Make sure that contract pays off for your practice
When you evaluate a managed care contract, the first thing you should evaluate is whether it will pay off for your practice. That means you need to know the cost for each procedure you perform and the amount you will be paid by the managed care organization.
Typically, managed care contract reimbursement is based on some standardized format, although some plans have their own fee schedules.
Before you accept a contract, be absolutely clear what the managed care plan’s fee schedule is. That helps tell you if you can afford to take the contract and whether you are being paid the right amount, says Todd Welter, president of R.T. Welter and Associates and consultant to the Medical Group Management Association in Englewood, CO. "You need to know what you should be paid so you can appeal it if you don’t get the right amount," he says.
If you are in a fee-based model, make sure you know the fee schedule so you can ascertain if a certain procedure actually costs you more than your reimbursement. If you are in a capitated contract, know what is carved out of the capitation fee.
Have a good idea what your costs are for each procedure. For many contracts, you can just do a quick comparison of your costs vs. the fee schedule, suggests Jay Williams, principal of Arista Associates, a health care consulting firm based in Northbrook, IL. However, if you are considering a big contract that makes up a substantial portion of your business, you need to do a cost accounting analysis to make sure your practice stays in the black, he adds.
Negotiate a reasonable contract term with guaranteed rates for entire length of the contract.
"Too often, we find cases when an HMO contracts with a medical group, it gives them good initial rates and two years down the road comes in with substantial reductions," Williams says.
Be wary of contracts that base reimbursement on the Resource-Based Relative Value Scale (RBRVS), Welter advises.
The RBRVS, instituted by the Health Care Financing Administration in 1992, assesses a value to each CPT code based on resources used for that service. The problem is that the RBRVS is very political, and Congress often takes reimbursement from the rich specialties and allocates them to the poorly reimbursed specialties, Welter says.
For instance, in the RBRVS for 2002, the reimbursement for cardiac surgery is going down 19.8%, but family practice reimbursement is going up 8.2%, he explains.
Some companies tend to cherry-pick when it comes to using the RBRVS rates. For instance, they may use the 2002 rate for cardiac surgery but designate the 2000 rate for family practice physicians, Welter says. "It changes every year, and you might have an insurance company that doesn’t tell you what year of RBRVS it is using."
If the contract is a capitated agreement, understand the actuarial assumptions that went into it, Williams says.
For instance, if companies base reimbursement on a general population and you wind up with older, sicker patients, you are likely to lose money. Or if their analysis is for commercial clients and you wind up with a disproportionate share of females of childbearing age, you may have problems.
"There has to be a risk that is proportional to the market," Williams says.
Beware of contracts that base reimbursement on utilization data in large areas or in anything other than the community where your patient population lives. "You need to know where they got their numbers," he says.
For instance, one facility in Houston was offered a managed care contract with utilization data based on a California patient population. "Their particular patient utilization would never happen in Texas," Williams says.
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