Wrestling With the Managed Care Octopus / Part 5

When to ditch a contract

By Robert Lowes, Midwest Editor

Sweet managed care deals often sour. Here's how to detectand reject those that aren't in your best interests.

In cities such as Louisville, Dallas, and Sarasota, doctors in IPAs andPHOs are singing a variation of the Johnny Paycheck country classic, "Takethis job and shove it." What they're telling health plans to shoveis their contracts.

This defiance by physician organizations contrasts with the fatalismof most individual doctors who feel abused by fee-slashing, slow-paying,red-tape-ensnarling health plans. Physicians tend to hang on to bad contractstoo long, say practice management consultants. They're so dispirited bythe nitpicking over reimbursement that they retreat to the exam room andhope for the best.

When doctors do decide to dump a plan, they often do it in knee-jerkfashion. They might not consider, for example, how to replace lost businessor prevent relationships with referring physicians from being damaged.

"Doctors will say, 'Let's get rid of this plan,' " says MichaelJ. Wiley, a practice management consultant in Bay Shore, NY. "I'llsay, 'Slow down. The last thing we want to do is wing it.' "

Before you sing the Johnny Paycheck song, listen to what Wiley and otherssay about analyzing health plans so you can judiciously separate the keepersfrom the weepers. This homework also pays off in another way: You'll learnhow to avoid unprofitable plans in the first place.

Bad contracts get signed; good contracts go bad

Often, the question is not "Should we drop this plan?" but"Why did we join it?" In other words, doctors sign bad contracts,believing them to be good ones.

Impulsiveness and an allergic reaction to business detail tend to getthe better of doctors, says Michael Wiley. "They'll sign up becauseeveryone else is signing."

Cincinnati consultant David C. Scroggins of Clayton L. Scroggins Associatesrecalls how six Midwestern internists almost accepted a capitation contractuntil he pointed out onerous terms they had skimmed over.

"The capitation rate included suturing, X-raying extremities, andcasting broken bones," says Scroggins. "The doctors didn't performthese procedures and didn't want the extra work. But if they referred itto specialists, the fees would have come out of their capitation payments.Luckily, the health plan deleted these terms when we protested, becauseit really wanted the doctors in its network."

Insurers are notorious for giving doctors as little information as possible,and too many doctors don't insist on seeing documents that flesh out a contract.One such document is a complete fee schedule, which might reveal skinflintrates for a doctor's bread-and-butter CPT codes. Another is a policy manual,which could indicate the plan doesn't cover a particular test. "Planswill convince the doctors to sign up anyway, sometimes holding a deadlineover their heads," says Scroggins.

Doctors do occasionally land good contracts. The trouble is, good contractshave a habit of going bad, like last week's casserole.

Sometimes the problem is simply mismanagement. A primary care group thatassumes global risk, for instance, can blow its budget by allowing outsidespecialists to perform too many expensive tests and procedures, notes SarahWiskerchen, a consultant with Chicago-based KarenZupko & Associates.Or specialists may forgo fees because they treated patients without makingsure they had referrals.

But insurers spoil good contracts, too. Let's count the ways:

­They reduce fees for some or all CPT codes in the middle of a contract,often without warning. Similarly, insurers may downcode claims or bundleservices that they'd formerly paid for separately.

­They increase withholds. "The plan may justify that by, forexample, telling primary care doctors that they're making too many referrals,"says Rod Livengood, administrator of the Yakima (WA) Orthopedic and FractureClinic.

­They change ancillary service referral rules. For instance, an insurermight decree that blood tests must be performed at a regional lab insteadof in the physician's office, causing the doctor to lose income.

­They drive up physician costs by increasing administrative hassles,and by delaying or denying payment. "You have to hire more staffersto collect your money," notes Bruce Johnson, a Longmont, CO-based consultantwith the Medical Group Management Association.

Many consultants and practice administrators suspect that insurers engineerthese turnabouts as part of a "sweet and sour" strategy--the contractseems sweet at first, but sours when the doctor can no longer easily walkaway. "Insurers behave themselves until they gain a big chunk of themarket," says Mary Brown, office manager of a six-doctor orthopedicgroup in Morgantown, WV. "Then they play their games."

Test No. 1 : How well are you doing under the contract?

It's imperative that doctors detect a contract's downward turn as earlyas possible. Smart practices rely on a battery of financial tests to makethe diagnosis.

