The next step in managing managed care.
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Organizations that provide managed care must manage four major cost drivers if they are to achieve financial success under capitation. These cost drivers-number of lives covered, service frequency, service intensity, and cost per unit of service-represent risk factors that can be minimized using several insurance risk management strategies: bearing risk, sharing risk, transferring risk, and undertaking risk-reduction activities. No one strategy will be sufficient to ensure success under capitation; contracting organizations, therefore, should use a portfolio of strategies to manage risk.
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This paper addresses a variety of issues related to risk in a child and family service system of care that uses managed care techniques. A strong emphasis is placed on sharing rather than shifting risk. How to optimize or balance competing interests is still an imprecise art, but most would agree that successful implementation of a comprehensive service system for children and families will depend in large part on identifying potentially competing interests and realigning them so that all parties share the same interests. Too much risk can paralyze; too little risk can limit creativity, resourcefulness, and industry.
This article assesses the extent to which managed competition could be successful in rural areas. Using 1990 Medicare hospital patient origin data, over 8 million rural residents were found to live in areas potentially without provider choice. Almost all of these areas were served by providers who compete for other segments of their market. Restricting use of out-of-State providers would severely limit opportunities for choice. These findings suggest that most residents of rural States would receive cost benefits from a managed competition system if purchasing alliances are carefully defined, but consideration should be given to boundary issues when forming alliances.
In 1993, purchasing alliances were a hotbed of legislative activity. Today, 13 states have enacted laws establishing them. Here's a brief update of how these alliances are working.
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The Minnesota Health Care Cooperative Act, enacted as an article of the Minnesota Health Care Act of 1994, allows the creation of "health care provider cooperatives," corporations where members are licensed health care providers. Organized under Minnesota Statutes 62R, health care provider cooperatives (referred to hereafter as cooperatives) market their services to health care purchasers, including licensed health plan companies, health maintenance organizations (HMOs), and government plans on a "substantially capitated or similar risk sharing basis." Solvency and reserve standards do not apply to cooperatives because they are not engaged in the business of insurance.
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Development of an effective risk-sharing plan within an integrated delivery system (IDS) involves a complex decision-making process, in which the IDS should carefully assess its options to determine which will best suit its needs. In general, an IDS needs to consider four basic issues: how centralized the financial control of the risk-sharing plan should be; how the plan should be structured (eg, the number and size of budgets, interim provider payment, and the method for allocating surpluses and deficits to provider groups and individual providers); what risk-sharing strategies should be pursued; and how to avoid potentially catastrophic risk.
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Mental health providers affiliated with a St. Louis, MO, academic institution are using a form of contact capitation to succeed at risk contracting. Here are the critical factors that make it work.
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