Surviving Managed Care© Newsletter
| Volume 2, Number 2 Summer, 2000 | Vision and Eyecare Business Information For The Millennium |
In This Issue:
Surviving Managed Care ©
Managed Care news and business information for eyecare professionals and administrators.
Gil Weber, MBA
www.gilweber.com
Objectives:
To examine and understand the issues and concerns underlying a non-traditional compensation system some HMOs are trying to force on ophthalmologists
Episodes of Care
"Dear Doctor"
As with so many other provider headaches in managed care it starts with an unexpected "Dear Doctor" letter. In this case, the HMO has decided to cancel all fee-for-service ophthalmology contracts and convert everyone to a new, risk-based compensation system.
The letter solicits your interest in the new system, "Episodes of Care" (EOC), and announces that compensation will convert to the new system in 60 days. In truth the letter is less solicitation than notification. Continued participation is predicated on accepting a contract amendment implementing EOC. The letter provides only a fragmentary explanation of how EOC will work:
All covered ophthalmology care provided during each EOC will be covered under one global fee payment. The fee will be calculated monthly based on a predetermined budget and the number of new EOCs. Ophthalmologists in the (plan's name) program will be responsible for providing the entire spectrum of covered ophthalmology services for our members 24 hours a day, 7 days a week. The EOC payment will also include responsibility for the facility components for common ophthalmology outpatient procedures
Each ophthalmology group will be expected to provide, or arrange to be provided, a full range of contracted services including invasive and non-invasive. Groups can sub-contract for cross coverage, and for invasive services, subject to (plan name's) review of subcontracting arrangements. Groups will be responsible for the provision of outpatient ophthalmology studies either in their offices or by contracting with a (plan name) approved provider or site. Solo practitioner ophthalmologists must have 24 hour a day subcontracted cross coverage.
A Short Disclaimer
Let me say up front that this issue of Surviving Managed Care© is not a blanket condemnation of non-traditional compensation systems, including Episodes of Care. Properly implemented, they can work for both payor and provider. But I feel a bit like Robby the Robot from the 60's TV series Lost In Space. I'm shouting "Danger! Danger! Beware of improperly implemented systems!" That said....
Managed care is like Chess... Know the rules, plan ahead, prepare for the unexpected.
So Simple In Theory
EOC is simple in theory. When a patient is referred, that referral creates a time-defined "episode," typically 90 days. During the EOC a physician has clinical autonomy and is free to provide any and all covered services he or she deems necessary, without seeking additional approvals from the primary care physician or healthplan.
The specialist is paid a flat fee for each EOC regardless of the type of care rendered or the cost, the number of conditions or complaints, or the number of services required by the patient during that episode. Conditions covered in an episode can be short and self-limited, such as a urinary tract infection or conjunctivitis. Or they can be chronic conditions such as glaucoma, perhaps managed by one specialist, or a very complicated condition such as diabetes mellitus, which management will involve several specialists.
In some cases healthplans define EOC as global payment for one, specific condition that can be reasonably defined from start to finish (e.g., a case rate based on the initial visit's ICD-9 codes). That can work for many conditions including some in ophthalmology. For example, cataract's global fee might include any pre-op consult and testing, the surgical fee, the facility fee, and post-op follow-up (including YAG, if necessary). Depending on the contractual arrangements it might also include the IOL.
But in all cases the EOC payment is for a continuum of care. The number of visits or services which, obviously, will vary from case to case and doctor to doctor does not matter. It is, in fact, risk-contracting. But it's risk contracting complicated by quirks unique to ophthalmology. As such, you can't agree to the implementation of EOC without clear demonstration from the payor that it's thought through matters specific to this specialty.
Payment Under Episodes Of Care
EOC payments are calculated from two factors: (1) a numerator representing the referral pool funded by the payor each month based on the enrolled population in that month and, (2) a denominator representing the system-wide, total number of new referrals (episodes) reported each month.
