Managed Care Terminology
The following terms are commonly used in the managed care community:
Accreditation--The process by which an organization recognizes an institution as meeting
Actuarial Soundness--The requirement that the development of capitation rates meet common
actuarial principles and rules.
Adjusted Average Per Capita Cost (AAPCC)--The estimated average fee-for-service cost of
Medicare benefits for an individual by county of residence. It is based on the following factors:
age, sex, institutional status, Medicaid, disability, and end stage renal disease status. HCFA uses
the AAPCCs as a basis for making monthly payments to TEFRA contractors.
Adverse Selection--The problem of attracting members who are sicker than the general
population, specifically, members who are sicker than was anticipated when developing the rates
of reimbursement for medical costs.
Affiliated Provider--a health care provider or facility that is part of the Managed Care
Organization's network, usually having formal arrangements to provide services to the MCO's
Alternative Delivery Systems--A phrase used to describe all forms of health care delivery
except traditional fee-for-service, private practice. The term includes HMOs, PPOs, IPAs, and
other systems of providing health care.
Ambulatory Care--All types of health services that are provided on an outpatient basis, in
contrast to services provided in the home or to persons who are hospital inpatients.
Benefits--The payment for, or health care services provided under terms of a contract with a
Capitation--A dollar amount established to cover the cost of health care services delivered for a
person during a specified length of time. The term usually refers to a negotiated per capita rate to
be paid periodically to a health care provider by a MCO. The provider is then responsible for
delivering or arranging the delivery of all health services required by the covered person under
the conditions of the provider contract. This term may also refer to the amount paid to a MCO
> by HCFA or a State.
Carve Out--One or more services excluded from those required to be provided under the
capitation rates. These services may be paid on a fee-for-service or other basis.
Case Management--A process and technique to manage the care of specific health care needs
(often multiple) in a way that is designed to achieve the optimum patient outcome in the most
Case Manager--A nurse, doctor, or social worker who works with patients, providers and
insurers to coordinate all services deemed necessary to provide the patient with a plan of
medically necessary and appropriate health care.
Closed Access--A managed health care arrangement in which covered persons are required to
select providers only from the plan's participating providers.
Competitive Medical Plan (CMP)--A status, established by TEFRA and granted by the Federal government, to an organization that meets specific requirements enabling that organization to obtain a Medicare risk or cost based contract.
Copayment--A cost-sharing arrangement in which a member pays a specified charge for a
specified service (e.g., $10 for an office visit). The member is usually responsible for payment at
the time the service is rendered.
Cost Contract--A TEFRA contract payment methodology option by which HCFA pays for the
delivery of health services to members based on the HMO's reasonable cost. The plan receives
an interim amount derived from an estimated annual budget, which may be periodically adjusted
during the course of the contract to reflect actual cost experience. The plan's expenses are
audited at the end of the contract to determine the final rate the plan should have been paid.
Cost Sharing--A general set of financing arrangements in which a covered member must pay a
portion of the costs associated with receiving care. (See also copayment, coinsurance and
Deductible--A specified amount of money a member must pay before insurance benefits begin.
Usually expressed in terms of an "annual" amount.
Diagnosis Related Groups (DRG)--A system of classification for inpatient hospital services
based on diagnosis, age, sex, and the presence of complications. It is used as a means of
identifying costs for providing services associated with a diagnosis and as a mechanism to
reimburse hospital and selected other providers for services rendered.
Employer Mandate--Under the Federal HMO Act, describes conditions when federally qualified HMOs can mandate or require an employer to offer at least one federally qualified HMO plan of each type (IPA/network or group/staff). (Sunsetted in 1995).
EQRO (External Quality Review Organization)--States are required to contract with an entity that is external to and independent of the State and its HMO and HIO contractors to perform an annual review of the quality of services furnished by each HMO or HIO contractor.
Exclusive Provider Organization (EPO)--A term derived from the phrase preferred provider
organization (PPO). 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. Technically, many HMOs can also be describedEPOs.
Experience Rating--The process of setting rates partially or in whole on evaluating previous
claims experience for a specific group or pool of groups.
