Impacts of Case Management and Managed Care


The Impacts of Case Management and Managed Care on Health Care Cost Reduction

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The United States has the priciest health care system in the world, with per capita health expenditures far above those of any other country. For a lot of years, U.S. health care expenditures have been rising faster than the overall rate of inflation in the economy. A few experts have disputed that high and rising costs are not such a grave problem. “Most observers disagree with this view, pointing to the negative impact of employee health care costs on employers, the government budgetary problems caused by rising health care expenditures, and an association between high health care costs and reduced access for individuals needing health services” (Bodenheimer, 2005).

Managing health care cost growth is a basic challenge facing the health care system. After a brief break, health care spending is again rising much more rapidly than the economy as a whole. Most health economists agree that the use of ground-breaking technology has historically been the main driving force behind health care cost growth. This added spending may give valuable incremental health benefits and consequently be justified from a cost-effectiveness perspective, but apprehensions over growing costs have renewed policymakers’ interest in cost suppression. Managed competition has been measured a basic component of cost suppression efforts for more than two decades. Even though evidence supports the idea that managed care organizations (MCOs) have lower spending compared with indemnity fee-for-service systems, debate persists over whether the rate of health care spending growth varies among diverse delivery systems. To a certain extent, evidence suggests that even though managed competition slows health care cost growth, the effects are not large enough to curtail the rising share of GDP dedicated to health care. This evidence is largely founded on statistical analyses of the diffusion of technology in health maintenance organizations (HMOs) or in markets with varying levels of HMO penetration (Chernew et al., 2004).

Managed Care

One way of looking at managed care is to consider it to be applied health insurance. It combines the accountability for paying for a distinct set of health services with an active program to manage the expenses associated with providing those services, while at the same time trying to manage the quality of and access to those services. An MCO commences to offer a wide range of care and services in acute care; these benefits are spelled out generally in advance along with any payments that the member of the plan will be liable for as co-payments or deductibles. “Finally, an MCO in this definition receives a fixed sum of money to pay for the benefits in the plans for the defined population of enrollees. Typically, this fixed sum of money is constructed through premiums paid by the enrollees, capitation payments made on behalf of the enrollees from a third party, or both” (the Basics of Managed Care, n.d.).

MCOs utilize one or more methods to control their costs. However, this feature of MCOs does not completely distinguish them from health insurers; for example, health insurers more and more use strategies such as preauthorization for services, consumer co-payments, and primary care gatekeeping as methods to control their costs. Most managed care includes placing care providers at financial risk for all or a considerable part of the costs of care; the inducements from such a circumstance offer the greatest prospective to transform incentives in the care and service systems. However, financial risk-taking is not the only form of managed care, nor does it always occur in unadulterated form. There are three levels of care management with regard to financial risk:

1. “Full risk – accepting all the financial risk for providing services (all the possible profits as well as the losses)

2. Partial risk – accepting a portion of the financial risk of service provision

3. No direct risk – but incentives are present for controlling cost, as in various case-managed primary care arrangements” (the Basics of Managed Care, n.d.).

Managed care has tried to alter the way in which health care is financed by changing the incentives in the health care system. What was once a source of revenue under fee-for-service has become a cost under managed care. Fee-for-service health care supports provision of health care services, while managed care dampens use of care unless completely necessary. In managed care, doctors and other health care providers make a profit by providing only the services totally necessary in treating patients and by preserving the health of its members. Fee-for-service providers profit as an alternative when people are sick and use health services, therefore having less incentive to keep people well (the Basics of Managed Care, n.d.).

Managed care, in effect, joins health care insurance and provision of services into one organization, and takes the insurance approach one step further. For a fixed fee, the managed care company agrees to provide a package of services. Having accepted a preset amount of money for the task, its incentives are to safeguard these funds. Its variety of strategies are not overall different from those accessible to insurance companies, but its incentive to contain costs is much stronger because its market advantage lies in offering lower costs in exchange for restricted options. Of course, when MCOs compete in a market area, the MCO also needs to structure benefits that appeal to consumers (the Basics of Managed Care, n.d.).

In theory, managed care can be successful in two ways. It can lower expenses for individual services, and it can advance the competence of service across the full range of a person’s illness. By providing more effectual care early, it may stay away from more costly care subsequently; or by substituting less expensive modes of care it may accomplish the same ends less expensively (the Basics of Managed Care, n.d.).

