Managed Care Overview

  • Managed care (most commonly PPO’s)- prearranged discount for a network of physicians
  • Synonyms for managed care:
    • Health plan
    • MCO
    • Plan
    • HMO
  • Managed care
    • all the efforts to influence behavior of patients (through financial incentives to get most cost effective care) and HC providers
    • An entity involved in both the financing and delivery of HC
  • Managed care contracts are also known as:
    • plan summary document
    • Certificate of coverage
    • Master group contract
    • Benefits of Managed Care
      • Makes consumers more cost conscious
      • Encourages the use of less expensive “alternate” services  (home health care instead of a hospital stay)
  • Managed care has resulted in more work (DUR, PA, formularies) and less reimbursement for pharmacies.
    • Most health care services are delivered by PPO’s
    • Staff model HMO’s- physicians are hired employees (Kaiser)
    • Group model HMO- one hospital with all its doctors are exclusively contracted with one plan
      • May be capitated or FFS
    • PPO- most popular kind of MCO, group of doctors that solicit contracts from MCO.
    • IPA- small group or single physicians similar to Network Model HMO that provide services for a managed care organization
      • Change from MCO to CDH has reduced the power of physicians, reduced security of payment for doctors
        • Idea of CDH is to make insurance shop around for cheapest care (i.e. market driven)
        • Problem with CDH is that patients don’t know how much it is going to cost before they go in to the doctor’s office
      • Most entities at risk have some kind of reinsurance
  • The quality of managed care is assessed on structure, process and outcomes.
    • MC
      • Cost per active employee is increasing each year
      • Costs are increasing at a decreasing rate
      • PPO’s are the most popular MCO’s
  • P & T committee- a committee of experts (mainly doctors and pharmacists) that are responsible for developing, managing, & administering a formulary.
  • P & T committee- a committee of experts (mainly doctors and pharmacists) that are responsible for developing, managing, & administering a formulary.
  • The big 3 criteria of formulary consideration
    • Safety
    • Efficacy- (how well can it work under ideal conditions)  (as opposed to effectiveness- how well it works under ordinary conditions).
    • Cost
  • Restricted use drugs
    • New, revolutionary drugs that are kept on reserve for extenuating circumstances
    • Require ok by a specialist in infectious illness

Counter Detailing- education programs for pharmacists/doctors to counsel each other about new brand drugs and their cost-benefit analysis vs. other drugs in the same class.  Mean to offset drug companies undue influence on physicians.

