Managed Care Glossary of Terms

Revenue Share
The proportion of a practice's total revenue devoted to a particular type of expense. For example, the practice expense revenue share is that proportion of revenue used to pay for practice expense.

Risk
The chance or possibility of loss. For example, physicians may be held at risk if hospitalization rates exceed agreed upon thresholds. Potential financial liability, particularly with respect to who or what is legally responsible for that liability. With insurance, risk is shared by the patient and insurance company but the company's risk is limited by the policy's dollar limitations. In HMO's, the patient is at risk only for copayments and the cost of non-covered services. The HMO, however, with its income fixed, is at risk for whatever volume of care is entailed, however costly it turns out to be. Providers may also bear risk if they are paid a fixed amount (capitation) by the HMO. The sharing of risk is often employed as a utilization control mechanism within the HMO setting. Risk is also defined in insurance terms as the possibility of loss associated with a given population.

Risk Adjuster
A measure used to adjust payments made to carriers or payers on behalf of a group of enrollees in order to compensate for spending, that is expected to be lower or higher than average, based on the health status or demographic characteristics of the enrollees. An actuarial result of analysis.

Risk Adjustment
A process by which premium dollars are shifted from a plan with relatively healthy enrollees to another with sicker members. It is intended to minimize any financial incentives health plans may have to select healthier than average enrollees. In this process, health plans which attract higher risk providers and members would be compensated for any differences in the proportion of their members that require high levels of care compared to other plans. A statistical method of paying managed care organizations different capitated payments based on the composition and relative healthiness of their beneficiaries. This procedure would generally compensate providers of HIV services with a higher capitated payment than providers of other (often less costly) health care services. In a competitive and voluntary health insurance market, like that in the US, health plans have a strong financial incentive to attract the healthiest enrollees, while excluding sicker, higher risk enrollees. This incentive encourages health plans to compete on the basis of risk selection rather than on the basis of cost efficiency and quality of health care. In the private insurance market, risk adjustment is a corrective tool designed to re-orient the incentives for health plans and enrollees, reducing the negative consequences of enrolling high-risk users by compensating plans according to the health risk of plans' enrollees.

Risk Assessment
Anticipating the cost of providing health care to groups of enrollees. Actuarial assessments examine utilization history, demographics, health characteristics, environmental attributes, and other sociological, economic and market characteristics. Risk assessment can also include, less commonly, the identification of etiology of health problems.

Risk Contract
A risk contract is broadly any contract which results in any party assuming insurance or business risk. Normally this means, in health care, that if either the employer, health plan or provider assumes risk, it is agreeing to cover the expense of increased utilization beyond the projected costs or payment provided. Normally risk is assumed by the health plan or insurance carrier but can be carried by the provider in capitated arrangements or by the employer in self-insured arrangements.

Risk Corridor
A financial arrangement between a payer of health care services, such as a state Medicaid agency, and a provider, such as a managed care organization that spreads the risk for providing health care services. Risk corridors protect the provider from excessive care costs for individual beneficiaries by instituting stop-loss protections and they protect the payer by limiting the profits that the provider may earn.

Risk factor
Any characteristic, behavior, or condition which, based on history, utilization, or theory, is thought to directly influence susceptibility to a specific health problem, increase costs or result in increased utilization.

Risk Load
In underwriting, a factor that is multiplied into the rate to offset some adverse parameter of the group.

Risk Measure
The expected per capita costs of health care services to a defined group in a specific future period.

Risk Pool
A pool of money that is at risk for being used for defined expenses. Commonly, if the pool money that is put at risk is not expended by the end of the year, some or all of it is returned to those managing the risk. Two different definitions are in use: 1) A pool of funds set aside as reserves to be used for defined expenses. Under capitation, if all of the risk pool is not used by the end of the contract year, it is usually disseminated to participating providers, and, 2) Legislatively created programs that group individuals who cannot secure coverage in the private market. Funding comes from government or assessment on insurers.

Risk Selection
Occurrence when a disproportionate share of high or low users of care join a health plan. See Adverse Selection.

Risk Sharing
The distribution of financial risk among parties furnishing a service. For example, if a hospital and a group of physicians from a corporation provide health care at a fixed price, a risk-sharing arrangement would entail both the hospital and the group being held liable if expenses exceed revenues. A method by which medical insurance premiums are shared by plan sponsors and participants. In contrast to traditional indemnity plans in which insurance premiums belonged solely to insurance company that assumed all risk of using these premiums. Key to this approach is that the premiums are only payment providers receive; provides powerful incentive to be parsimonious with care.

Risk-Adjusted Capitation
An actuarial term, this refers to methodology of payment to providers which reflects fixed payment amounts per member per month and then is adjusted further to take into account the lower or higher costs of providing care to individuals or groups of individuals, based on health status or characteristics.

Risk-bearing Entity
An organization that assumes financial responsibility for the provision of a defined set of benefits by accepting prepayment for some or all of the cost of care. A risk-bearing entity may be an insurer, a health plan or self-funded employer; or a PHO or other form of PSN. Health plans (except under employer self-insured programs) usually are risk bearing. Providers and provider organizations, if capitated, can also be risk bearing. There are 2 types of risk: insurance risk and business risk, each calculated and considered separately.

(RHC) Rural Health Clinic
A public or private hospital, clinic or physician practice designated by the federal government as in compliance with the Rural Health Clinics Act (Public Law 95-210). The practice must be located in a Medically Underserved area or a Health Professions Shortage Area and use a physician assistant and/or nurse practitioners to deliver services. A rural health clinic must be licensed by the state and provide preventive services. These providers are usually qualified for special compensations, reimbursements and exemptions.

Rural Health Clinics Act
Establishes a reimbursement mechanism to support the provision of primary care services in rural areas. Public Law 95-210 was enacted in 1977 and authorizes the expanded use of physician assistants, nurse practitioners and certified nurse practitioners; extends Medicare and Medicaid reimbursement to designated clinics; and raises Medicaid reimbursement levels to those set by Medicare.