Understanding—and Adapting to—Managed Care Strategies

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It is highly probable that many practices will see their current payor mix change to one in which 80% or more of net patient revenues will be based on negotiated payments,” according to Christopher J. Kalkhof, FACHE, director and national managed care lead, Provider Revenue Cycle Practice, Deloitte Consulting, New York City. That was the opening salvo delivered on October 20, 2008, at the Medical Group Management Association meeting in San Diego during the session, Integrating Your Practice’s Growth and Managed Care Strategies, presented by Kalkhof and Max Ludeke, FACHE, CEO, Doctors Hospital, Houston.

“Whether negotiated managed care organization (MCO) payment arrangements represent a major or a minor portion of a practice’s net patient revenues in its current operating environment, practices should expect significant change between 2009 and 2010,” Kalkhof says. During the session, Kalkhof and Ludeke discussed the favorable and unfavorable consequences of participating (or not participating) in a specific MCO contract.

Desirable consequences of participation in a favorable contract include:

  • increased patient volume through a physician referral management program and retention of existing patients;
  • the opportunity to negotiate reimbursements and pay for performance at rates that are higher than average;
  • inclusion in the MCO’s participating provider lists and Web sites;
  • electronic claims payment options, automated eligibility, disease-management programs, and accelerated cash flow;
  • MCO group and Medicare benefit plans designed to provide subscribers with financial incentives to use in-network physicians;
  • potentially competitive reimbursement; and
  • valuable practice-management tools.

The potential risks of participation include reduced control and independence on pricing strategy and patient treatment, unavoidably increased contract compliance and administrative costs, and changed referral patterns with physicians and hospitals. In addition, there may be future unit-payment reductions when market dynamics change, increased exposure to economic risk, a potentially unfavorable change in the practice service/profitability mix, and pressure to participate in all-payor products. Increased price-transparency issues are also possible, as are increased accounts-receivable challenges, retroactive payment recouping, payor audits, and reduced cash flows; patients may be lost to competitors as well.

“Most offices have an understanding that because they’ve signed the contract, they’ll get reimbursed at a discount, because the MCO will send them lots of patients,” Ludeke says, “but it doesn’t really work that way.” The scope of the potentially unfavorable impact of managed care on your referrals will depend on the level of managed care penetration in your market, your practice’s business model, your managed care strategy, and your practice’s overall business strategy.

Kalkhof adds that seemingly intangible factors will play a role in the favorable negotiation of a managed care contract. “Do not underestimate the power of favorable clinical and service quality (the patient-service experience) on the success of your practice and your MCO strategy,” he says. A superior patient-service protocol can even be a valuable argument for getting paid quickly for the services that you provide.

Kalkhof and Ludeke recommend an internal and external assessment of the practice’s business model and competitive landscape before determining whether to participate in a particular contract. These assessments include determining whether the practice’s position in the marketplace is strong, fair, or weak, which will help to ensure that participation is being considered for the right reason.

“You need an economic model that makes sense for your practice,” Kalkhof says. “You really need to read the contract and understand how you are getting paid. If you are considering a cash-based practice, you have to determine whether there is a sizable uninsured population in the marketplace to support you.”

Ludeke adds, “You need to know who you are and what you want. Ask yourself where you are in the marketplace. Analyze your denials, because you must know what a contract costs you: you can’t contract and stay in business if the contract is costing you money. Most important, ask yourself whether you are driving the pricing or whether it is driving you.”

In closing, Ludeke offers two tips for reducing claim denials. First, know your patients. Make sure