Managed Care Contracting "Signature Series" Summary

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This is the final summary 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 author of this article is Roberta Carefoote.

A year ago, Managed Care Resources, Inc. began a series of articles on "Contracting for Managed Care Services". The purpose was to provide some insight into general contracting issues as well as a practical and in-depth look at some specific issues. The series was intended to give the reader helpful information, regardless of the maturity of their marketplace. For those in newer markets, the information was designed to help the reader anticipate issues; for those in mature markets, the information served as a refresher. Despite their experience with contracting, many readers indicated that they benefited from the information and appreciated the easy to understand format employed by the five authors.

This article summarizes the signature series on contracting, noting the contents of each article and the main points highlighted by the author. It provides a road map for the reader enabling him/her to find material of interest and to selectively target relevant articles.

• Preparing for Managed Care Contracting

  The first "Signature Series" article sets the stage for future articles. It identifies the need for a written agreement and describes two key factors to consider before entering into such an agreement - the environment and the terms and conditions of participation. The author, Ira H. Rosenberg, articulates a number of questions that help the reader understand the complexities of preparing for contracting, and emphasizes the need to pay attention to details in this early phase. Failure to pay attention to the gross premium, service costs, insurer prices, and specific risk factors can place the entity at significant risk in the negotiation process. The author also notes that understanding the environment and the costs is just part of the process of being "armed". The reader is encouraged to understand contract language, his/her rights and responsibilities, and the products being covered. These factors can make the difference between a highly beneficial relationship and an acrimonious and costly one.

• Determining With Whom to Contract and the Amount of Risk to Assume

  This article focuses on the process that providers undertake when they make the decision to contract with one or more managed care payers. It also helps the provider to choose which managed care programs it should be involved with and to determine the financial risk to assume in the arrangement. As with the first article, the authors, Ira H. Rosenberg and Thomas E. Richmond, stress the need to prepare for negotiations. The research enables the provider to understand the risks and rewards inherent in the proposed arrangement and provides a basis for comparing and evaluating different organizations. The authors go on to outline the advantages and disadvantages of capitation and describe different kinds of capitation arrangements. They also speak to the importance of understanding the nature of managed care programs, as they all differ with respect to financial strength, provider philosophy, and customer service levels. In summary, the reader is advised to consider expert assistance during negotiations to ensure that there is a complete understanding of the risks involved.

• Reimbursement Models

  Exploring the various payer-provider relationships, the author of this article, Michael S. Backus, attempts to lessen the confusion about today's insurance products. He starts by identifying the different payer and provider groups and highlights their motivation for contracting. The author then moves onto the six basic payer-provider relationships and examines each one in turn: a) HMO-hospital transactions, b) PPO-hospital transactions, c) IPA-hospital transactions, d) HMO-IPA/PHO transactions, e) PPO-IPA and individual transactions, and f) HMO and IPA-Individual transactions. By way of summary, the author notes that successful contracting begins with understanding each party's motivations, strengths, and operational limitations. Working respectfully towards an agreement that meets each party's particular requirements, and allowing for future adjustments, results in a contract that benefits everyone.

• Division of Responsibilities

  This article focuses on the structure and uses of a "Division of Responsibility" (DOR) construct. A DOR is best described as a provider group's tool for identifying and implementing payment obligations under a specific contract. Its value lies in its ability to help finalize and operationalize HMO contracts. The author, Michael S. Backus, takes the reader through the development of a DOR, highlighting the main components of the construct. The author also shows readers how they can obtain value from the DOR, noting that all provider group staff should use it daily. The DOR is particularly useful in three areas: a) contract negotiating and renegotiating, b) computer system implementation, and c) network development. The author elaborates on how the DOR can be employed in each of these areas to effectively execute the desired activities.

• A Review of the Process

  Reviewing the proposed contract is the subject of this article. The author, Denise Cameron, starts by asking readers to consider four basic questions before they begin the contract review process. She also reminds them that the contract was developed by and for the managed care organization (MCO), and therefore, the purpose of the language is to give the MCO the most favorable terms. Using this information to set the context, the author goes on to highlight eighteen sections that are generally found in MCO agreements, and speaks to the content of each. The objective is to share particular insights for each of these sections and to help providers make the most of the contract review process. The author also provides readers with a contract review checklist and advises providers to be sure to ask for contract language that gives them what they want. Tailoring a generic or "boiler-plate" contract is just one way of ensuring that the document meets the needs of both parties.

