Managed Care and Quality Management

This is the third article in the Medical Management "Signature Series" by Managed Care Resources, Inc. -- articles on topics in managed care written by experts in the field. The author of this article is Roberta L. Carefoote.

Quality and managed care - an oxymoron? Absolutely not, but there are some who doubt the importance managed care organizations place on quality care and service.

Managed care, often seen primarily as a cost cutting initiative struggles to prove to the community at large that managing quality is as important as managing costs. Jan Greene1 in a recently published article questions whether or not managed care has lost its soul. In that article Greene notes that managed care was once dominated by not-for-profit organizations with a social mission. Now managed care is primarily governed by for-profit organizations looking to Wall Street for investment. Many individuals fear that the goal of managing care is being replaced by the goal of managing costs. Equally disturbing is that for-profit managed care organizations have a legal and fiduciary responsibility to put stockholders and not payers or consumers first. Further, recent trends that shift the financial risk to providers through capitation or other systems that reward providers for efficiency concomitantly give providers a financial incentive to withhold necessary care. These are but a few of the reasons why managed care organizations have faced a series of attacks regarding the quality of care that they provide. With these quality perception issues as a backdrop, regulators, accreditors, employers and consumers alike are placing increasing demands on managed care organizations to visibly and publicly address quality.

This article defines quality management, sets out key quality drivers and their impact on quality in managed care, and articulates the characteristics of a successful QM program. Its objective is to provide the reader with an overview of the current standing of the QM evolution within the managed care industry. It is not intended to serve as the template for the ideal quality program. Rather, the reader is encouraged to peruse the article using it as a springboard for further research and dialogue within their own institution.


Recognizing that health care has a fascination for abbreviations and acronyms, its effects are clearly felt within the quality arena where QA, QI, and QM are constantly bantered about with little regard for the differences between the three.

  • Quality assurance (QA) is a systematic, departmental approach to ensuring a specified standard or level of care. Traditionally, it has focused on a few individuals' detecting and solving "special" problems. It uses methods to inspect performance, and repair or correct performance if it is below an accepted standard. The emphasis has been on identifying outliers or bad apples and taking steps to bring their performance in line with the norm.

  • Quality Improvement (QI) is a systematic, organization-wide approach for improving the overall quality of care - one that emphasizes performance improvement as well as a standard of care. It differs from QA in its scope, focus, approach and end result. The scope is organization-wide rather than in select departments. The focus is on identifying common causes and on processes, rather than on outliers and clinical outcomes. The approach is proactive rather than reactive. And QI's end result is to prevent errors and to improve rather than to inspect and repair problems and meet standards.

  • Quality Management (QM) is an all encompassing philosophy that permeates an organization's management infrastructure, policies and practices. It typically consists of five basic principles -- a focus on customer/supplier relationships; an emphasis on operational and care systems and the prevention of errors; the use of data-driven decision making; the active involvement of leaders and empowerment of employees; and, an emphasis on continuously improving performance in all areas.

As defined, QM embraces features of both QA and QI and goes one step further to direct a management philosophy. While these definitions serve to differentiate the three terms often found in health care literature, they also aptly describe the evolution of the quality movement in managed care from QA to QI to QM. It is safe to say that almost all managed care organizations employ QA, most have adopted QI, and a select few have fully incorporated the principles of QM. In the future we can expect that the basic standard in managed care companies will be QI rather than QA.

Quality Drivers in Managed Care

There are many forces driving managed care organizations to pay particular attention to the quality of care and service they provide. Worthy of note is that individually any one of the drivers would have an impact on the quality of care and services provided by a managed care organization, but collectively, their impact has been significant. Managed Care Organizations (MCOs) have evolved from employing traditional QA mechanisms to adopting the broader focus of QI . Some are going even further to implement QM activities. Few, if any MCOs can maintain the status quo nowadays -- they are expected to build upon and improve their performance yearly. Parisi2 and Silberman3 have done a good job at outlining the activities that are driving the quality evolution in managed care. Here are but a few of the drivers affecting the recent changes:

  • State Oversight The states regulate Health Maintenance Organizations (HMOs) and other forms of managed care usually through their department of insurance. While the states look at a variety of variables such as enrollment and utilization review, they are also interested in quality. A majority of states ask HMOs to have specific QA plans and to take corrective action when problems are noted. To support state activities, the National Association of Insurance Commissioners is in the process of finalizing five model statutes to be used by the states to ensure access and quality of care in MCOs. The statutes move managed care from QA to QI activities and have been developed with the input of insurers and consumers.

