Select three common models of managed health care organizations as discussed in Chapter 24. Identify the pros and cons for each chosen model. Give suggestions to strengthen the weaknesses of the chosen models.  

24.4 MODELS OF MANAGED CARE ORGANIZATIONS

There are a wide variety of managed care models that integrate financing and management with the
delivery of healthcare services to an enrolled population. The following sections describe some of the
common models.

Health Maintenance Organizations

Health maintenance organizations (HMOs) are organized healthcare systems that are responsible for
both the financing and the delivery of a broad range of comprehensive health services to an enrolled
population. HMOs act both as insurer and provider of healthcare services. They charge employers a
fixed premium for each subscriber. An independent practice association (IPA)–model HMO provides
medical care to its subscribers through contracts it establishes with independent physicians. In a staff-
model HMO, the physicians would normally be full-time employees of the HMO. Individuals who
subscribe to an HMO are often limited to the panel of physicians who have contracted with the HMO
to provide services to its subscribers.

Preferred Provider Organizations

Preferred provider organizations (PPOs) are entities through which employer health benefit plans and
health insurance carriers contract to purchase healthcare services for covered beneficiaries from a
selected group of participating providers. Most states have specific PPO laws that directly regulate
such entities. Common characteristics of PPOs include:

• Select provider panel
• Negotiated payment rates
• Rapid payment terms
• Utilization management (programs to control the utilization and cost)
• Consumer choice (allows covered beneficiaries to use non-PPO providers for an additional out-

of-pocket charge [point-of-service option])

In PPOs, a payer, such as an insurance company, provides incentives to its enrollees to obtain medical
care from a panel of providers with whom the payer has contracted a discounted rate.

Exclusive Provider Organizations

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Exclusive provider organizations (EPOs) limit their beneficiaries to participating providers for any
healthcare services.

EPOs use a gatekeeper approach to authorize non-primary care services. The main difference between
an HMO and an EPO is that the former is regulated under HMO laws and regulations, whereas the
latter is regulated under insurance laws and regulations. Characteristics of EPOs include the following:

• Primary care physicians are reimbursed through capitation payments or other performance-based
reimbursement methods.

• Primary care physicians act as gatekeepers.

Point-of-Service Plans

Point-of-service (POS) plans use primary care physicians as gatekeepers to coordinate and control
medical care. Subscribers covered under POS plans may decide whether to use HMO benefits or
indemnity-style benefits for each instance of care. In other words, the member is allowed to make a
coverage choice at the POS, though a patient who chooses a provider outside the plan is responsible
for higher copayments.

Experience-Rated HMOs

Under experience-rated HMO benefit options, an HMO receives monthly premium payments much as
it would under traditional premium-based plans. Typically, to arrive at a final premium rate, there is a
settlement process in which the employer is credited with some portion, or all, of the actual utilization
and cost of its group. Then, refunds or additional payments are calculated and made to the appropriate
party.

Specialty HMOs

Specialty HMOs provide limited components of healthcare coverage. Dental HMOs, for example, have
become more common as an option to indemnity dental insurance coverage.

Independent Practice Association

An IPA is a legal entity composed of physicians organized for the purpose of negotiating contracts to
provide physician services. For example, an IPA might contract with an HMO or a physician–hospital
organization. The associated physicians maintain their own practices and do not share services, such
as claims, billing, scheduling, accounting, and so forth.

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Group Practice

A physician group that has only one or a small number of service delivery locations is a group
practice. It is completely integrated economically, sharing costs and revenues. Group practices often
are either specialty or primary care dominated.

Group Practice Without Walls

A group practice without walls is a physician organization formed for the purpose of sharing some
administrative and management costs while physicians continue to practice at their own locations,
rather than at a centralized location.

Physician–Hospital Organizations

A physician–hospital organization (PHO) is a legal entity consisting of a joint venture of physicians
and a hospital. It is formed to facilitate managed care contracting, to improve cost management and
services, and to create new healthcare resources in the community.

Medical Foundations

In a medical foundation, the foundation employs or contracts with physicians to provide care to the
foundation’s patients.

Management Service Organizations

A management service organization (MSO) is an entity that provides administrative and management
services, such as practice management, marketing, managed care contracting, accounting, billing, and
personnel management, to physicians. The MSO can be hospital affiliated, a hospital–physician joint
venture, physician owned, or investor owned.

Vertically Integrated Delivery System

A vertically integrated delivery system is any organization or group of affiliated organizations that
provides physician and hospital services to patients. The goal of hospital–physician integration is to
provide a full range of services to patients. A vertically integrated delivery system achieves this goal,
providing services ranging from primary outpatient care to tertiary inpatient care. More elaborate

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systems provide additional services, such as home health care, long-term care, rehabilitation, and
mental health care.

Horizontal Consolidations

A horizontal merger involves similar or identical businesses at the same level of the market. There is
no single qualitative or quantitative factor from which it can be determined whether such a group
merger is permissible. Recognizing a congressional intent to preserve competition by preventing
undue market concentration, the courts have focused primarily on the possibility that consolidation
will substantially lessen competition.

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