Definition
Managed Care Organization (MCO)
A managed care organization (MCO) is a health plan that receives a fixed premium or capitation payment per member to arrange and pay for covered care through a contracted provider network, using tools such as prior authorization to manage cost.
2 min readReviewed September 14, 2026
Also known as: Managed care plan, Medicaid MCO, Managed care entity
Key facts
- Common payment basis
- Per member per month (PMPM) premium or capitation
- Medicaid managed care rules
- 42 CFR Part 438
- Medicaid rate standard
- Rates set so plans can reach a medical loss ratio of at least 85%
- Medicaid entity types
- MCOs, PIHPs, PAHPs and primary care case management
What is a managed care organization?
Managed care organizations combine insurance risk with control over how care is delivered. Instead of paying any licensed provider for any covered service, an MCO contracts with a network of physicians, hospitals and pharmacies, negotiates payment rates, and sets rules on referrals, authorizations and covered drugs.
The term appears in commercial insurance, Medicare Advantage and Medicaid, but it has a specific regulatory meaning in Medicaid. There, an MCO is an entity under a comprehensive risk contract with the state that receives a monthly capitation payment for each enrollee and bears the financial risk if care costs more.
How managed care is structured
Managed care models differ in how tightly they restrict provider choice and what they cover:
- Health Maintenance Organization (HMO): care generally must come from in-network providers, often with a primary care gatekeeper.
- Preferred Provider Organization (PPO): out-of-network care is covered at higher cost sharing.
- Exclusive Provider Organization (EPO) and Point of Service (POS) plans: hybrids of HMO and PPO features.
- Prepaid inpatient and ambulatory health plans (PIHPs and PAHPs): limited-benefit Medicaid plans, often for behavioral health or dental care.
- Primary care case management (PCCM): the state pays primary care providers a fee to coordinate care while services stay fee-for-service.
Why MCOs matter
Most Medicaid enrollees in most states now get coverage through managed care, so in Medicaid-heavy markets the real payer is often a private plan, not the state. MCOs decide which providers are in network, which drugs need prior authorization and what rates are paid, within state contract terms.
Network adequacy is regulated. States must set standards for Medicaid MCO networks, and a 2024 CMS final rule added maximum appointment wait time standards that phase in over several years. For recruiters and network teams, gaps in an MCO network can reveal unmet demand for specific specialties in specific counties.