Health Care Financing, Managed Care, and Cost Containment
Delivery models
Managed care controls cost and utilization through network design and provider payment. Know the spectrum: HMO (closed network, gatekeeper, capitation-friendly), PPO (open network, negotiated discounts, no gatekeeper), POS (HMO-style in-network with an out-of-network option), and EPO (network-only, no referrals). Provider payment ranges from fee-for-service and discounted fee schedules (RBRVS) through per-diem and DRG hospital payment, bundled payments, shared savings, and full or partial capitation, which shifts utilization risk to the provider.
Cost containment tools
Utilization management (prior authorization, concurrent review, retrospective review), case management, disease management, care coordination, formulary and tiered pharmacy design, narrow networks, reference-based pricing, price transparency tools, and value-based arrangements such as accountable care organizations. Risk-sharing devices include withholds, bonuses, and provider stop-loss coverage.
Financing and administration
Understand administrative services only (ASO) arrangements, third-party administrators, self-funding and its stop-loss protection, and the medical loss ratio (80% individual/small group, 85% large group) with rebates when exceeded.
Traps
Questions blur capitation (provider bears risk) with fee-for-service (payer bears risk), or assume a POS plan lacks any gatekeeper requirement.
Worked example
A plan pays a medical group $45 PMPM for 1,000 members - $45,000 monthly regardless of utilization. If actual authorized care costs $52,000, the group absorbs the $7,000 loss unless a risk corridor or stop-loss applies.