Several years ago, a ground swell occurred in Washington, DC, around the cost of health care in the U.S. Reports about plans for reform showered the news media on a daily basis. Eventually, the news coverage shifted to other budgetary concerns, drawing attention away from the nation’s health as if a quiet solution had occurred. However, headlines about today’s systems, partnerships, and networks demonstrate that health care and spending are still in flux. Many nurses have much to be concerned about. But how did we get to managed care? And are there emergent issues about which nurses must be informed?

For nurses, the fallout from health care reform and the growth of managed care has not subsided. These issues have a daily impact on practice by shortening lengths of hospital stays and causing the earlier discharge of patients who require longer and more intensive care once they reach home. These changes challenge nurses and other providers to work harder, smarter, and differently from traditional practice.

For example, acute care hospital nurses now see sicker patients, earlier discharges, and downsizing of staff and resources. Home care nurses are visiting a growing number of patients who are sicker and require more nursing care. Office managers and nurses are confronting a multitude of managed care plans that require difficult billing practices and authorizations for treatment for each payor. Understanding the managed care environment, learning the terms associated with this system, and examining the role of nursing in this changing arena have become essential for any nurse who plans to continue to practice.

Managed care versus indemnity insurance

Managed care is a planned, coordinated approach to providing quality, cost-effective health care. Managed care companies are organizations that employ or contract with health care providers to deliver care for enrolled members through several mechanisms.

Some of the types of managed care products available include —

• Health Maintenance Organizations (HMOs)
• Point of Service (POS)
• Independent Practice Associations (IPA)
• Preferred Provider Organizations (PPO)
• High Deductible Plans (HDP)

The structures of these products are based on the restrictions faced by the members in choosing and accessing their providers and how the providers are paid. Members of an HMO select a primary care provider (PCP) from an HMO-provided list when they enroll. Most HMOs compensate their providers by capitation — a monthly fee that is prepaid for each enrolled member, based on age and sex. Payments are made regardless of whether or not members receive care. There are, however, HMOs that do not provide capitated rates for the PCP and pay a fee for service (FFS) for the care provided. HMO members are restricted in their use of specialists in two ways. First, they are required to obtain a referral from their PCP before seeing a specialist, and second, when the PCP does provide a referral, the member can see only specialists listed in the HMO directory. The specialist is paid a fee for the services provided.

There are three basic types of HMO practice models: group, staff, and network. The group HMO model is composed of single multispecialty medical groups that provide care to the HMO’s membership as well as to nonHMO patients. The HMO pays the medical group a negotiated per capita rate, which the group distributes among its physicians. The staff model operates in an HMO-owned facility where patients can receive services only through a limited number of providers who are employees of the HMO. In the network model, multiple physician groups are contracted to provide services to HMO members — they cross-refer patients for specialty services as needed. Some hybrid, or mixed-structure HMOs may use features from these three basic types.¹

Other product types include independent practice associations (IPAs) and preferred provider organizations (PPOs). In these cases, members receive care through their PCP who contracts with IPAs, loosely affiliated physicians who practice in their own offices, or through the PPO, a more formal group of physicians. IPA and PPO negotiate fixed, discounted rates with the companies and bill them on a fee-for-service basis. Point of Service (POS) and other products are hybrid mixtures of HMOs and PPOs. Each product specifies coverage and the use of specialists.

A new type of HMO product, the Social HMO, has emerged. Funded by capitated payments from Medicare and Medicaid, the S/HMO is a complete medical care system for community-based functionally impaired older people. The program integrates medical, social and long-term care services in an effort to keep these patients in a home environment as long as possible. Case management and support services are combined with the traditional HMO concepts of capitation, financing, and provider risk-sharing.²

With the high deductible plan (HDP), members access care in the same fashion as the PPO members do, with the exception that members must pay 100% of their healthcare expenses until an annual deductible is met. The amount is typically very high, for example $4,000 or $5,000 each year. The premiums for these types plans is less than traditional HMOs or PPOs. Participants are encouraged to offset expenses they must pay for before insurance coverage kicks in by saving additional money in Health Care Savings Accounts.

PCPs play a vital role in the health care of members of managed care plans. These providers function as gatekeepers who direct, authorize, and coordinate care through a referral system of providers, specialists, and health care facilities. PCPs may refer patients to specialists, such as cardiologists, surgeons, and podiatrists, or affiliated providers, such as physical therapists, other allied health professionals, and nurse practitioners. Members can visit their PCPs for no extra charge or a small copayment. However, they must pay additional fees if they choose to use the services of a provider outside of the approved network, or without a PCP referral. In many cases, HMOs refuse to pay for specialist services if the PCP has not referred the patient to the specialist for consultation and care.

