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Managed care organizations are organizations that work with insurance companies to moderate the overall cost of healthcare for the patients covered under an insurance company. According to Kauer (2017), “managed care coordinates care, reduces duplications of unnecessary treatments, and fosters efficient medical treatment paths through different providers."

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Since the creation of the Affordable Care Act in 2010, millions of previously uninsured Americans received healthcare benefits through Medicare and Medicaid. Medicaid is the largest example of a managed care organization in the United States (Maeng et al., 2016). In addition, current research shows that clients of MCOs have reduced healthcare expenditures and improved quality of care (Baicker, Chernew, & Robbins, 2013). By reducing individuals' healthcare costs, MCO's have helped the federal government expand coverage to more citizens.

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When a patient has insurance through an MCO, their provider must follow specific guidelines about their care. MCO's will only reimburse providers for diagnostic tests or treatments that they deem acceptable for specific diagnoses. MCO's try to eliminate waste in healthcare spending by eliminating or restricting diagnostic tests and treatments that are not clinically indicated, fiscally responsible or backed by evidence based practice. For example, a terminally ill hospice patient would likely not be approved for an invasive medical test that requires hospitalization because that is not clinically indicated for a hospice patient and will likely not improve their overall outcome.

MCO's have other ways of reducing overall healthcare expenditures. MCO's facilitate lower costs for certain services, like mail-order prescriptions or colonoscopies, by negotiating a lower rate for patients insured by the MCO when they use a certain mail-order prescription company or GI lab. MCOs cut costs by insisting that their patients use more cost efficient, generic medications. MCO's will also postpone reimbursement approval of newer medications until the less expensive alternatives have been trialed by a patient (Baicker, Chernew, & Robbins, 2013).

MCO's do support the use of healthcare resources on preventative care. Research shows that preventative health screening like colonoscopies, mammograms and annual physicals help reduce the overall costs of healthcare. These screenings help catch patients' healthcare issues before they become expensive to treat and manage (Maeng, 2016).

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Not only have MCOs reduced healthcare costs, they have also shown to improve quality of care for patients. Patients with MCOs experience shorter hospital stays and incur fewer costs while admitted to the hospital (Baicker, Chernew, & Robbins, 2013). They also have fewer overall office visits and lower outpatient costs. MCOs produce the largest reductions in cost for patients with “higher than average service utilization” (Gottlieb, Ackerman, Wing, & Manchanda, 2017). MCOs have also shown to reduce inpatient mortality for their patients. Specifically, inpatient mortality was reduced by 36% for Congestive heart failure (CHF)  patients and by 20% for stroke patients. This is an even bigger deal because MCOs insure patients that have a higher rate of comorbidities, like obesity, CHF and diabetes, than fee-for-service insurers (Hines, Raetzman, Barrett, Moy, & Andrews, 2017).

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Since MCO's are getting large returns in their investments in "upstream" healthcare, like preventative screening, some researchers hypothesize that MCO's may take this a step further. Since a large proportion of MCOs clients are recipients of government aid, MCOs are now looking into reducing healthcare costs by investing in improving their clients’ social determinants of health (Gottlieb, Ackerman, Wing, & Manchanda, 2017). For example, it would benefit MCOs to help their clients gain access to nutritious foods, smoking cessation materials, or exercise programs. It will be interesting to watch how far MCOs will go to invest in “upstream” healthcare in the next few decades.

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Baicker, K., Chernew, M. E., & Robbins, J. A. (2013). The spillover effects of Medicare managed care: Medicare Advantage and hospital utilization. Journal of Health Economics, 32(6), 1289–1300. https://doi-org.dax.lib.unf.edu/10.1016/j.jhealeco.2013.09.005

Gottlieb, L., Ackerman, S., Wing, H., & Manchanda, R. (2017). Understanding Medicaid managed care investments in members’ social determinants of health. Population Health Management, 20(4), 302–308. https://doi-org.dax.lib.unf.edu/10.1089/pop.2016.0092

Hines, A. L., Raetzman, S. O., Barrett, M. L., Moy, E., & Andrews, R. M. (2017). Managed care and inpatient mortality in adults: effect of primary payer. BMC Health Services Research, 17, 1–17. https://doi-org.dax.lib.unf.edu/10.1186/s12913-017-2062-1

Kauer, L. (2017). Long-term effects of managed care. Health Economics, 26(10), 1210–1223. https://doi-org.dax.lib.unf.edu/10.1002/hec.3392

Maeng, D. D., Snyder, S. R., Baumgart, C., Minnich, A. L., Tomcavage, J. F., & Graf, T. R. (2016). Medicaid managed care in an integrated health care delivery system: Lessons from Geisinger’s early experience. Population Health Management, 19(4), 257–263. https://doi-org.dax.lib.unf.edu/10.1089/pop.2015.0079