Intermediaries and their Goals

• Definition and Role
  • Intermediaries, also known as plans, payers, or insurers, are essential to the healthcare system.
  • They provide mechanisms for risk pooling by taking on risk from individuals, which is crucial in modern healthcare.
• Key Functions
  • Handle payments to providers.
  • Define coverage rules, influencing patient access to care.
• Types of Intermediaries
  • Public Intermediaries: Operated by or under government auspices.
  • Private Intermediaries: Run as private businesses.
• Groups Intermediaries Must Work With
  • Providers: Arrangements for patient care and payment structures.
  • Patients: Terms of coverage, affecting the availability and ease of access to services.
  • Buyers/Customers:
    • For public intermediaries: Government officials and taxpayers.
    • For private intermediaries: Consumers purchasing insurance products.
• Importance of Relationships
  • Effective collaboration with providers and patients is crucial for maintaining good relationships.
  • Satisfaction among these groups can affect reputation, political support, and market success.
• Financial Considerations
  • Public intermediaries: Funding needs from taxpayers depend on expected payouts to providers.
  • Private intermediaries: Premiums are set based on anticipated care costs for enrollees.
• Balancing Act
  • Intermediaries aim to maintain good relationships with providers and patients while controlling costs.
  • Payments to providers should be adequate but not excessive.
  • Coverage rules should allow necessary care but prevent overuse of low-value services.
• Success and Challenges
  • Success depends on maintaining support and effectively selling products.
  • Failures in any area can lead to loss of support or market difficulties.

Intermediaries and the Broad Challenges Facing Health Care Systems

• Core Problem
  • Intermediaries must balance keeping patients and providers satisfied with managing costs.
• Cost Pressures
  • High and Rising Costs: Driven by new, often costly treatments.
  • Insurance Impact: Encourages demand for expensive treatments as it reduces the direct cost burden on patients.
• Insurance Dynamics
  • Insurance allows access to needed care but may lead to overuse of costly treatments.
  • It is essential for risk management and healthcare system functioning, yet can exacerbate cost challenges.
• New Innovations
  • High-cost treatments may be highly beneficial, but intermediaries must ensure appropriate use to avoid overuse.
• Quality of Care
  • Intermediaries influence the delivery, timing, and location of care, indirectly impacting the quality.
  • As treatments become more complex, ensuring high-quality care becomes increasingly challenging.
• Access to Care
  • Issues with insurance coverage can limit access to care, especially in the US.
  • Ensuring adequate provider distribution and accessibility across different demographics is critical.
• Broader Social Challenges
  • Intermediaries may need to address social inequalities, which can extend beyond the healthcare system.
  • Public programs might have mandates to address these broader issues, while private intermediaries balance this with business considerations.
• Business Aspects
  • Intermediaries, especially private ones, must manage budgets and risks while navigating complex goals.
• Complex Environment
  • The role of intermediaries involves navigating a complicated landscape of healthcare, social issues, and financial constraints.

Networks and Selective Contracting

1. Key Question
   • Deciding which providers intermediaries will work with.
2. Influence and Effort Variability
   • In some regions, large intermediaries or government entities influence provider availability, leading to less selective contracting.
   • In places like the US, with many private insurers and providers, there's more freedom and variation in choosing providers.
3. Network Formation
   • Terminology:
     • Network or panel refers to the set of providers an intermediary contracts with.
     • Panel (Context-Specific): In this context, refers to providers in the plan's network, not the patient population for capitation payment.
   • Selective Contracting: Choosing specific providers based on certain criteria.
4. Criteria for Selection
   • Quality: Prioritizing providers perceived to offer high-quality care.
   • Efficiency: Looking for providers who avoid overuse of questionable treatments.
   • Cost: Considering the payment rates providers require.
   • Geographic Considerations: Ensuring providers are available in desired locations.
5. Network Size Strategies
   • Broad Networks: Include many providers, offering members more choices but with less selectivity.
   • Narrow Networks: More selective, providing fewer choices but greater control over provider selection.
6. Provider and Plan Dynamics
   • Both providers and plans assess which networks are mutually beneficial.
7. Panel Rules
   • Closed Panel: Requires enrollees to use only in-network providers; no coverage for out-of-network care.
   • Open Panel: Allows members to see any provider; may involve minimal participation requirements.
   • Semi-Open/Semi-Closed Panel: Sets up a network but allows out-of-network care with incentives for using in-network providers.
8. Purpose of Network Formation and Selective Contracting
   • A tool for plans to shape healthcare delivery, balancing quality, cost, and member satisfaction.