Thus, if the HMO allocates $100,000 into the monthly referral pool for a certain specialty, if there are 400 new patient referrals reported in that month, and if the HMO has defined 90 day Episodes of Care, then each physician would receive $250 for each patient recorded that month. That's payment in full for the next 90 days' care.
If a dermatologist saw a patient for simple skin rash and the care involved two, 10 minute visits in the 90 day period, that doctor would receive $250. If the doctor also removed a skin tag or a mole in the 90 days, that minor surgical service would be included in the global fee.
EOC has a good chance of working for a dermatologist since it's almost a certainty that the typical patient complaint can be resolved within 90 days. Further, with a specialty such as dermatology, overwhelmingly weighted toward office based procedures and with relatively uncomplex surgeries mostly described by a quite narrow range of RVUs, it's unlikely that a provider is going to take a financial bath on any patient. Finally, as most dermatologists provide virtually all the same services, every provider is in the same boat and at equal risk for those services.
But in ophthalmology the multitude of services and disease intensities, and the heavier weighting toward surgery (often complex) changes the equation. Also, with more sub-specialties than any other discipline, it's clear that physician-to-physician ophthalmologists don't provide the same set of services — not even when comparing general ophthalmologists. Unfortunately, HMOs don't seem to understand this and have done a generally poor job adjusting for differences in ophthalmology case mix and severity, or for differences in the services ophthalmologists provide.
Clearly, without appropriate weighting adjustments, a surgical retina specialist sent all the most complex cases by virtue of his or her reputation as the community "guru" will take a financial beating compared to other retinologists. Similarly, the glaucoma specialist who does the Moltino/Baerveldt procedures will take a beating compared to a general ophthalmologist who also does some medical glaucoma but doesn't touch the complicated surgeries.
You're probably thinking that case mix adjustment should be automatic — it's so obvious. But that's part of the problem. It's simply not obvious to payors who are desperately trying to jump on the EOC bandwagon. Let's look further.
Why A Generic, "Cookie-Cutter" EOC System Can Be So Dangerous For Ophthalmology
On the surface EOC seems perfect for managed care payors and physicians. Pay the doctor a percentage of the total pie based on his or her referral "popularity," make things administratively simple by removing any requirement for additional referrals and authorizations within a defined period, and give the doctor clinical autonomy to do that which is necessary, when necessary. Why, then, is it so problematic for ophthalmology?
The answer lies in EOC's surface simplicity and hidden complexity. HMOs see that it works in one specialty (e.g., dermatology) or with one, easily defined condition (e.g., cataract) and then think it can be "cookie-cuttered" across specialties and conditions. And so they'll take an EOC agreement for one specialty and use that as the boilerplate for eyecare. But unless someone on the healthplan staff understands eyecare, or unless those in the eyecare community have significant, pre-implementation input into the compensation plan design, what's created time after time is a Pandora's Box. When the Box is opened there's trouble. Here are a few examples of what I've seen.
Floating Patient Values And Timing
EOC can be very time-sensitive. It can create financial winners and losers based on nothing more than the lucky timing of paperwork moving through the system.
Remember that EOC payments fluctuate each month, but each payment covers the same, defined period. The calculation denominator reflects total monthly referrals (actually, total initial claims submitted by each specialist after each patient's first visit). That denominator can fluctuate as I'll discuss in a moment. If the numerator stays relatively constant (assuming flat HMO enrollment) and if total referrals stay relatively constant, payments can still fluctuate wildly. And that will drive the doctors and their administrators crazy.
There might be 200 new authorizations in both January and February. But the January claims certainly won't all hit the system in January or even by the end of February. So, in a very oversimplified example, assume that of 200 January initial claims only 100 actually hit the system in time to create the January EOC payment. The other 100 carry over into February. Assume of February's 200 claims 150 hit the system, plus 75 late-arriving initial claims carried over from January. Now there are 225 claims against the current month's risk pool.
