Surviving Managed Care^© Newsletter

Volume 2, Number 3 Fall, 2000

Vision and Eyecare Business Information For The Millennium

Objectives:

To examine and understand a simple but effective technique small and large practices can use to leverage purchasing power; to examine and understand new issues and concerns regarding physician indemnification.

  Cutting Your Costs: Purchasing Via Competitive Bid Process

You've heard it many times. To survive under managed care your practice must become more efficient and cost-effective. Unfortunately, those words have been tossed around so often by so many "experts" that you may be at the point where these catch-phrases have lost any real meaning.

Let's boil it down to this essential fact. No matter how good a practitioner you might be, and no matter how "efficient" your staff might be moving patients through the office, that's not good enough. To make it in a managed care world you must reduce the costs of doing business.

In these days of reduced reimbursements and increasingly squeezed margins practices simply can't afford to miss any opportunities to lower the cost of goods sold or services provided. Whether in solo or group practice, whether general ophthalmologist or sub-specialist, you should be using the competitive bid process for your key purchasing decisions.

Competitive bidding is a tactic commonly used by employers when they "shop" for health care coverage. And managed care plans and other payors use the tactic when they "shop" contracts to providers. So why not adopt and adapt this proven tactic for your own benefit?

Purchasing supplies and services through a competitive bid process (to include anything from eyeglass frames, lenses, and contact lenses to waiting room furniture, exam and surgical equipment, IOLs, transcription services, pharmaceuticals, phone and computer systems, etc.) can save significant sums and give you valuable leverage with suppliers. It's easy, and here I'll tell you how to do it.

Request For Proposal

You can solicit competitive bids and award contracts through a Request for Proposal (RFP) process. The RFP is a formal document you draw up which specifies exactly what you want to purchase and exactly the terms and conditions you expect the vendor to honor if successful in its bid. The document asks potential vendors to submit a pricing proposal for the itemized business and to guarantee performance standards for a specific time period, for a specific quantity, or for whatever other terms you define in the RFP. Here are some examples.

You could send an RFP to several local optical labs asking for their best pricing on finished, mounted spectacle lenses. In part the RFP might specify that the proposed pricing must guarantee flat fees (by lens type) for clear, single vision, bifocal, and trifocal lenses, of any Rx, fabricated in glass or CR-39. You could specify that the flat pricing must include all lenses up to "X" millimeters (e.g., to fit a 56 mm eyesize frame). You might even specify which multifocal styles you expect to have included in the flat pricing (but obviously you need to be reasonable here or you’ll get no replies).

You'd certainly want to specify some performance standards. For example, "Y" percent of the completed jobs must be delivered within a certain number of days. Or if the reject rate exceeds "Z" percent the contract is subject to early termination.

Some other examples — You could easily create an RFP if you decided to remodel your reception area and were looking to acquire furniture, wall treatments, and carpeting. You could create an RFP if you decided to get rid of that antiquated, DOS-based computer system and re-position your practice for the 21^st century's new technologies — electronic medical records, internet digital imaging, etc. Or you could use an RFP to decide which of several local ASCs will get your surgical volume. The sky truly is the limit when using RFPs.

In all of your specified requirements you can and should be creative and demanding (within reason). You're looking to see which of the potential vendors really wants the business and, just as importantly, which is capable of delivering to specific standards.

In return, you'll probably be expected to guarantee the vendor some minimum monthly volume (unless it's a one-time purchase such as furniture). However, unless you agree, RFPs do not require that you give all your business to one vendor in exchange for favorable pricing and performance. In fact, for on-going purchasing it's probably best not to do exclusive deals — for example with a single optical lab. You always want to keep your vendors responsive, and it's easy for a vendor to get complacent or slip into under-performance when it thinks the business is all locked up.

What To Include In An RFP

Your most important consideration in writing an RFP is making it specific, clear, and concise. It's essential to minimize opportunities for misinterpretation resulting in bids that do not accurately reflect your purchasing requirements. In truth the RFP is an invitation to be considered for a possible contract. So you'll want to have it reviewed by an attorney or consultant (or both). At a minimum, the RFP should include sections that:

• Identify the entity soliciting bids (you), and provide appropriate information including naming a contact person who can answer questions from prospective bidders,
• Specify the reasons for the RFP — i.e., what you are trying to achieve,
• Itemize the items or services solicited for bids,
• Identify any performance standards,
• Identify any special considerations (e.g., if you’re soliciting bids to build a laser suite then OSHA requirements come into play),
• Specify any financial requirements of prospective bidders,
• Specify any computer system (MIS) requirements,
• Specify any proposed, initial contract term and any renewal provisions,
• Specify bid submission requirements,
• Specify any bidder insurance requirements,
• Specify closing date for receipt of bids,
• Specify anticipated decision date and anticipated contract award date (or start date),
• State you reserve the right to reject any and all bids.

Formatting The RFP

You're asking a lot of questions and looking for specific answers. Don't make the common mistake of sending out an RFP without including explicit instructions on how you want replies submitted. Otherwise you'll receive a bunch of customized (and obviously self-serving) responses that make an apples-to-apples comparison difficult if not impossible.

You'll save yourself considerable analysis time if you state exactly how bids are to be submitted and how you want each question answered. This might include providing a check-list, or providing a pre-printed form on which prospective bidders are told they must answer questions in the order shown, limiting those answers to the space provided. (This effectively precludes bidders from flooding you with pages and pages of promotional "fluff.") Unless you want bidders to provide other information they consider germane be certain to state that no additional enclosures should be included with the submission.

