Managed Care Contracting -- Division of Responsibilities

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This is the fourth article in the Managed Care Contracting "Signature Series" by Managed Care Resources, Inc. -- articles on topics in managed care written by experts in the field. The authors of this article are Ira H. Rosenberg and  Michael S. Backus.

Today's managed care world is full of different contracting entities. There are HMOs, MSOs, PPOs, IPAs, PHOs, and other sets of initials still to be developed! Relationships between these parties can be as varied as their organizational structures, and the contracts are often confusing. If payor/provider relationships are to be successful, the provider would do well to utilize information from the various contracts to construct a "Division of Responsibilities" (DOR). This article will focus on two areas of the construct:

The Structure of a DOR

The Uses of a DOR

The value of a DOR lies in its assistance in dealing with a payor/provider contract. The payor is assumed to be an HMO or some other managed care entity which has contracted to pass an agreed-upon amount of risk to a provider group. Assume that the provider group is an IPA or PHO that is receiving a capitated amount for provision of primarily "Part B", or professional, services. The HMO is responsible for paying for "Part A" services, some of which may be charged to a risk-sharing or "incentive" fund. The DOR should be created by the provider to assist in both finalizing and operationalizing its HMO contracts.

The DOR is best described as a provider group's tool for identifying and implementing payment obligations under its contract. Begin with a spreadsheet program, configured with the payor contracts along the horizontal axis, and the services along the vertical. Listing all contracts on the same page makes it easier to compare and contrast contract terms, and assures consistency between agreements. The services are the items to be provided to members, by either the IPA or the HMO. The grid is filled in with a listing of which party pays for each service. These are generally either the IPA, through the "medical services" fund, the HMO and IPA together through a "shared services" or "risk" fund, or the HMO, through an "exclusion" fund. An example of a typical DOR is shown below.

Defining the HMOs is easy: There is a column for every contract where the provider organization is either assuming or managing risk. However, defining the services is more difficult. Typically, the payor contract will include a set of attachments listing those services for which the IPA is responsible. Unfortunately these services are rarely consistent across all HMOs. For example, under the HMO A contract the IPA may be responsible for all inpatient professional fees, while under HMO B the payor pays all professional fees related to transplants. Because this involves some inpatient professional fees, an additional service category must be added to the grid, with the result being a DOR services column becoming a list containing the "lowest common denominator" of services across all contracts.

Service definition forces the resolution of conflicting or murky contract language. For example, if the risk sharing fund pays for inpatient care, but the HMO pays for emergency out-of-area care, which fund pays for inpatient care rendered out-of-area after an ER admission? In our experience we have seen three different HMOs resolve this in three different ways, often to the consternation of the provider group.

The definition of services assures that both parties have a true understanding of what is meant by the words used in the contract. For example, does "infertility services" mean only assisted reproductive techniques, or does it include everything required to make the initial infertility diagnosis, such as lab tests? Most large and well-established HMOs have developed policy and procedure manuals, and have documentation on these types of issues. Most small ones do not. Because of the golden rule of contracting (Those with the gold make the rules), judgment calls in these areas typically go against the provider's economic interest.

Lastly, the DOR construct should include one or more Service lines to contain the "default rules." This is the interpretation of the language in the contract for services which are not explicitly listed in the contract. This language may be buried within the body of the contract, or may be part of the services attachments. An example of a common phrase is: "All services not listed herein are considered to be the responsibility of the Provider Group."

In order to obtain value from a DOR construct, all provider group staff must use it daily across all functional areas of the group (e.g., claims, utilization management, provider relations, etc.). This should be accomplished in three areas:

1. Contract Negotiating and Renegotiating

2. Computer System Implementation

3. Network Development

1. Contract Negotiating and Renegotiating

The primary usage of the DOR in contract negotiation is in the economic valuation of contract terms. In addition to the initial negotiation described above, it is likely that once per year at least one of an IPA's HMO contracts will be up for renewal. Inevitably, the HMO, based on its network experience, will be seeking to change the allocation of some services between funds. And typically, they will inform the IPA that the proposed new capitation payment reflects an actuarial adjustment to the DOR. In this situation, the IPA should go into its own claims system, and calculate the value of the different service listed in the contract. By assigning dollar values to those DOR cells which are changing, a determination can be made as to the economic impact on your specific IPA, not to the HMO's network as a whole.

This assignment of values to individual cells can also be used to compare contracts from the various HMOs. In that way, when a merger or acquisition between HMOs happens, the IPA can work to insure the best possible reimbursement from the new entity.

2. Computer System Implementation

Most IPA's are responsible for paying claims for the services for which they are at risk, usually via an automated claims and eligibility system. Currently a popular system is EZ-CAP, a relatively inexpensive and user-friendly PC based system. In order to utilize the system, a dictionary of individual benefits must be built for each HMO, defined by either procedure codes (CPT-4, HCPC, or ICD-9) or diagnosis codes (ICD-9). If the DOR concept was utilized in the HMO contract negotiation, creating these dictionaries should be a relatively straight-forward data entry process.

Once the benefits have been defined, the system must be "loaded" to either pay, deny, or forward the claims to the HMO. Values within the DOR inform the system operator which way to set the payment flags for each HMO. In addition, a copy of the DOR can be included in the claims payment manual to assure proper payment by the claims adjudicators.

3. Network Development

One of the most overlooked elements of successful IPA management is the establishment of a complete network. Making sure that there are contracted providers for all of the IPA's risk areas is critical to financial success. Analysis of the DOR reveals for which services the IPA needs coverage, and examination of claims from out-of-network providers determines the order in which specialty contracts should be pursued.

The DOR can also help the IPA determine which services are "split" and could conceivably create a structural out-of-network situation. For example, many contracts make the IPA responsible for pregnancy termination professional fees, but hold the HMO responsible for ambulatory surgery facility fees. Most HMOs authorize a limited number of termination facilities, and if the IPA does not have an agreement with physicians at the contracted facilities, then a structural out-of-network situation is created. The IPA can avoid this situation by using a DOR when negotiating contracts as well as in creating networks.

For more information on Managed Care Contracting please contact us at (630) 325-6543 or by email at info@mcres.com .

I hope that you will join us as we explore all of the elements of managed care contracting in the coming months. In addition, we also offer a "Signature Series" on "Medical Management Under Managed Care". We hope that the two series combined will lessen the mystery of managed care and help level the playing field between providers and payers.

Ira H. Rosenberg

President, Managed Care Resources, Inc.

The Managed Care Resources, Inc. team has over 150 years of combined experience in the development and implementation of managed care services. Please visit our home page to learn more about how we can assist you with your managed care needs. We also invite you to contact us with questions or comments.

www.mcres.com email: info@mcres.com