In order to control costs, HMOs developed new payment methods like salaries, withholding agreement, payment at a preferred rate, capitation contract or lump sum. Their reason was to spread financial and medical risk over care providers and insurers. Nevertheless, because they vary from one HMO to another, it is hard to estimate their cost-control efficiency. An HMO can contract with numerous hospitals and, for one care provider use a discounted Fee for Service payment, but for another care provider use a capitation agreement. Finally, they can be inconvenient for the provider and cause risks for the insured (Simonet, 2005).

These instruments have overturned the practitioner’s conventional role. Before their execution, a physician utilized his expertise to ask for more medical resources like tests, diagnostics and hospital resources to treat his patient. Once attached to an HMO, he had to administer the HMO’s resources optimally. In reality, once a practitioner became part of an HMO, their salary could be a variable salary which prompted them to take up the role of the insurer’s treasurer. Because they manage the HMO’s resources and at the same time protect patients’ interests, they become concurrently a judge who gives out scarce medical resources and a defendant of his patients requirements (Quaye, 2001). The doctor must provide the patient with the best care accessible, which may involve hefty costs. But as a judge running the HMO’s purse and apportioning out care, he must keep costs low. Additionally, they must conform to a variety of protocols such as clinical guidelines (Fang et al., 1996). His clinical autonomy is considerably reduced.

Under Managed Care, financial incentives reward frugal practitioners. “These come in several forms: percentage on earnings, bonus on productivity, or both simultaneously. These incentives can also contain penalties (they may or may not be financial): physician exclusion, obligation to pay the total or a fraction of an HMO deficit, withholding on fees. A withholding contract allows the HMO to retain a share (15% to 25%) of the fees paid to the providers (be it a solo practitioner or a group physician). At the end of the withholding contract, comparisons are made in regard to an initial cap on health expenses or medical care consumption (hospital care, diagnostic tests, medical prescriptions)” (Simonet, 2005). If these are inferior to the cap, the sum that had been withdrawn was then returned to the care provider. Should the contrary occur, the HMO keeps the residual sum for itself. It is a strong device to persuade a practitioner to conform to a prescription target. Regrettably, patient interests are unlikely to be preserved under this system, as those physicians who are more likely to dispute an HMO decision are those who treat fewer Managed Care patients.

The presence of managed care organizations in a health care market may affect health care delivery for both managed care and non-managed care patients. By way of financial incentives to providers, and by more aggressively managing patient care than other kinds of insurers, managed care organizations may affect the procedure, price, and outcomes of care for plan patients. Perhaps just as important, though, is the prospective for managed care activity to bring about market-level alterations in patient care that affect non-managed care patients as well. “Studies of the relationship between managed care penetration in the health care market and expenditures for Medicare fee-for-service enrollees have demonstrated the existence of these types of spill over effects” (Bundorf et al., 2004).

Managed care organizations generate these types of spillover effects by increasing competition in the health care market, altering the arrangement of the health care delivery system, and altering physician practice patterns. Studies have found that higher levels of managed care infiltration are linked with lower rates of hospital cost inflation and lower physician fees are consistent with competitive effects. “Other studies demonstrate the impact of managed care on delivery system structure including hospital capacity, hospital admission patterns, the size and composition of the physician workforce and the adoption and use of medical equipment and technologies. More recent evidence has linked market-level managed care activity to the process, but not the outcomes of care” (Bundorf et al., 2004).

There are many advantages to receiving care in the managed care setting. The underlying quality of the conventional fee-for-service, individually-based practitioner circumstance has been questioned for some time. Having an organization that feels both professional and legal liability for the quality of care it provides may present greater protection for consumers. As people become more aware of the importance of systems factors in determining the outcomes of care, the function of structured decision-making and oversight will become better appreciated. Some of the promises offered by managed care include:

– MCOs should be more willing to think in terms of events of care rather than simple occurrences. They should be more anxious to treat problems assertively early if such treatment can evade costly subsequent care. Similarly, they should be more likely to provide medical follow-up care to avoid re-hospitalization. In the area of geriatric care, they should be ready to underwrite the costs of suitably targeted geriatric assessments because such actions have been shown to save money in the long run.

– MCOs can afford to set up information systems that can track patients over time and can provide information to primary care practitioners (PCPs) about patients at risk. They can utilize additional personnel to work at keeping patients healthy, or at least facilitate their compliance with healing routines. MCOs can develop programs that present patients better information about how to care for themselves, in terms of both improving individual health habits to decrease risks and monitoring their own health and treatment.

-Managed care offers a way to synchronize care. A central administration and common working systems decreases fragmentation. A common record system improves the flow of communication about a patient.