  • Federal Oversight The U.S. Department of Health and Human Services also has the responsibility for overseeing specific MCOs including federally qualified HMOs and those plans enrolling Medicaid or Medicare enrollees. Outlined in the federal statute are the comprehensive set of benefits that HMOs must provide, as well as specific requirements for the HMO, including reporting on utilization patterns, availability, and accessibility. For those plans that participate in Medicaid managed care arrangements, Health Care Financing Administration (HCFA) sets out additional requirements such as formal written QM programs that must be part of any contract with MCOs. The contract is intended to stipulate compliance with the QA program, which usually entails independent external quality reviews, focused studies on clinical care and delivery systems as well as an examination of both under- and over utilization. HCFA also imposes similar requirements for Medicare risk bearing plans to ensure financial solvency, quality, and access.

  • Voluntary Accreditation While most managed care organizations are not required to obtain formal accreditation, the competition from other accredited organizations is compelling them to do so. In the area of voluntary accreditation, there are three primary drivers -- The National Committee on Quality Assurance (NCQA), the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), and the Utilization Review Accreditation Commission (URAC).

    The NCQA is the predominant accrediting body in managed care today. It is an independent nonprofit organization that measures, assesses and reports on the quality of care and service in MCOs. NCQA standards are particularly useful in focusing an MCO's quality program and helping to prioritize important initiatives. In recent years, many businesses and industries are requiring NCQA accreditation.

    The JCAHO is the primary accrediting body for health care organizations and it is now playing a greater role in accrediting managed care organizations. For the most part, MCOs now have the option of selecting NCQA or JCAHO for their accreditation. Since 1994, JCAHO has accredited HMOs according to the standards outlined in the Accreditation Manual for Healthcare Networks. The conceptual model underlying the standards focuses on the improvement of organizational performance.

    URAC was founded in 1990 as an educational corporation with the goal of establishing minimum utilization review (UR) standards that serve to encourage efficient medical review processes and to provide a method for evaluating and accrediting UR programs. The first standards were published in 1991 with significant revisions in 1994.

  • Standardized Performance Indicators The Health Employer Data and Information Set (HEDIS) contains more than 60 performance measures and is a renowned indicator of quality in managed care today. Responsibility for HEDIS currently resides with NCQA. HEDIS was designed to provide MCOs with a standardized reporting format for identifying quality improvement indicators. It also enables MCOs to track their performance over time. Similarly, HEDIS provides employers and purchasers of health care with meaningful information for comparing the value of managed care products. In the latest version of HEDIS there is an increased emphasis on outcomes and it is used to assess performance in the commercial as well as the Medicare and Medicaid populations.

    Based on the HEDIS model, HCFA and Kaiser Family Foundation initiated the development of a standardized Medicare Report Card. The U.S. Healthcare and U.S. Quality Algorithms, Inc. (USQA) have used their expertise to develop a population-based method to assess quality of care measures, access and satisfaction measures, and utilization statistics. The impact and use of the Medicare Report Card in managed care is not yet known especially now that HEDIS has broadened its scope to include quality in the Medicare population.

  • Employer and Business Mandates Historically, employers have evaluated health plans based on costs alone, but that's changing. Beauregard and Winston4 have identified at least four reasons why large employers are moving away from evaluations based on costs alone to evaluations that include financial efficiency and quality components. First, employers want to ensure that they are receiving value for their health care dollar. A plan that costs less may result in higher claim costs due to poorer quality. Second, the development of standard performance indicators such as those found in HEDIS enables employers to compare health plans in meaningful ways. Third, employees are better educated about quality health care and are asking their employers about the quality provided by health plans before they choose one. Finally, some employer groups are hiring benefits managers with clinical backgrounds, recognizing that there is a relationship between effective clinical management and low claims costs. These clinically driven benefits managers are clearly interested in the quality provided by a health plan, especially in the area of health promotion and wellness activities. Using a formal request known as a Request for Information (RFI) or Request for Proposal (RFP), purchasers of health care are demanding that MCOs respond to specific questions about their performance so that they can make meaningful assessments about the value provided by the different health plans being considered. Often the questions will address HEDIS measures and the plan's performance over time.

MCOs now find themselves competing for business not only on costs, but on the quality of care and service that they provide, at present and in the past. Those MCOs that have failed to pay attention to the importance of quality, are quickly discovering that quality needs to gain a greater importance within their organization if they are to remain solvent over time. Those MCOs that cannot prove their effectiveness through performance indicators, will find themselves scrambling to join the ranks of those organizations that have implemented HEDIS just to remain competitive. It is no longer acceptable to ride the wave of a long standing relationship -- MCOs must be able to prove their value to purchasers of health care and have documented quality programs in existence.

Characteristics of a Successful Quality Program

While there are few models that epitomize the ultimate in a managed care quality program, there are certain characteristics that are consistent across regulation and accreditation requirements. A successful quality program has the following characteristics:

  • Clear Mission and Goals. Lacking a clear mission and specific goals, quality activities are undertaken without a compass to direct the ultimate outcome. The mission and goals are agreed upon and documented through a dynamic process. The process ensures that the quality activities reflect the managed care organization's population, objectives and strategies and is reflective of government regulatory and accreditation requirements.