  • Managed indemnity-
    • Uses utilization control in FFS plans to reduce cost & inappropriate care
    • Financial incentives for lowered utilization of services
      • Such as discounted FFS payment to doctors & bonuses for doctors with low utilization
  • Most health care services are delivered by PPO’s
  • Staff model HMO’s- physicians are hired employees (Kaiser)
  • Group model HMO- one hospital with all its doctors are exclusively contracted with one plan
    • May be capitated or FFS
  • PPO- most popular kind of MCO, group of doctors that solicit contracts from MCO.
  • IPA- small group or single physicians similar to Network Model HMO that provide services for a managed care organization
  • Change from MCO to CDH (consumer driven health care) has reduced the power of physicians, reduced security of payment for doctors
    • Idea of CDH is to make individuals shop around for cheapest care (i.e. market driven)
    • Problem with CDH is that patients don’t know how much it is going to cost before they go in to the doctor’s office
  • Managed care (most commonly PPO’s)- prearranged discount for a network of physicians.  Managed care is involved in both the financing  (insurance company) & providing (physician) of HC.  Encourages the use of low cost therapeutic alternatives.
  • Managed care is characterized by prepayment of services
  • In a FFS model there is NO RISK
  • Partial capitation-
    • Payment in advance for predefined, predictable services per member per month
    • Physician is at partial risk
  • Full capitation-
    • Payment in advance for all services  per member per month
    •  Physician is at full risk
  • PPO
    • Group of doctors who seek contracts from MCO’s
    • Characterized by discounted FFS
  • MC
    • Cost per active employee is increasing each year
    • Costs are increasing at a decreasing rate
    • PPO’s are the most popular MCO’s
  • Managed care = a system which integrates financing and delivery of medical care.
    • Insurance company (MCO) does financing
    • Physician does delivery
  • In a FFS model there is NO RISK
  • Distinguishing factors of HMO’s:
    • Relationship exclusivity
    • Risk bearing (by the physician)
    • Financial relationship
      • Doctors must be cost conscious
    • Network of providers
  • HMO = no out of network services (providers) are covered
  • Staff model
    • Think Kaiser
    • Doctors are employees of the HMO
  • Group model
    • Plan contracts exclusively with one group of providers
  • Network model
    • Nonexclusive
    • Many small physician groups provide care
  • IPA model
    • No medical facilities
    • Contracts with individual providers
  • PPO
    • Group of doctors who seek contracts from MCO’s
    • Characterized by discounted FFS
  • Capitation transfers the risk from the HMO to the physician
  1. 4 themes of ethical confusion for managed care organizations: the sanctity of the physician-patient relationship, the ethics of medicine, the quality of care and freedom of choice for patients and providers.
  • Usual and customary (U & C) price discounts
    • Doctors give a % discount in exchange for more patient volume
  • Usual Customary and Reasonable (UCR) discounts
    • Like U & C but within the guidelines of “reasonable” which means that the doctor’s price must be within the range that 85% of doctors will charge
  • Bundling of Services
    • The grouping of related items or services into one price
    • Most effective when the MCO can negotiate on a daily hospital rate
      • Most extreme example of bundling of services was medicare Prospective payment system (PPS)- this plan paid the hospital a flat rate no matter how long the patient stayed there.
  • Peer review- usually refers to doctors reviewing other doctors
    • Most often found in staff model HMO’s
  • Capitation- a characteristic of some HMO’s that pays doctors a fixed amount of money to cover all the health care expenses of a given population irregardless of the # of times the patients see the doctor.
  • Gatekeepers- typical feature of most HMO’s in which a primary doctor(s) acts as a supervisor in authorizing medical services and specialist referrals for the HMO
    • Utilization Review (UR)-
      •  review of the services delivered by a health care provider to evaluate the appropriateness, need, and quality of the prescribed services.
      • Guards against unacceptable variation (not necessarily creative methods) in medical or pharmacy practice and against over-usage (or  inappropriate usage) of services
    • Most extreme example of bundling of services was medicare Prospective payment system (PPS)- this plan paid the hospital a flat rate no  matter how long the patient stayed there.
    • POS- point of service
      • Insurance model which determines coverage where care is provided at the time of delivery.
      • Allow enrollees to choose between a network or out-of-network provider
        • Network- prepaid
        • Out-of-network- FFS
  • HMO’s are a specific type of MCO.  HMO’s place providers at risk and generally don’t pay for medical care that is outside of the network.
  • Managed care is the predominant form of health care delivery
  1. Risk bearing- the amount of risk borne by the providers (full to no risk)
  2. Relationship exclusivity- whether a doctor provides care to only patients from one MCO or is able to provide for multiple MCO’s.
  3. In an open formulary all drugs are covered, regardless of their formulary status.
  4. Step therapy- A patient must try to use a drug that is less expensive under a plan before they try a more expensive drug.
  5. DUR- The review of a doctor’s prescribing, a pharmacist’s dispensing and a patient’s use of drugs.
  6. Cost sharing- examples include co-pays, deductibles, maximum benefits etc.
  • DUR = DUE = MUE = Medication use management
    • Looks for:
      • Abuse/misuse
      • Drug allergies
      • Drug-drug interactions
      • Inappropriate duration of treatment
      • Incorrect dosage
      • Therapeutic duplication
    • DUR became required for medicaid patients due to OBRA ’90
  • Concurrent DUR- occurs only in the hospital setting and occurs at the time the patient is taking the medication
  • Plan sponsors: the government, employers or insurance companies that take on the risk of paying for healthcare
  • Consumer driven healthcare (CDH)-
    • Designed to give employees a greater choice of providers
    • Usually these plans have a high deductible that the patient needs to meet before the insurance starts kicking in.  High deductible plans are typically used because they are cheaper for the employer to buy.
    • Patient is usually given some kind of health savings account to use in order to pay some of that deductible.  Thus the patient has a strong incentive to spend wisely.
  • Buying coop’s-
    • Independent pharmacies or small chains which group together to buy drugs at a discounted rate from the wholesaler
  • 3 functions of cost sharing
    • Decreases drug benefit cost to the sponsor
    • Helps control utilization
    • Channels patients toward less expensive products
  • Appropriate intensity (reducing the # of Rx’s per patient) can save more money than cutting ingredient cost and dispensing fees
    • DUR helps to control this
  • Prospective DUR is also known as point of service edits   (done at the time of or before dispensing a drug)
  • Exclusive care provider (EPO)-
    • MCO that designates what specific providers can provide your HC.
    • EPO’s provide coverage only from contracted providers (as opposed to PPO’s that will cover at least part of the charges for non-preferred providers)
  • Main reason for increase in the # of prescriptions dispensed is the utilization rate (more prescriptions per patient)
  • With FFS pharmacists were able to set the prices, now PBM’s demand discounts
  • Negative formulary- list of drugs not covered
  • Exclusions-
    • Certain drug classes that are not covered by a formulary
    • Ex. Oral contraceptives, viagra, etc
  • Concurrent DUR- occurs only in the hospital setting and occurs at the time the patient is taking the medication
  • 4 tier formulary
    • Generic
    • Brand
    • Nonformulary
    • Lifestyle
  • TPA’s are independent benefit contractors that work with (usually smaller) payers to set up health care benefits (including pharmacy benefits) for the payer’s employees, usually contracting for medical & pharmaceutical services on behalf of a self insured employer group.  Generate revenue by charging either per member per month or per claim.
  • Characteristics of pharmacy benefit design:
    • Access–network vs. out of network pharmacy proximity
    • Eligibility–who & what drugs are eligible for coverage
    • Reimbursement–level of competition between pharmacies affects how much the PBM is reimbursed
    • Drug therapy review–managed cost perspective
    • Education- doctor prescribing trends
  • Many efforts to contain pharmacy costs were cost shifting in nature
    • Increase co-pays
    • Discounted pharmacy products/services
    • Dispensing fees–lower fees to pharmacists in exchange for greater volume
    • Limited provider (pharmacy, doctor) access
    • Stricter benefit limitations
  • Clinical & cost controls:
    • DUR
    • Formularies
    • P & T committee–clinical focus
    • Provider education–“best practice” guidelines & treatment protocols
  • Blue Cross & Blue shield was started by doctors and hospitals to ensure that doctors and hospitals got paid