Provider Payment methods and Levels

1. Power Dynamics
   • One-Sided Conversations: When intermediaries, especially large government ones, have significant power, they can heavily influence payment structures, though they still need to consider provider satisfaction.
   • Negotiation Dynamics: When both intermediaries and providers have power, there is often a more balanced negotiation process.
2. Payment Forms
   • Physician Practices and Professionals:
     • Fee for Service (FFS)
     • Capitation
     • Episode Payments
     • Other hybrid or creative models, including pay-for-performance.
   • Hospitals:
     • Fee for Service (FFS)
     • Per Diem
     • Diagnosis-Related Groups (DRGs)
     • Global Budgets
   • Intermediaries choose payment forms to balance cost control and quality goals, fostering good relationships with providers.
3. Risk Transfer Dynamics
   • Providers often prefer payment methods like fee for service that minimize risk.
   • Intermediaries may favor payment methods that encourage efficiency and involve risk transfer to providers, leading to negotiation dynamics based on differing interests.
4. Payment Levels
   • Importance: The level of payment, whether under FFS, DRGs, or other methods, can significantly affect costs.
   • Negotiation Focus: Providers typically push for higher payments, while intermediaries aim to control costs.
5. Selective Contracting and Payment Negotiations
   • Leverage in Negotiations: Selective contracting can enhance an intermediary's bargaining power by offering providers the incentive of network inclusion in exchange for lower payment rates.
   • Variable Success: The effectiveness of using selective contracting as a leverage tool can vary.

Patient Cost Sharing

1. Definition and Context
   • Out-of-Pocket Payments: Refers to payments made directly by patients, distinct from costs covered by intermediaries (insurance companies or government programs).
   • Use and Prevalence: Common in the US, with various forms and structures used to manage healthcare costs and utilization.
2. Forms of Cost Sharing
   • Deductibles:
     • A specific amount a patient must pay out-of-pocket before the intermediary starts to contribute. Typically annual, e.g., a $1,000 deductible means the patient pays the first $1,000 of medical expenses each year.
   • Copayments:
     • A fixed amount paid by the patient for each service, such as $20 per doctor's visit. The intermediary covers the remainder of the cost.
   • Coinsurance:
     • A percentage of the cost that the patient must pay, e.g., 20% of the bill. The intermediary covers the remaining percentage.
3. Combinations and Variations
   • Combination Plans:
     • Plans may feature deductibles, copayments, and coinsurance in various configurations, such as a deductible followed by copayments or coinsurance for different services.
   • Service-Specific Variations:
     • Different cost-sharing levels for different types of services, such as lower copayments for primary care and higher for specialist visits.
   • Out-of-Pocket Limits:
     • A maximum limit on the amount a patient must pay out-of-pocket in a year. After reaching this limit, no further cost sharing is required.
   • Network Variations:
     • Different cost-sharing levels for in-network versus out-of-network providers, with higher costs typically for out-of-network services.
   • Tiered Networks:
     • Providers are categorized into tiers based on factors like quality or cost, with varying cost-sharing levels depending on the tier.
4. Rationale and Impact
   • Incentives for Cost-Conscious Choices:
     • Cost sharing encourages patients to make more thoughtful decisions about their healthcare, potentially leading to more efficient use of services.
   • Risk Shifting:
     • While cost sharing helps manage costs, it also shifts some financial risk back to patients, potentially undermining the protective benefits of insurance if overused.
5. Special Considerations
   • Full Out-of-Pocket Payments:
     • Situations where patients must pay the entire cost of care themselves, such as when they go out-of-network in a closed-panel plan or seek services not covered by insurance.
   • Uninsured Patients:
     • In countries like the US, patients without insurance may be responsible for all medical costs, often leading to direct billing arrangements with providers. This scenario can present significant financial challenges for patients.

