Prepare your agency for managed care negotiations
Education, information important pieces of puzzle
(Editor’s note: This is the second in a two-part series on staying ahead in the managed care game. Last month, we discussed trends in the managed care market and how they affect your business. This month we talk about how to prepare your agency for the negotiation process.)
Once your agency has developed programs for managed care companies, you need to make sure you are adequately prepared to begin contract negotiations. (For more information on developing managed care programs, see p. 114.) Here is what several experts recommend:
• Educate the managed care company.
First of all, you must make sure the managed care companies you are approaching understand the benefits of private duty care.
"Overall, managed care has kind of a negative view of private duty," says Alison Cherney, marketing strategist for Cherney and Associates in Nashville, TN. Many companies associate private duty with 24-hour-a-day RN care, she says. In days past, many utilization review personnel and case managers believed agencies would maximize those shifts and the high levels of care.
"It left a bad taste in lot of their mouths about private duty," she says. "Not only do managed care organizations not understand home care in general because it represents 1% to 5% of their dollars; they really don’t understand what private duty is or what it does. The perception is that it is highly expensive and not cost-effective."
Because managed care companies will only pay for care that is medically necessary, they might have a tendency to say they won’t cover anything related to private duty, Cherney says. Private duty providers, then, need to emphasize that their services are less costly than facility-based services.
She suggests giving the managed care companies simple one-page case studies that show how the providers saved costs in the system. "I think that’s an important strategy to consider," she says.
• Know your costs.
The difficult part of capitation is to know all of your internal costs, says Mark Deutsch, MBA, director of new business development for Market Share Plus, a health care management and marketing firm in Chesterfield, VA.
Providers should know their fixed and their variable costs. "You have to know what your productivity is per hour," he says. "How many patients does an average nurse or aide see per hour?"
Based on your agency’s experience, try to determine the average cost of a four-hour shift, Deutsch recommends. You might also want to break your costs down to times of day, such as shifts during normal business hours, after hours, or round-the-clock care, he says. "Then you can have a tiered approach when you are negotiating with a managed care company."
"Once you have those basic pieces of knowledge, you know if you can accept a capitated contract or not. If payers don’t have the information, you can negotiate because you have collected it."
So many providers jump into capitation when they don’t have enough information, he says. "They figure, I get a check for $150,000 each month, and I can certainly provide services for less than that.’ But they don’t know exactly what their costs are because they’ve never had to think that way. They’re used to a fee-for-service environment where they have incentive to spend money to provide the highest level of care you possibly can. It’s opposite in the capitated environment. You have to be much more aware of every single one of your costs before you get into the negotiation process."
• Realize what type of services need to fall outside capitation.
Prosthetics and orthotics, for example, can be huge cost hits if they fall under the capitated contract. "If you accept a capitated contract and accept that burden, you’re going to get hurt," Deutsch says.
• Get your policies and procedures in place.
To get managed care contracts, you’ll need to be accredited, and if you’re accredited, you’ll already have your policy and procedures in place. But your policies and procedures might have to become more detailed according to the quality assurance requirements of each managed care company.
"You need to have at least a skeleton of those things in place, but have the flexibility to revise them according to the managed care company’s requirements," he explains.
These requirements might come down to each managed care company’s personal preference. "They may require you to call a case manager on a weekly or daily basis about the patient’s case."
Make a binder for each company
These requirements could vary from operating hours and availability to how you deliver service, he says. Deutsch recommends making a binder for each of the managed care companies that spells out its specific requirements. "It’s good to formalize [the policies] to show the companies that you have created the binder just for them based upon their needs. It says all of your staff is up to date and knows exactly what the managed care company requires."
• Get involved in the managed care company’s quality assurance.
In a capitated market, you should be involved in managed care’s QA, says Deutsch. "You should meet with them regularly to make sure you are doing everything that you can and they are doing everything they can to maximize the value of the health care. They may have different quality indicators, they may measure their outcomes differently, and they may measure their patient satisfaction differently."
Managed care companies might want to attend a QA meeting at your agency. To get a better idea of how they handle QA, you might want to attend one of their meetings, too.
"Quality is expected," he adds, "and the best way to show you are a quality provider is to be accredited."
• Don’t jump into a contract too quickly.
A common problem Deutsch sees in his business is providers jumping into capitated contracts too quickly.
Some of the providers take the contracts without either the provider or the managed care company having enough information to know what the true costs of providing the services are.
"You don’t want to be the player caught in the middle and learn by mistake. Too many providers have gone out of business trying to do that."
In these situations, Deutsch suggests a phase-in process over a three-year period instead of signing a capitated contract. "Maybe start out as discounted fee-for-service, then go into a partial capitation, and then into total capitation."
• Be prepared to walk away.
If price is too low, don’t take it. "Someone else will provide the care at that price and will invariably fail."
• Diversify your payer base.
Another way to approach managed care negotiations is to diversify your payer base, Deutsch says. Don’t get a big contract and stop pursuing other business. That way, if a contract that represents 70% of your business exercises its 30-to-90-day "out clause," which is standard in many managed care contracts, you won’t be left devastated. "If someone’s not happy, they’re going to get out of the contract and you’re going to be in trouble."
Conversely, if you are not happy with the rates and the company will not renegotiate the contract, the out clause will allow you to get out of that contract, as well.
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