A delegated entity is an organization that performs specific administrative or healthcare functions on behalf of a managed care organization (MCO) or health plan. The modern healthcare system involves complex structures, requiring health plans to manage vast networks of providers and administrative processes. To operate efficiently, health plans often outsource certain responsibilities to third parties with specialized expertise. This delegation allows the health plan to focus on its core insurance functions while relying on external partners for high-volume or specialized tasks. The delegated entity acts as a formal extension of the health plan, managing a defined scope of operations for the plan’s members.
Defining Delegation and the Contractual Relationship
The relationship between the health plan and the third-party organization is strictly contractual, established through a formal delegation agreement. The health plan, known as the Delegator, transfers authority for a specific function to the external organization, the Delegatee or delegated entity. This arrangement is driven by needs for greater efficiency, access to specific expertise, and better cost management, especially for tasks like provider credentialing or utilization review.
The delegation agreement clearly defines the scope of work, performance metrics, and the monitoring requirements the delegated entity must follow. If a delegated entity further contracts with another organization to perform a part of its delegated function, that second organization is often referred to as a downstream entity. Even when functions are passed down to a downstream entity, the original Delegator remains the party ultimately responsible for the performance and compliance of all contracted tasks.
Essential Services Performed by Delegated Entities
Delegated entities manage several administrative functions that are critical to the operation of a health plan, often involving interactions with providers and members. These functions include utilization management, credentialing, claims processing, and provider network management.
Utilization Management (UM)
UM is a common delegated function, where the entity reviews the medical necessity and appropriateness of healthcare services before they are provided. This includes handling prior authorizations for procedures, medications, or equipment. It also involves conducting concurrent reviews to determine if a patient’s ongoing hospital stay is medically necessary.
Credentialing and Recredentialing
This function involves verifying the qualifications of healthcare providers who want to join the health plan’s network. The delegated entity collects and verifies a provider’s state licensure, Drug Enforcement Administration (DEA) registration, board certifications, and malpractice history. This process ensures that all practitioners meet the health plan’s quality standards before they can treat members.
Claims Processing and Adjudication
Delegated entities frequently handle claims processing, where they receive, examine, and either approve or deny payment for services rendered to members. They are responsible for applying the correct payment rules and contract terms to ensure providers are paid accurately and promptly.
Provider Network Management
A delegated entity may manage provider network management, which involves maintaining the current list of contracted providers and facilities. This ensures the network is adequate for members’ needs.
Accountability and Regulatory Requirements
Despite the transfer of day-to-day operations, the Delegator, or the health plan, retains the ultimate responsibility for the quality and compliance of all delegated functions. This means the health plan is accountable to state and federal regulators for any failure by the delegated entity. This responsibility necessitates a robust system of oversight, monitoring, and auditing.
The delegation agreement requires the health plan to conduct regular, often annual, audits of the delegated entity’s operations, performance metrics, and adherence to policies. Delegated organizations are subject to oversight by state departments of insurance and federal agencies like the Centers for Medicare and Medicaid Services (CMS) if they handle Medicare or Medicaid programs. The agreement must include performance standards and monitoring requirements to ensure the delegated entity meets all regulatory and quality standards.
How Delegation Affects Patients
Delegation directly impacts members by changing the point of contact for certain administrative tasks. When a function like utilization management is delegated, a member’s physician may need to submit a prior authorization request directly to the delegated entity, not the health plan itself. Similarly, if a member has a question about a specific payment or denial, their claims inquiry may need to be directed to the delegated entity responsible for adjudication.
While delegation is intended to streamline processes, it can sometimes create confusion for members who must navigate multiple entities for different services, such as a separate delegated entity for mental health or pharmacy benefits. When a delegated entity issues a denial for a service, the member retains the right to pursue the standard appeals and grievances process. The delegated entity is typically responsible for administering the first level of appeal, but the member always has the right to escalate the issue to the health plan and, ultimately, to external review bodies.