Medicare managed care has huge rewards if you navigate problems
February 1, 1997 5 minutes read
Medicare managed care has huge rewards if you navigate problems
Market dynamics, medical efficiency key to successful Medicare capitation
Each year, nearly 70,000 Medicare enrollees enter a managed care plan, making it one of the fastest growing and most lucrative segments in the managed care arena. But it also carries risks that should warn away the unprepared, experts say.
"There are clearly opportunities to make a lot of money," says Pat Dunks, MS, a 10-year veteran of Medicare managed care and a consulting actuary with Milliman & Robertson in Milwaukee. "But the flip side of that is the opportunity to lose a lot of money quite fast if you don’t do things well. Medicare managed care can be very unforgiving if you don’t have your house in order."
While there is no easy recipe for putting together a successful Medicare managed care program, Managed Care Strategies has gleaned from a variety of experts’ practices that are common to successful Medicare managed care programs.
Health systems that have Medicare managed care get paid less than those with fee-for-service Medicare. The Health Care Financing Administration, which cuts the checks, pays capitated Medicare plans only 95% of the fee-for-service rate, also known as the average adjusted per capita cost (AAPCC).
Then why would a health system want to enter a scenario in which it consciously decides to accept a lower payment rate? The answer is market competition and the potential loss of patient volume, Dunks says. "A [health system] should take the risk if the market it is in is so competitive that it may start delivering patients to other [health systems]," he says.
How quickly a given market converts to Medicare managed care depends partially on the AAPCC rate. This varies by county, based on wage levels, supply costs, and different medical use patterns. Because of these factors, the per-member per-month (PMPM) payment can vary widely from one part of the country to another. In 1995, the PMPM ranged from $177 to $679.
The higher the rate, the greater the chance for Medicare managed care to make serious inroads. In Southern California, where AAPCC rates are on the high end, up to 40% of the seniors in some markets are enrolled in managed care, says Bruce Kobritz, MS, president of Strategic Healthcare Planning Associates, in Santa Monica, CA, and a former senior strategist for Kaiser Permanente.
"It is extremely competitive," Kobritz says. "Right now providers are trying to lock in patients before the providers themselves get locked out," he says. While competition for Medicare managed care patients is growing in other parts of the country, particularly along the East Coast, health care executives should make sure their market is ready for such a risky proposition. "You don’t want to jump on the bandwagon without knowing how to drive the wagon," Kobritz says.
But in all markets, someone has to get the ball rolling. "In just about every market there are the leaders who push the envelope, a middle pack that is right on the heels of the leaders, and then there are the latecomers who generally have to settle for whatever they can get," Dunks says.
Still, if your health system is in a market with a modest AAPCC, that doesn’t mean capitating the elderly will be a losing proposition, says Jennifer Marx, MBA, consulting analyst with DeMarco & Associates in Rockford, IL. "What they should really be looking at is getting and keeping their own costs in line rather than looking at the average area per capita costs in Florida and then looking at what they could get and then deciding that they could never make it," Marx says.
"If they really understood their service area and are able to do some case management and have a good management information system, they should be able to keep their costs in line and turn a profit."
Because payments are often less for capitated Medicare patients than their fee-for- service counterparts, health systems need to generate greater clinical efficiencies not only to make up the difference, but also to turn a greater profit.
In order to generate these efficiencies behaviors must change, which means implementing care protocols and benchmarking your health system against best practice procedures.
For hospitals, this means concentrating on length of stay. "It’s very important to get people to understand that an extra patient day in the hospital is an extra cost," Dunks says. "If it is a necessary day, then it is a necessary cost. If it is an unneeded day, then it is a waste of money."
As a first step, Dunks recommends comparing your length of stays by DRG to published best management practices. With those numbers, "look at the areas where the differences between what you are doing and what the best [health systems] in the country are doing," Dunks explains. "Where the differences are the greatest are the areas where you have the greatest potential for cost savings."
Key to a successful elderly capitation program is also having an information system that can track clinical performance and patient outcome by physician, Kobritz says. "Taking on Medicare risk is really an information-driven process," he adds. "You have to know what your physicians are doing and how they are doing it."
This way, you can identify physicians who have the longer lengths of stay per procedure and then help these physicians achieve a higher standard, Dunks adds. When presenting this information to physicians, it’s important to protect the outlying performers. Do this by coding the results. An example would be assigning a letter to each physician. "This way, if Dr. "L" is the low performer, only he has to know," Dunks says. "This gives him the opportunity to improve without being looked down upon by his peers."
When setting clinical goals, Dunks recommends aiming high. "Don’t compare yourself to the averages because if you shoot for average, you’ll probably end up being average or worse," he says. "If you shoot for the best, at least then you have a good chance of ending up above average."
Educating physicians
Targeting areas for improvement is only the first step in generating clinical efficiencies. The next step is giving the physicians the tools in this case, the clinical information to achieve best practice results. Presenting this information can be a trick in itself since physicians often have set ways of doing things. "You have to realize that some physicians are not going to change," Dunks says. "They are close enough to retirement, that the way they see it, they don’t have to change."
To get systemwide clinical change, Dunks suggests using the trickledown theory, where you first convince key physician leaders of the need for change, and then encourage these key physicians to champion the cause to the rest of the staff. Such a process requires some kind of incentive, usually money.
One way to do this is to tie in any bonuses to attendance at training sessions that teach the new care protocols. "It’s been my experience that if physicians don’t have a financial stake in the program, or they don’t get some type of credit for attending, it’s hard to make it important enough for them to attend," Dunks says. "After they’ve had a long day treating patients, going to a meeting at the end of it may not sound so good, unless there is a financial incentive."
Pat Dunks, Consulting Actuary, Milliman and Robertson, 15800 W. Blue Mound Road, Brookfield, WI 53005. Telephone: (414) 784-2250.
Bruce Kobritz, President, Strategic Health Care Planning Associates, 2001 Wilshire Blvd., Suite 300, Santa Monica, CA 90403. Telephone: (310) 453-1706.
Jennifer Marx, Consulting Analyst, DeMarco & Associates, 3218 Fawn Ridge Court, Rockford, IL 61114. Telephone: (815) 877-8781.
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