Managed Care Fact Sheets - Key Terms and Concepts

Key Performance Indicators

Members

Medical Management Terms

Sharing Financial Risk

Premium Pricing Cycle

MEMBERS

In managed care each patient with insurance coverage under a health plan is called a member. Other terms used include enrollees and covered lives.

Each person who has the health plan policy in his/her name, whether the policy is bought just for the individual or for the whole family, is called the subscriber or the insured.

If the subscriber has coverage for other family members, they are called dependents. Subscribers and dependents are all members. A subscriber with a covered spouse and three children would equal five members.
Purchasers, providers and others often refer to how many members (how much enrollment) a health plan has or a provider serves. 

Membership is typically classified by type of MCO, such as HMO, PPO or EPO (Exclusive Provider Organization). Membership is also broken down by Purchaser category, including Medicare, Medicaid and Commercial. Commercial means non-government program members. Commercial members with employment-based coverage are called Group members (because they have group coverage).

Per Member Per Month is the relative measure, the ratio, by which most expense and revenue, and many utilization comparisons are made. And when all the data is there, it is certainly straight-forward enough to compute: (total revenue or expenses or units of utilization for the entire period divided by member months for the period equals pmpm.)

Member Months: Some people do get hung up on member months. But there isn't any magic to it: whatever period of time you wish to measure (let's take three months for example) you add up the members for each month for the total period of time (so if you have 1,000 members in month one; 1,500 members in month two; and 2,000 members in month three, you get 4,500 member months for the period.) Divide the member months (4,500 in our example) by the elapsed months in the period (three in our example) and you get the average members for the period (1,500 in our example.)

MEDICAL MANAGEMENT TERMS

Quality Management
Quality Management (also referred to as Quality Assurance) involves ensuring members are getting accessible & available care, delivered within community standards; and ensuring a system exists to identify and correct problems, and to monitor ongoing performance. Tools include: profiling of data, audits of health plan and provider records and facilities, surveys of providers and members and recording of problem incidents as they occur.

Utilization Management
Utilization Management involves coordinating how much or how long care is given for each patient, as well as the level of care. The goal is to ensure care is delivered cost-effectively, at the right level, and doesn't use unnecessary resources. Tools include authorization requirements to approve services before they occur, concurrent review for continuing cases, and profiling of cases after they occur for analysis.

Outcomes Management
A program used to determine the clinical end-results according to defined various categories (by provider, by procedure, by clinical guideline, etc.) and then promote use of those categories which yield improved outcomes.

Demand Management
A program administered by MCOs or provider organizations to monitor and process many types of initial member requests for clinical information and services. The program may involve operating an extended hours nursing telephone triage service for members, or patient education materials and resources.

Disease Management
Disease management involves aspects of case and outcomes management, but the approach focuses on specific diseases, looking at what creates the costs, what treatment plan works, educating patients and providers, and coordinating care at all levels: hospital, pharmacy, physician, etc.

SHARING FINANCIAL RISK

In Managed Care Organization (MCO) provider contracts, providers often bear some level of financial risk. In paying providers, capitation and salaries involve the highest levels of provider risk, and are usually just allowed under HMOs. Per Case payments also involve some risk, as
costs could exceed the case payment.

Capitation: Capitation means paying a fixed amount of money per person (per capita). Capitation puts a lid on payments per person that otherwise might change under a fee-for-service system. Providers are at full financial risk for the services capitated. The provider is paid a fixed amount per member enrolled, regardless of the number of services delivered to that member.

Contact capitation is a relatively newer capitation methodology based on experience. Under a contact capitation arrangement, the managed care organization typically pays a provider a capitated amount per qualifying patient, as opposed to an entire member population. There are a number of alternative structures for contact capitation. Payments can be a global fee for entire episode of care, or it may be a monthly payment for the period of time that the patient is referred or has been diagnosed with a specific condition. With contact capitation, the provider is only at risk for the cost per referral. The MCO retains the risk for the number of referrals, as opposed to conventional capitation, which places providers at risk for both the number of referrals and the cost per referral.

Other types of risk sharing include withholds, when a portion of the provider payment is held back and only paid later if certain criteria are met. Also, there are shared risk funds, where physician groups share in a portion of the financial risk and potential profit of hospital or prescription costs.

How shared risk funds work: Typically, in a shared risk arrangement, a fund gets "paid" the capitation rate. Medical expenses are paid from this fund, and periodically, profits or losses are distributed to the participants.

Shared risk funds often allocate the risk between physicians and institutional providers, or between physicians and health plans. Occasionally, there are three or more parties involved (Health Plan, Physicians, Hospital and a management company could all be involved). Hospital and Pharmacy services are the most prevalent examples of shared risk funds. However, there are many other types of services that involve shared risk arrangements as well.

Incurred but not reported claims or encounters involve covered services that have been rendered, but have not been received or captured by you to process. You to need to consider this issue
when:

• You pay claims from sub-contracted or outside providers.
• You capitate sub-contracted providers and collect encounter data from them.
• You provide internal services and capture your encounter data, or even pay yourself from a shared risk fund.
  

PREMUIM PRICING CYCLE

Premiums drive profits: medical management is critical, but: too low of a premium will not fund even the best managed plan, while a very high premium might fund a poorly managed plan. The cycle is a 40 year old phenomenon.

How the cycle works- during profitable periods: 

1. plans want to expand market share-
2. start to lower price to do so-
3. other plans match lower prices to keep pace and not lose share
4. price wars similar to airline fare war erupts and multi year contracts develop

a downswing results: 

1. due to insulation of capitating risk to providers and time lag on fee for service claims, considerable time elapses before financial pressures are known from lowered premium 
2. due to multi-year contracts and price pressures nothing much can be done about the problem as it becomes apparent

Significant Losses: finally enough of the market is losing money so that several major players break rank and begin increasing rates and everyone else follows suite 

Return to Profits: the increases continue until profits are being generated, and the cycle begins anew.

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