Glossary for Managed Care

  • Judith A. Huntington, MN, RN
    Judith A. Huntington, MN, RN

    Director of the Office of Strategic Planning for the American Nurses Association

    Judith A. Huntington, MN, RN, is the Director of the Office of Strategic Planning for the American Nurses Association in Washington, D.C. She has been a member of the executive staff of ANA since 1989, serving as Director of Governmental Affairs (1989-1992) and Director of Field Services, Labor and Workplace Advocacy (1992-1995) before assuming her current role. Ms. Huntington's current responsibilities include association-wide strategic planning; oversight and direction of the development of ANA's online services programs; and executive liaison activities with constituent state nurses associations, specialty nursing groups, and other health care organizations

Key Words: Managed Care Programs

There are many excellent references for managed care terminology. The following list of definitions was adapted from several sources, including:

  1. American Medical Specialty Organization, Inc. AMSO Definition of Terms. Available at:
  2. Grimaldi, P. L. (1996). Managed Care: A Glossary of Terms, Special Supplement to Nursing Management, 27 .
  3. Harden, S. (April, 1994). What Legislators Need to Know About Managed Care. Proceedings of the National Conference of State Legislatures.
  4. Hart, S. E. Managed Care Curriculum for Baccalaureate Nursing Programs , American Nurses Foundation of the American Nurses Association, April, 1995, citing: Fazen in Managed Care Desk Reference: The Complete Guide to Terminology and Resources, 1994 Edition, HCS Publ., Dallas, TX; American Association of Retired Persons (1986); Blue Cross andBlue Shield Association (1988); Health Insurance Association of America (1992); and The SegalCompany (1992)
  5. Kelly, M. P. Bacon. G. T., & Mitchell, J. A. (1994). Glossary of Managed Care Terms. Journal of Ambulatory Care Management, 17(1)
  6. United Health Care. The Language of Managed Care and Organized Health Care Systems. Available online at at

Accreditation--A standardized program for evaluating health care organizations to ensure a specified level of quality, as defined by a set of industry standards. Organizations that meet accreditation criteria receive an official authorization of approval of their products and services.

Adverse selection--Plan enrollees include a higher percentage of high risk enrollees than the percentage of high risk persons in the average population, resulting in the potential for greater utilization of health care services, and higher expenses, than estimated for an average population.

Admission certification--A form of utilization review in which an assessment is made of the medical necessity of a patient's admission to a hospital or other inpatient institution. Admission certification seeks to assure that patients requiring a hospital level of care, and only such patients, are admitted to the hospital. Lengths of stay appropriate for the patient's admitting diagnosis are usually assigned and certified, and payment by any program requiring certification for the assigned stay is supposed to be assured. Certification can be done before admission (preadmission) or shortly after (concurrent).

Capitation--A method of payment for health services in which a practitioner or hospital is pre-paid a fixed, per capita amount to cover a specific period of time for each person served, regardless of the actual number or nature of services provided to each person.

Case management--Management directed toward serious conditions likely to require numerous providers and involve costly care. Case managers handle each case individually, identifying the most cost-effective treatments for extremely resource-intensive conditions, such as accidents, AIDS, cancer, major trauma, prematurity, and strokes.

Certificate of Authority (COA)--Authorization issued by a state government for licensing the operation of a health care agency within the state.

Coinsurance--A type of cost-sharing in which the insured pays or shares part of the medical bill, usually according to a fixed percentage. Generally included in fee-for-service/indemnity plans.

Community Rating--A system of setting health insurance premiums by which the insurer calculates the total claims or health expenditure experience of the members within a given geographic area or "community," and uses that information to determine a rate that is common for all groups, regardless of the individual claims experience of any one group (contrasts with Experience Rating).

Continuous Quality Improvement (CQI)--A key component of a total quality management (TQM), CQI uses rigorous, systematic, organization-wide processes to achieve ongoing improvement in the quality of products, services and operations, and the elimination of waste. CQI programs focus on both outcome and process of care.

Copayment--A type of cost-sharing whereby insured or covered persons pay a specified flat amount per unit of service or unit of time, with the insurer paying the rest. The copayment is incurred at the time the service is used. The amount paid does not vary with the cost of the service. Generally included in managed care plans.

Credentialing--The process of checking a practitioner's qualifications to grant practice privileges for a facility or a health plan. The review may include references, training, experience, demonstrated ability, licensure verification, and adequate malpractice insurance. Practitioners have raised concerns that admission to managed care plans may also be based on economic profiling, which reviews their expenditures and may be used to exclude practitioners who serve populations with conditions that require expensive care.

Deductible--A specific amount the insured person must pay before the insurer's payments for covered health care services begin under a medical insurance plan.

