Managed care 101.

• Author: Burton, Daniel N.

This article examines the basics of managed care and explores leading topics in the field. The authors have endeavored to provide the nonhealth care lawyer with the key to decipher the managed care code. The reader should know that the authors of the article address all sides of the managed care trinity -- the providers, the patients, and the payors. While a conflicted life, it has been invaluable in presenting a balanced view of the managed care issues.

Don't let the title of this article mislead you. While the vocabulary is specialized (as often occurs in health care), the bedrock legal principles applicable to managed care will be familiar to most lawyers. Indeed, "managing" care has been with us for a long time in some form or another. Medicare, workers' compensation, the clinic systems, even private payors (insurance carriers) have been providing some kind of "managed care" within the tradition of fee-for-service systems for as long as most of us can remember.

What is new, what is basic, and what qualifies this article to be entitled "Managed Care 101" is a recognition of the reality that managed care in today's world of health care is different. We are witnessing the development of an entirely new industry. Born of social legislation and heavily regulated with more regulation to come, the managed care industry really means to "manage" care. Make no mistake: Managed care is more than just a buzzword in the $1 trillion-a-year health care industry. It represents a paradigm shift in the traditional relationships between health care provider and patient, and is the most pervasive and sweeping change in the delivery of health care services since Medicare and Medicaid. In fact, studies show that more than 20 percent of the nation,[1] and upward of 75 percent of U.S. employees receive their health care services through managed care.[2]

Although the concept still is in its infancy in most of the nation today (California is about 10 years ahead of the rest of the country), managed care rapidly is approaching adolescence. The size of this baby indicates that it is going to be the proverbial thousand-pound gorilla. As opposed to past management of care, the concept of "managed care" today refers to a comprehensive health care delivery system. By applying elaborate cost containment devices like utilization review and a panoply of market-driven financial incentives and risk-shifting devices, today's system aims to provide health care that is both high in quality and low in cost? The issues which arise in managed care are not just for health care lawyers. Managed care issues impact all areas of corporate and litigation practice and the 21st century practitioner must be able to spot managed care legal issues when representing any of the parties involved in the managed care equation -- providers, such as physicians and specialists, health care plans (the "payors"), and the consumer (the "enrollee" or "life" in managed care-speak).

Through the early to mid-1990s, managed care generally received high marks from participants who saw it as the solution to the rising tide of health care costs? Unfortunately, the current managed care debate has been driven by a parade of anecdotal horribles which have suggested that managed care typically is marked by cold, uncaring, bureaucratic, "bean-counters" who, through ubiquitous "800" numbers, ration health care and derive perverse pleasure from denying needed treatment to patients.[5] The result is growing patient dissatisfaction with the cost-containment precepts of managed care. The ire once aimed at rising health care costs now is directed at managed care itself.[6]

Certain public perceptions, created or at least dramatically reported by the media, are that managed care, through its cost containment methods, sacrifices quality care in favor of increased profit margins. Recent surveys indicate that most consumers believe the trend away from traditional fee-for-service care and toward managed care is harmful.[7] In some cases these perceptions may represent reality.[8] However, other surveys indicate satisfaction among plan participants with their HMO or health plan.[9] The survey results also may suggest that high patient dissatisfaction may be a manifestation of the public's initial anxiety about leaving the old system and doctors behind as we move into a managed care environment.[10]

Properly administered, the managed care alternative represents an appropriate response to spiraling health care costs which in Florida alone are projected to reach $90 billion in the next two years.[11] In fact, with its emphasis on market-driven forces and competition to contain health care costs, Florida has embraced managed care as the panacea to the perceived health care crisis. Florida may be at the forefront of the managed care debate; however, the importing of managed care concepts developed in other jurisdictions (such as California) is complicated by Florida's ever-evolving regulatory scheme. To quote Governor Chiles, the philosophy is that "access to quality health care is the right of every Floridian -- not the luxury of a privileged few."[12]

Managed Care Made Simple: Decoding the Jargon

Under the traditional health care delivery system, a patient and doctor entered into a simple contract: The doctor provided services for a set fee and the patient's insurer agreed to pay. The payor in this system is the insurer and not the party receiving health care. For this reason, the consumer is insulated from the true cost of the services, creating a structural incentive for the patient and physician to over-consume health care resources. By contrast, in a managed care environment, a managed care organization (MCO) as payor intervenes between the doctor and the patient, and through such processes as utilization review and capitation, which will be explored below, limits the ultimate payment received by the health care provider.[13]

Payment Methods as Component

In the managed care environment, the particular method of reimbursement functions as a risk-shifting device arguably creating a financial incentive to the provider to "utilize" fewer and less costly health care services. The three most common managed care reimbursement formulas are 1) capitation; 2) discounted fee-for-service; and 3)global risk-sharing.

* Capitation

The latest generation of MCOs are premised on capitated payments. The term is derived from the per capita payment to providers the MCO makes on a flat monthly "per enrollee, per month" basis. Generally, the amount of the capitated payment is based on an actuarial formula which factors in the health of the MCO's enrollee population, as well as the frequency and expense of the various health care services and procedures predicted to be used by the statistical MCO population,[14] Capitation shifts the risk of enrollee "overuse" of the health care system to the "gatekeeper" primary care provider who oversees patient care. As further incentive for the providers to control costs, the capitation...