Ancillary | Co-insurance | Co-payment | Exclusive Provider Organization | Fee for Service Plan | HCFA 1500 | Health Insurance Organization (HMO) - pros and cons | Indemnity Plan (IPO) | Independent Physician Association (IPA) | Managed Care | Point of Service Plan (POS) | Preferred Provider Organization (PPO) - pros, cons and types | Primary Care Physician | Referral Authorization Form | UB-82 | Usual, Customary and Reasonable Rates (UCR) | Utilization Management | Worker's Compensation Plan | Write-Off Amount

Prepared by Mary Hanson 
(CyberFamily moderator, and valued advisor to PAL)

ANCILLARY - a group of providers of medical care, other than physicians or hospitals.  These may include laboratories, radiology facilities; physical, speech, or occupational therapies; and out-patient surgical facilities. 

CO-INSURANCE - A percentage of either the billed charge, or the contracted amount that the doctor has agreed to accept as payment in full for services rendered according to his contract with the managed care company, that is the patient’s financial responsibility.  The amount varies.   

CO-PAYMENT - A flat dollar amount that the patient is required to pay for each office visit to the doctor.  The amount varies.  This is a feature of many managed care plans, usually Preferred Provider, Exclusive Provider and Health Maintenance Organizations.  In general, this is the patient’s only financial responsibility in these plans, with the remainder of the patient’s bill being paid for by the insurance plan.

EXCLUSIVE PROVIDER ORGANIZATION (EPO) - An EPO functions much as an HMO functions.  (See definition for “Health Maintenance Organization”.)  The primary difference is that an EPO is not governed by federal legislation, and the range of covered benefits may differ from HMO, generally offering less in the way of well-care benefits.  The advantages and disadvantages of an EPO are the same as for an HMO.  EPOs are governed by state legislation, which is not as strict as federal legislation, and are allowed only in states that have passed legislation that permits them to exist.  Many insurance companies that do not have an HMO have formed an EPO to allow them to compete for more employer groups who want to be able to offer a wide range of health option choices to their employees.

FEE-FOR-SERVICE PLANS - A “Fee-For-Service” plan pays the doctor for the services he actually renders, as opposed to a monthly sum to provide for all of the patient’s medical needs.  Typically, in a insurance company’s Fee-For-Service plan, the patient may seek medical care from any provider or facility he or she chooses.  The insurance company requires that the patient pay a calendar year deductible before the insurance company will begin to pay for claims.  The patient is usually also required to pay a “co-insurance” amount of the services that are covered after the calendar year deductible has been met.  This co-insurance amount is a percentage of the area’s “usual, customary and reasonable rates” (See UCR.).  This type of plan is also referred to as an “indemnity” plan.

HCFA 1500 - The billing form developed by the Health Care Financing Administration (HCFA) for use in submitting physician office billing information to federal payment sources such as MediCare.  This form is used by most doctor’s offices to submit insurance information to all payers of medical care, and most managed care companies require that bills be submitted on this form.

HEALTH MAINTENANCE ORGANIZATION  - A form of health insurance where the employee has a specific amount of money paid each month into a fund by his employer, for all of the employee’s and his dependents medical care.  The patient has unlimited access to a primary care physician, who is usually paid a set amount of money each month to provide basic primary medical care to the employee and his dependents.  HMOs are governed by federal legislation entitled the “Knox - Keene” act.  Ross-Loos was the first HMO, begun in Alaska mining country, by two physicians named Dr. Ross and Dr. Loos, who agreed to provide all medical care for the employees at a large mining camp for a set amount of money per miner per month.

Advantages are that:

·         The employee’s out-of-pocket medical expenses are generally limited to office visit co-payments and a minimal dollar amount, if any, for hospitalization.

·         HMOs generally offer certain “well-care” services as a covered benefit that may not normally be a part of other types of health plans, such as immunizations, annual physicals, and well-child visits.

·         Decisions regarding health care are generally made by the HMO, and the patient has access to a wide variety of skilled professionals.

Disadvantages are that:

·         The patient has NO coverage if they seek medical care from providers outside of the HMO providers.

·         The patient has no freedom of choice as to which providers he seeks care from.

·         The patient has no freedom of choice if there are several treatment options available from which to choose.

·         The patient has no freedom of choice as to where the services are rendered.

·         Certain drugs – usually name-brand drugs – may not be covered under this plan.

·         There may be treatment protocols which must be tried first, before treatment plans can become more “creative”.

INDEMNITY PLAN - See definition for “Fee-For-Service” plan.