The first test involves asking yourself a simple question: Does thecontract pay enough to cover my expenses and provide me with a reasonableincome? Answering this question isn't so easy. You know your total expenses,but how do you compare them with a contract's list of fees for CPT codes?If a health plan pays $40 for a 99213 office visit, are you at least breakingeven? You'd have to know precisely what it costs you to deliver that service.

You can get a handle on this by using Medicare's relative-value-unitsystem, which assigns RVUs to each CPT code. Here's how it works: Tallyup the RVUs for all medical services you provided during the previous fiscalyear. Divide your total expenses--including physician compensation and thecost of malpractice coverage--by that number to calculate your costs fora single RVU.

Let's assume the figure is $55, which is close to the median for better-performingmultispecialty groups, according to the MGMA. If a 99213 office visit isworth 1.2 RVUs, then your cost for this service equals $66. Since the healthplan is paying only $40, you're in the red. Sorry about that.

Doing the math for dozens of CPT codes can be daunting. But an MGMA softwareprogram called Physician Services Practice Analysis will calculate costfigures for you. Practices are using PSPA, which costs $995, to justifysigning with, keeping, and dumping health plans.

"If you don't know your costs, it's very hard to make an intelligentstand in business negotiations," says orthopedic surgeon Thomas H.McCoy, president of the 26-doctor Charlotte Orthopedic Specialists, whichhas relied on the MGMA software since 1995.

McCoy's group recently threatened to terminate a contract because midtermfee reductions would have made it a money-loser. The insurer relented, raisingreimbursements for key surgical procedures and paying facility fees foroffice surgeries to offset low fees elsewhere in the schedule. "Thecontract as a whole will be profitable now," says McCoy.

RVUs also can help you analyze the value of a capitation contract thatcovers a population large enough to have predictable costs. "A healthcare actuarial firm can project how many services--office visits, X-rays,heart bypasses--a patient population is likely to need in a year's time,"says Rob Ellis, chief financial officer of Charlotte Orthopedic Specialists."Convert those services into RVUs and multiply the result by your historicper-RVU cost. Then divide that by the number of patients and prorate itover 12 months to get a per-member-per-month figure."

If your capitation rate exceeds this amount, he says, you'll make morefrom it than you would have from that patient population in the past.

Test No. 2: How do payments compare?

Besides the payment-vs.-cost tests outlined above, ask yourself thesequestions when deciding whether to ditch a health plan:

How do the plan's fees stack up against those of other plans?Use a spreadsheet program such as Excel to compare what key health planspay for your top 30 or 40 services. The obvious source is the plans' publishedfee schedules, if they're available. But consultant Michael Wiley recommendscomparing the amounts shown on explanation-of-benefit forms, instead, becausewithholds, unannounced fee reductions, and insurer chicanery may createa gap between what's promised and what's paid. A good practice managementsoftware program can create such a grid, spotlighting the cheapskates.

How do payments by CPT code compare with your standard charges?Again, a spreadsheet tells the story. Plan A may pay 60 percent of yourstandard charge for office visit 99213, while Plan B pays 70 percent.

Sarah Wiskerchen suggests comparing gross returns from plans by factoringin frequency of service. This weighted analysis might reveal that for agroup of 40 frequently performed CPT codes, Plan A pays 55 percent of standardcharges, while Plan B pays 75 percent.

Does the plan pay on time? Practice management programs generatetwo familiar billing and collection reports that answer this question: oneindicates the average number of days or months that it takes a health planto pay a claim; the other shows what percentage of unpaid claims are 30,60, 90, or 120 days old, or even older.

Comparing the timeliness of payments from different plans can help youdecide which to drop. "A tardy payer with terrific fees may make lessbusiness sense than a less lucrative plan that pays without delay,"says Michael Wiley.

How do my capitated plans compare in terms of profitability? Obviously,you need to analyze capitation rates. But you'll get more useful informationif you look at specific age and gender groups. For example, how much doHMOs pay for female patients aged 18 to 30?

Factor in, too, the size and likelihood of bonuses or the return of withholds.And don't forget patient copays and fee-for-service income. "If youbreak even on what the insurer pays, copays may represent your profit,"says David Scroggins.