Utilization Review, Gatekeepers, and Other Methods of Directly ınfluencing Care

Intermediaries, such as insurance companies or government healthcare programs, use various tools to control and manage the utilization of healthcare services. These tools aim to influence care use and costs by setting terms and conditions for coverage. Below are key examples and considerations:

1. Gatekeeper Requirements

• Definition: Patients are required to select or be assigned a primary care physician (PCP), who acts as the first point of contact for medical issues. Before seeing specialists or receiving certain services, patients must obtain a referral from their PCP.
• Purpose:
  • Quality Control: Helps coordinate care and manage complex cases through a central figure (PCP).
  • Cost Reduction: Limits unnecessary use of specialists and diagnostic tests.
• Concerns:
  • Patient Autonomy: Limits patient choice in accessing specialists.
  • Exceptions: Emergency situations typically exempted.

2. Utilization Review

• Definition: A set of techniques used by plans to monitor and influence the use of healthcare services. It includes three main types:

  a. Pre-Authorization (Prior Review)

  • Function: Requires plan approval before certain services are provided. This may include tests, procedures, or treatments.
  • Example: Approval needed for an MRI. The plan assesses necessity and may suggest alternatives.
  • Outcome: If not approved, the patient may have to cover the cost out-of-pocket.
  • Focus: Target services prone to overuse or those with high costs and questionable value.

  b. Concurrent Review

  • Function: Monitoring of care during its provision, often in hospital settings.
  • Example: Monitoring the length of hospital stays and influencing decisions if the stay extends beyond expected norms.
  • Outcome: Guidance provided to physicians on continued care coverage.

  c. Retrospective Review

  • Function: Assessment of care after it has been provided.
  • Purpose: Review appropriateness and efficiency of care delivered.

3. Additional Influencing Techniques

• Provider Monitoring and Feedback:
  • Data Collection: Intermediaries collect data on provider performance, including service usage and quality metrics.
  • Feedback: Sharing this data with providers can encourage better practices and cost-effective care.
• Patient Engagement:
  • Reminders and Information: Providing patients with reminders for appointments, screenings, or other health maintenance activities to encourage proper care utilization.

Considerations and Controversies

• Advantages:
  • Quality Improvement: Can lead to better-coordinated care and prevention of unnecessary procedures.
  • Cost Control: Helps manage healthcare costs by reducing overuse of services.
• Challenges:
  • Control and Autonomy: Patients and providers may feel restricted by intermediaries' influence on healthcare decisions.
  • Patient and Provider Relations: Potential for friction when insurers interfere with care decisions.

These tools and strategies form a complex landscape, balancing the goals of cost containment, quality improvement, and patient/provider autonomy.

Coverage Decisions

Intermediaries, such as insurance companies and government health programs, play a significant role in determining which healthcare services will be covered under their plans. These coverage decisions can have a profound impact on both care use and costs. The decision-making process typically involves several key considerations, including medical necessity, efficacy, cost, and cost-effectiveness.

1. Medical Necessity

• Definition: Services that medical professionals commonly regard as warranted or indicated for a patient's condition.
• Role in Coverage: Plans generally aim to cover services deemed medically necessary, but interpretations of what qualifies can vary.

2. Efficacy and Experimental Treatments

• Efficacy: Coverage decisions often consider the evidence supporting a treatment's effectiveness. If there is strong evidence that a treatment is effective, it is more likely to be covered.
• Experimental Treatments: Treatments still under investigation or lacking strong evidence of effectiveness may not be covered. This stance helps intermediaries avoid paying for treatments that may not provide real benefits to patients.

3. Cost and Cost-Effectiveness

• Cost Considerations: Intermediaries often consider the cost of treatments in their coverage decisions, balancing the need to manage overall expenditures.
• Cost-Effectiveness:
  • Definition: The comparison of the benefits of a treatment to its costs, often using sophisticated analytical tools to assess value.
  • Application: Intermediaries may use cost-effectiveness information to decide whether a treatment provides sufficient benefit relative to its cost. Treatments with poor cost-effectiveness may be excluded from coverage.
  • Example: When a new drug is introduced, intermediaries might assess its cost-effectiveness to determine if it offers enough benefit to justify its price.