Federal Medicaid Managed Care Waiver Program--The process used by States to receive
permission to implement managed care programs for their Medicaid or other categorically
Federal Qualification--A status defined by the HMO Act, conferred by HCFA after conducting an extensive evaluation of the HMO's organization and operations. An organization must be federally qualified or be designated as a CMP (competitive medical plan) to be eligible to participate in Medicare cost and risk contracts. Likewise, an HMO must be federally qualified or State plan defined to participate in the Medicaid managed care program.
Fee-For-Service (FFS)--A payment system by which doctors, hospitals and other providers are
paid a specific amount for each service performed as identified by a claim for payment.
Fiscal Soundness--The requirement that managed care organizations have sufficient operating
funds, on hand or available in reserve, to cover all expenses associated with services for which
they have assumed financial risk.
Gatekeeper--An arrangement in which a primary care provider serves as the patient's agent,
arranges for and coordinates appropriate medical care and other necessary and appropriate
Group or Network HMO--An HMO that contracts with one or more independent group practice to provide services to its members in one or more locations.
Guaranteed Eligibility--A defined period of time (3-6 months) that all patients enrolled in
prepaid health programs are considered eligible for Medicaid, regardless of their actual eligibility
for Medicaid. A State may apply to HCFA for a waiver to incorporate this into their contracts.
Health Maintenance Organization (HMO)--An entity that provides, offers or arranges for
coverage of designated health services needed by members for a fixed, prepaid premium. There
are three basic models of HMOs: group model, individual practice association (IPA), and staff
HEDIS--The Health Plan Employer Data and Information Set is a set of performance measures
developed to support health plan and Medicaid agency efforts to improve the health status of
Medicaid beneficiaries, support the strengthening of health care delivery systems for the Medicaid population, promote standardization of managed care reporting across public and private sectors, and promote the application of performance measurement technology across Medicaid programs.
HIO--An entity that contracts on a prepaid, capitated risk basis to provide comprehensive health services to recipients.
Individual Practice Association (IPA) model HMO--An HMO that contracts with individual
practitioners or an association of individual practices to provide health care services in return for a negotiated fee. The individual practice association, in turn, compensates its physicians on a per
capita, fee schedule, or other agreed basis.
Insolvency--A legal determination occurring when a managed care plan no longer has the financial reserves or other arrangements to meet its contractual obligations to patients and subcontractors.
Licensing--A process most States employ, which involves the review and approval of applications from HMOs prior to beginning operation in certain areas of the State. Areas examined by the licensing authority include: fiscal soundness, network capacity, MIS, and quality assurance. The applicant must demonstrate it can meet all existing statutory and regulatory requirements prior to beginning operations.
Lock-in--A contractual provision by which members except in cases of urgent or emergency need, are required to receive all their care from the network health care providers.
Managed Care--A system of health care that combines delivery and payment; and influences
utilization of services, by employing management techniques designed to promote the delivery of
cost-effective health care.
Managed Health Care Plan--An arrangement that integrates financing and management with the delivery of health care services to an enrolled population. It employs or contracts with an organized system of providers which delivers services and frequently shares financial risk.
Medicare Supplement Policy--A health insurance policy that pays certain cost not covered by
Medicare such as coinsurance, deductibles.
Network Model HMO--A health care model in which the HMO contracts with more that one
physician group or IPA, and may contract with single and multi-specialty groups that work out of
their own office facility. The network may or may not provide care exclusively for the HMO's
Open Access--A term describing a member's ability to self-refer for specialty care. Open access arrangements allow a member to see a participating provider without a referral from another doctor. Also called open panel.
Open Enrollment Period--A period during which subscribers in a health benefit program have an opportunity to select among health plans being offered to them, usually without evidence of
insurability or waiting periods.
Outcome measurement--A process of systematically measuring individual or collective clinicaltreatment and response to that treatment.
Out-of -pocket expenses--Costs borne by the member that are not covered by health care plan.