– Managed care has the occasion to be more imaginative in developing ways to meet its service responsibilities. Less costly forms of care can be utilized where they are shown to be as successful. Non-physicians can carry out tasks usually assigned to physicians, and the sequence of delegation can carry on. Subacute care can be substitute for hospital care. In the area of Long-Term Care, new forms of care, such as assisted living, can be utilized in lieu of nursing homes.

– Care management can take on a more aggressive approach. Growing evidence suggests that aggressive watching of high risk patients can decrease the successive use of expensive hospital care. For instance, randomized trends of nurse follow up of post-hospital patients have shown good consequences from these efforts. The decrease in hospital days has not been as obvious among older patients and the volume of the effect on re-hospitalizations was lesser for elderly surgical patients than for medical ones.

– Managed care can be beneficial for patients by simplify the process of care for them, and reducing billing procedures and out-of-pocket costs. “Managed care provides more flexibility in the use of funding, reducing the constraints which can require people to be institutionalized because institutional placement is funded, whereas home care in the community may not be funded. The incentives for low-cost solutions may work in favor of promoting some of the kinds of post-hospital care and LTC (to the extent LTC is part of managed care) that consumers most appreciate. MCOs typically are offered flexibility to provide services in creative ways” (the Basics of Managed Care, n.d.).

Managed care plans have succeeded in their key mission to reduce the growth rate of health care costs. Research has strongly suggested that managed care plans have been successful in inducing price competition and forcing costs down. It is too early to celebrate, however as the cost containment success that has been documented depends on effective competition at each level. If market competition fails and the system becomes increasingly inefficient, then a government takeover may become inevitable. There clearly are parties in both the health care system and the political process who would not find that outcome to be the least bit distasteful (Zwanziger & Melnick, 1996).

Case Management

Case management has frequently been adopted as a means to decrease or constrain health care service use and expenses for a given enrolled population. It is significant, however, to distinguish that there are dissimilar models of case management, each with differing dynamics and intended to attain different goals. The fundamental dynamics suggest that they can be generally categorized into one of three types: interrogative, patient advocacy and consolidated. The interrogative model stresses concentrated oversight at the interface of the clinical and fiduciary perspectives. In this model, even though the suitability of patient care may prevail in determining a treatment plan, the price of care is recognized as a justifiable argument in the decision-making process (Long, 2001).

The patient advocacy model stresses the synchronization of services on the continuum of care from the patient’s perspective. This model suggests that all of the patient’s situations are acknowledged as legitimate arguments in the decision-making process. That is to say, the treatment plan is determined not only by the medical needs of the patient, but also by the financial, psychological and social conditions of the patient. It is vital to note that the classification of case management models in this manner is not proposed as support for the growing propensity in the managed care arena to view cost and quality as philosophically opposed ideas. On the contrary, it has been suggested that expenses play a vital role in the quality of care. “Quality can be measured to the extent to which the care provided maximizes the benefits to health while minimizing the risk, as follows: Quality=Benefits-(Risk+Cost). By this definition, both patient advocacy and interrogative case management models can be further characterized as addressing the quality of care, because if cost and risk remain constant and benefits increase, quality is improved. Similarly, if benefits and risk remain constant and costs decrease, quality is improved. Thus, the interrogative model of case management addresses quality through the cost variable, and the patient advocacy model addresses quality through the benefit variable” (Long, 2001).

A third model is not seen as a separate and different model but rather a mixture of both the interrogative and patient advocacy models. In the consolidated model, the decision-making process might be thought of as agreement building among the providers that make up the team. It is rational to suggest that each member of the multidisciplinary team is partial to their own internal implied controls and the overt controls imposed by the managed care organization. The consequential treatment plan might then be considered the consequence of the prevailing agreement of the team. “That is to say, the group’s decision could reflect a position of any point along the continuum of a strong interrogative approach to a strong patient advocacy approach” (Long, 2001).

In today’s cost mindful health care environment case management must prove its financial value as well as its impact on clinical outcomes. A cost benefit analysis is a tool that can be used to critic the financial value of case management activities. Cost benefit analysis is a technique for measuring the net benefit of an intervention in which costs and benefits are both expressed in the same monetary terms, allowing comparison of dissimilar interventions or decision choices. Using this model, the financial return of a case management program is equal to benefits minus costs (Spath, n.d.). In order to have a successful financial return the benefits should be higher than the costs.

