By Judith A. Huntington, MN, RN

In its most simple form, the term "managed care" refers to some form of organized delivery system that links the financing of health care to the delivery of services. The original objective of managed care was to maximize the quality of care while minimizing costs, by providing a coordinated, seamless set of services that emphasize prevention and primary care. However, because of the speed at which the industry is evolving, there is no single universally accepted definition of managed care. In fact, virtually identical managed care arrangements may be defined quite differently around the nation (Grimaldi, 1996).

Today, the term "managed care" encompasses a wide variety of organizational arrangements -- HMOs, PPOs, IPAs, PSOs, PHOs, IDNs (Integrated Delivery Networks) and, as Leah Curtin, Editor of Nursing Management, once described them, "OWAs" (other weird arrangements). In its most basic form, managed care is an insurance concept that joins the financing and the delivery of health care services to covered individuals under a single corporate entity, most often by arrangements with selected providers (ANA, 1995). Prior to 1980, most managed care arrangements were large group-practice Health Maintenance Organizations (HMOs), such as Kaiser Permanente (See http://www.kaiserpermanente.org) and the Group Health Cooperative of Puget Sound. (See http://www.ghc.org.)

HMOs had their origins in the labor movement of the late 20's and 30's, when unions and employers tried to provide new benefits attractive to workers. The oldest HMO still in practice is Ross-Loos in Los Angeles, founded in 1929. After World War II, many of these prepaid plans, like Kaiser Permanente, opened their membership to the public. In 1973, the Health Maintenance Organization Act was passed by Congress, requiring employers who offered health insurance to also offer a managed care HMO option if a qualified HMO was available.

Today, MCOs are systems that offer a package of health care benefits, explicit standards for the selection of health care providers, formal programs for ongoing quality assurance and utilization review, and significant financial incentives for its members to see providers and procedures associated with the plan. (ANA, 1995). Managed care is usually financed by a "capitated" or prepaid mechanism, which means that a stipulated dollar amount is established to cover the cost of health care delivered for a person and is paid (usually monthly) to a health plan or specified health provider. The plan/provider is responsible for arranging the delivery of all health care services required by the covered person under the terms of the contract (ANA, 1995). MCOs make money when they are able to provide all of the needed services to health plan members for less than the aggregate capitated payment. MCOs and providers are said to be "at-risk" in that they must absorb any costs of care delivered that exceed the capitated payments to the plan.