes that, in reality, very little care offered in the United States is unmanaged. Today, even traditional indemnity plans typically use some care management techniques, such as precertification for hospital use, second opinion programs for surgical treatment, or other utilization review methods.

The lack of a binary distinction between various forms of managed care and indemnity plans can be seen in Table 2-1. The table notes important characteristics of the managed care and indemnity plans offered by the two employers who contributed data for the Private Payers Study. The information presented here reflects the continuum of managed care; certain types of plans fall closer to one end of the spectrum or another. For example, HMOs and POS plans tend to offer the highest degree of integration of financing and delivery, with less integration in the PPO plan and less still in the indemnity plans. Similarly, risk sharing between health plans and providers tends to be more prominent in the HMOs, less prominent in the POS and PPO plans, and nonexistent in the indemnity plans. For other measures there are more distinct differences between the managed care and indemnity plans. For example, the managed care plans use established networks of providers and either disallow or penalize out-of-network use; this is not the case for the indemnity plans. Because of the variety of methods used to integrate administrative, financial, and delivery aspects of treatment, it is often more appropriate to treat each plan type separately when analyses are completed. This is the approach we adopted in many of the analyses completed for the Private Payers Study.

TABLE 2-1: Features of the Managed Care and Indemnity Plans in this Study
Feature Health Maintenance Organization (HMO) Point-of-Service (POS) Plan Preferred Provider Organization (PPO) Indemnity Plan
Degree of organization/integration of financing and care delivery High High Medium Low
Plan shares financial risk with providers Yes With some but not all providers With some but not all providers No
Capitation is used to pay providers Some (e.g., primary care) Some None None
Fee-schedules or volume discounts are arranged with providers In some but not all HMOs In some but not all POS plans Yes No
A formal network of providers exists Yes Yes Yes No
Out-of-network care is paid for No Yes, but with penalty Yes, but with penalty Not applicable
A primary care gatekeeper is assigned Yes Yes No No
Specialists can be seen without gatekeeper approval No No Yes Yes
Pre-certification or other utilization review is applied Yes Yes Yes Yes
Strong emphasis on disease management programs and/or use of clinical practice guidelines Yes Yes No No
Strong emphasis on preventive services and wellness programs Yes Yes No No

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