Diagnostic Related Group (DRG)--An inpatient classification system used by the US Dept. of Health and Human Services/Health Care Financing Administration (HCFA) to determine hospital reimbursement for Medicare patients. The DRG system categorizes patients with similar medical diagnoses, treatment patterns, and statistically comparable lengths of stay in a hospital, and attaches a reimbursement rate to each DRG. Some managed care plans use the DRG payment method for setting payment rates and selecting providers.

Enrollee-- Person eligible for health plan services. Also referred to as member, subscriber, beneficiary;

Employee Retirement Income Security Act (ERISA)--The federal Employee Retirement Income Security Act of 1974, which reserves for the federal government the power to enact any laws or regulations that "relate to" employer-sponsored benefit plans. These benefits have been broadly interpreted by the courts to include pensions, health plans, and other benefits. The Act leaves to the states the right to regulate commercial health insurance plans. Since states have been very active in this area, while the federal government has not, many large employers have established "self-insured" health plans that are not subject to state regulations on health plan rates, benefits, and other protections.

Exclusive provider organization (EPO)--An EPO is a more rigid type of PPO that requires the insured to use only designated providers or sacrifice reimbursement altogether.

Experience-Rated Premium--Health plan premium based on the anticipated claims experience of, or utilization of services by, an enrolled group, based on attributes expected to affect its health service utilization (such as age, previous claims history, etc.).

Fee-for-service--Traditional method of paying for medical services whereby a practitioner bills for each encounter or service rendered. Also known as indemnity insurance. This system contrasts with salary, per capita, or pre-payment systems, in which the payment is not changed with the number of services actually used.

Group model--A type of HMO with medical centers where many different health services are provided in a central location. Staff of a group model HMO usually treat only HMO members.

Group practice--The application of health care service by a number of practitioners working in systematic association with the joint use of equipment and technical personnel and with centralized administration and financial organization.

Health maintenance organization (HMO)--A comprehensive health care financing and delivery organization that provides or arranges for provision of covered health care services to a specified group of enrollees, at a fixed periodic payment, through a panel of providers. Historically, four types of HMO models have been common: 1) staff model in which physicians are salaried employees of the HMO; 2) group model, which contracts with multi-specialty physician group practices; 3) IPA model, which contracts with Independent Practice Associations (IPA), which, in turn, contract with independent physicians who practice in their own offices; 4) network model, which contracts with two or more independent group practices and/or IPAs. The HMO can be sponsored by the government, medical schools, hospitals, employers, labor unions, consumer groups, insurance companies, and hospital medical plans.

Indemnity--Benefits paid in a predetermined amount in the event of a covered loss. Fee-for-service health insurance plans are often also referred to as indemnity plans.

Indemnity benefits--Benefits in the form of cash payments rather than services. In most cases, after the provider of service has billed the patient, the insured person is reimbursed by the company.

Individual practice association (IPA)--A type of HMO in which a partnership, corporation, or association has entered into an arrangement for provision of their service. Practitioners provide care in their own offices and serve HMO members as part of their regular practice. IPAs are one source of professional services for HMOs and are modeled after medical foundations.

Joint Commission on Accreditation of Healthcare Organizations (JCAHO)--A private, non-profit organization which functions as the main accrediting body for hospitals and other provider facilities, who pay JCAHO for its services. JCAHO publishes national standards, surveys facilities on request, and awards accreditation to those that demonstrate compliance with the standards. JCAHO accreditation is voluntary, but is required for participation in Medicare. JCAHO now has accreditation standards specific to health care networks and is now accrediting them.

Managed care--Health care systems that integrate the financing and delivery of appropriate health care services to covered individuals by arrangements with selected providers to furnish a comprehensive set of health care services, explicit standards for selection of the care providers, formal programs for ongoing quality assurance and utilization review, and significant financial incentives for members to use providers and procedures associated with the plan.

Managed competition--A theory of health care delivery in which a large numbers of consumers choose among health plans that offer similar benefits. In theory, competition would be based on cost and quality.

Medicaid--State programs of public assistance to eligible persons, regardless of age, whose income resources are insufficient to pay for health care. Passed into law in 1965, Title XIX of the federal Social Security Act provides matching federal funds for financing state Medicaid programs. The program covers a wide range of services. Most of the recipients are low-income women and children, but 70% of the funds pay for nursing home and other long term care services for elderly and disabled people. Medicaid is projected to serve about 36 million people at a cost of $158 billion in 1995.

Medicare--A federally administered health insurance program for persons aged 65 and older and certain disabled people under 65 years old. Created in 1965 under Title XVIII of the Social Security Act, Medicare covers the cost of hospitalization, medical care, and some related services for eligible persons without regard to income. Medicare has two parts: Medicare Part A: Hospital Insurance (HI) Program is compulsory and covers inpatient hospitalization costs (currently reimbursed using DRGs under the prospective payment system) and limited post-hospital care. Medicare also pays for pharmaceuticals provided in hospitals, but not for drugs provided in outpatient settings. Medicare Part B: Supplementary Medical Insurance Program is voluntary and covers medically necessary physicians' services, outpatient hospital services (currently reimbursed retrospectively) and a number of other medical services and supplies not covered by Part A. Part B is available for a premium regardless of income. In 1994, Medicare served 35 million elderly and disabled persons at a cost of $200 billion.