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��F5amily:”Times New Roman”;mso-hansi-font-family: Calibri;mso-bidi-font-family:”Times New Roman”‘>Access–network vs. out of network pharmacy proximity

  • Eligibility–who & what drugs are eligible for coverage
  • Reimbursement–level of competition between pharmacies affects how much the PBM is reimbursed
  • Drug therapy review–managed cost perspective
  • Education- doctor prescribing trends
  • Many efforts to contain pharmacy costs were cost shifting in nature
  • Increase co-pays
  • Discounted pharmacy products/services
  • Dispensing fees–lower fees to pharmacists in exchange for greater volume
  • Limited provider (pharmacy, doctor) access
  • Stricter benefit limitations
  • Clinical & cost controls:
  • DUR
  • Formularies
  • P & T committee–clinical focus

Provider education–“best practice” guidelines & treatment protocols

  • Consumer driven healthcare (CDH)-
    • Designed to give employees a greater choice of providers
    • Usually these plans have a high deductible that the patient needs to meet before the insurance starts kicking in.  High deductible plans are typically used because they are cheaper for the employer to buy.
    • Patient is usually given some kind of health savings account to use in order to pay some of that deductible.  Thus the patient has a strong incentive to spend wisely.
  • Formularies-
    • Closed- only drugs on the formulary are covered (most common)
    • Open- all drugs are covered regardless of the status
  • Point of service edits-
    • Computer connection that allows prescription filling and claim submission simultaneously
    • Soft edit- can be overridden
    • Hard edit- can’t be overridden (can’t bill for generic and fill for brand name)
    • Prospective DUR is also known as point of service edits   (done at the time of or before dispensing a drug)
  • Counter Detailing- education programs for pharmacists/doctors to counsel each other about new brand drugs and their cost-benefit analysis vs. other drugs in the same class.  Meant to offset drug companies undue influence on physicians.
  • Health care costs (pharmacy, hospital, doctor) are interdependent which causes problems with cost minimization/component  management
  • Health Savings Account (HSA) aka Medical Savings account (MSA)
    • Like an MSA with fewer restrictions
    • Savings account with a high deductible health insurance policy
    • Congress enacted HSA’s in 2003
  • for dispensing a generic instead of the name brand drug.
  • New use of formularies is price negotiation
  • Restricted use drugs
    • New, revolutionary drugs that are kept on reserve for extenuating circumstances
    • Require ok by a specialist in infectious illness
  • Through an exception process a non-formulary drug can be covered provided the drug is deemed medically necessary
    • Patients bill of rights act of 1998 made it required for formularies to have this exception process.
  • Prior authorizations are most commonly used when a drug is either expensive or possibly dangerous
  • New use of formularies is price negotiation
  • Through an exception process a non-formulary drug can be covered provided the drug is deemed medically necessary
    • Patients bill of rights act of 1998 made it required for formularies to have this exception process.
  • PA’s are most commonly used when a drug is either expensive or possibly dangerous
  • Self-insured employer groups
    • Move $ from one year to the next
    • Premiums may go up from year to year to cover the payment of health care in the previous year
  • Contracts are usually called:
    • Certificate of coverage
    • Plan summary document
    • Certificate of benefits
  • Generic substitution is the best cost containment strategy
    • Reduce pharmacy costs 10-15%
  • Benefit consultants assist payers in selecting the best value in health care benefits for employees.  Compare different PBM’s.
  • Generic substitution is the best cost containment strategy
    • Reduce pharmacy costs 10-15%
  • DRG’s are intended to categorize patients into groups that are clinically meaningful & homogenous with respect to  resource use
  • Plan providers (either private employers or government entities) should insist on full disclosure of cash flows to & through the PBM that is administering the drug benefit
  • DRG’s are intended to categorize patients into groups that are clinically meaningful & homogenous with respect to resource use
  • DRG’s started in Medicare & have moved to other commercial providers since.

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