Glossary of Health Care Terms

Adjusted average per capita cost(AAPCC) - the estimated average cost of Medicare benefits for an individual in a county, based on the following factors: age, sex, institutional status Medicaid, disability and end stage renal disease status. CMS uses the AAPCCs to make monthly payments to risk and cost contractors. The AAPCC changes significantly from one region of the country - i.e. - $767 pmpm to $388 pmpm.

Administrative costs - the costs incurred by a carrier, such as an insurance company or HMO, for administrative services such as claims processing, billing and enrollment, and overhead costs. Administrative costs can be expressed as a percentage of premiums or on a per member per month basis.

Alternative delivery systems(ADS) - a catch-all phrase used to cover all forms of health care delivery except traditional fee-for-service, private practice. The term includes HMOs, PPOs, IPAs, and other systems of providing health care.

Base capitation - a stipulated dollar amount to cover the cost of health care per covered person, less mental health/substance abuse services, pharmacy and administrative charges.

Capitation - method of payment for health services in which a provider or insurer is paid a fixed amount for a defined period for each person enrolled; regardless of actual use or expense. Most commonly applies to primary care physicians only, with specialists on a discounted fee-for-service and hospitals on a discounted per diem. (see global capitation)

Carve out - a decision to purchase separately a service which is typically a part of an indemnity or HMO plan. Example: an HMO may "carve out" the behavioral health benefit and select a specialized vendor to supply these services on a stand-alone basis.

Case management - a process whereby covered persons with specific health care needs are identified and a plan which efficiently utilizes health care resources is formulated and implemented to achieve the optimum patient outcome in the most cost-effective manner.

Case manager - an experienced professional(e.g., nurse, doctor, or social worker) who works with patients, providers and insurers to coordinate all services deemed necessary to provide the patient with a plan of medically necessary and appropriate health care.

Centers for Medicare & Medicaid Services (CMS) - the federal agency responsible for administering Medicare and overseeing states' administration of Medicaid. Formerly known as the Health Care Financing Administration(HCFA)

Closed access - a type of health plan in which the covered persons are required to select a primary care physician from the plan's participating providers. The patient is required to see the selected primary care physician for care and referrals to other health care providers within the plan. Typically found in staff, group or network model HMO. Also called closed panel or gatekeeper model.

Coinsurance - the portion of covered health care costs for which the covered person has a financial responsibility, usually according to a fixed percentage. Often coinsurance applies after meeting a deductible requirement.

Community rating - a method of determining a premium structure that is influenced not by the expected level of benefit utilization by specific groups, but by the expected utilization by the population as a whole.

Community rating by class(CRC) - the practice of community rating impacted by the group's specific demographics. Also known as factored rating.

Competitive medical plan(CMP) - a status granted by the federal government to an organization meeting specified criteria, enabling that organization to obtain a Medicare risk contract.

Concurrent review - an assessment which determines medical necessity or appropriateness of services as they are being rendered.

Continuation - a situation whereby a covered person who would otherwise lose coverage under a health plan due to certain occurrences such as termination of employment or divorce is allowed to "continue" his/her coverage under specified conditions.

Continuum of care - a range of clinical services provided to an individual or group, which may reflect treatment rendered during a single inpatient hospitalization, or care for multiple conditions over a lifetime. The continuum provides a basis for analyzing quality, cost and utilization over the long term.

Covered lives - term used by third party payers to refer to each individual covered in a capitated system; includes subscriber and dependents.

Diagnosis related groups(DRGs) - a system of classification for inpatient hospital services based in principal diagnosis, secondary diagnosis, surgical procedures, age, sex, and presence of complications. This system of classification is used as a financing mechanism to reimburse hospital and selected other providers for services rendered.

Exclusive provider organization(EPO) - a term derived from the phrase preferred provider organization(PPO). However, where a PPO generally extends coverage for non-preferred provider services, an EPO provides coverage only for contracted providers. Technically, many HMOs also can be described as EPOs.Experience rating - the process of setting rates based partially or in whole on previous claims experience and projected required revenues for a future policy year for a specific group or pool of groups.

Fee-for-service equivalency - a quantitative measure of the difference between the amount a physician and/or other provider receives from an alternative reimbursement system, e.g., capitation, compared to fee-for -service reimbursement.

