This glossary has been provided for use on this website by Paragon Reinsurance Risk Management Services, Inc.

Adjusted Community Rate (ACR)

A rate-setting methodology used by managed care plans to set rates based on expected use of health care services by a group; includes the normal profit of a for-profit HMO or CMP; may be equal to or lower than the APR, but can never exceed it.

Administrative Contract Services (ACS)

A contract between an insurance company and a self-funded plan where the insurance company performs administrative services only and does not assume any risk; services usually include claims processing, but may include other services such as actuarial analysis, and utilization review, also called administrative services only contract ASO).

Adverse Selection

Occurs when a larger proportion of persons with poorer health status enroll in specific plans or insurance options, while a larger proportion of persons with better health status enroll in other plans or insurance options. Plans with a subpopulation with-higher-than-average costs are adversely selected. Plans with a subpopulation with lower than average costs are favorably selected.

Allowed Charge

The amount Medicare approves for payment to a physician; typically, Medicare pays 80 percent of the allowed charge and the beneficiary pays the remaining 20 percent; the allowed charge for a nonparticipating physician is 95 percent of that for a participating physician, and nonparticipating physicians may bill beneficiaries for an additional amount above the allowed charge.

Alternative Delivery Systems (ADS)

Nontraditional methods of providing health care services such as ambulatory surgery and transitional care.

Ancillary

Outpatient or auxiliary services to support diagnostic workup of the patient or supplemental services needed as part of providing other care; includes anesthesia, lab, radiology, or pharmacy, but not room, board, medical, and nursing services.

Any Willing Provider Laws (AWP)

State laws that challenge and establish policy governing managed care organizations; requires the granting of network enrollment to any provider who is willing to join, as long as it meets provisions outlined in the plan; the central issue is the fairness of physician deselection by a plan, and, conversely, the plan's ability to reduce medical costs by eliminating overusing physicians.

Assignment (Medicare)

A process under which Medicare pays its share of the allowed charge directly to the physician or supplier, but only if the physician accepts Medicare's allowed charge as payment in full (i.e., guarantees not to balance bill).

Average Length of Stay (ALOS)

The average number of patient days of hospitalization for each admission, expressed as an average of the population within the plan for a given period of time.

Average Payment Rate (APR)

The amount of money that the HCFA could conceivably pay an HMO or CMP for services to Medicare recipients under a risk contract; the figure is derived from the AAPCC for the service area, adjusted for the enrollment characteristics the plan would expect to have; the payment to the plan, the ARC, can never be higher than the APR but may be less.

Balance Billing

In Medicare and private fee-for-service health insurance, the practice of billing patients in excess of the amount approved by the health plan; in Medicare, a balance bill cannot exceed 15 percent of the allowed charge for nonparticipating physicians.

Beneficiary

Someone who is eligible for or receiving benefits under an insurance policy or plan; also commonly applied to people receiving benefits under the Medicare or Medicaid program.

Bundled Payment

A single comprehensive payment for a group of related services.

Capitation (CAP)

A payment arrangement on a per-member basis for a given number of patients under a provider's care; a set amount of money received or paid out, based on a prepaid agreement rather than on actual cost of separate episodes of care and services delivered, usually expressed in units of PMPM; may be varied by such factors as age, gender, and benefit plan of the enrolled member.

Carve Out

A category of health care not covered as a benefit within the contract, usually an area of high cost or requiring special expertise, such as behavioral, sub-acute, podiatry, chiropractic, X-ray, transplants, that is not subject to discretionary utilization and not included within the capitation rate.

Case Management (CM)

The control of health care services including either medical or ancillary health care resources, for efficient and medically appropriate ends for enrolled members; designed to achieve the optimal patient outcome in the most cost-effective manner.

Case Manager

A nurse, doctor, or social worker who works with patients, providers, and insurers to coordinate all services to provide a patient with medically necessary and appropriate care.

Case Rate

A reimbursement model used by hospitals to establish a flat rate per admission based on a assumed average length of stay per admission; the HMO is charged this rate for each member admitted; unique rates may be set or grouped by diagnosis type or categories or medical/surgical, obstetrical, critical care, cardiac, and so on; other elements may include sliding scale volume, ALOS by type, volume of ancillary per patient, and contribution margin.

Center of Excellence

Health care institution that has been credentialed and through clinical expertise and captial equipment improvements has proven ability to provide a major resource-intensive procedure such as organ or bone marrow transplant, open heart surgery, high risk OB, or neonatal intensive care in a more effective and efficient manner than possible anywhere else within a specific geographic region; centers of excellence are listed in the Federal Register.

