What is a Managed Care Contract?

What is a Managed Care Contract

Managed care plans are the most common form of health insurance in the U.S. today. They are based on contracts between medical facilities and healthcare providers to provide care and services at a lower cost. Together, the providers who enter into the care contract form the plan’s “network.” 

Despite the fact that more than three-quarters of the American population has a health insurance plan that could be labeled “managed care plan,” many of them wouldn’t know it. Nor are they aware that the coverage they receive, the healthcare costs they pay, and the healthcare professional they can see “in their network” is largely determined by them. 

Why is that? And what is a managed care contract exactly? What are the best contract management strategies?


The purpose of managed care is clear cut, according to Christine Tobin: “Simply stated, managed care is a system that integrates the financing and delivery of appropriate health care using a comprehensive set of services. Managed care is any method of organizing health care providers to achieve the dual goals of controlling health care costs and managing quality of care.”

Currently, there are three primary forms of managed care plans. Plans that provide fewer choices cost less, whereas those with more flexibility cost more. They include:

  1. Health Maintenance Organizations (HMO) – Plans with a fixed, periodic payment that typically only pay for care provided within the network. An individual selects their primary doctor who facilitates most of their care. 
  2. Preferred Provider Organizations (PPO) – A higher costing plan consisting of groups of hospitals and other providers. It will pay for a larger share of care within the network but will still cover some costs outside of it.  
  3. Point of Service (POS) – A plan that grants the individual flexibility to choose between an HMO or a PPO each time care is needed.

Healthcare providers want to offer their patients quality care while keeping costs reasonable in payor contracting. This is where the “contract” portion of the “managed care contract” comes into play.


In simplest terms, a managed care contract is an agreement between a healthcare professional and a managed care organization (MCO) that defines the relationship (both financially and care-wise). 

The healthcare professionals entering this bond can be:

  • Individual physicians
  • Private practices
  • Hospitals

The MCO can be:

  • Provider-sponsored networks
  • Integrated delivery systems
  • Health maintenance organizations
  • Other healthcare plans

Provider credentialing


The primary element of a managed care contract is compensation for services rendered. But there are other important facets that deserve mention for managed care contracting, including:

  • Clear cut rules and standards for choosing a care provider
  • Financial incentives for enrollees to go in network
  • Programs for continued quality improvement 
  • An emphasis on ensuring that enrollees maintain their health to decrease the need for services


For providers, the provisions within a managed care contract can impact many of the crucial elements governing a healthcare organization, including:

  • Payment
  • Practices and procedures
  • Record keeping
  • Confidentiality practices
  • Office organization
  • Clinical decision-making

Healthcare reform and the emergence of managed care has added elements of complexity to the relationship between doctors, patients, and the organizations that facilitate the transaction of care. This has made it necessary for detailed, well-thought-out contracts that clearly define:

  • Who can provide the medical services
  • How they can provide medical services
  • When they can provide medical services
  • What medical services can be completed
  • How the medical service provider will be compensated for their services

Providers must carefully review the minute details of any and every contract prior to agreeing to its terms. According to FindLaw, “A good managed care contract, like any other form of business agreement, is clear, consistent, comprehensive, and concise. It will conform to both the intent of the parties, setting out their respective rights and responsibilities, and the requirements of state and federal law.” 


Negotiating managed care contracts can be a headache for providers. For that reason, it’s crucial that you understand that simply having more contracts doesn’t guarantee more value. 

At PayrHealth, our experts pinpoint contracts that perfectly match your strategy, service area, and unique offerings. Thanks to our extensive network of relationships and proven process, we can help you not only sign better managed care contracts but negotiate higher rates for both new and existing contracts. 

Interested in finding out more about how PayrHealth can be your growth solution? Let’s chat. 


NFB. Managed Health Care. https://www.nfb.org/sites/www.nfb.org/files/images/nfb/publications/vodold/mngdcare.htm

Findlaw. Managed Care Contracts. https://corporate.findlaw.com/law-library/managed-care-contracts-key-provisions-for-providers.html

JBPUB. A History of Managed Care and Health Insurance in the United States. http://samples.jbpub.com/9781284043259/Chapter1.pdf