Unbiased Analysis of Today's Healthcare Issues

Defining Managed Care

Written By: Jason Shafrin - Oct• 17•06

As insurance markets began to develop in the U.S., we observed two types of insurance emerging: indemnity plans and health maintenance organizations (HMOs).  Indemnity plans compensated providers on a fee-for-service basis and HMOs used a capitation scheme.  Typically, HMOs used gatekeepers to restrict services while indemnity plan restrictions were few and far between.  Typical analysis of managed care’s affect on patient utilization involved simply comparing the average medical service usage in the two groups–after controlling for patient covariates and adverse selection.

Nowadays, all insurance plans are in some way ‘managed.’  If this is the case, how can a health economist measure the affect of managed care on service utilization?  Grembowski, et al. (2003) use a three tiered system to create an index of ‘managedness.’ Their system is described below:

  1. Plan level: The authors use an index to rank plans according to the following characteristics: gatekeeping and lock-in provisions, the plan’s referral preauthorization requirements, and whether the plan versus the provider was at financial risk (FFS vs. capitation).  They also included an two benefits indexes measuring the benefits covered by the plan as well as cost-sharing (copayments, coinsurance, deductibles) for providers both inside and outside of the plan’s network.  The first benefits index looks at only in-network information and the second benefits index examines out-of-network data.
  2. Office managed care: This was measured by examining office use of: utilization management, financial incentives (the percentage of the office’s revenue from capitation), and whether or not the office uses referral guidelines. 
  3. Physician managed care: This measure was developed by examining whether the physician was compensated via a capitation or FFS scheme, whether financial withholds for referrals were put into place, and the number of Agency for Health Care Policy and Research (AHCPR) guidelines read or employed by the physician.

With these continuous indexes in place, healthcare economist can now perform a more subtle analysis of how managed care affects utilization.

Grembowski; Martin, Dieher; Patrick; Williams; Novak; Deyo; Katon; Dickstein; Engelberg; Goldberg (2003) “Managed Care, Access to Specialists, and Outcomes among Primary Care Patients with PainHealth Services Research, v38(1 Pt 1) pp. 1-19.


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