One size of UM can’t fit all
January 1, 1998 8 minutes read
One size of UM can’t fit all
Managed care arena requires special skills
By Patrice Spath, ART
Consultant in Health Care Quality and Resource Management
Forest Grove, OR
Managed care refers to a broad and constantly changing array of health plans that attempt to control the cost and quality of care by coordinating medical and other health-related services. The financial arrangements of each managed care contract influence the type of utilization review activities that need to be undertaken within the hospital. For organizations to succeed under managed care, utilization managers must adopt new strategies and gain new skills.
To face these challenges, utilization management (UM) departments must gain an in-depth understanding of the terms of each managed care agreement signed by hospital leadership. The scope of payment options in a contract can range from a fixed per diem payment, to partial financial risk for hospital and some outpatient services, to full financial risk for the entire continuum of services provided to health plan enrollees. It’s important to identify the financial incentives in each different contract in order to design the right UM process for patients covered by the managed care plan. Listed below are examples of common financial arrangements built into managed care contracts and common UM activities for each form of payment.
•Payment arrangement: percent of charges. The hospital is paid a negotiated percent of customary charges for medically appropriate admissions and continued stays.
Common UM activities: preadmission or admission review to determine admission appropriateness and continued stay reviews. The UM department usually is required to contact health plan staff to provide them with information about the patient’s clinical condition and justification for hospitalization.
•Payment arrangement: per diem. A flat sum is reimbursed for each day of hospitalization. The flat rate may be defined by service type, such as medical, surgical, special care unit, or obstetrics. Other provisions that may be included in a per diem contract: maximum number of reimbursable days, stop loss provisions, additional reimbursement for specific items (for example, implants at cost plus 10%), and inlier/outlier provisions.
Common UM activities: preadmission or admission review to determine admission appropriateness and continued stay reviews. Conduct cost reduction initiatives (such as elimination of unnecessary services, promotion of use of less costly antibiotics, reduction of perioperative costs by obtaining surgeons’ agreement to standardize equipment/supply choices). The UM department may be required to contact health plan staff at the time of the patient’s admission to provide them with information about his clinical condition, justification for hospitalization, and/or continued stay.
•Payment arrangement: per case. A flat amount per case is paid to the hospital. The cases may be categorized by Major Diagnostic Group (MDG), diagnosis-related group (DRG), principal procedure, or another classification system.
Common UM activities: preadmission or admission review to determine inpatient admission appropriateness. Watch for patients who are candidates for observation status as defined by the health plan, and encourage admission to this level of care where appropriate. The UM department generally does not need to contact the health plan with continued stay review information unless outlier payment options are built into the contract.
•Payment arrangement: capitated or full risk contract. The hospital receives a predetermined percentage of insurance premiums to cover defined services for a population of patients. The hospital risks losing money if total expenses exceed the predetermined amount of funds.
Common UM activities: preadmission review to determine medical appropriateness of hospitalization and continued stay reviews. If the hospital must pay for nonhospital services out of its pool of money, the UM department may become involved in monitoring the appropriateness of skilled nursing care, home care services, and other nonacute care. The UM department may be involved in negotiating discounted fee-for-service, per diem, or similar contracts with nonhospital care providers.
Capitated managed care agreements are the most difficult to understand because the financial incentives vary significantly from plan to plan. At a minimum, the UM department should obtain details about the following elements for each capitated contract.
Although some contracts may use the word "capitation," the reimbursement to hospitals may look more like discounted fee-for-service. For example, if the hospital receives a per diem payment (fixed dollar amount for each hospital day) and the hospital has little or no financial disincentive for keeping patients in the hospital, the risk of dollar losses is minimal. However, if the per diem payment is the same regardless of where the patient receives care in the hospital, the UM department will want to ensure patients are treated appropriately in the least costly unit.
In a fully capitated reimbursement scheme, a group of primary care physicians and the hospital share equally in the financial rewards of cost-efficient health care services for an entire population of health plan enrollees. In this reimbursement model, short hospital lengths of stay and prevention of hospitalizations are desirable.
It is important to recognize contracts that pit physicians against hospitals through their mixed financial incentives. For example, if there are no monetary drawbacks for the physicians to hospitalize patients, UM departments may begin seeing unnecessary admissions a way for the physician group to transfer financial liability from their capitated payment fund to the hospital’s.
Risk pool incentives
Many capitated payment contracts carry an incentive for physician groups and hospitals to work together to keep costs smaller than the pool of capitated revenue. Various risk pool arrangements among hospitals and physicians are available to health plans.
In a standardized risk pool agreement, each month the physician group and hospital receive a predetermined payment for each member enrolled in the health plan. As services are provided, dollars are deducted. Any money left at the end of the year is shared jointly by the physician group and the hospital. The year-end percentage split varies with each contract.
In an incentive-based risk agreement, physicians and the hospital establish target bed-use rates for the health plan population. If the actual utilization ends up being less than the target rate, the physicians and the hospital are financially rewarded.
The third type of agreement, budget plus incentives, may incorporate outpatient utilization and quality incentives as well as target hospitalization rates.
UM departments will find that risk pooling varies significantly from contract to contract, and may be somewhat different from these three customary arrangements.
