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Carve-Outs
The term carve-outs in the health insurance industry relates to the unique healthcare services that are removed or carved out from a given set of insurance benefits. The carved-out services are provided by a separate vendor or company that offers expertise to a given membership base, and provision of these services involves a contract that is separate from any made with a managed-care organization. The concept of carve-outs was popularized in the late 1980s, when managed care accelerated in the United States due to rising healthcare costs. Carve-outs have advantages as well as disadvantages for healthcare providers and consumers.
Overview
Carve-outs represent a model of contracting for specialty care with providers as a way of controlling rising healthcare costs. Carve-out contracts can include care for patients with certain conditions, particular services, or care for an entire subpopulation of patients. Carve-outs are distinct because they involve a set of providers or management organizations different from those that are otherwise available for patients within a health plan. They permit a unique set of managed-care techniques to be applied to an area of care that is costly or involves complex benefits. Carve-out arrangements can occur at different levels of the healthcare system, including the payer, health plans, or group practices to manage a portion of the insurance risk. Carve-outs appear to lower the associated costs of healthcare for employers and health plans, although whether or not they improve patient outcomes is unclear. In addition, carve-outs may change the competition dynamics among health plans.
In the 1980s, insurance companies developed large utilization review programs with elaborate referral systems that quickly frustrated enrollees and primary-care physicians because of the paperwork involved in getting a referral. Behavioral health, dental care, and worker's compensation services were unique and required specialized oversight. For the most part, the staffs employed by the insurance companies had general medical/surgical backgrounds, and therefore they found it difficult to approve specialty referrals to services for which they had limited formal training. In response to these knowledge gaps, insurance and managed-care companies recruited nurses and physicians who had expertise in behavioral health, dental care, and worker's compensation to fill this void and develop carve-outs.
Advantages and Disadvantages of Carve-Outs
The intent of carve-outs is to deliver efficient and cost-effective services by a central source that has expertise in a particular service. Some examples of carve-outs include dental care, mental health, workers compensation, and pharmacy benefits. The advantages of carve-outs include the following: economies of specialization, enhancement in access to care, the knowledge and expertise that comes with specialization, better coordinating of services with medical and surgical services, control of utilization, and using market power to affect quality. In contrast, the disadvantages of carve-outs include the lack of coordination between various providers and the time needed to perform the coordination. Oftentimes, patients are caught in the middle, and they do not have anyone to serve as their advocate. In some cases, companies have in-sourced their carve-outs to limit the confusion. Some of the coordination difficulties have occurred prominently in the mental health area.
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