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Health Economics And Policy International Edition 4th Edition BY James W. Henderson – Test Bank

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Health Economics And Policy International Edition 4th Edition BY James W. Henderson – Test Bank

Chapter 7:

Managed Care This chapter presents a brief history of growth and development of managed care as an alternative to traditional fee-for-service medical care delivery. The different varieties of managed care are discussed, including health maintenance organizations, preferred provider organizations, and point-of-service plans. The cost-saving features of managed care are listed and the mixed empirical evidence that this form of delivery actually saves money is summarized. Chapter Outline a. History of managed care b. Types of managed care plans 1. Health maintenance organizations (HMOs) 2. Preferred provider organizations (PPOs) 3. Point-of-service (POS) plans 4. Hybrid varieties c. The theory of managed care cost-saving 1. Selection of providers 2. Cost-sharing arrangements 3. Practice guidelines and utilization review d. Evidence of managed-care cost savings e. Evidence of quality differences between managed care and fee-for-service care f. Managed care and its public image g. The future of managed care h. Summary and conclusions Profile: William B. Schwartz Issues in Medical Care Delivery • VivaHealth: Marketing HMOs to Ethnic Communities • Evaluating the Effectiveness of HMOs • The Managed Care “Blues” Chapter Objectives 1. Summarize the historical development of managed care. 2. Explain the main differences between traditional fee-for-service insurance with deductibles and copayments and managed care with capitated payments. 3. Understand the distinctions between retrospective and prospective payment. 4. List and explain the distinctive features of the different varieties of managed care arrangements. 5. Describe the importance of risk shifting in the managed care environment. 6. Summarize the reasons for the popularity of managed care and the seeds of its possible demise. 7. Understand the major drawbacks of a fixed-budget system, such as managed care. Opening Video Going Ballistic on HMOs As Good As It Gets (1997) Distributed by Tri Star Pictures Produced by Richard Sakai, Laurence Mark, and Laura Ziskin Directed by James L. Brooks Screenplay by Mark Andrus Cast: Jack Nicholson as Melvin Udall, an obsessive compulsive writer Helen Hunt as Carol Connelly, waitress who regularly serves Melvin Shirley Knight as Beverly Connelly, Carol’s mother Jesse James as Spencer Connelly, Carol’s asthmatic son Harold Ramis as Dr. Martin Bettes, hired by Melvin to treat Spencer’s asthma Synopsis: Melvin’s obsessive compulsive behavior and nasty temperament make life miserable for people around him. His sarcasm offends his gay neighbor and the staff of the restaurant that he frequents daily. He insists that only Carol serve him and when she misses work because of her son’s asthma, Melvin hires his physician to make a house call to treat Spencer. Film Clip: Scene number 13, “Dr. Bettes” starting at 52:09 (4:00 minutes, strong language) Carol and her mother welcome an unexpected visitor, Dr. Bettes, which they learn has been sent by Melvin to care for Carol’s son. The bedside-visit is an especially delightful surprise, because her son has only received healthcare through emergency room visits, due to her lack of funds to provide health insurance. When Dr. Bettes inquires about why Spencer has not even had a simple allergy test, Carol expresses her contempt for HMO’s. Is this situation realistic? Why do HMOs have such a bad reputation? Is all insurance coverage adequate? What does it mean to be underinsured? Discussion: The reality is that insurance companies must find a way to discourage physicians from offering “unnecessary” or “excess” care. Health plans often offer monetary incentives to providers who control spending. In a perfect world, the bonuses would only encourage physicians to limit procedures that are not cost effective. Under these circumstances the incentive is to undertreat, which puts patients at risk for overlooked illnesses. With a few simple “extra” tests, Spencer’s illness might have been diagnosed earlier, resulting in a significantly improved quality of life. Concerning the health insurance industry: should it acknowledge and/or respond to society’s feelings about the system? If so, should it defend its position or embrace the criticism? Despite the amount of money we spend on healthcare, cost is always factor in our resource allocation decisions. Ultimately, who is responsible for making the decision regarding what will be covered and what will not? Teaching Suggestions • Most students have some experience with managed care. Poll the class to determine what type of health care coverage each of the students has. • The incentive structure of managed care is quite different from that of fee-for-service. Describe how managed care uses capitated payment to general practitioner gatekeepers, coupled with risk sharing to control spending. Many of these risk-sharing arrangements include bonuses for meeting budgets in key areas, including specialty referral, hospitalization, and pharmacy. Some even require the physicians to reimburse the plan for a percentage of spending over the budgets. How does this affect provider behavior? Many students are somewhat dismayed. Suggested Approaches to End-of-Chapter Questions 1. All terms are defined in the glossary. Fee-for-service and capitation are opposites in the payment mechanism—fee-for-service encourages over-treatment and capitation under-treatment. Assignment forces physicians to accept lower fees for treating Medicare patients. This results in cost-shifting to private health insurance patients. 2. Providers share some of the financial risk in managed care, especially in those situations where capitated payment is used. Risk sharing changes the incentive structure. No longer is it profitable to provide more services. Physicians get more by providing less. The physician views the patient as a cost center, not a profit center. 3. The HMO is a provider and a payer. As an insurer, the HMO shares the financial risk of providing care. The HMO does have some control over the amount of care provided. 