The ABCs of Managed Care

Managed care organizations take many different forms; consequently, the groups formed to contract with them may also assume new identities. Here are some common terms used in managed care and their definitions.

Managed care organization (MCO)—A generic term that includes all forms of organizations that provide managed health care services (e.g., HMOs, PPOs, CMPs, EPOs).

Staff-model HMO—This health care model employs physicians to provide health care to its members. All premiums and other revenues accrue to the HMO, which compensates physicians by salary and incentive programs.

Preferred provider organization (PPO)—A program in which contracts are established with providers of medical care. Providers under such contracts are referred to as preferred providers. Usually, the benefit contract provides significantly better benefits (fewer copayments) for services received from preferred providers, thus encouraging members to use these providers. Members are generally allowed benefits for non-participating providers’ services, usually on an indemnity basis with significant copayments. A PPO arrangement can be insured or self-funded. Providers may be, but are not necessarily, paid on a discounted fee-for-service basis.

Individual practice association (IPA) model HMO—A health care model that contracts with an individual practice association entity to provide health care services in return for a negotiated fee. The individual practice association in turn contracts with physicians who continue in their existing individual practice. The association may compensate the physicians on a per capita, fee schedule, or fee-for-service basis.

Health maintenance organization (HMO)—An entity that provides, offers, or arranges for coverage of designated health services needed by plan members for a fixed, prepaid premium. There are four basic models of HMOs: group model, individual practice association, network model, and staff model.

Exclusive provider organization (EPO)—A term derived from the phrase "preferred provider organization." However, where a PPO generally extends coverage for non-preferred provider services as well as preferred provider services, an EPO provides coverage only for contracted providers; hence, the term "exclusive." Many HMOs are also EPOs.

Federally qualified HMOs—HMOs that meet certain federally stipulated provisions aimed at protecting consumers (e.g., providing a broad range of basic health care services, ensuring financial solvency, and monitoring the quality of care). HMOs must apply to the federal government for qualification. The process is administered by HCFA’s Office of Prepaid Health Care.

Group-model HMO—There are two kinds of group-model HMOs. The first type is the closed panel, in which the medical services are delivered in the HMO-owned health care center or satellite clinic by physicians who belong to a legally separate medical group or are employed directly by the HMO. The HMO pays the group a negotiated monthly capitation fee; the physicians, in turn, are salaried and generally prohibited from carrying on any fee-for-service practice. In the second type, the open panel, the HMO contracts with an existing independent group of physicians to deliver medical care. Medical services are delivered at the group’s clinic facilities (both to fee-for-service patients and to prepaid HMO members). The group may contract with more than one HMO.

Managed health care plan—A health care service plan that provides coordinated, case-managed care to enrolled members.

Accountable health plan (AHP)—A health plan that meets federal guidelines and is state-certified through a purchasing alliance to provide the range of health care services to people living in a specified geographic area.

Competitive medical plan (CMP)—A type of medical group created by the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA) to facilitate enrolling Medicare beneficiaries into managed care plans. Requirements for eligibility are somewhat less restrictive than for an HMO. See also Medicare risk contract.

Professional review organization—A physician-sponsored organization charged with reviewing the services provided to patients. The purpose of the review is to determine whether the services rendered are medically necessary; provided in accordance with professional criteria, norms, and standards; and provided in the appropriate setting.

Primary care network—A group of primary care physicians who have joined together to share the risk of providing care to their patients who are members of a given health plan.

Peer review organization (PRO)—An entity established by TEFRA to review quality of care and appropriateness of admissions, readmissions, and discharge for Medicare and Medicaid. These organizations are held responsible for maintaining and lowering admission rates, reducing lengths of stay while insuring against inadequate treatment. Also known as Professional Standards Review Organization (PRSO).

Provider-Sponsored Network (PSN)—A managed care entity designed to put providers into direct financial risk; it includes physician-hospital networks directly contracting with employers to provide services. Otherwise known as direct contracting, it circumvents insurance companies.

Adapted from: Karpiel M. Managed Care in Emergency Medicine. Dallas, TX: ACEP; 1995:59-65; Community Health Plan-County of Los Angeles. Coming to Terms with Managed Care. Los Angeles: Department of Health Services; 1996.