Managed care plans are a main source of hospital health provider income. Managed care is a generic term for various health care payment systems that attempt to contain costs by controlling the type and level of services provided as well as the cost of the services. They all use a capitation system limiting what the health provider will be paid for patient services under the managed care plan.
Managed care organizations frequently contract with a group or panel of health care providers. Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are examples of these types of contracts. Individuals insured under an HMO or PPO generally receive care only from providers on the panel. Under most of these plans, patients can opt for a health provider outside of the contracted provider if traveling out of the region of the provider for emergency services or if they are willing to pay a larger percentage of their health care costs. Therefore, most plan participants stay within their HMO health care provider. The HMO or PPO health care providers are expected to deliver services according to specific stipulations. Payment is often subject to utilization review, in which delivery of medical services is scrutinized to determine whether the services are necessary. The review may occur with each episode of treatment or may be ongoing through the use of a case manager. If the managed care organization (HMO or PPO) thinks that the services were unnecessary, payment is denied.