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Part I: Terminology
 > Care Organizations


Managed Care Organizations



Providers of care, such as hospitals, physicians, laboratories, clinics, etc., make up a "managed care organization" delivery system often known as an "MCO." Seven common MCO models are:

  1. Preferred Provider Organization (PPO) An arrangement whereby a third-party payer (health plan) contracts with a group of medical-care providers who furnish services at agreed-upon rates in return for prompt payment and a certain volume of patients, perhaps under contract with a private insurer. The services may be furnished at discounted rates, and the insured population may incur out-of-pocket expenses for covered services received outside the PPO if the outside charge exceeds the PPO payment rate.

  2. Point-of-Service Plan (POS) Also known as an open-ended HMO, POS plans encourage, but do not require, members to choose a primary care physician. As in traditional HMOs, the primary care physician may act as a "gatekeeper" when making referrals; plan members may, however, opt to visit out-of-network providers at their discretion. Subscribers choosing not to use a network physician must pay higher deductibles and co-payments than those using network physicians.

  3. Exclusive Provider Organization (EPO) A network of providers that have agreed to provide services on a discounted basis. Enrollees typically do not need referrals for services from network providers (including specialists), but if a patient elects to seek care outside of the network, then he or she will not be reimbursed for the cost of the treatment. An EPO typically does not provide the preventive benefits and quality assurance monitor.

  4. Physician-Hospital Organization (PHO) A contracted arrangement among physicians and hospital wherein a single entity, the Physician Hospital Organization, contracts to provide services to insurers' subscribers.

  5. Individual Practice Association (IPA) A formal organization of physicians or other providers through which they may enter into contractual relationships with health plans or employers to provide certain benefits or services.

  6. Managed Indemnity Program A program in which the insurer pays for the cost of covered services after services have been rendered and uses various tools to monitor cost-effectiveness, such as precertification, second surgical opinion, case management, and utilization review. Also called managed fee-for-service programs.

  7. Health Maintenance Organization (HMO) HMOs offer prepaid, comprehensive health coverage for both hospital and physician services. An HMO contracts with health care providers, e.g., physicians, hospitals, and other health professionals, and members are required to use participating providers for all health services. Model types include staff, group practice, network, and IPA. They differ in their financial and organizational arrangements between the HMO and its physicians. Some HMOs combine various attributes of the four principal models.