Managed Care Plans

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Managed Care Plans

Normal results


Managed care plans are health-care delivery systems that integrate the financing and delivery of health care. Managed care organizations generally negotiate agreements with providers to offer packaged health care benefits to covered individuals.


The purpose for managed care plans is to reduce the cost of health care services by stimulating competition and streamlining administration.


A majority of insured Americans belongs to a managed care plan, a health care delivery system that applies corporate business practices to medical care in order to reduce costs and streamline care. The managed care era began in the late 1980s in response to skyrocketing health-care costs, which stemmed from a number of sources. Under the fee-for-service, or indemnity, model that preceded managed care, doctors and hospitals were financially rewarded for using a multitude of expensive tests and procedures to treat patients. Other contributors to the high cost of health care were the public health advances after World War II that lengthened the average lifespan of Americans. This put increased pressure on the health-care system. In response, providers have adopted state-of-the-art diagnostic and treatment technologies as they have become available.

Managed care companies attempted to reduce costs by negotiating lower fees with clinicians and hospitals in exchange for a steady flow of patients, developing standards of treatment for specific diseases, requiring clinicians to get plan approval before hospitalizing a patient (except in the case of an emergency), and encouraging clinicians to prescribe less expensive medicines. Many plans offer financial incentives to clinicians who minimize referrals and diagnostic tests, and some even apply financial penalties, or disincentives, on those considered to have ordered unnecessary care. The primary watchdog and accreditation agency for managed care organizations is the National Committee for Quality Assurance (NCQA), a non-profit organization that also collects and disseminates health plan performance data.

Three basic types of managed care plans exist: health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service (POS) plans.

  • HMOs, in existence for more than 50 years, are the best known and oldest form of managed care. Participants in HMO plans must first see a primary care provider, who may be a physician or an advanced practice registered nurse (APRN), in order to be referred to a specialist. Four types of HMOs exist: the Staff Model, Group Model, Network Model, and the Independent Practice Association (IPA). The Staff Model hires clinicians to work onsite. The Group Model contracts with group practice physicians on an exclusive basis. The Network Model resembles the group model except participating physicians can treat patients who are not plan members. The Independent Practice Association (IPA) contracts with physicians in private practice to see HMO patients at a prepaid rate per visit as a part of their practice.


Health maintenance organization (HMO)— Vertically integrated health-care provider employing many clinical professionals and usually owning or controlling a hospital.

Preferred provider organization (PPO)— Roster of professionals who have been approved to provide services to members of a particular managed care organization.

  • PPOs are more flexible than HMOs. Like HMOs, they negotiate with networks of physicians and hospitals to get discounted rates for plan members. But, unlike HMOs, PPOs allow plan members to seek care from specialists without being referred by a primary care practitioner. These plans use financial incentives to encourage members to seek medical care from providers inside the network.
  • POS plans are a blend of the other types of managed care plans. They encourage plan members to seek care from providers inside the network by charging low fees for their services, but they add the option of choosing an out-of-plan provider at any time and for any reason. POS plans carry a high premium, a high deductible, or a higher co-payment for choosing an out-of-plan provider.

Several managed care theories such as those stressing continuity of care, prevention, and early intervention are applauded by health-care practitioners and patients alike. But managed care has come under fire by critics who feel patient care may be compromised by managed care cost-cutting strategies such as early hospital discharge and use of financial incentives to control referrals, which may make clinicians too cautious about sending patients to specialists. In general, the rise of managed care has shifted decision-making power away from plan members, who are limited in their choices of providers, and away from clinicians, who must concede to managed-care administrators regarding what is considered a medically necessary procedure. Many people would like to see managed care restructured to remedy this inequitable distribution of power. Such actions would maximize consumer choice and allow healthcare practitioners the freedom to provide the best care possible. According to the American Medical Association, rejection of care resulting from managed care stipulations should be subjected to an independent appeals process.

The health-care industry today is dominated by corporate values of managed care and is subject to corporate principles such as cost cutting, mergers and acquisitions, and layoffs. To thrive in such an environment, and to provide health care in accordance with professional values, health-care practitioners must educate themselves on the business of health care, including hospital operations and administrative decision making, in order to influence institutional and regional health-care policies. A sampling of the roles available for registered nurses in a managed care environment include:

  • Primary care provider. The individual responsible for determining a plan of care, including referrals to specialists.
  • Case manager. The person who tracks patients through the health-care system to maintain continuity of care.
  • Triage nurse. In a managed care organization, these individuals help direct patients through the system by determining the urgency and level of care necessary and advising incoming patients on self-care when appropriate.
  • Utilization/Resource reviewer. This individual helps manage costs by assessing the appropriateness of specialized treatments.

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It is difficult to predict the effect of the managed care revolution on the health-care profession. All health-care providers will benefit from building broad coalitions at the state and federal levels to publicize their views on patient care issues. These coalitions will also be useful to monitor developing trends in the industry, including the impact of proposed mergers and acquisitions of health-care institutions on the provision of care.

See also Long-term insurance.



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Alden March Bioethics Institute. 47 New Scotland Avenue, MC 153, Albany, NY 12208-3478. (518) 262-6082. <>.

American Association of Managed Care Nurses. 4435 Waterfront Drive, Suite 101, Glen Allen, VA 23060. (804) 747-9698.

American College of Physicians. 190 N. Independence Mall West, Philadelphia, PA 19106-1572. 800) 523-1546, x2600, or (215) 351-2600.

American College of Surgeons. 633 North St. Clair Street, Chicago, IL 60611-32311. (312) 202-5000; Fax: (312) 202-5001. E-mail: [email protected].

American Hospital Association. One North Franklin, Chicago, IL 60606-3421. (312) 422-3000.

America Medical Association. 515 N. State Street, Chicago, IL 60610. (312) 464-5000.

American Nurses Association. 8515 Georgia Avenue, Suite 400, Silver Spring, MD 20910. (800) 274-4262.

National Committee for Quality Assurance. 1100 13th St., NW, Suite 1000, Washington, DC 20005. (202) 955-3500.


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L. Fleming Fallon, Jr, MD, DrPH