Surviving Managed Care© Newsletter
| Premier Issue September, 1997 | Vision and Eyecare Business Information For The Millennium |
Surviving Managed Care ©
Managed Care news and business information for eyecare professionals and administrators.
Gil Weber, MBA
www.gilweber.com
Objectives:
To understand the economic fundamentals underlying a Medicare Risk contract; to assess upside and downside risks for ophthalmic practices in a competitive environment; to understand proper management of eligibility and referral protocols.
1997 MEDICARE CAPITATION UPDATE
(Discounts: Deep, Deeper, Too Deep?)
Each January HCFA implements a new set of Adjusted Average Per Capita Costs (AAPCC). These data are particularly important to ophthalmologists in states with Medicare Risk HMOs, for they specify the monthly capitated amount an HMO receives from the government to provide services for Medicare enrollees. Within those amounts is an experienced-based allocation to cover expected ophthalmology costs.
HCFA pays HMOs capitation per member per month (pmpm) for both Parts A and B. The final figures are based on 95% of what HCFA would have expected to pay for the services had they been under fee-for-service (FFS). Each data set is divided into several categories including aged and disabled, and within each category the data and payments to the HMOs are adjusted for age and sex. Finally, the payment rates are reported by county for each state plus Puerto Rico, Guam, and the District of Columbia. (See: http://www.hcfa.gov)
1997 Rates This year, base (pre-adjustment) AAPCC numbers are up slightly in most, but not all counties. Some representative county data is included in the chart below.
What Is Ophthalmology's Slice Of The Pie? A recent Physician Payment Review Commission (PPRC) report states that ophthalmology represents roughly nine (9) percent of Part B payments. AMA data indicates that physician professional services currently represent approximately 77% of Part B payments (with the remainder going to services such as durable medical equipment, outpatient laboratory, etc.). Multiplying the two figures indicates that in a fee-for-service Medicare population ophthalmology should receive approximately 6.93% of the available Part B dollars.
Now, while everyone understands that managed care utilization and costs are expected to be lower than in a fee-for-service environment, that 6.93% remains the "ballpark figure" from which physicians should start constructing their Medicare Risk capitation strategies.
Consider Prince Georges County, MD. For sake of argument, if one assumes that an HMO takes roughly 20% off the top for its administration and profit (a typical figure by national standards), then the "ideal" target point for capitated negotiations in this county would be roughly $12.14 pmpm. That is, $218.89 X .80 X .0693 = $12.14
Remember that this number is built on historic fee-for-service data, so no HMO will pay that "ideal" amount. An HMO will expect ophthalmologists to bid a lesser rate on the assumption that utilization and associated physician costs will be lower going forward. Since Medicare Risk enrollees tend to be younger and healthier than the Medicare age population as a whole, that's not unreasonable, and the capitation number will come down somewhat. But how far?
Physicians must exercise great caution and not lower their bids too far or too quickly based solely on an HMO's assertion of what it deems is available and appropriate funding for eyecare. In a rush to corner market share and access patients, that's an easy trap to fall into. And it's one that can have disastrous results if the contract actually pays less than the cost of care. Let's look closer.
Discounts: Deep, Deeper, Too Deep? Capitated discounting from traditional Medicare fee levels actually represents a much larger reduction than indicated by the 20% typically carved off for the HMO's administrative services and profit. Don’t forget that under Medicare fee-for-service the physician collects 80% of the fees from HCFA and 20% from the patient. But under capitated Medicare the physician's payment is based only on the 80% which is HCFA's responsibility through the HMO. The 20% patient co-insurance must be waived as part of participation under the capitated agreement. That money is lost forever.
Thus, one automatically starts the process 20% down! Now going back to the not-unreasonable assumption that the HMO takes 20% off the top of the 80%, this means in a best case scenario one develops a cap bid starting from approximately 60.8% of FFS Medicare (.95 X .80 X .80). (see note 1 below)
For example, assuming a $100 Medicare allowable fee, let's see how many dollars might end up in the physician's office under this imagined capitation scenario.
Capitation is like Chess... Know the rules, plan ahead, prepare for the unexpected.
This is the stark reality of the capitated Medicare numbers game. Physicians and their networks must understand the underlying assumptions and numbers which go into capitation in order to determine the point below which they cannot bid and still keep a contract in the black. Somewhere between that minimum and the amount remaining after the plan carves off its share is where the bid must lie.