Claims Services Only (CSO)

A contract designed for fully self-insured employers that need little administrative assistance. Under a CSO arrangement, the insurer administers only the claims portion of the plan. See also ACS or ASO.

Clinic Without Walls

A centralized business operation serving medical groups in a network while the delivery of care remains decentralized, usually involving a professional management services, group purchasing and support systems, centralized billing and accounting, uniform fee schedule, and the employment of all nonphysician staff.

Closed Panel

A managed care plan that contracts with physicians on an exclusive basis for services and does not allow those physicians to see patients for another managed care organization (e.g., staff and group model HMOs or a large private medical group that contracts with an HMO); a physician must normally meet strict criteria to join the closed panel of a plan's providers.

Closed PHO

A closed physician-hospital organization limited to providers that have expertise in managing utilization and are continually approved as meeting certain standards; similar governance to open PHO but more attractive to payers because of demonstrated cost reductions; increased feedbacks to providers of personal and peer practice utilization. This model does not contain the more advanced incentives of equity sharing from venture profits.

COBRA

(Consolidated Omnibus Budget Reconciliation Act) A federal law that, among other things, requires employers to offer continued health insurance coverage for a certain length of time to certain employees and their beneficiaries whose group health insurance coverage has been terminated.

Coinsurance

A type of cost sharing in which the insured party and insurer share payment of the approved charge for covered services in a specified ratio after payment of the deductible by the insured. Under Medicare Part B, the insured pays coinsurance of 20 percent of allowed charges.

Concurrent Review

A screening assessment of hospital admissions at the time they occur, performed by a professional managed-care support staff during a patient's hospitalization, either by telephone or through a representative's visit to the hospital location; this review ensures that utilization is appropriate.

Conversion Factor

The dollar amount of one unit of service rendered; used to covert various medical procedures into an established fee-schedule payment structure in which the conversion factor times the relative value unit equals the payment amount.

Cost Sharing

A health insurance policy provision that requires the insured party to pay a portion of the costs covered services; deductibles, coinsurance, copayment, and balance bills are types of cost sharing.

Cost Shifting

Practice whereby a health care provider charges certain patients or third party payers more of services in order to subsidize service provided below cost or free to the poor or uninsured.

Covered Services

Those services specified in a managed care contract; specific services and supplies for which Medicaid will provide reimbursement; a combination of mandatory and optional services within each state.

Customary, Prevailing and Reasonable (CPR)

Medicare's method of determining approved charges for a Part B service from a service physician or supplier.

Diagnosis Related Groups (DRGs)

A system of classification used by Medicare for inpatient hospital services based on principal diagnosis, secondary diagnosis, surgical procedures, age, gender and presence of complications. This system of classification is used as a financing mechanism to reimburse hospitals and selected other providers for services rendered.

Discounted Fee-for-Service (DFFS)

A payment method that is calculated as a certain percentage of discount from fee-for-service charges; among the least risky contracting approaches, second only to billed charges; may include a sliding scale tied to volume, with varying discounts by product line; similar to full FFS except that the HMO agrees to pay billed hospital charges or outpatient services, minus a fixed percentage that is based on the efficiencies of guaranteed payments.

Exclusive Provider Organization (EPO)

A form of managed care plan, similar to an HMO in that it uses primary care physicians as gatekeepers, often capitates providers, has a limited provider panel, and uses an authorization system, yet is generally regulated under insurance statutes rather than HMO regulations (not allowed in many states that maintain that EPOs are really HMOs).

Experience Rating

A system used by insurers to set premium levels based on the insured's past claims experience (for example, experience rating may be based on service utilization for health insurance or on liability experience for professional liability insurance).

Fee for Service (FFS)

The full rate of charge for a private patient without any type of insurance arrangement or discounted prospective health plan.

Fee Schedule

A list of predetermined payment rates for medical services.

Global Capitation

A reimbursement mechanism that pays for all of the care needs for a population of patients, including physicians and hospital; may involve payment from an HMO to each PCP at risk for a contractually determined PMPM amount that is to pay for the costs of all physician services; may involve payment to a provider network or IDN for all physician and hospital care, with other stated commitments or limitations for pharmacy, mental health, or other carve outs; a portion of the global cap may be withheld in a reserve fund to pay for specialist care referred by the PCP (excess remaining each year is paid out, or shortages are carried forward against future global captitation payments to the PCP).

Global Fee

A reimbursement mechanism used by a provider for a given episode of care; the single fee for the entire charge of all aspects and services surrounding the episode, (e.g., $1,600 for a normal vaginal delivery to include a stated amount of prenatal and postnatal care in addition to the delivery) best used with a large number of covered lives in order to spread risk.