INDEPENDENT PHYSICIAN ASSOCIATION (IPA) - A group of physicians who form a corporation for the purpose of negotiating agreements that are favorable to all of the members of the group.  Many IPAs are associated with a hospital that may offer their expertise in marketing, management, financial resources, etc., in return for the IPA agreeing to contract with the managed care companies that the hospital has contracted with, and referring their patients to the hospital. 

MANAGED CARE - A health insurance plan that incorporates any medical care review activity designed to provide the most appropriate level of care to a patient, given his medical condition, that has the potential to reduce medical costs.  Some “managed care” activities are: the act of requiring the approval of an independent utilization management organization before admitting a patient to the hospital, or referring a patient to a specialist.

POINT-OF-SERVICE PLAN (POS) - A point of service plan is a combination of two types of insurance coverage, first, an indemnity or fee-for-service plan, and second, an exclusive provider organization plan or a health maintenance organization plan.  The patient can still realize substantial savings in out-of-pocket expenses if they use the EPO or HMO plan, but also has the option of continuing to use non-EPO or non-HMO providers, at much greater out-of-pocket expense.

PREFERRED PROVIDER ORGANIZATION (PPO) - Preferred Provider Organizations began to appear in the late 1970s and early 1980s, as an alternative to HMOs, and are a way in which employers could manage their escalating health care costs.  In a PPO, there is a panel of providers who have signed contracts with the PPO, agreeing to accept a reduced payment for services rendered in return for having patients directed to their offices by way of a Provider Directory given to employees and their dependents.

Advantages:

·          Employees can use the Plan’s “Preferred Providers” at a minimal out-of-pocket expense (usually a nominal office visit co-payment), and do not have to meet a calendar year deductible or pay a co-insurance for the services they receive.

·         If the Plan’s “Preferred Hospitals” are used, the out-of-pocket expense to the patient is generally substantially lower than it would otherwise be.

·         Many very prestigious hospitals and physicians are members of PPOs.

·         Patients also have the option of having some coverage if they choose to use non-preferred providers, although their out-of-pocket expense is much greater, and they may have to meet a calendar year deductible and pay a co-insurance for non-preferred provider services.   This option, however, if very appealing to people who want to continue to see one non-preferred provider (for an annual gynecological exam, for example), but are willing to change their other doctors for “preferred” providers.

Disadvantages:

·         Some freedom of choice is lost by the patient if they choose to use only “preferred providers”. 

Types of PPOs

·         There are two types of PPOs.  One is a “non-gatekeeper” PPO, and the other is a “gatekeeper” PPO.

·         A “non-gatekeeper” PPO gives employees a provider directory that includes the names of specialists, since patients may go directly to them for medical care, without a referral form from a primary care physician.

·         A “gatekeeper” PPO requires that the patient seek medical care first from  a primary care physician.  If the patient seeks medical care directly from a specialist, without a referral from a primary care physician, he or she may have to pay the specialist’s charges in full, with no assistance from the insurance company.

PRIMARY CARE PHYSICIAN - Most managed care companies define a primary care physician as any physician who is: an internist, a family practice physician, a general practitioner, a pediatrician or, sometimes, a gynecologist.  See “SPECIALIST’ for more information.

REFERRAL AUTHORIZATION FORM - A form used by managed care companies for referrals to specialists, and sometimes for referrals to various ancillary providers. Some companies allow the doctor to use his prescription pad and others require their own form to be used.  Refer to the correct Managed Care Resource Directory₁ page, and call the number under PRIOR AUTHORIZATION REQUIREMENTS to find out which form to use, and whether or not someone other than your doctor must approve the referral before it happens. 

SPECIALIST - Most managed care companies distinguish between “specialist” and “primary care” physicians.  Specialists are generally any medical provider who is NOT a family practice physician, a general practitioner, an internist, a pediatrician, or, sometimes, a gynecologist.  The definition varies from company to company, and some companies consider only family practice physicians and general practitioners as primary care providers.  This distinction between types of providers was due to the difference in practice patterns of the two groups.  Specialists tend to cost more than primary care physicians, even when the diagnosis is the same.  It is thought by insurance companies that specialists order more expensive tests than primary care physicians and are likely to pursue more aggressive and expensive forms of treatment than primary care physicians.  This is why many managed care companies require approval for referral for specialist services.  They want to be certain that the primary care physician has attempted to treat the problem, and genuinely found that the concentrated training and experience of a specialist is medically necessary.