Capitation will mean competitive bidding and lower reimbursements vis-a-vis traditional fee-for-service. It certainly will mean that cap rates which seem appropriate may not be near those which market forces actually decide win contracts. That's the scary bottom line. And in some mature and aggressive markets you're simply offered a rate: "Take it or leave it." Therefore, knowing your costs and the AAPCCs will help frame a thoughtful business decision.
Notes:
- A worst case scenario?? Dade County, FL. 1997 Part B is $363.15. Ideally, that should mean roughly $20.13 pmpm for ophthalmology ($363.15 X.80 X .0693). Yet contracts are being signed at around $3.00 pmpm (roughly 10% of combined HCFA and patient FFS payments).
- HCFA pays Medicare Risk HMOs 95% of what it would have paid under fee-for- service. Therefore,.95 X $80 = $76.
- Assumes the HMO takes 20% off the top for its administrative services and profit.
- From this point the HMO starts a downward push. Assuming an unlikely scenario where the HMO pays all remaining dollars after deducting its administration and profit, this still means the physician accepts nearly a 40% discount, and goes at risk on top of that steep discount. Any decrease in pmpm from the example $60.80 equivalent means discounts exceeding 40%.
MANAGING THE BUSINESS OF CAPITATED CARE: TIPS TO SUCCESS
Obviously, data and its management are key to success, especially when facing seemingly impossible capitation rates. Particularly in the early stages when at-risk experience is short yet pressure to venture into risk contracting is high, networks must go cautiously. Patience is a virtue in any at-risk game. Here are some tips.
1) Team With Financial Pros To make educated decisions networks first must seek out experts with the management and administrative sophistication to apply sound cost accounting principles across practices. They must guide each practitioner to an answer on a basic question: "Given my costs and the demands of a capitated population, can I make a profit on this contract at the rates offered?" And they must guide the group or network to an answer on another basic question: "Can we collectively manage the risk inherent in this population, deliver the required level of patient care, and grow the business at the rates offered?"
2) Think About Compensation Systems At The Beginning In answering such questions network managers face many challenges including the design, development, and evolution of fair and appropriate compensation systems. Such systems must motivate at-risk physicians and optometrists to see more patients, but not to see the same patients more often or provide more services. It's mandatory to make this paradigm shift an early and integral part of each practice, particularly when taking on a surgically-heavier Medicare population,
3) Demonstrate CQI Management will also be responsible for creating credible quality assurance and utilization systems which accrue real value to payors, patients, and providers. The day is coming when quality by declaration will no longer be acceptable. In the future quality by documentation will be key to gaining, maintaining, and surviving at-risk contracts. Such programs cost money and take precious dollars from an already thinly stretched patient care budget. Yet documenting continuous quality improvement (CQI) can lead to unrecognized cost efficiencies and incremental dollars for patient care.
4) Know When To Bargain; Know When To Walk Capitated business can't be ignored or dismissed. Yet it also can't be taken on at a loss simply to gain experience. Successful networks will secure contracts by meeting the unique needs of each market and payor, and by leveraging singular strengths in bidding for viable contracts. But, in the end, one of the most important aptitudes and skills for both practitioner and manager will be the ability to discern when the numbers don't make any sense, when it's better to say "no" and walk away from a deal that may be doomed from the start. Medicare less 80% simply won't work.
MANAGED CARE ISSUES FOR THE OFFICE STAFF
(Eligibility And Proper Referral)
Despite the early promises, managed care has not made life easier for the office staff. Rather, it presents an increasingly complex series of challenges. The truth is that even under capitation practices still must handle referrals and confirm eligibility, must submit some claims, and must process mounds of new paper. Therefore, survival requires that the staff follow a thoughtful, business-like plan on every encounter whether by phone, letter, fax, computer, or face-to-face. Let's look at two instances (eligibility and proper referral) where planning and preparation can help staff manage the managed care monster.
Eligibility Staff should verify eligibility soon after scheduling the appointment and, in all cases, prior to the patient's presentation. A few plans (particularly vision care) issue eligibility authorization numbers, and those authorizations serve as contractual payment guarantees. Absent such "proof' of eligibility, many practices find it worthwhile to reconfirm eligibility immediately before the appointment, particularly if the appointment is scheduled weeks or months in the future.
Q. How is verification made? Is the HMO's I.D. card enough?
A. Unless the contract specifically states otherwise, the I.D. card should never be considered a fail- safe guarantee of anything one day after it is printed. Hard copies are also notoriously unreliable. Staff should confirm eligibility by phone or, if possible, on-line to secure the most current information. But that could mean many calls with lots of unproductive time left "on hold."
