Managed Care Organizations: What You Need to Know

Managed care organizations bring together physicians, hospitals and specialists to offer services at a set monthly fee. Managed care reduces costs of health care by hiring physicians as employees instead of partners. This way, physicians provide services at a certain set amount of money regardless of the number of times patients visit the doctor. The doctor does not have the liberty of deciding the cost of care during a specific visit. This way, the services rendered and the actual fees paid are not correlated. As a result, doctors are not able to inflate the costs of care and increase costs. The costs are kept down by a constant amount paid to practitioners. Traditional health plans differ with managed care in that payment for services differs according to services provided. Some services are paid depending on the quality and effectiveness of care given. More payment is paid for more effective and high quality services. Additionally, some services are paid based on a prospective payment system where a certain amount of money is paid for an episode of care based on the diagnoses made. Money is paid to organization based diagnosis-related groups. 

Another strategy used by managed care organizations to lower the cost of care is by focusing on preventive care. Managed care approaches healthcare mainly from a wellness perspective rather than an illness perspective. When patients go for regular check-ups, diseases can be detected in their early stages. Managing diseases in their early stages is cheaper and has a better prognosis than managing diseases at advanced stages. Traditional health care plans focus on treating illnesses rather than on preventive services. As a result, organizations spend more money paying for diseases that could have costed less if they were detected early. Traditional health care plans try to limit their costs by controlling billing from physicians and not through focus on prevention of diseases. 

References 

Van Parys, J. (2015). How do managed care plans reduce healthcare costs.  Job market paper, Columbia University .