4. Global and Regional Variations

• UK Example: The NHS in the UK actively uses cost-effectiveness analyses to inform its coverage decisions, aiming to provide high-value care while managing public funds effectively.
• US Example: The use of cost-effectiveness in coverage decisions is less common, with a greater emphasis on patient choice and market dynamics.

5. Controversies and Challenges

• Balance: Coverage decisions must balance the need to control costs and ensure access to necessary and effective treatments. Over-restrictive policies may limit access to beneficial treatments, while too permissive policies could lead to high costs and overuse of low-value services.
• Patient Impact: Patients may sometimes need to pay out-of-pocket for treatments not covered by their plan. This situation can lead to disparities in access to care based on financial resources.
• Ethical Considerations: The use of cost and cost-effectiveness as criteria for coverage decisions raises ethical questions, particularly regarding the value placed on different treatments and patient outcomes.

6. Future Considerations

• Evolving Standards: As medical technology and treatments evolve, so do the standards and criteria for making coverage decisions. Intermediaries must continuously update their policies to reflect the latest evidence and societal values.
• Patient Involvement: Increasingly, there is a push for greater patient involvement in decision-making processes, including coverage decisions, to ensure that policies align with patient needs and preferences.

In summary, coverage decisions by intermediaries are a complex and multi-faceted process that involves evaluating medical necessity, efficacy, cost, and cost-effectiveness. These decisions significantly impact healthcare access and costs, making it crucial to carefully consider the criteria and processes used.

Combinations and Tradeoffs

1. Identity of Intermediaries
   • Defined by the specific tools they choose to use and how they use them.
   • Includes network development, provider payment methods, cost sharing, gatekeeper roles, utilization review, and coverage decisions.
2. Network Development
   • Options: Broad or narrow networks; open panel or closed panel.
3. Provider Payment Methods
   • Fee for service, capitation, DRGs (Diagnosis-Related Groups), global budgets.
   • Can vary in generosity towards providers.
4. Cost Sharing
   • Varying levels of cost-sharing for patients, from strong to none.
5. Gatekeeper
   • Use of gatekeepers can vary; some intermediaries require them, while others do not.
6. Utilization Review
   • Can be used a lot, a little, or not at all.
   • Types: Pre-authorization, concurrent review, retrospective review.
7. Coverage Decisions
   • Extent of effort varies; some are stringent with more exclusions, others are more permissive.
8. Role of Intermediary Leaders
   • Expected to understand their context, goals, and stakeholders.
   • Design approaches by mixing and matching existing tools and creating new ones.
   • Adapt strategies over time.
9. Intermediary Structures
   • Many different structures exist, each unique in its approach.
   • Reflects different combinations of tools and methods.
10. General Patterns and Trade-Offs
    • Plans vary in their use of tools to manage utilization and control costs.
    • More aggressive use of tools can lower premiums/taxes but may impact provider/population satisfaction.
    • Less aggressive use can lead to higher costs and premiums/taxes.
11. Substitution of Tools
    • Tools can act as substitutes; extensive use of one can reduce the need for others.
    • Example: Strong provider networks and payment incentives can reduce the need for prior authorization and cost sharing.
    • Conversely, broad networks with limited efficiency incentives may require more utilization review and cost sharing.
12. Variations in Approaches
    • Plans may vary in tool use; some may focus heavily on one type of tool and use others less.
    • Observing these variations provides insight into different strategies for managing costs and quality.

Three Stereotypical Plan Designs: "Traditional," HMO, and PPO

1. Traditional Indemnity Insurance:
   • Characteristics: Open panel, fee-for-service payment, minimal gatekeeping, limited utilization review, and generally generous coverage.
   • Cost-sharing: Sometimes minimal, with some early versions having very little.
   • History: Was the main form of insurance in the US until the 1980s, now less common.
2. Health Maintenance Organizations (HMOs):
   • Characteristics: Closed panel, network of providers, capitation, utilization review, and gatekeepers.
   • Cost-sharing: Often low or no deductibles, low copayments.
   • Focus: Emphasizes preventive care and management of health to reduce overall costs.
   • Pros and Cons: Can lead to lower costs and potentially higher quality care, but might be restrictive for patients and providers.
3. Preferred Provider Organizations (PPOs):
   • Characteristics: Semi-open, semi-closed panel, network of preferred providers with option to go out-of-network at higher costs, fee-for-service payment, no gatekeepers.
   • Cost-sharing: Higher than HMOs, including deductibles and copayments.
   • Focus: Balances structured networks with greater flexibility for patients and providers.
   • Pros and Cons: More flexible and popular among patients, but often more expensive and less integrated than HMOs.