4. Cost-saving features include provider networks, payment by capitation, utilization management, and the use of gatekeepers. 5. Cost-conscious providers are continually searching for less expensive ways to provide care. Discounted fee-for-service, closed panels, required second opinions, and formularies will have an effect on the rest of the health care sector. A shift to inpatient care, moving recovering patients out of the hospital and into acute-care nursing homes, the provision of home health care, and hospice care will all increase. 6. The incentive is to provide less care, fewer hospital admissions, and shorter hospital stays. The empirical evidence all seems to point to these results. Overall health status does not seem to suffer. 7. These are terms that must be defined on a case-by-case basis by medical practitioners, not MBAs. Interpreting outcomes research can be tricky. Additional Questions for Discussion and Evaluation 1. How does capitation change the incentive structure in a managed care environment? 2. How has the move to managed care in the medical marketplace affected the quality of care? What is the evidence? 3. Describe the incentive structure of a fixed-budget medical care system. 4. How are incentives to providers different when they are paid on a capitated basis rather than a fee-for-service basis? Discuss the arguments (both pro and con) relating to placing physicians on risk-sharing contracts. 5. Describe the major features of a risk-sharing contract between a general practitioner (GP) and an HMO. How does the existence of such a contract change the incentive structure facing the GP? What are the pitfalls facing patient and physician under these circumstances? 6. It has been argued that medical practitioners have the ability to generate demand for their own services. What is the theory behind this hypothesis? What assumption of the perfectly competitive model must be violated? What is the empirical evidence used to support the theory of physician-induced demand? Multiple Choice 1. Kaiser-Permanente, the nations largest health maintenance organization, was founded a. to provide cost-effective medical care to Kaiser employees. b. to provide access to medical care to Kaiser workers in remote locations where medical services were in short supply. c. to slow the rate of growth in medical spending for Kaiser employees. d. as a group-model HMO. e. as a network-model HMO. ANS: B 2. Managed care a. establishes a system of retrospective payment determined ex ante. b. combines the responsibilities of payer and provider of medical services. c. attempts to shift a portion of the financial risk onto providers. d. attempts to shift a portion of the financial risk onto patients. e. Both b and c are correct. ANS: E 3. Capitation a. creates pressures to provide fewer services. b. is a fixed payment determined in advance to pay for all medically-necessary care. c. is the maximum allowable fee in a fee-for-service system. d. shifts financial risk onto patients. e. Both a and b are correct. ANS: E 4. The health maintenance organization where the physicians are salaried employees of the HMO is called a. a group-model HMO. b. a staff-model HMO. c. a network-model HMO. d. an IPA. e. a direct-contract HMO. ANS: B 5. The health maintenance organization that contracts with individual physicians or group practices to provide care for a specified group of enrollees is called a. a group-model HMO. b. a staff-model HMO. c. a network-model HMO. d. an IPA. e. a direct-contract HMO. ANS: D 6. Network model HMOs use _______ to shift financial risk back onto providers. a. capitation. b. practice guidelines. c. open panels. d. closed panels. e. formularies. ANS: A 7. Which type of managed care organization has the strictest cost control features? a. Group-model HMO. b. IPA. c. POS plan. d. Closed-panel HMO. e. PPO. ANS: D 8. What is the motivation behind the cost-control features of managed care? a. To ensure access to specialty care through general practitioner gatekeepers. b. To influence the way physicians practice medicine by changing the financial incentive structure of medical care delivery. c. To shift the financial risk onto patients. d. To eliminate all the guesswork from diagnoses by establishing practice guidelines. e. To create competition by providing patients with a wide range of providers. ANS: B 9. Some analysts are skeptical about managed care’s long-term ability to control costs. What works for individuals may not work system wide. This proposition is called a. stare decisis. b. a priori reasoning. c. the Peter Principle. d. the ceteris paribus condition. e. the fallacy of composition. ANS: E 10. Most empirical studies show that the cost-savings provided by managed care are accomplished by a. better preventive care. b. reducing the rate of hospitalization. c. denying access to costly specialty care. d. switching to generic drugs. e. all of the above. ANS: B 11. To control moral hazard and the increased spending that accompanies it, managed care providers include _______ in contracts with providers. a. clinical rules b. capitation c. risk sharing d. all of the above ANS: D 12. The most important aspect of the change from fee-for-service to capitation is that a. physicians get their money quicker. b. patients get faster service since physicians don’t have to worry about getting paid. c. physicians make less money. d. the most valuable patient is no longer the sickest, but the most healthy. ANS: D 13. Which of the following statements is not true about managed care? a. Empirical evidence suggests that managed care can reduce health care spending. b. Most of managed care’s savings can be traced to reduced hospitalization. c. There is more emphasis on preventive care in managed care. d. There is no credible evidence to suggest lower quality of care for any group of patients in managed care arrangements. ANS: D Structured Discussion: Resolved: If the entire U.S. health care system were transformed overnight into one where everyone belonged to a managed care organization, we would experience a one-time cost savings only to find ourselves back on the same growth path within a short period of time. Resolved: The incentive structure created by capitation and withholds puts too much pressure on providers to reduce costs (and in turn quality) of medical care. Therefore, risk-sharing contracts should be illegal.


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