Next, convert capitation payments into fee-for-service equivalents, usingMedicare reimbursement as a benchmark. Break down by CPT code all the servicesthat you performed for an HMO's patients. Then plug those services intothe Medicare fee schedule. Add these "fees" and compare the sumwith total capitation payments and other income you've received from thatplan. A capitated plan can then be described as paying, say, 100 percentor 120 percent of Medicare fees.

You can use the same process to compare reimbursements from capitatedHMOs with those of fee-for-service plans in your market. Most practice managementprograms can help you crunch the numbers.

Assign a staffer to ride herd on managed care contracts

Don't bother checking your contracts' financial performance on a monthlybasis. "That's overkill," says consultant Michael Wiley. He alsopoints out that monthly fluctuations may be misleading; quarterly or semiannualreviews based on year-to-date numbers are more telling.

At the very least, study the numbers well before a contract comes upfor renewal. If it expires on Dec. 31 and you're required to give 90 days'notice that you're opting out, your analysis should begin July 1, says Scroggins.That way, you'll have enough time to negotiate better terms.

Monitoring a contract goes beyond revenue reports. A back office staffershould be assigned to master the contract's policy manual, troubleshootpayment denials and delays, and get to know the plan's representatives ona first-name basis.

"Listen to this employee," urges Nancy Scudiere, practice administratorfor Long Island Vitreo Retinal Consultants in Great Neck, NY. "If she'ssupposed to monitor five plans, and one of them ties her up most of theday, you've got a problem." Such an account specialist will probablyknow if a plan is sincere about solving problems or merely stonewalling,adds Joy Strathman, executive director of the 60-doctor Esse Health medicalgroup in St. Louis. A plan that pays promptly still might not be for youif it impairs your ability to treat patients. A 23-member internal medicinegroup in Dallas, for instance, quit Aetna US Healthcare last December becauseit felt the insurer didn't offer a satisfactory network of specialists andwas slow to approve critical tests.

"Patients with suspicious headaches who needed a CT scan withina day would have to wait a week," says internist and group presidentDavid F. Winter Jr.

Drop bad plans early to minimize the pain

You've made the diagnostic tests. Contract X looks like a loser: it'sbeen only marginally profitable from the start, and you lost money on itlast quarter. What you must decide now is how valuable this contract isto you.

If a plan is one of several that a large employer offers, and you belongto them all, your patients can stay with you by selecting another insurer.And it may be relatively painless to drop a plan that accounts for only2 percent of your revenue. But if it accounts for 25 percent, are you readyto give up that much business?

Of course, there's always a chance you can negotiate a better deal withan insurer, especially one that represents only a small percentage of yourpatients--it knows that you can afford to quit.

Even if the plan sends you 25 percent of your patients, you may possessbargaining clout if competing specialists in your geographic area are scarce,or your practice is large. "A large group will get more considerationthan a solo practitioner," says Esse's Joy Strathman. "If a biggroup quits, hundreds if not thousands of patients are likely to complainto their employer that the plan doesn't have a stable network. Insurersdon't like that kind of bad PR."

But the insurer might let you go anyhow. And if you're unable to retainall of the patients on that plan, you'll have to replace them. That's acompelling reason to analyze contracts months before they expire. You'llneed the time, either to join other plans or boost business with existingones. The first option assumes that another contract represents an improvementover the one you're jettisoning; the second requires you to do some marketing.

Dropping a plan poses a particular risk for specialists. "You couldlose referring physicians who remain with the plan," says GI specialistRichard A. Fieman of Rocky Mountain Gastroenterology Associates in Denver."Beforehand, they might have funneled you patients from three or fourplans, but if you dump one, they may find it too much trouble to split referralsamong several doctors. It's easier to make one doctor their go-to guy."

If you abandon a plan, you'll still have to take care of its membersfor a time. Some contracts obligate you to see patients until their carecan be transferred to another doctor, with payment set at contracted rates,says Sarah Wiskerchen. If you've received a global surgical fee, you'llbe responsible for any postoperative care after termination. In any event,you have to bow out of a contract carefully.

All the complications of terminating a plan diminish, of course, if youleave early in the game. "Drop the bad ones before they get too bigand really start applying the thumbscrews," advises David Scroggins."Even if the dollars they provide at first don't seem to warrant muchscrutiny, analyze them anyway. If you fall asleep at the wheel, you maywake up to find an 800-pound gorilla is driving the car."

Robert Lowes. Wrestling with the managed care octopus, part 5: When to ditch a contract. Medical Economics 1999;15:201.