In today’s managed care environment, health care providers are being asked to negotiate contracts for delivering health care services with little guarantee of income. Here are six steps to use with capitated contracts to determine profitability.
Sports figures are known for their ability to wheel and deal for top dollar contracts that will guarantee their income. But for the first time in history, health care providers are being asked to negotiate contracts for delivering health care services with little guarantee of income. The smart chiropractor will go into these contract negotiations armed with as much information as possible. And this is what this article is designed to give you–information you can use right now.
First it was cash only. Then, slowly indemnity insurance put a new twist on payments for doctors’ fees. Along with this came assignment of benefits. And, for most of us, this is the turf we have been familiar playing on. But let’s face it, in today’s managed care environment, there really are only two major methods of payment that are being used: discounted fee-for-service and capitation. There exists very little traditional indemnity insurance as we used to know it. So, like it or not we are now faced with some payment options that we never had to face before. The most popular options managed care organizations (MCO’s) are offering are capitation and discounted fees.
Discounted fees are just that: they are a percentage off your UCR (usual, reasonable and customary fees). They are different for each managed care organization, but your provider agreement clearly will state what the going rate is for the discount. However, it is recommended to compare CPT/ICD codes across providers, rather than looking specifically at manual manipulation charges, for example. See what is being paid overall for 99211, etc. A good benchmark will always be what the plan is paying the M.D. or D.O. in your area for the same CPT code! That way you will know what other providers in other professions are being paid. The reason this can be important is that you want to know whether this discount is taken from your UCR or from a standardized charge that may be based on “local” charges. Remember that charges in your geographical region usually will not always be the same as other regions of the country.
Regarding capitation, this is a whole new way to play ball. Remember that capitation is a flat fee per plan member. This means that providers are paid a flat annual amount “per head.” Insurers, then, are no longer at the mercy of patient’s health, doctor’s decision-making, or even bad luck. In other words, their vulnerability is greatly reduced because with capitation they know what their cost will be as soon as they’ve sold the contract to the plan member!
Capitation is interpreted as payments based purely on a “per member per month” rate (PMPM) basis. In most provider agreements, it is defined as a type of risk sharing reimbursement method where providers in a plan’s network receive a fixed periodic (usually monthly) payments for services rendered to plan members. (Even the notion of “risk sharing” is somewhat of a misnomer because, in actuality, it is the provider who is accepting almost all of the risk.)
A word of warning; you cannot judge capitation solely by the amount you will receive for a patient in a month when that person visits you. For example, a patient comes in to you for a routine physical and you normally bill $85.00. In a cap plan, for instance, you may receive only $1.50 for that visit. Remember, there may be 300-400 patients you will not see, but will be paid for! In theory, this is how a provider makes money under a cap contract. Beware–there are bad cap contracts out there and they can cause you to lose money because the cap rate is simply too low for the types and number of patients you’ll see, or possibly because the patient population you will be serving may be sicker than average. These are very important points to ponder when considering a capitation contract.
In a nutshell, the rate itself is usually developed by the plan’s estimation of the utilization rate for each category of service that will be provided by the practice. The utilization rates typically come from estimates of the MCO’s prior utilization history for those services. However, this is a good place to issue a word of caution. The utilization rates are typically only provided when the provider asks for it. In other words, it is not automatically provided to you when you are offered a specific rate.
You should review carefully how this capitation rate is expressed. When you request it, the plan will give you the total number of enrollees (members) and a utilization rate. I would suggest having this rate broken out by CPT code. However, when dealing with utilization rates in general, there are no fail-safes. In other words, you can only hope that the MCO is giving you correct data, because it is this data you will be using to calculate whether or not the capitation rate they offer you is one you can accept. It is not unusual for an MCO to provide a utilization rate, only to discover at some later date that that rate was incorrect for some reason.
How will you know if you will make more or less than you would if you were working under the traditional fee-for-service arrangement? By calculating what you would have received for treating patients in a traditional indemnity plan. When you do this calculation, if it comes up less than the cap rate you are being offered, then you’ll be doing well.
The following is an example capitation calculation. It is provided strictly as an information-gathering tool for you to use in assessing cap rate contracts. It is a very general calculation, and is provided for use as only one of many methods in determining whether or not the cap rate you are being offered will be acceptable to you.
This calculation will be useful to you as a way of assessing managed-care contracts when you know the plan member’s average annual use of services that you would be agreeing to provide. In other words, it will help you find your average fee and convert it to a per-member-per-month (PMPM) rate. This average is usually expressed by the managed care entity as “utilization per thousand members.” As mentioned before, you will need to ask for this information as it will not be automatically provided to you.
There are some additional points that need to be made here regarding participation in capitation contracts. It is entirely possible, that cap contracts may generate more paperwork in terms of authorizations for referrals and other requirements. It may be time for you to rethink the responsibilities of your office staff, because as you begin to participate in more and more contracts, some of your staff’s time will inevitably be devoted to confirming eligibility, collecting co-pays, and knowing the “quirks” of each plan’s requirements.