If the January and February pools were equally funded you can see that the EOC payment for each month would be quite different (January denominator = 100; February denominator = 225). This, even though in actual fact, the PCPs created an equal number of new referrals. Now move things along another month and another and you can see that claim lag can create a real problem.
In the first few months, as physicians and staffs try to learn the new system, claims may come in erratically and the EOC fee could be very high — a financial winner for those physicians seeing patients (especially seeing simple, non-surgical patients). But as months go by and more patients are referred by PCPs, and as delayed initial claims finally start to hit the accounting system, all that will dilute current monthly values, possibly significantly.
Let's say a surgeon had three new cases in month one and received $700 per patient. Then in month five he or she might see ten similar cases, work just as hard, but only receive $150 EOC payment per patient if a lot of delayed claims hit the system at the same time, or if for some reason (e.g., allergy season) the PCPs refer many more patients in that month, thereby diluting the pool.
Thus, based on matters beyond his or her control, a physician could be paid strikingly differing amounts during the year for the same services. The potentially disruptive impact of this timing issue is huge, and a sophisticated reconciliation system to account for time sensitive factors is a must. HMOs typically have not thought this through in necessary detail.
Adverse Selection
Unlike traditional PMPM capitation, where a physician is paid for a sizeable population many of whom need no care, in EOC the physician is paid only for patients seen. This means physicians bear a significant risk for adverse selection — a disproportionate share of expensive cases . For example, if your referrals are mostly for surgery, or if you're the community "guru" for keratoconus and you're sent all the difficult, costly contact lens patients (each of whom requires many visits and many replacement lenses), the results will be disastrous.
I've seen several EOC cover letters allude to adjustment protocols. But they usually take the following, ambiguous form:
Case Mix Adjustments: To ensure a fair distribution of payment for services rendered, the EOC system will be adjusted to reflect differences in the case mix of different groups and to ensure budget neutrality. Initially, the case mix adjustment factor will be equal for all providers and set at one (1). Appropriate case mix factors will be adjusted on an annual basis once sufficient information is obtained.
This HMO clearly had no plan thought through up-front to adjust for case mix and adverse selection. It essentially said "Trust us. Get on board and we'll make annual adjustments starting sometime in the indeterminate future once we think we've figured out what we're supposed to be doing." Not very comforting I'd say.
Another HMO took a somewhat more physician-friendly approach to the issue and addressed adverse selection by stating:
Select services will be carved-out of the (EOC) service definition and paid on a fee-for-service basis usually using RBRVS. In addition, stop-loss insurance will be provided.
While that's a bit more encouraging it's still too nebulous. Certainly before getting involved with this plan's EOC you'd require a much clearer explanation of the carved-out, fee-for-service payments "...usually using RBRVS..." (Which services are carved-out, and what other ways might the f-f-s payment be calculated?) And you'd certainly want a very clear understanding of how the stop-loss coverage will apply (threshold? limits?) and if there is any cost to the physician.
Taking On Cases That Should Be Seen By Others?
There is a particularly troubling problem laying under the surface of EOC. Remember the HMO's announcement letter at the start of this issue which stated in part: Ophthalmologists in the (plan's name) program will be responsible for providing the entire spectrum of covered ophthalmology services for our members 24 hours a day, 7 days a week.
Perhaps the plan documents include a few exclusions such as oculoplastics. In any case, if a physician (or group) could not personally deliver a service, then under the scenario described he or she would be responsible to arrange and pay another ophthalmologist. The following is almost certain.
A PCP refers a patient to Dr. "X," a general ophthalmologist. This physician determines that the patient needs a surgical retina procedure (perhaps vitrectomy). While Dr. "X" does do medical retina and an occasional surgical retina procedure, vitrectomy is something that he or she traditionally refers out. Dr. "X" knows from experience that the patient value for a 90 day EOC will be around $500. This patient's needs will cost far more than the payment Dr. "X" receives from the health plan. What is Dr. "X" to do?