Fee-for service reimbursement - the traditional health care payment system, under which physicians and other providers receive a payment that does not exceed their billed charge for each unit of service provided.

Fee maximum - the maximum amount a participating provider may be paid for a specific health care service provided to a covered person under a specific contract.

Fee schedule - a listing of codes and related services with pre-established payment amounts which could be billed charges, flat rates or maximum allowable amounts.

Funding level - the amount of revenue required to finance a medical care program. Under an insured program, this is usually premium rate. Under a self-funded program, this amount is usually assessed per expected claim costs, plus stop loss premium, plus all related fees.

Funding method - the means by which an employer pays for the employee health benefit plan. There are several funding methods which shift risk from the employer to a carrier, or an employer may self-fund the employee health benefit plan. The most common methods are: prospective and/or retrospective premium payments, refunding products, self-funding, and shared risk arrangements.

Gatekeeper model - a situation in which a primary care physician, the "gatekeeper," serves as the patient's initial contact for medical care and referrals. Also called closed access or closed panel.

Global capitation - contractual arrangement where a participant receives or pays out a set amount for the delivery of a full array of services including primary care, specialty care, and hospital services.

Group contract - the application and addenda, signed by both the health plan and the enrolling unit, which constitutes the agreement regarding the benefits, exclusions and other conditions between the health plan and the enrolling unit. Also, the agreement with persons who obtain coverage for themselves or for themselves and their children, whether under a group or individual program.

Group model HMO - a health care model involving contracts with physicians organized as a partnership, professional corporation, or other association. The health plan compensates the medical group for contracted services at a negotiated rate, and that group is responsible for compensating its physicians and contracting with hospitals for care of their patients.

Group practices without walls - typically a network of physicians who have formed a single legal entity which employes them; but they maintain their individual practices as cost/profit centers. The assets of individual practices may be acquired by the larger entity, but some autonomy is retained at each site. The central management provides administrative support/

Health alliances or regional health alliances - purchasing pools which would be responsible for negotiating health insurance arrangements for employees. Alliances would use their leverage to negotiate contracts that would ensure care is delivered in economic and equitable ways. (Also referred to as health insurance purchasing cooperatives or health plan purchasing cooperatives.)

Health maintenance organization(HMO) - an entity that provides, offers or arranges for coverage of designated health services needed by plan members for a fixed, prepaid premium. There are four basic models of HMOs: group model, individual practice association, network model and staff model. Under the Federal HMO Act, an entity must have three characteristics to call itself an HMO:

1. an organized system for providing health care or otherwise assuring health care delivery in a geographic area
2. an agreed upon set of basic and supplement health maintenance and treatment services, and
3. a voluntarily enrolled group of people.

Health plan - health maintenance organization, preferred provider organization, insured plan, self-funded plan or other entity that covers health care services.

Hospital alliance - a group of voluntary hospitals that have joined together to reduce costs by sharing common services and developing group purchasing programs. Hospital alliances are formed to improve competitive positions over other voluntary institutions and chains.

Incentive Compensation - physicians received a standard base pay and then bonuses are determined based upon variables such as productivity, efficiency, patient satisfaction, management responsibilities, and other discretionary factors.

Individual practice association - an organizational entity that contracts in behalf of physicians with HMOs to provide health care services in return for a negotiated fee. Physicians continue in their existing individual or group practices and are compensated on a per capita, fee schedule, or fee-for-service basis. The IPA may either be primary care or multi-specialty.

Integrated delivery system - a generic term referring to a joint effort of physician/hospital integration for a variety of purposes. Some models of integration include physician-hospital organization, management service organization, group practice without walls, integrated provider organization and medical foundation.

Integrated provider organization - a corporate umbrella for the management of a diversified health care delivery system. The system may include one or more hospital, a large group practice and other health care operations. Physicians practice as employees of the organization or in a closely affiliated physician group.

Managed care - a system of health care delivery that influence utilization and cost of services and measures performance. The goal is a system that delivers value by giving people access to quality, cost effective health care.

Management service organization(MSO) - a legal entity that provides practice management, administrative and support services to individual physicians or group practices. An MSO may be a direct subsidiary of a hospital, a joint venture with physicians, a physician owned organization, or an investor owned enterprise.

