Managed care: the American revolution in method of payment and quality of care.

eVort was the development of the ‘risk’ contract. The The Health Care Financing Administration government determines what it believes is an average (HCFA), that part of the federal government respons- annual cost of care from the fee-for-service sector in ible for administration of the Medicare programme, the local area, and gives the MCO 95% of that rate to has been reasonably successful in controlling ESRD cover the total annual cost for care of a patient. The costs by its reimbursement policy. Dialysis costs are MCO assumed the ‘risk’ of being able to care for a paid as a ‘composite rate’ per treatment, which covers pool of patients at a rate less than the fee-for-service the dialysis treatment itself and certain routine laborat- costs in its area. This programme has been successful ory investigations and medications associated with that for both parties; the government gained predictability treatment. By being very conservative in raising the and control over costs (by adjusting the annual capitcomposite rate, the government has been able to pro- ated payment) and the managed care organization was duce cost control not seen in the rest of the Medicare financially rewarded for cost-eVective care. system. The government’s ‘tight-fisted’ approach to Some of those Medicare beneficiaries would develop composite rate adjustment may have caused the quality ESRD. For those patients, Medicare derived an ESRDof care to deteriorate, but others point to the large specific MCP to the MCO. This payment is to cover profit margins reported by the publicly held dialysis the total renal and non-renal costs of care for the chains and the ever-increasing per patient purchase individual patient for the month. At the time of writing, fees for dialysis unit purchase paid by a consolidating HCFA estimates that ~6000 ESRD patients receive marketplace as a contrary argument. care under this total capitated care payment system, Hospital costs theoretically are held in check by use but HCFA has not formally studied either the ecoof the ‘diagnostic-related group’ or DRG reimburse- nomic or clinical outcomes of this reimbursement ment schedule. The hospital is paid at a specific case system. rate depending on the diagnosis of the patient regard- In 1993, Congress mandated HCFA to study formless of length of stay (some allowance is made for ally the feasibility of delivering ESRD care through outlying lengths of stay). While perhaps controlling managed care. This ‘Capitation Demonstration the per admission costs of care, the system does not Project’ is charged with determining, amongst other provide any incentives for controlling the number of things, whether ESRD patients will join MCOs, and if admissions per patient per year. patient care outcomes are improved by oVering an Physician costs were to be controlled by paying the expanded bundle of benefits together with intensive nephrologist a fixed ‘monthly capitated payment’ or case management. The government wishes to gain a MCP for out-patient services. This system gives the better understanding of how managed care approaches physician an incentive to shift care to his/her oYce or chronic disease care, and whether this represents a hospital where Medicare can then be billed on a fee- feasible future model for ESRD and other expensive for-service basis. One could argue that this system diseases.