What Is Managed Care?
Managed care is a healthcare delivery model designed to control costs while improving the quality of care. It refers to a system where a health care company, often called a managed care organization (MCO), coordinates medical services for members by working with a defined network of providers. Unlike the traditional fee-for-service model, which reimburses providers for each visit or procedure, managed care focuses on preventive care, cost-efficiency, and outcomes.
This care program began gaining traction in the 1970s as healthcare expenditures in the U.S. continued to rise unsustainably. In response, both private insurers and public agencies sought models that would incentivize providers to follow care principles focused on value rather than volume. Managed care does this through methods like capitation, utilization reviews, and provider contracts that promote accountability.
For compliance professionals and healthcare providers, understanding managed care means navigating a system with specific reimbursement structures, compliance requirements, and network limitations that directly affect your day-to-day operations.
In this article:
What Is Managed Care?
What Are Managed Care Organizations (MCOs)?
How Does Managed Care Work?
Medicaid Managed Care: Growth and Impact
MCOs vs ACOs: Key Differences
Compliance and Operational Considerations for Providers
What Are Managed Care Organizations (MCOs)?
Managed Care Organizations (MCOs) are structured care organizations that contract with state or private insurers to deliver healthcare services to members. They act as intermediaries between patients and health care providers, using a defined provider network to manage costs and ensure access to necessary care. Each health care company operating as an MCO is responsible for developing and administering care plans that align with both financial and quality benchmarks.
The goal of an MCO is to streamline patient care by coordinating services, reducing unnecessary treatments, and keeping members within an approved health plan network. By doing so, MCOs can offer additional preventive care and chronic condition support while keeping expenses under control for insurers and states.
For healthcare teams, understanding how MCOs operate is essential. Whether managing referrals, credentialing providers, or adhering to documentation rules, the structure of a Managed Care Organization directly impacts how services are authorized and reimbursed.
Types of Managed Care Organizations
Health Maintenance Organizations (HMOs): Require members to use in-network providers and select a primary care physician. Example: Kaiser Permanente.
Preferred Provider Organizations (PPOs): Offer more flexibility with out-of-network options, but at higher costs. Example: Blue Cross Blue Shield.
Point of Service (POS) Plans: Combine HMO and PPO features. Members need referrals for specialists but may see some out-of-network providers. Example: Aetna POS plans.
How Does Managed Care Work?
Managed care plans are built around structured systems that aim to deliver quality medical care while controlling costs. At the core of these plans are payment models, patient management strategies, and defined provider networks that influence every aspect of care delivery. By understanding how these elements function, healthcare providers and compliance teams can navigate billing, authorizations, and service coordination effectively.
Key Components of Managed Care Plans
Capitation and Payment Models: Under capitation, a healthcare provider is paid a set fee per patient, per month, regardless of how many services that patient uses. This model shifts risk from the payer to the provider, incentivizing preventive care plans and efficient resource use. While this can encourage proactive care, it also requires tight oversight to ensure quality isn't sacrificed for cost.
Referral and Authorization Process: Most managed care plans use a gatekeeper model. Patients often need a referral from a primary care physician to see specialists or access certain services. This coverage control mechanism helps limit unnecessary medical care, but delays and denials can frustrate patients and burden staff.
Network Design and Access to Services: Providers in a network of providers agree to certain reimbursement rates and care standards. Staying within the approved provider network is key for maximizing plan benefits. Out-of-network care may lead to higher costs or limited coverage, making network coordination a top priority for healthcare organizations.
Medicaid Managed Care: Growth and Impact
Medicaid Managed Care has become the dominant model for delivering Medicaid health care benefits across the United States. What began as a cost-containment strategy has evolved into a system that now covers more than 70% of all Medicaid enrollees. Through contracts with health maintenance organizations and other managed care organizations, states are working with private insurers to improve care coordination, control spending, and expand access to services, including behavioral health services.
State agencies use a competitive bidding process to select MCOs and structure contracts with specific quality and compliance requirements. These contracts often include coverage mandates, value-based payment arrangements, and reporting benchmarks.
Fast Facts and Examples
Over 70% of Medicaid members are enrolled in MCOs as of 2023 (KFF).
Many plans include behavioral health services and chronic disease management.
Top 5 National Medicaid MCOs: UnitedHealthcare, Centene, Aetna, Molina, Anthem.
Top 5 Kentucky Medicaid MCOs: Aetna Better Health, Anthem Kentucky, Humana Healthy Horizons, Passport by Molina, WellCare of Kentucky (chfs.ky.gov).
These organizations operate under risk-sharing agreements, where the MCO assumes financial responsibility for providing care, giving states a more predictable budgeting model while requiring tight oversight to ensure quality outcomes.
MCOs vs ACOs: Key Differences
While Managed Care Organizations (MCOs) and Accountable Care Organizations (ACOs) are both designed to improve health care quality and reduce costs, they differ significantly in structure and control. Knowing the differences is essential for providers navigating contracts, networks, and care delivery systems.
MCOs are payer-led models that manage health care services through contracts with providers. They typically use pre-negotiated rates, network restrictions, and care plans centered around coverage and utilization control. Risk is often shifted to the provider through capitation or shared savings models.
On the other hand, ACOs are provider-led groups that voluntarily join together to coordinate care for a specific patient population. Their focus is on improving outcomes and lowering costs through collaboration, data sharing, and aligned incentives.
Key Differences: MCOs vs ACOs
Structure: MCO = payer-led | ACO = provider-led
Incentives: MCO = cost containment | ACO = outcome-driven
Risk Sharing: MCO = preset contracts | ACO = shared savings/losses
Focus: MCO = access and utilization | ACO = coordination and quality
Compliance and Operational Considerations for Providers
For healthcare providers, participating in managed care requires a deep understanding of compliance, contracting, and operational responsibilities. Every care program managed by an MCO comes with specific requirements tied to reimbursement, reporting, and care quality. These expectations directly impact primary care providers, specialists, billing teams, and compliance officers alike.
Because MCOs operate under strict federal and state oversight, provider organizations must adopt internal strategies that prioritize both documentation accuracy and care consistency. Audits often focus on credentialing, timeliness of medical services, and the delivery of additional benefits promised under the MCO's scope of coverage.
Compliance Tips for Working with MCOs
Understand contract requirements and capitation terms: Ensure all stakeholders are aware of reimbursement models and care expectations.
Monitor network adequacy and quality metrics: Keep provider directories updated and track performance against benchmarks.
Coordinate care transitions and documentation: Work closely with primary care doctors and specialists to support continuity of care and meet utilization guidelines.
Staying proactive with compliance measures helps reduce audit risk, maintain funding, and support high-quality care across your network.
If you and your team are looking for support in navigating managed care requirements, Healthcare Compliance Pros offers tools and training to help your team manage credentialing, meet quality benchmarks, and stay audit-ready.