As a result, specialists have learned to require the PCP referral before providing service to ensure payment. Traditionally, PCPs were only physicians, but advanced practice nurses (APNs) may also fill this role in some managed care companies.

Advocates of managed care believe that PCP-directed care reduces costs by centrally controlling the allocation of resources, reducing reliance on expensive specialists and treatment modalities, and emphasizing preventive care and wellness. For example, members are encouraged to pursue healthy lifestyles, control weight, and quit smoking.

PCPs are expected to provide age- and sex-appropriate well-care services, such as education and early screening for disease, for example mammograms and cholesterol blood tests.

Managed care is an alternative to the indemnity insurance of employer-sponsored plans. The benefits of indemnity insurance traditionally paid for hospital and physician care necessary to treat illness; payments for preventive care were rarely included. Under the indemnity programs, patients coordinated their own care — they decided when to see general practitioners or specialists and selected whatever providers or health services they believed to be appropriate. Companies such as Blue Cross and Blue Shield, Prudential, and Aetna offered programs. The employers provided insurance coverage to many individuals as an employee benefit.

The origins of managed care

The precursor of managed care emerged as long ago as 1932. Ray Lyman Wilbur, MD, a past president of the American Medical Association and chairman of the Committee on Costs of Medical Care, recommended prepayment to medical group practices that provided health services to groups of people, such as teachers and farmers. Despite this early advisement, managed care programs needed the help of Congress to develop. Significant growth did not occur until the passage of the Health Maintenance Organization (HMO) Act in 1973, when financing was allocated for the expansion of HMOs.³

During the 40 years between the 1932 system-restructuring recommendation and the 1973 HMO Act, business leaders placed pressure on the health care community and the legislature to reduce costs. Employee health care benefits accounted for a growing proportion of business expenses, which were already hampered by shrinking corporate profits. Like today, most Americans received their health care benefits through their employer. As the cost of purchasing traditional indemnity health insurance skyrocketed, both business and political leaders attempted to simultaneously shrink costs and maintain the same quality of health care by promoting managed care. Self-employed Americans, who found the costs of purchasing indemnity health insurance rising in astronomical proportions, provided an additional impetus to move toward this system.

Support from the business and political communities for a managed care arrangement was demonstrated by the growth in the number of people covered by HMO plans; however, recent trends indicate a preference shift to preferred provider organizations (PPOs). The majority of Americans with coverage through a commercial insurance source are covered by a PPO or other self-insured type plan through an employer that is not regulated through a state agency.⁴ The initial explosive growth in HMO participation could be attributed to several factors —

• The HMO Act of 1973 required employers to offer an HMO to their employees if requested to do so by an area HMO.
• Many employers shifted their health insurance to services provided by HMOs.
• Satisfied customers of HMOs influenced others to enroll.
• Employees who chose to keep traditional indemnity insurance had to pay a major portion of the cost of the premium, while the employer contributed only the amount that equaled the HMO premium.
• Lower costs of managed care attracted younger adults and those with small children — healthy groups who did not use more costly health care resources, such as hospitals and specialists.

While individuals with an employer-associated source of health care coverage may opt for PPO participation, in the past 15 years there has still been a dramatic increase in the number of Americans enrolled in HMOs — nearly half the population, with many enrolled through a state-funded source (such as Medicaid) or a disability or retirement-funded source (such as Medicare).⁵ Patients participating in HMOs are more likely to be socioeconomically disadvantaged — research indicates that single parents, lesser-educated individuals, people with lower income levels, and those rating their overall health as “fair” or “poor” are more likely to be participants in HMOs.⁵

Choice is important. When individuals do not have a choice among health care plan options, they are more likely to be dissatisfied and reduce their use of preventive services. When they voluntarily select HMO coverage, they are more likely to use recommended preventive services.^6,7

The types of HMOs have changed as well. The huge increase in enrollment in for-profit HMOs bears watching for future implications. However, almost 52 million Americans are completely without health insurance, either temporarily or permanently. The Current Population Survey of 2004 indicated that 45.⁸ million Americans (15.7%) were uninsured for the entire year, and the National Health Interview Survey of 2004 indicated that 51.6 million Americans (17.9%) were uninsured for part of the year.⁸

According to National Managed Care Enrollment figures for 2006, a total of 159 million Americans are participating in managed care programs. About 77 million are enrolled in HMOs and 81.3 million are enrolled in PPOs.⁹

Negative effects of managed care

As today’s practicing nurse knows, the emergence of managed care brought some challenges for nurses, physicians, patients, and hospitals. The dramatic change is evident in such instances as “drive-through” childbirths and mastectomies, shortened lengths of stay, and denial of coverage for specialist consultations.