PCCM--A Primary Care Case Management program is a Freedom of Choice Waiver program,
under the authority of section 1915(b) of the Social Security Act. States contract directly with
primary care providers who agree to be responsible for the provision and/or coordination of medical services to Medicaid recipients under their care. Currently, most PCCM programs pay the primary care physician a monthly case management fee in addition to receiving fee-for-services payment.
Peer Review--The evaluation of the quality of the total health care provided by Plan medical staff by equivalently trained medical personnel.
Peer Review Organization (PRO)--An organization established by the Tax Equity and Fiscal
Responsibility Act of 1982 (TEFRA) to review quality of care and appropriateness of admissions, readmissions and discharges for Medicare and Medicaid.
PHP--A Prepaid Health Plan is a entity that either contracts on a prepaid, capitated risk basis to
provide services that are not risk-comprehensive services, or contracts on a non-risk basis.
Additionally, some entities that meet the above definition of HMOs are treated as PHPs through
special statutory exemptions.
Point-Of-Service Plan--A health services delivery organization that offers the option to its members to choose to receive a service from participating or a nonparticipating provider. Generally the level of coverage is reduced for services associated with the use of non-participating providers.
Preferred Providers--Physicians, hospitals, and other health care providers who contract to provide health services to persons covered by a particular health plan.
Preferred Provider Organization--A health care delivery system that contracts with providers of medical care to provide services at discounted fees to members. Members may seek care form non-participating providers but generally are financially penalized for doing so by the loss of the discount and subjection to copayments and deductibles.
Premium --Money paid out in advance for insurance coverage.
Prepayment--A method of paying for the cost of health care services in advance of their use.
Preventive health care--Health care that seeks to prevent or foster early detection of disease and morbidity and focuses on keeping patients well in addition to health them while they are sick.
Primary Care Network (PCN)--A group of primary care physicians who share the risk of providing care to members of a given health plan.
Primary Care Provider (PCP)--The provider that serves as the initial interface between the member and the medical care system. The PCP is usually a physician, selected by the member upon enrollment, who is trained in one of the primary care specialties who treats and is responsible for coordinating the treatment of members assigned to his/her plan. (See Gatekeeper)
Professional Review Organization--An organization which reviews the services provided to patients in terms of medical necessity professional standards; and appropriateness of setting.
QARI --The Quality Assurance Reform Initiative was unveiled in 19993 to assist States in the
development of continuous quality improvement systems, external quality assurance programs,
internal quality assurance programs, and focused clinical studies.
Qualified Medicare Beneficiary (QMB)--A person whose income level is such that the state pays the Medicare Part B Premiums, deductibles and copayments.
Quality Assurance--A formal methodology and set of activities designed to access the quality of services provided. Quality assurance includes formal review of care, problem identification,
corrective actions to remedy any deficiencies and evaluation of actions taken.
Reinsurance--An insurance arrangement whereby the MCO or provider is reimbursed by a third party for costs exceeding a pre-set limit, usually an annual maximum.
Risk Adjustment--A system of adjusting rates paid to managed care providers to account for the differences in beneficiary demographics, such as age, gender, race, ethnicity. Medical condition, geographic location, at-risk population (i.e. homeless), etc.
Risk Contract--A contract payment methodology between HCFA and an HMO or CMP that
requires the delivery of (at least) all covered services to members as medically necessary in return for a fixed monthly payment rate from the government and (often) a premium paid by the enrollee. The HMO is then liable for those contractually offered services without regard to cost. (Note: Medicaid beneficiaries enrolled in risk contracts are not required to pay premiums.)
Shared Savings--A provision of most prepaid health care plans where at least part of the providers' income is directly linked to the financial performance of the plan. If costs are lower than projections, a percentage of these savings are referred to the providers.
Staff Model HMO--This model employs physicians to provide health care to its members. All
premiums and other revenues accrue to the HMO, which compensates physicians by salary.
Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)--The Federal law that created the current risk and cost contract provisions under which health plans contract with HCFA.
Utilization Management--The process of evaluating the necessity, appropriateness and efficiency of health care services against established guidelines and criteria.
Utilization Review (UR)--A formal review of utilization for appropriateness of health care services delivered to a member on a prospective, concurrent or retrospective basis.