The hospital’s capitated payment may include dollars for nonhospital services. Out of the hospital’s pool of funds, payments may be made to skilled nursing facilities; long term or chronic care facilities; rehabilitation facilities; home health care agencies; emergency care providers; and for certain home use medical supplies or equipment. Identify all of the nonacute care financial responsibilities for the hospital. Some of these services may be provided by organizations not under the direct control of the hospital. These are the groups the hospital will want to pursue discounted pricing with.
Regarding claims processing for nonacute services paid out of the hospital’s capitation fund, when a beneficiary receives authorized care in a skilled nursing home, for example, the nursing facility will generate a bill. Determine if the hospital is responsible for receiving and processing this bill, or if the health plan will process these bills. In some capitation agreements, the hospital assumes responsibility for paying bills from outside providers. This undertaking will require new hospital policies and procedures to ensure all claims are processed accurately.
The health plan is probably withholding a percentage of the physicians’ and hospital’s capitated payment to purchase stop-loss insurance. This insurance provides protection from losses resulting from claims over a specific dollar amount per member per year calendar year or illness to illness. This also is called reinsurance or risk control insurance.
It is important to know the type of stop-loss insurance held by the health plan. One type, specific or individual, reimburses providers when any covered individual exceeds the predetermined level of claims. Aggregate stop-loss insurance protection can only be collected when the claims of all health plan enrollees exceed a preset level.
Other noninsurance forms of stop-loss may exist. For example, in a Medicare risk insurance program, the costs of chronic renal dialysis or hospice care may be assumed by special Medicare coverage programs and not charged to the provider’s capitated fund pool.
Discover who is responsible for notifying the patient of payment denials. Will health plan representatives fulfill this obligation for hospitalized patients, or will the UM department staff be required to issue payment denial letters? What about denials for outpatient services that would ordinarily be paid out of the hospital’s capitation? Watch out for payment denial procedures that place an undue burden on the hospital UM department. Don’t let the denial process cause strained relations between the hospital and the primary care physicians, or worse yet, between the hospital and its patients.
The hospital’s UM responsibilities
Many health plans require providers to participate in some type of internal utilization and quality review activities. This is mandated in Medicare risk contracts, as well as in some competitive medical plans or health maintenance organizations. The clinic and hospital partners may be required to conduct joint meetings to discuss utilization and quality issues. The health plan may require periodic formal studies of potential problem areas, such as access to care, patient satisfaction, and compliance with clinical practice guidelines. Meeting minutes and study results are usually shared with the health plan so it can monitor compliance with contractual obligations.
Regarding utilization data requirements, some capitation agreements require providers to submit regular UB-92 claim forms. Other plans ask providers to send them encounter data that are less detailed than claim forms. The UM department may become involved in additional data collection and reporting, with the health plan requesting extraordinary data about their members, such as the number of delay days and/or the cause of discharge delays. You’ll need to design a data collection and reporting strategy that fits their requirements.
A comprehensive understanding of the financial arrangements of each type of managed care contract is important. One-size-fits-all UR will no longer work. To design the right UM strategies, the department must understand the financial incentives in each managed care contract. Acquire copies of each health plan contract and participating providers’ manual, and complete the matrix shown above. If agreements are not specific, call the insurance carrier for answers.
Once details about each managed care agreement are clearly outlined and understood, the UM department can begin to map out its new role. Expanded responsibilities for the UM department might include out-of-hospital utilization monitoring, claims processing, increased collaboration with primary care clinics and specialty groups, health plan enrollee education, preventive activities to reduce hospital admissions, and new data collection requirements.
Next month: The role of the hospital UM department in preventing unnecessary hospitalizations.
Following are names and telephone numbers of sources quoted in this issue:
• Jan Maronde, RN, CPHQ, executive director, Healthcare Quality Certification Board, San Gabriel, CA. Telephone: (800) 346-4722; fax: (818) 286-9415; http://www. cphq-hqcb.org; [email protected].
• Ernie Pires, president and CEO, Laura DeVincentis, health care services manager, SGS International Certification Services (ISO 9000), Rutherford, NJ. Telephone: (201) 935-1500; fax: (201) 935-4555; http://www.sgsicsus.com; [email protected].
• Paul Schyve, MD, senior vice president of operations, Joint Commission on Accreditation of Health Care Organizations, Oakbrook Terrace, IL. Telephone: (630) 792-5000.
• Nancy Dunham, RN, infection control practitioner, Medical Center of Central Georgia, Macon. Telephone: (912) 633-2225.
• Angie Wadlington, director of quality assurance, American Legion Hospital, Crowley, LA. Telephone: (318) 788-6418.
• Fay A. Rozovsky, JD, MPH, president, The Rozovsky Group, Richmond, VA. Telephone: (804) 364-2956; fax: (804) 364-0548; e-mail: FayRozovsky@ gwsinc.com.
• Robin Will, director, information management, Shands HomeCare, Gainesville, FL. Telephone: (352) 338-2189.
• David E. Goodman, MD, CEO; Sandra Feaster, RN, director of clinical services, HiLIFE, San Francisco. Telephone: (415) 873-6000.
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