“Drive-through” childbirths and mastectomies refer to managed care covering only 24 hours of care for these services. On both the state and national front, legislators tackled these managed care initiatives. Most states now mandate a minimum of 48 hours of care following childbirth. Kristen Zarfos, MD, a Connecticut surgeon, led the crusade at both the national and state levels to guarantee mastectomy patients the right to a minimum 48-hour hospital stay and today, the Breast Cancer Patient Protection Act of 2005 that was reintroduced in the 110th U.S. Congress, addresses this issue. While some states have passed this legislation, acceptance nationwide has eluded health care advocates pushing for this legislation every year since it was first introduced in 1997.¹⁰

Another negative effect of managed care concerns the gatekeeper role of the PCP. Requiring members to obtain a referral from their PCPs before seeking treatment by a specialist results in both member inconvenience and the chance of conflict between the members and their PCPs. Research reveals that when provider autonomy is restricted, the efficiency of health care delivery generally becomes worse, leading to dissatisfaction for providers and patients alike.¹¹ Patients who perceive that care is being withheld or that their accessibility to necessary services is being restricted are more likely to be dissatisfied and complain about their HMOs.¹²

Patients have become increasingly dissatisfied with their primary care and are verbalizing their unhappiness in numbers; focus groups reveal dissatisfaction with their HMOs.¹⁰ Patient satisfaction is considerably lower among patients covered under managed care. Typically, patient satisfaction is based upon various aspects of care, such as financial accessibility, organizational accessibility, continuity of care, comprehensiveness, coordination, integration of care, and accountability, which seems to be adversely affected by managed care.¹³

Most physicians are considerably unhappy with managed care plans despite cash bonuses in the form of “pay for performance initiatives.”^14,15,16 Physicians are joined in their dissatisfaction by numerous health care providers and industry professionals. When the volume of patients covered by an HMO increases, financial pressures in facilities and organizations tend to increase, as does turnover of top management and nursing staff. Cost-containment becomes paramount, and even some not-for-profit institutions studied must adopt more competitive strategies and policies that are often viewed less favorably by patients and staff.^17,18

One study evaluated the impact of managed care on nurse practitioner communication with clients during their healthcare visits and the intent of those clients to follow NP advice. The study revealed that clients intended to adhere to the NP-recommended plans of care, but less so to recommended lifestyle changes presented during managed care encounters. While most clients reported minimal problems obtaining needed healthcare resources in a managed care environment, the majority of NPs in the study had strong negative attitudes toward managed care and the barriers that the system imposed on their practice.¹⁹

There is still a high level of concern regarding the need for legislative involvement in the provision of health care. Such measures as mandating levels of coverage and lengths of stay may be inadequate. Nursing involvement in the arena of managed care is necessary if they are to continue in the role of patient advocates.

Some of the most vulnerable managed care patients nurses must advocate for are enrolled in HMO plans through Medicare. Many are disabled, elderly, or from minority groups and may lack self-advocacy or effective communication skills. These patients, however, are able to effectively communicate their dissatisfaction with the system, as they are more likely to give lower ratings to HMOs.²⁰

Patients may not be the only ones with difficulty communicating their concerns about managed care. Historically, health plans have contractually limited the freedom of providers to communicate with their patients and maintain their affiliation with the HMO or PPO. In response, many states have adopted gag laws that limit the ability of managed care contracts to restrict patient-provider communication. These gag laws help to assure HMO enrollees that their providers are free to speak candidly about treatment options.²¹

Entire groups of individuals may fare less favorably under managed care. One cross-sectional study of over 5.1 million Medicare+ Choice managed care patients examined the impact of geographical location and race on the appropriate healthcare management. The researchers concluded that elderly black individuals fared much worse than their white counterparts when cared for within a managed care system.²²

Provider dissatisfaction with managed care can negatively impact patient outcomes, especially when the turnover rates of primary care providers increases. One nationwide study of 615 managed care organizations examined the association between primary care provider turnover in managed care organizations with respect to member satisfaction and utilization of preventive care. Individual services examined to gauge satisfaction included childhood immunizations, well-child visits, cholesterol management, diabetes management, and breast and cervical cancer screening. The study found that health plans with higher primary care provider turnover rates had significantly lower measures of member satisfaction and lower rates of preventive care usage.²³

Opportunities for nurses

The nursing profession faces challenges and opportunities as managed care evolves. Nearly a decade after managed care was supposed to revolutionize the health care system in the U.S., Americans reportedly have experienced little to no improvement in health care cost, quality, or access. Patients are encouraged to join managed care plans, especially if they participate in federal or state funded plans such as Medicare or Medicaid. However, having access to care doesn’t necessarily translate to improved healthcare outcomes, and inequities exist within the programs.²⁴

But nursing is becoming increasingly important as the aging population with its increased health care needs continues to grow. Nurses’ foundation in preventive care and wellness presents a strategic opportunity. Preventive care complements managed care goals for minimizing health care resource utilization by reducing illness. Many nurses have developed roles that educate patients to stay well. For example, diabetic nurse educators can be valuable to health maintenance by reducing the incidence of diabetic complications through patient teaching. By lowering patients’ inpatient admission rates, educators can reduce the use of costly hospital stays.

