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Cost Containment in Managed Care Payment systems based on resource use have been designed and implemented for other providers of care. One example is...

Employee Health Insurance Plans

Part I

Consider the four health plans below with an eye to choosing one to offer to the company's employees. Assume that the health plans and their annual per employee premiums are as follows:

Health Plan

Premium, Individual

Premium, Family

Aetna Health












The employer will pay 80% of the premium for individual coverage, and the employee will pay the remaining 20% as well as the entire additional premium for family coverage. (The premiums listed above, while realistic in magnitude, are hypothetical and computed solely for the purpose of this project.) All of the plans are managed care plans. Assume that the benefit package is the same across all plans, so there is no difference between them in what services are covered.

In addition to the above data, click here to view and investigate the New York State Managed Care Plan Performance report, the latest electronic version of the report card issued by the New York State Department of Health, 2012, and incorporate the information into your evaluation.

You can view the various categories of measures on which health plans are rated (e.g., Access to Care, Adult Living with Illness, etc.). Click each link for a summary chart that presents the performance (usually as a percentage score) of each plan in the group on the relevant measures and how each plan compares to regional and statewide scores.

Submit a 2-page analysis in a Microsoft Word document that outlines the plan you selected and why. Generally, you would select the plan with the highest score, but if you chose a plan with a lower score, explain why. Include the following elements in your analysis:

Explain which factors (e.g., price and/or performance measures) were most important to your choice of plan and how you derived the weights for each factor you used.

Indicate, on a scale of 1 to 10, how comfortable or confident you are that you made the right choice, with 10 being most confident.

Part II

You need to use the multiattribute utility (MAU) technique to respond to the following questions. Although the technique can be performed with pencil and paper, it is recommended you use a Microsoft Excel to do the various calculations involved.

Click the following links to access the information on using the MAU technique:

MAU Model

MAU Example

Compare your level of confidence at the time you completed Part I to your confidence level for Part II, when you used this decision aid.

Was it helpful? What were its advantages and disadvantages?

Did it make the decision harder to make or easier to justify?
Support your responses with examples.

Cite any sources in APA format

Cost Containment in Managed Care Payment systems based on resource use have been designed and implemented for other providers of care. One example is the resource utilization groups (RUGs), which is a classification system for nursing home residents commonly based upon functional assessment coupled with projected resource utilization. Other resource-based payment systems include home health resource groups (HHRGs), which are prospective payment systems (PPSs) for home healthcare. However, the most recent and perhaps most controversial cost-containment effort has been the introduction of managed care. In economic terms, managed care is an attempt to make medical care delivery more efficient through efforts to both the reduce cost of providing healthcare services and improve the overall quality of care. Managed care attempts to eliminate the inefficiencies characterizing the system by favorably affecting the price of the services, the site at which services are received, and the utilization of services. Two sources of inefficiency managed care tries to address are economic. Moral hazard : As we have seen, people change their behavior when they have insurance and may demand services that are of little, if any, benefit except to ease their minds. Demand inducement : Because patients usually trust their physicians and do not question their recommendations, physicians may abuse their role as the patients' agent for their own financial gain by making treatment recommendations that are not in the best interest of the patient. In fact, most (but not all) physicians are patient centered and do not take advantage of the system. Nevertheless, many physicians tend to overprescribe diagnostic tests and visits in order to protect against malpractice actions. Both moral hazard and demand inducement place us on a flat-of-the-curve medical system, that is, the point where more care is of no additional value (and in some instances, harmful) but continues to add to the cost. Managed care arose mainly out of the opportunity for competition that resulted from the excess capacity in the system (the medical technology arms race ) and the resulting high cost of services due to underutilization. Business responded to this by looking to health insurers covering their employees to rein in health insurance costs and subsequently bring the year-to-year increases in premiums under some control. Managed care attempts to eliminate unnecessary and inappropriate care and have patients use less costly settings and providers without reducing quality. To accomplish this, managed care transformed passive health insurers, which reimbursed providers on a cost or cost-plus basis into organizations seeking to control costs and affect quality. You previously learned that there was excess capacity in hospitals due to the effects of the utilization of hospital services brought on by Medicare's PPS. These reductions in service utilization were due in large part to a reduction in hospital length of stay and shift to outpatient services, including the development and expansion of ambulatory surgery. Managed care organizations (MCOs) took advantage of excess provider capacity to bring costs down by, for example, negotiating discounted care in exchange for having the provider be part of the MCOs preferred network of providers. What does this mean? In a managed care environment, there is a health insurance plan who defines a network of providers—doctors and
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hospitals—who are paid an annual rate per subscriber regardless of each enrollees' healthcare utilization. This was a powerful incentive to physicians and hospitals that chose to become part of the preferred provider network rather than lose their book of business to competitors that were part of the network. Network providers have a marketing advantage because patients have to pay additional costs out of their own pockets to see a nonnetwork provider. An MCO combines the functions of medical care delivery and financing. It puts in place an insurance arrangement that intervenes between the patient and provider to control expenditures generally in two ways. Selective contracting involves the formation of a network of providers with which the MCO has negotiated discounts, thus creating a panel of preferred providers (including hospitals, physicians, medical laboratories, pharmacies, and other providers). Steering refers to an MCO inducing its enrollees, through financial incentives, to receive services from this network of hospitals, physicians, and ancillary-service providers. Managed care attempts to control costs. In addition to financial incentives for both patients and physicians, MCOs attempt to influence physicians' clinical decision making through various means. These include the implementation of clinical practice guidelines, utilization review, and requirements for prior approvals before a patient can receive certain expensive diagnostic tests or certain (usually elective) surgical procedures. MCOs implemented these with the intention of eliminating unnecessary and inappropriate care and having patients use less costly settings and providers. These are all done in order to contain costs but without compromising quality of care. However, in some cases, MCOs went too far and faced legal action claiming that denied care caused serious harm to patients. Gatekeeping—the requirement that a patient's primary care provider authorize referrals to specialists—was implemented by MCOs as a strategy intended to control costs and reduce inappropriate utilization of services, particularly specialist services. An important question was whether the use of gatekeepers was effective in controlling costs. While healthcare inflation grew at slower rates during the mid-1990s, when enrollment in MCOs with gatekeeping arrangements was at its peak, it was difficult to attribute the slowdown in the rate of increase in costs to gatekeeping. Gatekeeping has mainly been studied as a feature of managed care and not in the context of system-wide implementation. The bulk of research is of limited quality and has focused on healthcare utilization and expenditures, whereas effects on health- and patient-related outcomes have been studied only exceptionally and are inconclusive. When considering gatekeeping, policy-makers need to be aware of the limitations and uncertainties uncovered by this review. Future research should focus on studying effects on health outcomes and on patients' satisfaction in health system contexts other than managed care in order to warrant strong recommendations (Garrido, Zentner, & Busse, 2011). MCOs had a financial incentive to intervene with cost-controlling strategies. Health maintenance organizations (HMOs) (primarily for-profit ventures) reimbursed hospitals and physicians fixed amounts for specified levels of care. By reducing costs, they were able to pocket large profits for their owners. HMOs have come under a lot of scrutiny by the medical professional and by the plaintiff's attorneys. The chief criticism is that care has been unreasonably denied, causing harm to patients. Recently, some insurers have eliminated or cut back on such unpopular rules as prior approvals for testing or hospital admission, or the requirement that referrals for specialty care be made only by an enrollee's primary care physician (to discourage self-referrals), as these controls cost more or not much more to implement than their savings.
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