Global Per Diam

A reimbursement mechanism used by a provider to include all costs of care for a day, fixed regardless of case type.

Guaranteed Issue

The requirement that each insurer and health plan accept everyone who applies for coverage and guarantee the renewal of that coverage as long as the applicant pays the premium.

Guaranteed Renewable

The requirement that each insurer and health plan continue to renew health policies purchased by individuals as long as the person continues to pay the premium for the policy.

Incurred But Not Reported (IBNR)

A term to describe the amount of money that the plan should accrue for medical expenses that the authorization system has not captured and for which claims have not yet been submitted. Unexpected IBNRs have been the major cause of financial insolvency for many managed care plans and providers.

Indemnity

The insurance protection against injury or loss of health; although this type of traditional system is now being replaced with other forms of insurance that share risk with providers or employers; indemnity programs still exist to provide reimbursement to the enrolled members for benefits under the contract.

Integrated Delivery System (IDS)

A single organization or a group of affiliated organizations that provide the full range of health care services to a population of enrollees within a market area that consists of physicians, dispersed clinic settings, hospitals, a referral network, and full continuum, of after-care offerings; may obtain an HMO license and retail health services, or may wholesale the provision of care services and seek to accept risk within components of the systems, such as a physician network or its hospitals, or may obtain global risk agreements with HMOs.

Length of Stay

The number of days that a covered person stayed in an inpatient facility. See also average length of stay.

Medical Loss Ratio

A ratio of costs to provide health benefits to revenue from premiums (or total medical expenses of paid claims plus the IBNR component, divided by premium revenue); a common way to describe efficiency of an HMO plan, medical loss ratios are being reduced during 1990s from the low 90 percent to mid 70 percent range.

Open Access

Patient access to providers of specialty care without going through a gatekeeper or primary care provider; as long as the specialist participated in the network.

Open PHO

An early stage managed care Physician Hospital Model with an open and almost nonrestrictive policy for allowing physicians to join, in an attempt to build a network for payer contracts; commonly featuring joint governance between hospital and physician leadership, varying degree of MSO support and centralization; has shown weak attraction for covered lives, a lack of physician practice behavior modification, and little long-term loyalty form providers.

Out of Area

Any area (where health care services or supplies may be received) outside the HMOs service area and where only emergency services are allowed.

Par Provider

Short for participating provider.

Partial Capitation

An insurance arrangement in which the payment made to a health plan is a combination of a capitated premium and payment based on actual use of services; the proportions specified for these components determine the insurance risk faced by the plan.

Partial Risk Contract

A contract between a purchaser and a health plan in which only part of the financial risk is transferred from the purchaser to the plan.

Par Member Per Month (PMPM)

Revenue or cost for each enrolled member each month.

Per Member Per Year (PMPY)

Revenue or cost for each enrolled member per year.

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.

Points-of-Service (POS)

A provision that allows patients in managed-care plans that limit choice of doctors and hospitals to seek treatment outside of the plans; patients who use this option typically are required to pay more.

Portability

The requirement that insurers waive any preexisting condition exclusion for someone who was previously covered through other insurance as recently as 30 days to 90 days earlier.

POS Plan

A plan that provides flexibility for an enrollee to choose to receive a service from a participating or nonparticipating provider, with corresponding benefit or penalty of co-pay depending on the level of benefit selected, with the goal of encouraging the use of network or participating provider care options; POS maintains the popularity of choice by offering the typical HMO provision, PPO, or combinations of both; in many POS plans, enrolls coordinate their care needs through the PCP; HMOs pay nonparticipating providers at an FFS rate; also called HMO swing-out plan or out-of-plan rider to an HMO.

Preferred Provider Arrangement (PPA)

Same as a PPO, but sometimes refers to a somewhat looser type of plan in which the payer (i.e., the employer) makes the arrangements rather than the providers.

Preferred Provider Organization (PPO)

A plan or an affiliation of providers seeking contracts with a plan (by virtue of their ability to cover a broad geographical area or provide multispecialty skills); incentives for providers to participate include quick turnaround of claims payment, a valuable pool of patients, and FFS payment; payer incentive is negotiated discounts to FFS; usually a PPO doesn't repay physicians; a physician-sponsored PPO increasingly will bear risk when seeking arrangement with insurance companies or self-insures companies. There is great consensus that PPOs are early-stage managed care relationships that are formed in response to HMO pressure or competition, but do not bring the same savings on health care.