Closer follow-up, assessment, and health-related education may also be necessary for individuals with certain illnesses or disorders when they belong to an HMO. Poor outcomes among HMO enrollees have been shown for individuals who have substance abuse disorders who are more likely to require readmission,²⁵ and those with cystic fibrosis who are less likely to be referred to specialized cystic fibrosis treatment centers.²⁶

Yet one can also argue that HMO coverage may be better than none. Research reveals that when individuals disenroll from an HMO, either by choice or loss of eligibility to participate, their health care status is a cause for serious concern — there is a dramatic increase in negative outcomes, including an 80% decrease in physician visits, a 30% increase in ED visits, and a higher probability of dying.²⁷

While the majority of employed nurses still work in a hospital setting providing acute care inpatient services, the demand for nurses to deliver home-based and outpatient care persists. In addition to hiring nurses in clinical capacities, managed care companies employ nurses to evaluate the care its members receive, perform case management for hospitalized and nonhospitalized patients, coordinate patient care, provide patient education, and fill other administrative positions related to the management and delivery of care.

Managed care’s focus on providing better quality care, while controlling costs, presents additional opportunities for nurses in areas of quality management and improvement. Due to their clinical experience and education in quality efforts in hospitals, nurses often fill these roles in managed care companies. The nurse’s role as patient advocate is fulfilled as the importance of measuring and improving the quality of care and service grows.

Opportunities also exist for nurses to develop entrepreneurial approaches to the delivery of care. Traditionally positioned at the bedside, nurses can identify the true needs of patients and package care for specific patient types. For example, nurses are well suited to design care programs and well-care maintenance programs for patients with chronic illnesses, such as pulmonary emphysema and chronic heart failure. As managed care continues to strive to control costs, there may be a future niche for nursing programs that are designed to improve a patient’s quality of life and to keep that individual stable and out of the hospital. Innovative opportunities already exist for nurses to work with PCPs in directing and coordinating primary care, providing patient education, and managing hospitalized patients.

What does the future hold?

Managed care is certain to continue to exist and health care legislation will have a significant impact on the financing of our health care system. Providing quality care and controlling patient care costs will continue to be goals of managed care companies.

Increasingly, the focus will be on keeping patients healthy and out of the hospital.

For example, the disease state management (DSM) programs aim to provide care to patients with chronic illnesses, such as diabetes and asthma, before the illness requires hospitalizations.

Health care issues are still the subject of controversy in Washington, D.C., where patient protection bills continue to be debated in both the House of Representatives and the Senate. During the last 33 years, the Employee Retirement Income Security Act of 1974 (ERISA) has protected managed care organizations (MCO) from liability for negligent treatment or coverage, but an injured plaintiff’s ability to sue such organizations was enhanced by recent Supreme Court rulings (Pegram v. Herdrich, and Rush Prudential HMO, Inc. v Moran) which also broadened the states’ regulatory power over MCOs.²⁸ These legislative changes will bring more consumer influence into the managed care models that develop and how they operate.

For nurses to be active agents in a managed care system, nursing educators need to expand nursing undergraduate and graduate curricula to include managed care concepts and applications. New roles in managed care require nurses to expand not just their clinical skills but to also develop computer proficiency, business savvy, and fiscal expertise in order to succeed in this environment. Nurse educators are responding to this need by adding courses and information specific to the evaluation of health care in terms of costs, benefits, and patient outcomes.

In addition, practicing nurses need to attend continuing education programs to increase their knowledge and understanding of managed care and health care reform. With expanded skills in business concepts, nurses will be able to document the cost savings, patient benefits, and quality outcomes resulting from nursing innovations. Nurses have always been active in the constantly changing face of health care. As patient educators and patient advocates, nurses’ focus on patient needs, disease prevention, and quality care can offer support to current managed care initiatives. Although the changes may seem frightening at times, nursing’s traditions can work to benefit the patients they care for regularly. Nurses have a choice of waiting for further change from managed care, or becoming agents of change themselves. One way to deal with managed care is understanding its history, language, and potential effect on future health care reform and nursing.