Medicaid - a federal program administered and operated individually by participating state and territorial governments which provides medical benefits to eligible low income persons needing health care. The program's costs are shared by the federal and state governments.

Medical foundation - a not-for-profit entity associated with a physician group that provides medical services under a professional services contract. The foundation usually does research to justify its tax-exempt status. The foundation acquires the business and clinical assets of the group practice, holds the provider number, and manages the business for both parties.

Medical loss ratio - the cost ratio of health benefits used, compared to the revenue received. Calculated as follows: total medical expenses/premium revenue. The dollars left over in the premium after the 'medical loss' is expended is the 'profit' retained by the third party payor. In a capitated arrangement, this money stays with the provider system.

Medical necessity - the evaluation of health care services to determine if they are: medically appropriate and necessary to meet basic health care needs; consistent with the diagnosis or condition and rendered in a cost-effective manner; and consistent with the national medical practice guidelines regarding type, frequency and duration of treatment.

Medicare - a nationwide, federally-administered health insurance program which covers the costs of hospitalization, medical care, and some related services for eligible persons. Medicare has two parts:

• Part A covers inpatient costs. Medicare pays for pharmaceuticals provided in hospitals, but not those provided in outpatient settings. Also called Supplementary Medical Insurance Program.
• Part B covers outpatient costs for Medicare patients.

Net loss ratio - the result of total claims liability and all expenses divided by the premiums. This is the carrier's loss ratio after accounting for all expenses.

Network model HMO - an HMO type in which the HMO contracts with more than one physician group, and may contract with single-and multi-specialty groups. The physician works out of his/her own office. The physician may share in utilization savings, but does not necessarily provide care exclusively for HMO members.

Open access(OA) - a self-referral arrangement allowing members to see participating providers for specialty care without a referral from another doctor. Typically found in an IPA HMO. Also called open panel.

Organized delivery systems - proposed networks of providers and payers which would provide care and compete with other systems for enrollees in their region. Systems could include hospitals, primary care physicians, specialty care physicians, and other providers and sites that could offer a full range of preventive and treatment services. Also referred to as accountable health plans (AHP), coordinated care networks (CCN), integrated health systems (IHS), and integrated service networks(ISN).

Outcomes measures - assessments which gauge the effect or results of treatment for a particular disease or condition. Outcome measures include the patient's perception of restoration of function, quality of life and functional status, as well as objective measures of mortality, morbidity and health status.

Outcomes management - systematically improving health care results, typically by modifying practices in response to data gleaned through outcomes measurement, then remeasuring and remodifying - often in a formal program of continuous quality improvement.

Participating provider - a provider who has contracted with the health plan to deliver medical services to covered persons. The provider may be a hospital, pharmacy, or other facility or a physician who has contractually accepted the terms and conditions as set forth by the health plan.

Peer review - the evaluation of quality of total health care provided, by medical staff with equivalent training.

Peer review organization(PRO) - an entity established by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) to review quality of care and appropriateness of admissions, readmissions and discharges for Medicare and Medicaid. These organizations are held responsible for maintaining and lowering admission rates reducing lengths of stay while insuring against inadequate treatment.

Physician-hospital organization(PHO) - a legal entity formed and owned by one or more hospitals and physician groups in order to obtain payer contracts and to further mutual interests. Physicians maintain ownership of their practices while agreeing to accept managed care patients under the terms of the PHO agreement. The PHO serves as a negotiating, contracting and marketing unit. It may also include practice management services. More advanced forms have systematic review and management of quality and utilization.

Point of service plan(POS) - a health plan allowing the covered person to choose to receive a service form a participating or non participating provider, with different benefit levels associated with the use of participating providers. Point of service can be provided in several ways:

• an HMO may allow members to obtain limited services from non participating providers;
• an HMO may provide non-participating benefits through a supplemental major medical policy;
• a PPO may be used to provide both participating and non participating levels of coverage and access; or
• various combinations of the above may be used.

Pool (risk pool) - a defined account(e.g., defined by size, geographic location, claim dollars that exceed "x" level per individual, etc.) to which revenue and expenses are posted. A risk pool attempts to define expected claim liabilities of a given defined account as well as required funding to support the claim liability. In many capitated plans, specialists and hospitals are paid from the 'risk pool'; and tight pre-certification is required in order to control these expenditures.

