Introduction to Managed Care Organizations

The term “managed care” originated as the "for-profit" objective of effective health care management, which was to deliver the highest quality care at a lower cost. That is why managed care companies try to get the lowest costs from doctors, drug companies, and hospitals, while limiting patient access to treatments they think might be unnecessary. Somehow, as health care costs have risen at a double-digit pace, the quality part of the equation has become secondary to managing costs. For right now, the managed part of managed care is about managing money, not about increasing care. This outcome has been somewhat unavoidable. Health care, including many of the high-tech choices for cancer, is expensive in the United States. If the goal of a managed care organization (MCO) is now to manage costs, each organization needs to find new ways to manage cancer care. This may not please you as the patient or caregiver.

What is a managed care organization (MCO)?

An MCO is an alliance of health care providers whose purpose is to contract with an organization. The contracting organization can be an employer, an insurance company, Medicare, Medicaid, a union, an individual, or any combination of these. In order to serve patients in a specific geographic area, the providers (physicians and/or hospitals) will discount their fees in order to have a contract with MCOs.  They give this discount to get the patients into their practices or hospitals. The alliance of providers can be a health maintenance organization (HMO) or a preferred provider organization (PPO), depending on how restrictive the alliance is and how much money they can demand for their services in a particular market.

Why do people join managed care organizations?

People generally join MCOs because the out-of-pocket costs (co-pays and deductibles) are less than traditional insurance for a bigger basket of benefits. But sometimes, managed care is the only option that an employer offers. In this case, patients opt for an MCO over being uninsured. For small businesses and individuals, MCOs are often a more affordable option to offer as an employee benefit. In some places, such as California or Boston, MCOs such as Kaiser and Harvard Pilgrim are well established and have excellent reputations, and patients seek them out as their health plan of choice.

How do managed care organizations make money?

Take a big gulp of coffee here — this is complicated. A contracting organization or group of individuals generally pays the MCO a large sum of money to manage “risk” for a specific group of patients. Risk, in this case, means the risk of a patient’s spending all of the contracting organization’s pile of money on treatment of a serious disease.

For example, Corporation X pays Blue Plan C $1,000,000 per month to care for their 5,000 patients. One Corporation X cancer patient (in the 5,000-patient pool) has $75,000 worth of treatment in one month. This puts the plan at risk of future high costs from that cancer patient and risk of losing money from all patients. To control this risk, MCOs may set up barriers for expensive treatments to prevent these treatments from being doled out without a pretty good reason. To avoid breaking the bank, there are criteria for the treatments you receive, particularly if they are new or very expensive. Often, the people who are in charge of managing this risk are primary care physicians (PCPs). Some cancer doctors like to think that PCP stands for "Patient Care Pontiffs" or "Primary Care Pirates" as they do not like asking them for permission to treat you.

How do PCPs manage risk in an MCO?

In many HMOs and some PPOs, the PCP will have to refer you to a specialist such as a urologist, a radiation oncologist, or a cancer surgeon. This is called a referral. Once the PCP generates a referral, you can go to a surgeon or an oncologist. Referrals may also be necessary for things like positron emission tomography (PET) scans or biopsies. It is important for patients and their doctors to stay on top of these referrals, or treatment can be denied and will not be paid for. Almost always, an insurance company will tell you if you have a PCP. If you do, be on the lookout for necessary referrals.

What the heck is an IPA?

An IPA is an independent practice association. Pretty ambiguous, isn’t it? Actually, these IPAs are groups of physicians who practice together and manage risk for a certain group of patients. The IPA can be all PCPs or a cluster of many specialties. If they manage the risk of their population very effectively, they receive a bonus at the end of the year. Sadly, because physicians are also humanitarians, IPAs have had some financial problems in recent years.