Arrangement between a managed care plan and Centers for Medicare and Medicaid Services (CMS), under which the health plan provides health services and is reimbursed its costs. The beneficiary can use providers outside the plan’s provider network.

Efficiency and competence of an insurance plan or program in achieving given intervention outcomes in relation to the program or plan costs. For example, the production of services with the least possible cost or treatment of a medical condition with the least expensive level of care that obtains the desired health outcome of the patient. Also called cost efficiency.

Method used to compare the costs of similar plans of life insurance. Policies with smaller index numbers are usually a better buy than comparable policies with larger index numbers.

In the Medicare program, this is a measurement of the differences across geographical areas of the cost of operating a medical practice.

Typical case that has an extraordinarily high or extremely low cost when compared with most discharges classified to the same diagnosis-related group (DRG).

Review by a professional review organization (PRO) for the necessity of a patient’s hospital admission and to determine whether all services rendered were medically necessary. Cost outlier cases are recognized only if the case is not eligible for day outlier status.

Average amount of money a company spends to acquire one new customer.

1. Health insurance funding in which the insurance carrier does not assume an underwriting risk. The group that is insured pays the costs of benefits (incurred claims), pays administrative costs, and contributes to the insurance carrier’s contingency reserve fund. 2. System of payment for inpatient hospitalization in which total operating costs and certain allowable capital costs are used in determining the per diem (per day) rate. When the amount of payment from a payer becomes insufficient or when uncompensated services are given, providers go to cost shifting and charge extra to the payers who do not exercise strict cost controls. This system is a typical means for providing uncompensated care to the uninsured.

Payment system in which providers receive payment based on their actual costs plus a profit. This system is usually seen in fee-for-service (FFS) plans.