Challenges Facing Managed Care Organizations

The Challenge Facing Managed Care Organizations (MCOs

The greatest challenge for managed care organizations (MCOs ) in our current time is how to obtain lower priced medical fees . As we all know American health care should essentially be a nonprofit enterprise However , the privatization of American health care holds that health care in general and hospitals in particular are increasingly operating on a for-profit basis . In fact , the for-profit hospital sector has accounted for a relatively constant share (about 15 percent ) of hospital beds over the last twenty years (Morrisson , 1999 . This is

why recently the U .S . Congress tries to push more consumer-directed ' health plan options to avoid cash-strapped managed care organizations (MCOs ) to boost their deductibles , raise premiums and even defy federal law by authorizing policy holders to buy prescription drugs from low-cost vendors in Canada (Smith , 23 September 2004

Managed care organizations (MCOs ) often apply the traditional fee-for-service models , which do not provide adequate financial controls and utilization incentives for physicians and hospitals to contain the costs of providing healthcare . Under managed care , the needs of the patients are balanced with efforts to provide cost-effective care Typically , MCOs enroll subscribers by promising to provide all necessary medical care in exchange for a fixed monthly premium . The MCO also contracts with hospitals , physicians , and other healthcare providers to dispense the necessary medical care to its enrollees at a discounted reimbursement rate . In exchange for accepting reduced fees , the caregivers gain access to the MCO 's enrolees (Kirby , Sebastian Hornberger , 1998

A problem with managed care is that employers who offer a health maintenance organization (HMO ) to their employees often pay the premium as long as the HMO premium was not higher than the fee-for-service premium . This behavior by employers creates distorted incentives for the HMO in controlling its costs . Enthoven (1993 ) suggested that this incentive distortion can be corrected when employers design better alternatives for their employer contributions . The employer could contribute a fixed-dollar amount for health insurance with the employee paying the full difference between plans . The greater the portion of the marginal premium paid by the employees is , the stronger the incentive is to choose lower-cost plans . For example , if the employer pays 80 percent of the premium and the employee pays the remainder , then the employee pays only 20 percent of the difference between the low (let 's presume here ) HMO premium and the higher fee-for-service premium

HMOs and other managed care arrangements are organized on a prepayment basis that appear in a wide variety of forms . An HMO could hire physicians on a salary , contract with a preexisting group practice of physicians , or contract with physicians who maintain a fee-for-service practice . According to Luft (1991 , Because specific social , legal historical , political , and economic aspects of the medical care environment have shaped delivery systems such as the HMO , it is not reasonable to expect that the typical HMO could be transplanted intact to another country (p . 173

The key to HMO cost savings is the organization...