  • Active leadership. Quality is everyone's responsibility and it is important that both the medical and the administrative leadership assume a key role in ensuring that the quality program is effective in achieving its objectives. Leadership is assured through a variety of mechanisms, including representation on the quality committees and substantial involvement in the development and implementation of the quality program.

  • Defined Structure & Accountabilities. Accountability for quality needs to be at the highest levels in the organization. While primary responsibility is held by the Board of Directors, it is often delegated to the medical and administrative leaders for day-to-day operations. This does not negate the responsibility of the Board, but rather forces a direct line of communication between those that do the every day work and those that are accountable for the final outcomes.

  • Coordinated Activities. All managed care departments interface with the quality function to make quality a company-wide effort. Provider contracting, practitioner credentialing, utilization management, provider relations, marketing, member services, and claims administration are among the most important departments requiring an interface. The successful program ensures appropriate coordination among these functional areas.

  • Effective Planning. Planning is critical to ensuring that key objectives are attained and that all regulatory and accreditation requirements are met. With quality programs, there are three important planning processes -- the development of an annual description of the program, an annual action plan that outlines activities critical to achieving the objectives set out in the program description, and a process that allows the managed care organization to evaluate its performance relative to the plan.

  • Comprehensive Scope of Services. The scope of the quality program includes both the clinical care and the service. Clinical care refers to the direct delivery of care by practitioners (i.e. physicians, nurses, psychologists, etc.) and institutional providers such as hospitals, long term care facilities, home health agencies, etc.. Service quality refers to the availability, accessibility and acceptability of services to members. A comprehensive program contains both clinical and service quality monitoring, evaluation, and improvement. Further, the program needs to encompass all patients whose care is provided by the managed care organization including primary care, ambulatory, inpatient care, and home care. The specific focus taken by the program reflects the population served by organization -- in particular age groups, disease categories, and special risk status. For this reason, there needs to be a mechanism for looking at basic membership statistics and patterns of health problems in the population at regular intervals.

  • Focus on Improvement. Continuous quality improvement should not be viewed as simply a requirement of many regulators and accreditors. It makes good business sense. A model such as the "10 step process" recommended by the JCAHO ensures that staff work to improve the quality in the organization and do not just pay attention to areas where standards are not being met.

  • Data Driven Decision Making. Critical to the success of the program is the ability to extract and analyze data that pertains to both service and quality data. The QM staff typically work closely with the IS department and the other departments to pull together the information needed to make decisions. In addition, performance is often tracked using predefined indicators and thresholds.

  • Sound Policies & Procedures. To ensure consistent, standardized practices company-wide, the organization needs a method to communicate specific program policies and procedures. A quality manual often serves this purpose especially one that is reviewed and updated annually for distribution.

  • Adequate Resources. Without adequate resources, the organization can fall short of accomplishing its objectives. In the planning process, it behooves the organization to ensure resources are sufficient to meet the needs of the program. Such resources can include resources housed in areas other than the quality department including information systems and data analysis. Attention is also paid to staffing to ensure that the correct skills are in place to manage and implement the designed program. Where resources fall short, quality outcomes are also likely to fall short of expectations.

In the eyes of many, quality and managed care are not yet synonymous but neither are they at odds with each other. Thanks to the quality drivers built into the regulations and accreditation standards that govern MCOs and the natural competitive forces found in the business marketplace, employers and consumers alike will benefit from MCOs that are placing more emphasis on measuring and improving their quality.

For more information on Managed Care and Quality Management please contact us at (630) 325-6543 or by email at .

We hope that you will join us as we explore all of the elements of medical management in the coming months. In addition, we are offering a "Signature Series" on "Managed Care Contracting". We hope that the two series combined will lessen the mystery of managed care and help level the playing field between providers and payers.

Ira H. Rosenberg

Ira H. Rosenberg

President, Managed Care Resources, Inc.


1 Jan Greene, "Has Managed Care Lost its Soul?", Hospitals and Health Networks, May 20, 1997, p.36-42.

2 Lenard L. Parisi, "What is Influencing Performance Improvement in Managed Care?," Journal of Nursing Care Quality, 11 (4) 1997, p.43-52.

3 Pam Silberman, "Ensuring Quality and Access in Managed Care: How Well are We Doing?," Quality Management in Health Care, 5(2) 1997, p. 44-54.

4 Thomas R. Beauregard and Kevin R. Winston, "Employers Shift to Quality to Evaluate and Manage their Health Plans," Managed Care Quarterly, 5(1) 1997, p.51-56.

The Managed Care Resources, Inc. team has over 150 years of combined experience in the development and implementation of managed care services. Please visit our home page to learn more about how we can assist you with your managed care needs. We also invite you to contact us with questions or comments.

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