Another physician, Dr. "Y," does most of his or her own glaucoma work. But an examination reveals that the patient needs a filtering procedure. If Dr. "Y" doesn't do filters he or she faces the likelihood of a significant bill, perhaps from the local university's ophthalmology department.
In such no-win scenarios, a physician receiving the EOC payment will lose money when re-referring the patient to appropriate sub-specialty care. The alternative to taking the financial "hit" is even more troubling, for it puts both patient and physician at considerable risk. More than one ophthalmologist told me that the next, frightening scenario is going to happen sometime.
Reluctantly, certain physicians might attempt to provide services they normally would refer out. While the 90 day EOC fee still may not cover all costs, at least by doing it him or herself the maximum downside cost is the physician's own time. Or is it? What about the cost and/or risk to the patient?
And if the case goes sour, what about the added litigation risk and cost for the physician, or the group or network that contracted with that physician who chose to take on the case because the monies were not enough to cover the re-referral? It's an untenable position, caught between insufficient funding and clinical expertise. And it's an ethical dilemma physicians should never be forced to face. But "cookie-cuttered" EOC programs can create nightmares of this type.
Gaming The System
Obviously, some conditions simply can't be "cured" in 90 days, and some patients respond to treatment more slowly than others. Therefore, HMOs typically allow a second "episode" (and payment period) if care extends beyond the initial one. This creates for some an opportunity to "churn."
Two patients might be referred to Dr. "Z" — one for conjunctivitis, the other for cataract. Based on experience Dr. "Z knows that the practice will do well financially on the conjunctivitis patient (who is treated in full without delay).
The cataract patient is another matter. Dr. "Z" knows that historical EOC payments won't cover the costs for everything associated with cataract. What can happen? Dr. "Z" knows that if things can be stretched out past 90 days (perhaps with a new pair of spectacle lenses) there can be another referral. And a new 90 day EOC can start with a second payment. Those two EOC payments might turn around what would have been a money-losing case. And so the cataract procedure just "can't" get scheduled within the initial 90 day EOC.
Is that terribly cynical? Yes. But is it probable? Unfortunately, ophthalmologists who've been thrown into risk contracting arrangements with networks of physicians chosen by an HMO tell me yes. Given the pressures and financial risk, and given the fact that HMOs typically open these EOC panels to any doctor willing to sign — not just to those with whom you'd want to be in a risk-bearing network — some gaming is a real possibility. And any gaming is problematic for those who always try to do the right thing.
Beware! Beware!
HMOs simply don't do a good job implementing EOC programs. Therefore, it's a payment scheme that should be avoided if possible. I would qualify that by saying EOC can work if constructed and administered by a group of committed ophthalmologists who carefully self-select the participants and who police themselves.
If you're considering participation in any EOC program then I strongly suggest that the following must be present from the start:
Suggestion 1: The "episode" period and funding should cover a period long enough to take virtually all conditions from presentation to resolution, and significantly reduce opportunities to fabricate additional payment periods. (Consider six months to one year.)
Suggestion 2: The system must present appropriate, written documentation detailing the accounting for adverse selection, and offering plans to adjust for both case mix and severity issues.
Suggestion 3: The system must have a reconciliation methodology to "smooth out" time-sensitive differences.
Suggestion 4: The number of participants must be restricted. It's essential that each physician gets a reasonable number of referrals so that EOC payments on many, low-cost patients offset the expenses on a few with high-costs. If the total number of referrals is diluted across too many practices there will be major problems .
Suggestion 5: There's no such thing as "trust me" in managed care. If you don't have the answers in writing, up-front, the deal is too dangerous. Walk away.
"Cookie-cuttered" EOC programs just don't fit ophthalmology. Bearing risk is one thing. But it must be acceptable risk in a carefully crafted, planned system.
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.