UB - 82  - The “universal billing” (UB) form used by hospitals to submit billing information to insurance companies for reimbursement.  The UB - 82 was developed by the federal government in 1982 (hence the “82”), and is used by virtually all hospitals for bill submission. 

UCR (USUAL, CUSTOMARY AND REASONABLE RATES) - Insurance companies gather mountains of information regarding what physicians charge for all medical services that are rendered.  They may choose to use their own claims experience (based on charges for service codes that appear on claims that are submitted to them) or they may purchase this data, usually from HIAA (Health Insurance Association of America, to which most insurance companies belong).

·         Usual, customary and reasonable rates are the average that is charged by the doctors within a given area (most companies can break down charges to an individual zip code, which allows for geographic differences in the price of providing medical care to their insureds). 

·         Most insurance companies that pay a percentage of the doctor’s bill, with the patient being responsible for the remainder, pay on the basis of “UCR”.  If the bill is $100, and the coverage is for 80%, but the average charge in that community is only $90, the insurance company will only pay 80% of $90, and the patient is required to pay the remainder. 

·         Some insurance companies will only pay the dollar amount that equals 80% or 90% of the local UCR, and the patient is responsible for the remainder. 

·         This is one way that insurance companies keep their costs down, and can remain competitive in the marketplace with employers.  However, it is really cost-shifting to the employee, since it reduces what the insurance company pays, but it increases what the employee pays.

UTILIZATION MANAGEMENT - this term applies to a variety of functions developed by insurance companies to control escalating health care costs.  Some types of Utilization Management functions are:

·         Pre-Admission Review - medical personnel review the medical history of a patient, the treatment that has been tried on an out-patient basis, and determines if hospital admission is required.  If the decision is that the patient needs in-patient care, generally a number of days, referred to as a “LOS” (length of stay) will be assigned.

·         Concurrent Review - the day before the patient is scheduled to be discharged from the hospital, a medical person from the Utilization Management company will contact the doctor or the hospital, obtain medical information on the patient’s progress, and determine if additional days need to be approved.

·         Discharge Planning - when the patient no longer needs in-patient care, the UM company will talk with the doctor and the discharge planner at the hospital, and will decide if more care will be needed as an out-patient, such as home health care, hospital beds, etc., and if so, will authorize these and arrange for them.

·         Case Management - Some types of medical problems are long-term and have the ability to incur substantial medical costs.  Some of these are premature births, cancers, AIDS, brain injuries, spinal cord disease, etc.  When patients are diagnosed with these conditions, a “Case Manager” may be assigned to coordinate care for the insurance company.  The Case Manager will make arrangements for and coordinate all care, from discharge from the hospital, to in-home care, nursing home placement, etc.  The Case Manager’s role is primarily administrative in nature, although they do have medical backgrounds.

·         Specialist Referrals - Many UM companies require that referrals to specialists be approved before the patient is referred.  For more information, see “Specialist”.

·         Ancillary Referrals - Most UM companies require that some of the more expensive diagnostic tests receive their approval before they are performed, in order for the insurance company to pay for them.  Due to the increase in malpractice rates, many physicians practice “defensive” medicine to protect themselves, and this may involve the ordering of more expensive diagnostic tests than are actually medically necessary.  Having an outside UM company assist in the decision making takes some of the responsibility for the practice of defensive medicine off the shoulders of the doctor, saves the insurance company money (which in turn saves the employer money), and may prevent unnecessary expense for all involved, and inconvenience and discomfort to the patient.

WORKER’S COMPENSATION PLAN - All employers in the state of California are required to provide their employees with Worker’s Compensation coverage that protects them if they are injured while they are on the job.  This coverage is free to the employees and is paid for in full by the employer.  Some Worker’s Compensation Coverage Insurance Companies have developed what is similar to a Preferred Provider Organization to help control their Worker’s Compensation Insurance premium costs.  By accessing a network of contracted providers who agree to provide medical care for employees injured on the job, at reduced rates in return for having injured employees referred to their offices, the employers save money.  There is neither a financial advantage or disadvantage from the employee’s point of view, since the expenses are paid by the employer.  The only disadvantage from the employee’s point of view is that they must use the network of contracted providers for any medical care that is rendered after the first 30 days of care.   During the first 30 days of medical care, the injured employee may choose his own provider of care.  If care is not completed within the first thirty days, the employer may require that the employee seek continued care from the network of “preferred” providers.

WRITE-OFF AMOUNT - The difference between the billed charge and the amount that the doctor has agreed to accept as payment in full for the services rendered.  The “write-off amount” cannot be billed to the patient.