Managed Care:

• Definition: Plans that actively manage the care of enrollees using various tools like network restrictions and utilization reviews.
• Examples: Both HMOs and PPOs fit this definition, among others.

The evolution of these plans reflects ongoing efforts by insurers to balance cost, coverage, and patient choice. Each plan type has its trade-offs, and specific plans may vary in their implementation of these general characteristics.

Some More Recent Trends in Plan Design

1. High Deductible Plans:
   • Structure: Typically based on a PPO framework.
   • Deductible: Set at a high amount, often several thousand dollars or more.
   • Impact on Patients: Increases out-of-pocket expenses, encouraging careful management of care utilization.
   • Premiums: Lower compared to other plans due to reduced coverage by the insurer.
   • Criticism: May shift excessive financial risk to patients, potentially leading to avoidance of necessary care.
2. Narrow Network Plans:
   • Structure: Adaptations of HMO or PPO plans with a focused network of providers.
   • Goal: To select a limited group of providers who can help control costs and negotiate better prices.
   • Benefits: Potential for reduced costs and improved quality through selective provider networks.
   • Concerns: Narrowing choices might limit access to care.

General Notes:

• Health insurance plans are continuously evolving.
• New designs and approaches are developed to address varying market needs and challenges.
• While similar strategies may exist globally, individual countries often adapt these models based on their unique circumstances.

Public and Private Plans (and Employer-Provided Private Insurance in the U.S.)

Dimensions of Health Insurance Plans: Ownership and Niche

1. Ownership and Market Role:
   • Private Insurers:
     • Scope: Can range from large, national companies to smaller, regional ones.
     • Market Characteristics: Operate in a competitive marketplace with varying types of plans (e.g., HMOs, PPOs, high-deductible plans).
     • Flexibility: Insurers have the freedom to design and sell products, subject to governmental oversight.
     • Product Variety: Include comprehensive plans covering a broad range of services, though some may exclude certain types of care (e.g., long-term care, dental, optometric).
     • Distribution Channels: Primarily through employers or directly in the individual market.
     • Employer-Based Insurance: Most private insurance is obtained through employers, influencing plan choices and availability based on employment.
     • Individual Market: Available for those who are self-employed or not covered by an employer, with government subsidies for lower-income individuals.
   • Public Insurers:
     • Scope: Can range from broad, population-wide coverage to narrower programs targeting specific groups or types of care.
     • Flexibility: Public plans can adopt various design strategies (e.g., PPO-like, HMO-like) based on national policies and needs.
2. Plan Types and Designs:
   • High Deductible Plans:
     • Structure: Typically based on PPO models with high deductibles.
     • Cost Impact: Lower premiums due to higher out-of-pocket costs for patients.
     • Patient Management: Encourages careful use of care but may lead to avoidance of necessary treatments.
   • Narrow Network Plans:
     • Structure: Adaptations of HMO or PPO plans with a limited network of providers.
     • Cost Management: Aims to reduce costs and negotiate better prices by focusing on a smaller network.
     • Trade-offs: May limit patient choices while seeking to maintain quality and lower costs.

Key Points:

• Health insurance plans vary widely in terms of ownership, market role, and design.
• Private insurers offer a range of plan types and operate in competitive markets with varied coverage options.
• Public plans can be broad or targeted, with different operational models.
• Plan designs such as high deductible and narrow network plans reflect ongoing efforts to balance costs and coverage.
• The role of employers and government subsidies adds complexity to the private insurance market in the US.
• Different plan types and structures cater to various needs and preferences within the healthcare system.