Practice guidelines - systematically developed statements on medical practice that assist a practitioner and a patient in making decisions about appropriate health care for specific medical conditions. Managed care organizations frequently use these guidelines to evaluate appropriateness and medical necessity of care. Terms used synonymously include practice parameters, standard treatment protocols and clinical guidelines.

Practice valuation variables - number of active patients/new patients; case mix/scope of practice; past cost performance; use of ancillaries; admission rates; HMO/insurance contracting relationships; patient satisfaction.

Preferred provider organization(PPO) - a program in which contracts are established with providers of medical care. Providers under such contracts are referred to as preferred providers. Usually, the benefit contract provides significantly better benefits (fewer copayments) for services received from preferred providers, thus encouraging covered persons to use these providers. Covered persons are generally allowed benefits for non-participating providers' services, usually on an indemnity basis with significant copayments. A PPO arrangement can be insured or self-funded. Providers may be, but are not necessarily, paid on a discounted fee-for service basis.

Preferred providers - physicians, hospitals, and other health care providers who contract to provide health services to persons covered by a particular health plan.

Primary care - basic or general health care, traditionally provided by family practice, pediatrics, and internal medicine.

Primary care network(PCN) - a group of primary care physicians who have joined together to share the risk of providing care to their patients who are covered by a given health plan.

Professional review organization(PRO) - a physician-sponsored organization charged with reviewing the services provided patients. The purpose of the review is to determine if the services rendered are medically necessary; provided in accordance with professional criteria, norms and standards; and provided in the appropriate setting.

Quality assurance - a formal set of activities to review and affect the quality of services provided. Quality assurance includes quality assessment and corrective actions to remedy any deficiencies identified in the quality of direct patient, administrative and support services.

Quality improvement - a continuous process that identifies problems in health care delivery, tests solutions to those problems and constantly monitors the solutions for improvement.

Rate - the amount of money per enrollment classification paid to a carrier for medical coverage. Rates are usually charged on a monthly basis.

Reinsurance - insurance purchased by an HMO, insurance company, or self-funded employer from another insurance company to protect itself against all or part of the losses that may be incurred in the process of honoring the claims of its participating providers, policy holders, or employees and covered dependents. Also called risk control insurance and stop-loss insurance.

Resource Based Relative Value Scale(RBRVS) - a fee schedule introduced by CMS to reimburse physicians' Medicare fees based in the amount of time and resources expended in treating patients, with adjustments for overhead costs and geographical differences.

Risk contract - an agreement between the CMS and an HMO or competitive medical plan requiring the HMO to furnish at a minimum all Medicare covered services to Medicare eligible enrollees for an annually determined, fixed monthly payment rate from the government and a monthly premium paid by the enrollee. The HMO is then liable for services regardless of their extent, expense or degree.Self-funding, self-insurance - a health care program in which employers fund benefit plans from their own resources without purchasing insurance. Self-funded plans may be self-administered, or the employer may contract with an outside administrator for an administrative service only (ASO) arrangement. Employers who self-fund can limit their liability via stop-loss insurance on an aggregate and/or individual basis.

Staff model HMO - a health care model that employs physicians to provide health care to its members. All premiums and other revenues accrue to the HMO, which compensates physicians by salary and incentive programs.

Stop-loss insurance - insurance coverage taken out by a health plan or self-funded employer to provide protection from losses resulting from claims greater than a specific dollar amount per covered person per year(calendar year or illness-to-illness).

Types of stop-loss insurance:

1. Specific or individual - reimbursement is given for claims on any covered individual which exceed a predetermined deductible, such as $25,000 or $50,000.
2. Aggregate - reimbursement is given for claims which in total exceed a predetermined level, such as 125% of the amount expected in an average year.

Utilization - the extent to which the members of a covered group use a program or obtain a particular service, or category of procedures, over a given period of time. Usually expressed as the number of services used per year or per 100 or 1,000 persons eligible for service.

Utilization management(UM) - a process of integrating review and case management of services in a cooperative effort with other parties, including patients, employers, providers, and payers.

Utilization review(UR) - a formal assessment of the medical necessity, efficiency, and/or appropriateness of health care services and treatment plans on a prospective, concurrent or retrospective basis.

Source for most definitions: The Managed Care Resource, published by United Health Care

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