Question

The managed care system emerged as the alternative payment and delivery mechanism to traditional fee-for-service indemnity insurance. Discuss how managed care organizations work. What do all managed care organizations have in common?

Answer 1

The presence of managed care organizations in a health care market creates incentives that affect provider treatment patterns for both managed care and nonmanaged care patients. Managed care organizations control moral hazard in the use of medical care by adopting various types of supply side mechanisms intended to affect the behavior of providers treating patients enrolled in their plans. Administrative mechanisms may include prospective utilization review, case management, and physician gate-keeping.Managed care organizations may also adopt financial incentives, such as provider capitation or bonuses, to change provider behavior.The actions taken by managed care organizations to influence treatment patterns for their enrollees may also affect the types of treatments received by patients not enrolled in these plans. If physicians adopt only a single practice style for all their patients and the practice style is influenced by the incentives adopted by the managed care plans with which they contract, practice patterns for nonmanaged care patients within a physician practice will resemble those for managed care patients.The actions taken by managed care organizations to influence treatment patterns for their enrollees may also affect the types of treatments received by patients not enrolled in these plans. If physicians adopt only a single practice style for all their patients and the practice style is influenced by the incentives adopted by the managed care plans with which they contract, practice patterns for nonmanaged care patients within a physician practice will resemble those for managed care patients.