Managed care plans develop health care provider networks by entering into contracts with hospitals, physicians and other health care professionals to deliver health care cost effectively. The increasing focus on health care costs by employers, the government and consumers has led to the growth of alternatives to traditional indemnity health insurance in recent years.

One of the most characteristic forms of managed care is the use of a panel or network of health care providers to provide care to enrollees. Such integrated delivery systems typically include one or more of the following:

• A set of selected providers that furnish a comprehensive array of health care services to enrollees;
• Explicit standards for selecting providers;
• Formal utilization review and quality improvement programs;
• An emphasis on preventive care; and
• Financial incentives to encourage enrollees to use care efficiently.

Provider networks can be used to reduce costs by negotiating favorable fees from providers, selecting cost effective providers, and creating financial incentives for providers to practice more efficiently. Other managed care techniques include disease management, case management, wellness incentives, patient education, utilization management and utilization review. These techniques can be applied to both network-based benefit programs and benefit programs that are not based on a provider network. The use of managed care techniques without a provider network is sometimes described as "managed indemnity."

HMO, PPO, and hybrid plans, such as POS plans, incorporating features of each, are among the various forms of managed care products that have developed. Recently, there has been an influx of consumer-directed health plans, introduced in an effort to give the consumer more control of their health care. Tightly controlled health maintenance organizations have steadily lost ground over the last decade to preferred provider organizations, which offer greater choice of physicians and hospitals and direct access to specialists -- though at a higher price. One result of the changes in the market has been the continuing consolidation among managed care organizations.