The U.S. Medicare Program

Overview of Medicare: Structure and Function

1. General Overview:
   • Coverage: Medicare is a significant public intermediary in the US, covering nearly everyone over age 65, as well as the permanently disabled and individuals with end-stage renal disease.
   • Administration: Managed by the Center for Medicare and Medicaid Services (CMS), which is a government organization.
   • Financing: Largely funded through taxes, with enrollees paying smaller premiums. Most costs are covered by the general population.
2. Traditional Medicare (Part A and Part B):
   • Part A: Covers hospital care.
   • Part B: Covers physician care.
   • Coverage: Broad, with an open panel allowing beneficiaries to visit nearly any doctor or hospital. Minimal utilization review or gatekeeping.
   • Payment System: Doctors are paid via a fee schedule; hospitals use a DRG (Diagnosis-Related Group) system.
   • Cost Sharing: Includes deductibles for hospital care and 20% coinsurance for physician visits.
   • Criticism: High cost-sharing and limited coverage for prescription drugs and long-term care.
3. Medicare Advantage (Part C):
   • Structure: Private insurance companies contract with Medicare to offer plans, which can include HMO or PPO models.
   • Benefits: Private plans must meet Medicare standards. Medicare pays a premium to these plans for each beneficiary enrolled.
   • Choice: Beneficiaries can opt for traditional Medicare or a Medicare Advantage plan.
4. Prescription Drug Coverage (Part D):
   • Structure: Available as an add-on to traditional Medicare, with private plans offering drug coverage.
   • Enrollment: Beneficiaries can select from a menu of private plans and pay an additional premium for drug coverage.
5. Medicare Supplement (Medigap):
   • Purpose: Helps cover additional costs not covered by traditional Medicare, such as high cost-sharing.
   • Availability: Can be purchased privately, with some employers providing it as part of retirement benefits.
6. Long-Term Care Coverage:
   • Limitations: Traditional Medicare has very limited coverage for long-term care.
   • Additional Insurance: Some beneficiaries purchase private insurance to cover long-term care.
7. Innovation and Criticism:
   • Innovation: Medicare has pioneered various systems, such as fee schedules and DRG systems, and has recently encouraged Accountable Care Organizations (ACOs).
   • Criticism: Traditional Medicare’s flexibility and model have faced criticism for being outdated, though beneficiaries value the flexibility. Medicare Advantage reflects newer plan designs and evolves in response to challenges.
8. Public and Private Interactions:
   • Private Plans: Medicare contracts with private plans (Medicare Advantage) and allows supplementary private insurance (Medigap).
   • Global Comparisons: Similar public plans supplemented by private insurance are seen globally.

Medicare provides a comprehensive example of how a public intermediary operates and evolves to meet its mission while managing costs and beneficiary needs.

The U.S. Medicaid Program

Overview of Medicaid: Structure and Challenges

1. General Overview:
   • Coverage: Medicaid is a significant public program in the US designed for individuals with low incomes, covering a substantial portion of the population.
   • Purpose: Created to address the needs of individuals often underserved by private insurance, which is primarily employer-based.
   • Administration: Operated separately by each state, with federal oversight and funding. States have control over their Medicaid programs, leading to state-specific differences.
2. Funding and Costs:
   • Financing: Funded by tax revenue from both federal and state governments.
   • Premiums: Minimal or often no premiums for eligible individuals.
   • Coverage: Provides broad coverage including doctor visits, hospital services, prescription drugs, and low patient cost sharing. Notably includes long-term care, which is rare among major health insurance sources.
3. Plan Designs:
   • Traditional Medicaid: The original plan design from 1965, which is now less common.
   • Medicaid Managed Care: The predominant model today, where state programs either operate managed care plans (often HMO designs) themselves or contract with private insurers. Insurers are paid a premium to cover Medicaid recipients.
4. Challenges:
   • Funding and Provider Payment: Limited funding has resulted in lower payments to providers, a frequent criticism and political issue.
   • Eligibility Variability: Eligibility limits vary by state. Some states have low cutoffs, leading to ineligibility for some very low-income individuals, while others have higher cutoffs. This creates disparities in coverage across states.
5. Public Intermediary Example:
   • Operation: Medicaid exemplifies how a public intermediary operates and strives to balance the needs of various stakeholders.
   • Funding and Political Challenges: Faces challenges in raising sufficient funds within complex fiscal and political environments, particularly when serving a specific subset of the population with limited political power.

Medicaid offers a valuable example of how public programs can address specific needs within a population while navigating financial constraints and varying state-level implementations.