Another facet of capitation that is unique is something called a withhold (these used to be called risk pools). This is an amount of money withheld from provider’s payments to cover possible end of yearoverages. For example, any referrals to doctors outside of the plan will cost the plan more to pay out. Any unexpected expenses and the like are covered by this withhold. Most plans will refund any excess withhold (if any) at the end of the year. Again, check your contract to see how they deal with withholds. It’s not a bad idea to check what the co-pay is to the member should the member elect to go “out of network.” If the co-pay is very small, there is very little incentive for the member to remain “in the network” and such services may be used more frequently than anticipated. These withholds are also designed to cover large numbers of catastrophic cases or AIDS patients and the like.
A word to the wise: make sure in your provider agreement or accompanying provider manual that the exact method of determining the risk pool is specified. Otherwise, the MCO may pay only at its discretion. Ensure that the time allowed for the return of the withhold is spelled out. Also, determine if the withhold return is based on the provider’s practice, all providers in that provider’s specialty or of all participating providers. Watch carefully that the contract does not obligate you to cover any withhold deficits. This should be covered by stop-loss insurance taken out by the MCO.
For any of you reading previous articles I have written, it may seem as if I’m “harping,” but make sure that everyone understands what a “new patient physical exam” or a “reassessment” includes! What these services actually include may mean one thing to you and another to the MCO. Make sure you are being fully reimbursed for everything you perform.
If capitation has been active in your area for awhile, then you can call other providers (in other professions as well) and see what rates they were offered. And remember, when dealing with capitation, taking a few patients may not be worth the effort and taking on too many will be a financial hazard. You need to know what magic number, in terms of subscribers, will work for your particular practice. You can, for example, limit the number of new patients you will accept so that you do not become overwhelmed.
The suggestion has been made that to protect against a limited number of enrollees, you can ask for a cap rate that increases when the number of patients goes below a certain number. This works particularly well for a plan that is eagerly soliciting you.
Again, watch out for key phrases like, “reasonable or usual and customary charges.” These are dreaded words for both providers and insurers alike. They are ill-defined. Remember, especially in the chiropractic arena where capitation is relatively new, your charges can be significantly higher than what you are paid so it is really important to know your average charge per CPT code. Even better than this would be to track your actual costs per CPT code. If your fee for this CPT code is too high, then any capitation plan will seem unprofitable to you.
Finally, regardless of the type of payment arrangement, who will do the billing? Make sure your contract spells out who’ll coordinate benefits and chase payments due from other insurers who may also cover some enrollees. You may even want to retain the right to sue for reimbursement when a third party doesn’t pay. And watch out for any time limits on claims submission. If the contract spells out, for instance, that claims submission must take place within 14 days of the date of service, you’d better have procedures in place that will ensure this gets done or you won’t get paid!
If you’re working with a PPO, find out whether they handle their own claims processing or farm it out to other insurance companies. Any addition to the chain of command can create incredible hassles! Get it in writing that the MSO will pay “clean” claims within 30 days, or your cash flow could really suffer.
Delivering health care under a contract is new to all of us. But by following some of these guidelines, it can make your involvement less “painful” and, hopefully, more profitable! We are now playing in the major leagues so let’s “wheel and deal” ourselves!
There is another point that needs to be made here. Quality and ethical issues must be addressed as well, particularly if one is considering joining a capitated MCO. In a FFS arrangement, doctors may provide unnecessary procedures or services because the financial reward is based solely on the work done. In a capitated system, the danger exists that the patient will not be given the necessary treatment or preventive service because the group has the potential for being rewarded for services not rendered. There is a definite conflict in achieving a balance between quality assurance and controlling utilization.
To further complicate this issue, the doctor will not only be providing the care, but also must be aware of and inform patients about any noncovered services. Recently, you have heard about national legislation that addresses gag rules. This is exactly where it can come into play. If the doctor tells the patient that he/she needs a test, but his managed care plan won’t pay for it, the doctor can be in hot water with the MCO. Getting rid of such gag rules will help the continuity of the patient doctor relationship, which managed care has so successfully upset. I have seen it suggested that perhaps that best road to follow is to become the patient’s advocate within the confines of the MCO contract.
One journal I consulted said the following, “Health systems need to develop and implement continuous quality improvement (CQI) programs that monitor patterns of treatment and identify physicians with unintended practice pattern variations. As importantly, the CQI program should address a process for affecting physician behavioral change. Empirical findings show that changing behavior is most successful when physicians receive individualized feedback based on their practice patterns as compared to a peer group.”
Gag rules impede a physician’s ethical and legal duty and fly in the face of court decisions that hold that a physician has a legal duty to disclose all reasonable alternative for diagnosis and treatment–including benefits, risk and cost and that duty to disclose also includes telling patients about any financial incentives that might manipulate choice!
Delivering health care under contract has definitely changed a lot of things about the way we practice. But armed with information, every chiropractor can protect both themselves and their patients from “bad” contracts that could lead to “bad” care!” “Jill M. Bjerke, BS, DC, is President of Health Choices, Inc., an Iowa corporation that provides primary source credential verification and on-site review services. She is also head of a health care management consulting firm. A 1991 Palmer graduate, Dr. Bjerke represents Iowa chiropractors on the Iowa Community Health Management Information System, is a guest lecturer at Palmer College, and a former member of the Board of Directors of the Iowa Chiropractic Society. Dr. Bjerke also provides consultant services for network development and drafting of quality assurance,utilization review and credentialing firms. Please contact Dr. Bjerke at 319-323-5580.