Summary of Lectures (Part 2)

Economics for Management Studies
Course Code
Michele Campolieti

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ECMC34 ± March 16
Workers compensation insurance ± costs are rising, but not in the normal health care
- Costs are higher because someone is paying for it
- Constraints on physicians on what treatment they can provide
Managed Care - A system in which physician practice is managed in order to address high health
care costs
- Managed Care Organization (MCO)
- Health Management Organization (HMO)
- Fee for Service (FFS)
- Preferred provider organization (PPO)
- Point of service (POS)
Managed care reduces overconsumption of health care by imposing cost control incentives (on
both physician + patient)
- Set up a network, collection of physicians, hospitals clinics, home care to a defined
population in an area
- Network is clinically (quality) + fiscally (cost) responsible to treat the defined population
- Fixed budget to a certain network, less profits
Contain costs + quality of care through a few mechanisms:
- Selective contracting ± payers negotiate prices + select local physicians + hospitals
- Steering ± send enrolees to selected providers
- Utilization reviews ± 3 types
1) Prospective (before care) ± mandatory second opinions for surgery +
preadmission certification
2) Concurrent (during care) ± occurs during hospitalization +assesses
appropriateness of treatment relative to diagnosis
3) Retrospective (after treatment) ± reviews treatment after discharge to
determine whether necessary and appropriate, used to verify services also
determine most cost-effective providers
- Selective contracting + steering are unique to managed care
- Utilization review can be used by all payers
Common characteristics:
- Most if not all care is provided in a network
- Resources are centralized in a network
HMO ± health management organization
- Few out of pocket expenses for patient (deductibles, co-insurance or copayments)
- All care must be provided in the network + primary care physician authorizes all services
- Assigned a physician (gate keeper) when join plan
- If services are provided but not authorized, patient is responsible
IPA ± independent practice associations
- Assign primary care physicians as gatekeeper for covered services, more common
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