Provider-Sponsored Network (PSN)

A formal affiliation of health care providers organized and operated to provide a full range of health care services; term used in draft language of the 1996 budget discussions of House and Senate proposals that would allow Medicare to contract directly with PSNs on a full-risk capitated basis in a way that would eliminate some HMOs as middlemen depending on the ultimate language; the degree to which PSNs must be subject to licensing, financing, and insurance considerations, as regulated by state insurance commissioners, will determine the number of providers to qualify compared to the more rigid HMO standards under which provider networks must currently qualify; as at press time, no bill has been passed to grant operation to PSNs.

Provider-Sponsored Organization (PSO)

Any organization created through the formal affiliation of health care providers that seeks to act as insurer for an enrolled population; PSOs can be physician-based, hospital-based, or a combination of both; typically, they are local health delivery systems.

Reasonable and Customary Charge (R&C)

The amount of money usually billed for individual health care services within a specific geographic region; sometimes all fees in the 80^th or 90^th percentile are averaged to determine R&C, other times R&C is synonymous with fee schedule rate ceilings, when the rates are relatively high.

Reinsurance

Insurance procured by an insurance company, provider, or employer to guard against the partial or complete loss of money from medical claims; typical coverage is purchased for either individual stop-loss, aggregate stop-loss, out-of-area care, or insolvency protection; a larger health plan typically reduces reinsurance coverage as it grows, also called risk control insurance or stop-loss insurance.

Reserves

Fiscal method of providing a fund for incurred but not reported health services or other financial liabilities; also refers to deposits and/or other financial requirements that must be an entity as defined by various state or federal regulatory authorities.

Retention

The administrative fee that normally serves as the profit for a plan; retention funds may be either reinvested in the organization that administers the plan, applied toward the cost of medical claims and miscellaneous expenses, or, in the case of for-profit entities, passed to shareholders.

Risk Control

A contract involving medical claims risk on a prepayment basis between two entities, such as a provider and an HMO, the HCFA and a federally qualified HMO, or an integrated delivery network and an individual PCP or medical group; it will specify the medical services to be included, together with the associated reimbursement structure, and the amount to be withheld or physician contingency reserve to be set aside for potential claims above estimates, or incremental risk corridors; if claims run above projections, it is the responsibility of the party that bears risk under the contract to pay those excess costs; any savings are similarly allocated to the party bearing risk.

Risk Sharing

Any mechanism that gives financial incentive to managed care providers for rendering cost-effective, high-quality care.

Self Insurance

A risk strategy that allows the potential profit that an HMO or carrier traditionally receives from funding insurance risk to be experienced instead by an employer or other legal entity, such as a hospital-based delivery network; different from reinsurance in that an external insurance protection is not used as a general format, but certain protection may be sought for a segment such as a catastrophic; essentially, the health benefits are funded from internal resources without purchasing insurance; self-insurance entities may obtain outside administrative assistance to manage requirements.

Shared Risk

An arrangement where any two entities, such as a health plan and a provider, agree to share in the risk to some contracted percentage of hospital costs that may come in over budget, as well as share profits for care provided under budget.

Stop-Loss Insurance

Insurance that is designed to stop the loss, or limit risk exposure beyond a stated amount, for either the catastrophic loss of individual patients or group claims; stop-loss insurance is sought by nearly any entity that accepts risk; also called "stop-loss" because the more protection the higher the insurance cost, a point of a attachment to stop-loss at $75,000 might cost $2.50 PMPM, whereas an attachment at $100,000 might cost $2.

Subcapitation

Any capitation arrangement at a level subordinate to global capitation, such as a subcap between an IDS and primary care physicians, specialists, or ancillary services.

Third Party Administrator (TPA)

Any third-party entity that administers health plan entitlements and is supported by the infrastructure to process claims; a TPA does not underwrite the risk of a contract, but performs largely administrative functions that are supported by computer systems; as markets mature, many TPAs are looking to evolve into other lines of business because HMOs and providers are becoming more able to perform the TPAs primary mission.

Underwriting

The process by which an insurer determines whether and on what basis it will accept an application for insurance; some insurers use medical underwriting to exclude individuals, groups, or coverage for certain health conditions that are expected to incur high costs.

Underwriting Cycle

The cyclical pattern of insurer profitability and premium prices in group health insurance; the underwriting cycle consists of three phases; Phase I is characterized by rapid price increases and rising revenue for insurance companies; phase II is marked by relatively stable premium prices and an increase in insurers' capital reserves; phase III consists of increasing premium price competition and the depletion of insurers' capital reserves.