Costs are typically recognized as direct costs or those that are directly associated or required to produce a service or under the direct control of the case management department and indirect costs which are those beyond the department’s direct control. Costs also may be considered as fixed or those that do not vary depending on volume or activity generally thought of as overhead and variable or those that change with volume and activity. With increased volume, fixed costs may also increase, if capacity is exceeded and more capital expenditure is required for space or equipment (Spath, n.d.).

Costs connected with case management may be divided into pre-implementation costs such as planning and analysis, implementation costs such as project management and training, and post-implementation costs like review and ongoing operations. Pre-implementation costs entail primarily labor and possibly expenses for space, software, and hardware. These costs consist of the efforts involved in planning the initiative and gathering baseline data about current clinical, financial and satisfaction outcomes for comparison later on. Labor expenses are often the most costly aspects of a case management program and can be considerable throughout the life of the initiative (Spath, n.d.).

Implementation costs also include education expense, as buy-in and ownership of all participants is necessary. In addition, new operational costs may be required in the redesigned process. While not entirely required, optimum use of information technology is certainly viewed as one of the significant enablers of case management and should be considered in the costs of cost management initiatives. Since a major component of case management is information processing, a systems approach, utilizing information tools, is a critical factor for success. Post-implementation costs include ongoing operational costs and periodic analyses of benefits. Personnel costs, associated with performance measurement and feedback to users, may be significant. Once a dollar amount has been determined for case management benefits and costs, a net cash flow statement over the reasonable life of the project can created. This simply measures the economic value of the case management initiative, which is benefits minus cost, per unit of time (Spath, n.d.).

Case management has evolved over the years to meet the challenges of contemporary health care. “As an effective strategy to promote clinical integration with in health care systems, case management brings together population and individual approaches to development and coordination of evidence-based, outcome-focused health, disease, and illness management programs and services” (Weiss, 1998).

Going Forward

In today’s business world employers are facing increases in the cost of employee health benefits that threaten the profitability and, in some cases, the survival of their companies. America’s global competitiveness has already become battered in some industries due to the cost of health care and it threatens the survival of some of the largest corporations. “Faced with this threat, employers have tried a variety of ways to control health benefit costs. Managed care was a successful approach, but market forces have largely overtaken managed care solutions, leading to a dramatic resurgence of costs in recent years” (Altman, 2005). Employers have also tried lessening benefits and moving costs to employees, which have led to growing displeasure and even labor conflict (O’Brien, 2003). “A growing number of employers have simply given up and no longer offer health benefits to employees, a turn which serves the interests of neither employers nor their employees and families” (Coulter, 2006).

There are options that allow employers to provide affordable health benefits to their employees. One of these approaches is health management, which seeks to decrease the cost of providing health benefits by lessening the quantity and concentration of medical care needed by employees and their families. “Most efforts to control costs have focused on the supply side, contracting for a lower cost of each medical procedure as in preferred provider organizations (PPOs), or by using capitation contracting to remove the provider’s incentive to supply marginal medical services as in health maintenance organizations (HMOs)” (Zhan, 2004). Instead, health management pursues a demand-side strategy, both dropping the need for medical care through advances in the health status of beneficiaries and supporting better decision making when a person does need care (Coulter, 2006).

There is a variety of health management approaches, based on segmentation of the beneficiary population by health status. Large case management (LCM) is applied to people who are severely ill, having $50,000 or more in yearly medical claims. This approach entails intensive support from a specialized nurse case manager, with wide-ranging systems, contracting, evidence-based medicine and medical director support. Beneficiaries who are less ill, but who are under treatment for known medical diagnoses, are candidates for disease management (DM). This approach most often entails a nurse or health educator focusing on education, self-care and enhancing compliance with medical care and pharmacy. Finally, the healthy and at risk, who constitute the majority of the employer’s beneficiaries, are engaged through health promotion (HP) activities, which more and more include online services beginning with an evaluation of the individual’s health risks. Together, these three health management approaches form an integrated strategy to reduce health costs and improve beneficiaries’ health and functioning (Coulter, 2006).


Overall managed care and case management have worked very well to decrease health care costs in this country. But going forward these may not be answers that are needed to continue to contain costs. There are new and innovative notions that are being explored in order to continue to reduced costs and yet still provide good, quality healthcare. In the healthcare field things are constantly changing and thus there is a constant need for cost containment actions to change as well. It is important as we go forward to continue to have the best healthcare and the least expensive price possible.


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(2004). Impact of Managed Care on the Treatment, Costs, and Outcomes of Fee-for-

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