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Blog, Healthcare Costs
November 30, 2022

How Does Managed Care Reimbursement Work?

5 minute read
People review managed care reimbursement with a medical invoice pulled up on a laptop

Healthcare reimbursement is a complicated process with few models—if any—for comparison. In just about every other business sector in the United States, industries rely on a standardized reimbursement process their customers use to pay for clearly defined products or services. This kind of procedure ensures quality and efficiency for the clients, and also gives them a measure of agency: they know what to expect, and how much they can expect to pay.

If, for example, you think back to a time when you planned for a particular purchase, you probably did your own research. You’d want to gather as much information as possible on the product type, the various options available, and the prices listed by different distributors to ensure you get the best value.

Even with a large purchase, like a house, a standard marketing approach focuses on the customer’s journey and works to increase personalized, positive experiences. Realtors prioritize the buyer’s discretion in selecting homes to view. If you determine your home-buying budget is $250,000, most realtors will go out of their way to find options within your parameters and make sure you get the house you want. That’s not how healthcare works.

One substantial difference between other industries and healthcare is that it lacks a clearly defined product. Many times, patients don’t have a clue about their next purchase until they receive a diagnosis that tells them what to buy. It’s not easy to plan a fever.

When patients receive medical care, they typically have no input about the prices they’re comfortable paying and rarely have the option to shop around for services. Moreover, they often have little knowledge about what constitutes a fair price for services, or what they can expect to pay—because Americans pay for medical care after services have been rendered. This business model is in direct opposition to most other products and services in the U.S., and as a healthcare model, it goes against best practices among the healthcare systems in 10 other high-income countries.

All of these factors—combined with larger economic forces—have played a part in the exponential rise of healthcare costs. Pricing obfuscation and a fundamental imbalance of patient agency have further enabled providers to set prices inflated well above their actual costs.

These expenses have prompted the development of managed care and other cost-containment models in an effort to alleviate some burden for patients. Employers who implement these measures can help ensure they and their employees can afford healthcare coverage.

This blog discusses managed care reimbursement and details how some of the best managed care plans can help restore a measure of balance to healthcare.

What Is Managed Care Reimbursement?

Essentially, managed care reimbursement is how most people pay their medical bills. Managed care is a healthcare delivery model that aims to control the high cost of healthcare services without compromising the level of care patients receive. This description qualifies managed care as a type of cost containment solution.

While the most common forms of managed care resemble what most people would call health insurance, programs like Medicaid and Medicare also qualify as managed care solutions. With health insurance, managed care is typically supervised by managed care organizations (MCOs). MCOs work with providers to integrate reimbursement with a standardized care system across a specific healthcare network to lower costs.

These functions are typically included in various types of managed care plans, including:

  • Health Maintenance Organizations (HMOs)
  • Preferred Provider Organizations (PPOs)
  • Point of Service Organizations (POSs)
  • Exclusive Provider Organizations (EPOs)

Each of these managed care plans comes with a range of pros and cons. For example, while HMOs are typically more affordable than PPOs, they also have more restrictions and require patients to seek approval from a primary care physician for specialist services. Conversely, PPOs lack such restrictions and give patients more control over their source of care—at the cost of higher premiums and coinsurance. Both POSs and EPOs combine the benefits of HMOs and PPOs.

While historically, managed care has proven to be an effective cost containment strategy for employers and patients, it hasn’t held up well against surging healthcare prices and record-breaking inflation. The good news is that some new, alternative models of healthcare delivery take advantage of crucial price factors absent in managed care plans.

Pre-Payment = Big Savings < Greater Transparency

Because most managed care models rely on reimbursement methods that pay providers without scrutinizing their bills, they can leave a lot of money on the table. Typically, MCOs and health insurance companies pay providers directly for patient services and then send the bill to employers and patients to pay their share (or reimbursement).

Insurance companies are, above all else, profit-driven finance companies. Because they profit regardless of who pays the bill, there’s not much incentive for them to ensure the accuracy of their billing practices, and nor do they benefit from comparing costs.

As a result, employers and their employees often pay more than they should—on top of annual premiums, coinsurance, out-of-pocket minimums, and copays. Such inequity leads many employers to seek alternative cost-containment solutions like reference-based pricing to restore some balance to healthcare.

Health insurance companies exploit the inherent inscrutability of the reimbursement process for obscene profits. Medical codes translate services into prices for administrators and constitute an esoteric language impenetrable to anyone not trained as a billing specialist. These codes—often specific to individual hospitals—are the primary method for itemizing medical services on patient bills, and can often lead to billing errors (which are extremely common).

These charges can add thousands of dollars to bills that are expensive enough without mistakes. An opaque, ever-changing reimbursement process yields inaccurate charges that should not be paid, and yet many patients and their employers simply pay what’s listed on the bill without asking for clarification. Sometimes, even physicians end up paying erroneous charges for procedures they never received for their own medical needs.

Pre-payment solutions like reference-based pricing and clean claim reviews offer ways to address broken parts of the reimbursement process. With help from industry veterans fluent in the language of medical codes and billing, they question the validity of charges and scrutinize the accuracy of billing.

Reference-Based Pricing & Clean Claim Reviews

Reference-based pricing uses a data-driven approach to healthcare reimbursement that compares aggregate prices of similar medical services to guide negotiations for more reasonable charges. It not only lowers healthcare costs by reducing inflated bills but also expands access to quality healthcare by remaining independent of medical networks.

Clean claim reviews apply heavy scrutiny to medical bills and review every line item to identify and remove errors, duplicate charges, and inconsistencies that would have otherwise been paid by the patient. The results are greater payment integrity and lower bill payments.

These cost-containment solutions can benefit any organization that provides employee healthcare. However, due to the complex nature of medical billing and healthcare reimbursement, it’s crucial to partner with an expert that can translate the complex language of medical billing and ensure you’re only paying what is necessary and reasonable.

6 Degrees Health Balances Cost and Care

6 Degrees Health was founded by industry veterans. That means we apply clinical expertise to every cost-containment solution that we provide to increase balance and transparency in the medical reimbursement process.

Our reference-based pricing model and clean claim reviews are backed by our knowledge and proprietary MediVI software. We use a data-driven approach to compare the costs of medical services against Medicare reimbursement rates to negotiate more reasonable prices for healthcare coverage. Partnering with 6 Degrees Health could help you save as much as 40% on your annual healthcare spend.

Need to learn more about managed care reimbursement? Speak to a representative today to find out how our proprietary software solutions and reference-based pricing model can help you realize the true value of healthcare.

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As a service-first cost containment company, 6 Degrees Health is here to help employers and employees navigate a historically opaque healthcare system to pay only what is fair.

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