Outpatient review--A review that determines the appropriateness of treatment and monitors ongoing care, for purposes of authorizing payment by a health plan.

Peer Review Organization (PRO)--A federal program established by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), which monitors the medical necessity and quality of services provided to Medicare and Medicaid beneficiaries under the prospective payment reimbursement system. PROs also validate provider coding assignments that affect Medicare reimbursement.

Physician-Hospital Organization (PHO)--Organization of physicians and hospitals that, at a minimum, is responsible for negotiating with third party payers.

Point-of-service (POS)--Often known as open-ended HMOs or PPOs, these plans encourage use of network providers, but permit insured individuals to choose providers outside the plan at the time service is rendered.

Preadmission certification--An element of utilization review, which examines the need for proposed inpatient service(s) before admission to an institution to determine the appropriateness of the setting, procedure, and length of stay. Preadmission certification seeks to ensure that providers do not hospitalize people unnecessarily or for longer than is medically necessary.

Preferred Provider Organization (PPO)--An arrangement whereby a third-party payer contracts with a group of "preferred" medical care providers who furnish services at lower than usual fees in return for prompt payment and access to a certain volume of patients.

Premium--Rate that a plan subscriber pays for coverage of specific health services.

Primary care--The point when the patient first seeks assistance from the medical care system. It is also the care of the simpler and more common illnesses. The primary care provider assumes ongoing responsibility for the patient in both health maintenance and treatment.

Prior authorization--Requirement of a third party, under some systems of utilization review, that a provider justify the need for delivering a particular service to a patient before providing service in order to receive reimbursement.

Quality management--The process by which an organization measures the extent to which the providers conform to defined standards and, based on that data, improve care and outcomes.

Reinsurance--Insurance by the insurer with a third party against risks that the plan cannot easily manage or predict (for example, catastrophic care).

Risk--Possibility that revenues of the insurer will not be sufficient to cover expenditures incurred in the delivery of contractual services.

Risk management--A comprehensive program of activities to identify, evaluate, and take corrective action against risks that may lead to patient or employee injury, and property loss or damage with resulting financial loss or legal liability.

Risk retention--Financial liability remaining with a major entity to the insurance program, such as a group of providers.

Self-insured--Health coverage in which health services are delivered by providers but the member's employer, not the insurance plan, bears the risk for any expenses incurred. These plans usually contract with a third party administrator, or an insurance company through an Administrative Services Only (ASO) arrangement, to administer the plan, including paying claims, determining eligibility, etc.

Staff model--A type of HMO, similar to the group model, in which physicians are salaried employees who provide their services exclusively to HMO enrollees.

Third-party administrator--A person or organization that provides certain administrative services to group benefit plans, including premium accounting, claims review and payment, claims utilization review, maintenance of employee eligibility records, and negotiations with insurers that provide stop-loss protection for large claims. These entities often serve employer health plans that are "self-insured" under ERISA, substituting for many of the functions of state-regulated commercial insurance companies.

Third party payment--Payment for health care by a party other than the enrollee (for example, by an insurance company).

24-hour coverage--Insurance coverage that removes the boundary, or part of the boundary, between occupational and nonoccupational claims. The most comprehensive definition describes a complete system of medical and disability benefits available to individuals regardless of employment or financial status or whether the cause is work-related. The simplest definition describes a system that ensures that an employee's claim is covered under the correct insurance policy (that is, workers' compensation, group health, or disability), and that there is no double recovery. There are many variants between these two extremes.

Utilization review--A mechanism used by some insurers and employers to evaluate health care on the basis of appropriateness, necessity, and quality. For hospital review, it can include preadmission certification, concurrent review with discharge planning, and retrospective review.


Judith A. Huntington, MN, RN
Director of the Office of Strategic Planning for the American Nurses Association

Judith A. Huntington, MN, RN, is the Director of the Office of Strategic Planning for the American Nurses Association in Washington, D.C. She has been a member of the executive staff of ANA since 1989, serving as Director of Governmental Affairs (1989-1992) and Director of Field Services, Labor and Workplace Advocacy (1992-1995) before assuming her current role. Ms. Huntington's current responsibilities include association-wide strategic planning; oversight and direction of the development of ANA's online services programs; and executive liaison activities with constituent state nurses associations, specialty nursing groups, and other health care organizations.

© 1997 Online Journal of Issues in Nursing
Article published January 6, 1997

Citation: Huntington, J., (January 6, 1997). "Glossary for Managed Care" Online Journal of Issues in Nursing Vol. 2. No. 1.