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Development of the Modern Health Care System

Today, the development of the modern health care system is accompanied by the emergence of numerous managed care organizations, which aim at assisting patients to develop and participate in various health care plans, which help patients to cover health care costs. At the same time, the diversity of managed care organizations naturally involves the diversity of techniques used by these organizations to cover costs and to fund health care services being provided for patients.

Today, there are various types of managed care organizations and their services. Each type of organizations have their own plans and specificities. At this point, it is worth mentioning the fact that managed care organizations normally function within the framework of the Integrated Delivery System (IDS). In this respect, it is worth mentioning the physician/hospital organization (PHO), as an example of an IDS organization. In fact, many Managed Care Organizations focus on the effective management of health care costs and assistance to patients to cover their health care costs. Among the most widely-spread MCOs, it is possible to mention Health Maintenance Organization (HMO) and Preferred Provider Organization (PPO). Each type of MCOs has its own specificities.

In this regard, it is important to dwell upon techniques managed care organizations use to contain costs. The techniques used by MCOs may vary consistently but still it is possible to distinguish the following techniques: activity based costing, price-led costing, marginal costing, life-cycle costing, target costing. These techniques are the most widely-spread in the contemporary health care environment and in MCOs. The activity based costing is particularly effective because it provides larger opportunities for the development and integration of effective approaches to covering costs on the ground of specific activities. As a result, organizations may be flexible enough to provide effective plans and to ensure the adequate use of funds.

The diversity of MCOs’ types contributes to the emergence of various ways physicians are reimbursed for services with managed care organizations. In this regard, it is possible to distinguish several models. First of all, it is possible to dwell upon the group model HMO contracts with a group practice and pays that group a fixed capitated fee (Per Member Per Month). This way of payment is effective, when a group of professionals is employed by an MCO. The group of health care professionals can redistribute the earnings proportionally to the contribution of each group member to the group performance.

Furthermore, the IPA model involves a contract between HMO and an Independent Practice Association, which is a legal entity made up of a group of sole practice physicians. This model is effective, when an MCO works individually with each physician and each physician has an individual contract with an MCO. At the same time, some MCOs use the network model is a combination of the other models. This model provides MCOs, especially HMO with large flexibility. In addition, some HMO use the point of service model (POS) allows patients greater flexibility in choosing physicians.

As for, PPOs, their patients are responsible for co-payments, deductibles, and co-insurance. Basically, these diverse methods of payment vary in the time, when patients pay, and in the amount of money they pay for health care services they receive.

Thus, today, different MCOs use different methods of payment and cost techniques, which aim at the optimization of health care coverage for patients.

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Rosenthal, M.B., Frank, R.G., Buchanan, J.L. and Epstein, A.M. (2002). Transmission of financial incentives to physician by intermediary organizations in California. Health Affairs 21 (4); pg. 197. Retrieved on July 26, 2010 from Proquest.

Websites (Required)

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