Practice of excluding specific services from a managed care organization’s capitated rate. In some instances, the same provider will still provide the service, but they will be reimbursed on a fee-for-service basis. In other instances, carved out services will be provided by an entirely different provider. A payer strategy in which a payer separates (“carves-out”) a portion of the benefit and hires an MCO to provide these benefits. Common carve outs include such services as psychiatric, rehab, chemical dependency and ambulatory services. Increasingly, oncology and cardiac services are being carved out. This permits the payer to create a seperate health benefits package and assume greater control of their costs. Many HMOs and insurance companies adopt this strategy because they do not have in-house expertise related to the service “carved out.” A “carve-out” is typically a service provided within a standard benefit package but delivered exclusively by a designated provider or group. This process may or may not seem transparent to the subscriber, but, it often means that seperate UR and pre-certification entities are involved as well as different payers and providers. Carve-outs are also called sub-contractors, sub-capitators or junior capitation contracts.