• Term and Termination Clauses

  In this article, the author, Paula Nelson, recognizes that managed care relationships are generally defined by a contract - a contract that stipulates the ground rules and parameters under which the provider and MCO operate. Therefore, before agreeing to any term or termination stipulations, the author notes that the provider must first determine the combination of provisions that will best address the requirements of the MCO and its organization. This article helps the provider prepare for this aspect of contract review by giving an overview of contract term and termination clauses and providing guidelines for successful negotiation of these items. The author also sets out some of the contract provisions that the provider should include in the event that an agreement is terminated.. She notes that providers should be mindful of how such provisions may obligate them in the future, or limit their recourse.

• Primary Care Physician Capitation

  This article examines the issues surrounding Primary Care Physician (PCP) capitation. The author, Michael Backus, starts with a definition and example of PCP capitation, and moves on to discussing the payer's motivations for this reimbursement model. In the third section, services generally covered by PCP capitation are outlined, noting that coverage can range from including everything the PCP does to only including office visits. In the fourth and final section, the author speaks to the issue of panel size. One of the toughest issues to resolve is how large a patient panel should be to statistically "cover" the risk being assumed. Using a general rule of thumb, the author suggests that a PCP needs 100 commercial members to adequately spread their risk. In conclusion, the author notes that PCP capitation can work for everyone involved as long as there is a clear understanding of the implications and risks involved on both sides.

• Specialty Capitation

  The issue of specialty capitation is the focus of this article. After a brief overview of the environment that has lead to specialty capitation, the author organizes the article into three sections: a) The Case for Capitation, b) Obtaining Capitation, and c) Developing a Specialty Capitation. In the first section, the advantages and disadvantages of capitation agreements are explored. In the second section, the author, Denise Cameron, talks about securing capitation contracts in competitive managed care arenas. Finally, the author outlines the steps taken to create a viable capitation rate, and provides the reader with a detailed example of developing a specialty capitation. In summary, the author notes that the best choice for a specialty practice today is to achieve a balance of all payment mechanisms. Capitation arrangements along with effective utilization management and favorable relationships with primary care providers are key elements in a specialist's business plan.

• Ancillary Contracting

  In this article, the author, Paula Nelson, examines contracting trends, discusses ways for ancillary providers to respond to them, and provides strategies for developing successful risk arrangements with managed care payers. Noting the changes in referral patterns, and in the sources and forms of reimbursement, the author claims that ancillary providers are just now facing the issue of competing for capitation contracts. She notes that ancillary providers must recognize their unique role in the continuum of health care and adopt appropriate strategies to position their organizations to take advantage of capitated contracting. The author provides an extensive list of essential information and questions to help providers evaluate potential risk. She also takes the reader through some of the more commonly negotiated contract items, and gives them advice about how to limit their risk exposure. In summary, the author notes, as has been stressed by other authors, that the most satisfying arrangement is one where the objectives have been aligned so that both parties share in additional rewards for meeting common objectives.

• Institutional Services Contracting

  This article provides an overview of the various methods MCOs use to contract for institutional services. The focus is primarily on acute general hospital negotiation, but there is a recognition that many of the same issues exist for sub-acute care, skilled nursing, ambulatory surgery, and specialty institutional care contracting. The author, Ira H. Rosenberg, starts with a historical perspective of institutional services contracting, and moves to the four basic ways that a hospital receives reimbursement for services from an MCO: a) per diem b) discount from charges, c) case rates, and d) capitation. The author briefly explores each reimbursement method, and then offers advice about the benefits and drawbacks of each method. In summary, the author notes that a contract cannot be negotiated on price alone. In addition to the language issues, there are issues of contract administration, access by the MCO's Utilization Management personnel, timeliness of payment, access to Provider Relations services, etc. that make the negotiation a success or failure.

• Contract Management

  In this the final "Signature Series" article, the author, Denise Cameron, explores the issue of contract management. She outlines three important steps in contract management and takes the reader through the basics of each: a) Establishing key notes, b) Identifying a Contract Liaison, and c) Providing Compliance Oversight. In the section that addresses contract oversight, the author speaks to a variety of activities that the contract liaison undertakes, such as orientation and training and information dissemination. She also provides insights into how to deal with contract requirements pertaining to admissions, pre-certification, referrals, utilization, quality, and billings. In summary, the author notes that the difference between a successful and disastrous contract can depend on knowing how to manage a negotiated contract. Making sure you receive the full benefit from the agreement, having an operating system that limits your risk exposure, and paying close attention to the details of the contract are but three factors that will promote a successful relationship.

For more information on Managed Care Contracting please contact us at (708) 482-0123 or by email at info@mcres.com .

I hope you have found the "Signature Series" on Managed Care Contracting thought-provoking as well as practical. In addition, we have also published 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