Tip: Assuming the plan does not have an automated telephone verification system, identify a key contact person at each plan or payor. On Friday batch each plan's verifications for the following week and initiate one contact with each payor. Once connected, do the entire week's confirmations and note any patients who can't be confirmed through normal channels. They should be called immediately, informed that services can't be rendered until eligibility is established, and politely asked to contact their plan or employer for resolution.
This shifts a non-productive task from the staff. It gives the patient appropriate notice, but must be done in advance to prevent having an angry patient at the reception window insisting that they are eligible. If not done and the patient presents, then at that point your only choices are to provide the services and risk eating the costs, or to send away a very angry patient who may, in fact, have been eligible but for the plan's faulty listings. Neither option is pleasant.
Q. What happens if the patient's name is not on the eligibility list and they insist on coming in?
A. As appropriate, staff calls healthplan's provider relations or member services department, or employee's benefits department. If eligibility cannot be confirmed and immediate service is required, patient should be seen! If patient can wait, try to reschedule and have patient contact employer or plan to "kick-start" confirmation process.
Tip: Track and document every instance when a patient's name does not appear on the current eligibility list. This is ammunition at contract renewal time. It may seem odd asking patients to take the initiative on non-confirmable eligibility. But if practices have followed all the approved protocols and can't get the information required, then they must not fall into a trap expending valuable staff resources on payor generated, preventable problems. This is an important step to assuring that appointment slots are filled with patients on whom there will not be retroactive payment denials.
Q. What happens if payments are retroactively denied for services delivered in good faith?
A. In all cases staff must be careful before asking for payment from the patient. It is essential to determine the denial's basis. Was the patient, in fact, not on the plan at the time and, therefore, responsible? Or was the most current eligibility listing and retroactivity flawed due to payor data base errors? If proper procedures are followed at the front end, these instances should be rare.
Tip: Staff should track all instances of retroactive denials and payments taken back. This is additional ammunition at contract renewal time. If investigation confirms the patient was not eligible, the office should have protocols to initiate collection from the patient. (Important note: Since such collection attempts are unlikely to prove productive, the provider agreement should contain language placing financial responsibility on the plan for services delivered in good faith based on flawed information. This assumes, of course, that the plan's eligibility confirmation protocols were followed to the letter.)
Proper Referral Much as with eligibility verification, staff must have any necessary referral in hand prior to care. That's crucial to efficient office operations.
Q. When are referrals required?
A. Every payor has different requirements. Generally no referral is required for routine vision care but one is required for med/surg. The specifics can be complex.
Tip: Each office should develop a desk-top referral matrix indicating the requirements for each contracted plan or PCP group. The matrix should be available to all scheduling staff and should detail not only the general information required for a referral, but also any specific limitations (e.g., referrals from PCP group "X" are only good for one visit). Every patient can then be advised to bring the necessary form and made aware of its authority. This pro-active step minimizes chances of angry patients at the reception window without required referral forms, or with a form but not realizing what it authorizes.
Q. Who can refer? PCPs? Optometrists? Ophthalmologists? What is/are the approved referral form(s)? Paper? Phone? Fax?
A. The matrix should have a column listing who is authorized to give referrals. Another column should detail approved formats.
Tip: The matrix can become quite complex and unwieldy as data fields increase. This is particularly true for groups, networks, or universities which might have several dozen contracts, each with different specifics. A computerized data base or spread-sheet program makes use and updating much easier than with 3 ring binders.
These materials are intended to provide useful information about the subject matter covered. The author believes that the information is as authoritative and accurate as is reasonably possible and that the sources of information used in preparation of the materials are reliable, but no assurance or warranty of completeness or accuracy is intended or given, and all warranties of any type are disclaimed.
The materials are not intended as legal advice, nor is the author engaged in rendering legal services. The materials are not intended as a replacement for individual legal or professional advice. Information contained herein is presented only for illustrative purposes, and it should not be used to establish any fees or fee schedules, nor is it intended and it should not be construed as encouraging any user of the materials to take any actions that would violate any state or federal antitrust laws, tax laws, or Medicare or Medicaid laws.
Copyright © 1997, Gil Weber, MBA. No part of this newsletter may be reproduced or distributed in any form whatsoever without the author's prior written authorization.