Reviewing The Bids

Once all the bids are in you start the review process. Your first responsibility is to send a letter to each bidder acknowledging receipt of the bid and thanking them. State that you are beginning the review phase and will be in touch.

As for that review, certainly you'll consider price, but the entire RFP needs careful analysis. We all know through personal experience that cheapest does not automatically equate to the best value. Based on the relative importance you've given each element of the RFP you should be able to sort the bids into those that seem to make sense and those that fail to measure up for one reason or another.

Several scenarios can unfold at this point. For example, you may find that a certain proposal looks pretty good overall but one or more answers is incomplete. There's nothing wrong with going back to that bidder with a request for additional information. Or you may find that you're able to whittle down the proposals to the three best. You certainly have the option to open a 2^nd stage RFP.

The 2^nd stage might be written to evaluate and compare just the most critical factors of the 1^st stage submissions. For example, you might determine that customer service and after-sales support merits further exploration. You could create a set of questions specifically focused on this area. You might even decide it's beneficial to ask each 2^nd stage bidder to come to your office for a face-to-face presentation to staff most impacted by the final purchasing decision. Again, you control the process — it's your RFP.

Making The Decision

After reviewing the 2^nd stage responses your team should be able to reach consensus. It's now time to move forward to a contract. You'll create a document incorporating the terms specified in the RFP (and/or negotiated with the successful bidder). At that point you're essentially finished except for a final responsibility.

You need to send a "thanks, but sorry" letter to the unsuccessful bidders informing them that a decision has been made and that the contract has been awarded to someone else. (You certainly do NOT need to identify the successful bidder.) I suggest sending these letters to all unsuccessful bidders only after you've executed a contract (or a Letter of Intent is signed). You want to keep your options open just in case contract negotiations are unsuccessful.

Closing Thoughts

I know this may all sound like a lot of work, but it is worth it in the end. Unfortunately, there's no way to avoid this fundamental truth: The practice of medicine has become the business of medicine. You must be prepared to play in this challenging business arena so influenced by managed care plans and third party payors.

If you're not prepared with innovative means to increase revenues, lower costs, and maximize the net on both your managed care and private pay patients your survival is made more difficult. Creative use of the RFP process is a proven way to lower your costs and make better purchasing decisions.

   Indemnification Redux: Good News/More Concerns

In Volume 1, No. 3 of Surviving Managed Care^© I discussed indemnification and described it as "...the most dangerous contractual provision..." (If you missed that issue, it is available online here). Year after year indemnification continues to worry physicians as healthplans seek to insulate themselves from liability on patient treatment (or non-treatment) decisions. Here's some new information you'll find useful.

Managed Care Reform And Indemnification Provisions

Though managed care reform is still more talk than action at the national level, some states are taking steps to level the local playing fields. Just a few months ago Illinois legislators enacted the Managed Care Reform and Patient Rights Act. There's hope that it will be just one of many such moves at the state level, and that before too much longer indemnification vis-a-vis healthplans and other third party payors won't be the headache it is now.

Contained within that Illinois Act is verbiage prohibiting healthplans from transferring liability to providers for actions or omissions of a healthplan, its officers, agents, or employees. The Act goes so far as to state that transferring such liability is contrary to public policy and illegal. Powerful words, indeed, for those physicians whose provider agreements will come under the umbrella of this Act and who should no longer have to fight with payors to strike the offensive language. Be sure to monitor activity in your state, and check with a managed care attorney (e.g., through your state society) and your malpractice carrier before signing or renewing any provider agreement containing indemnification language.

Clinical Trials — New Revenue Streams And New Indemnification Risks

These days it seems that more physicians are expressing interest in participating in clinical trials. With revenues decreasing from other, more traditional sources, income earned from clinical trials appeals to many.

In the typical scenario a company wishing to test its new drug, device, or equipment and move it toward FDA approval will contract with a company experienced in managing all aspects of clinical trials. That company is, in essence, like the third party vision and eyecare administrators with whom you're already familiar.

It puts together a "provider panel" and contracts with those physicians to provide specific services in exchange for fees. There are protocols and procedures for the clinical trial (preferred practice patterns and utilization review), paper work that needs to be filed, and standards that must be maintained (quality assurance). And, of course, there will be a written agreement between each physician and the company managing the trial.

In that document you're going to see a lot of familiar terms. You might even think you're signing a managed care provider agreement. Though not identical, the similarities are many. One term you're sure to run across is our old "friend," indemnification.

Unlike your managed care agreements, however, in this case a physician should consider the benefits of having appropriate indemnification provisions included in your agreement. Let's look into this and see why.

Obviously, clinical trials involve risk not normally part of your everyday practice. The testing and use of the drug, device, or equipment carries with it many unknowns, and you simply can't afford to be on the financial hook if something untoward should occur to your patient. The last thing you need is to be caught in the collateral damage and fallout resulting from an ophthalmic equivalent of the 1960s Thalidomide disaster.

So you must insist that the company managing the clinical study indemnifies you (that is, holds you harmless) for any claims or actions involving injury to your patient as a result of participation in the clinical trial and use of the drug, device, or equipment. This assumes, of course, that you follow all clinical trial protocols to the letter. You can't expect to be held harmless if you fail to follow clinical trial protocols or for negligence.

Please note that this indemnification must be unilateral — that is, the clinical trial sponsor indemnifies you. Under no circumstances should you ever indemnify a trial sponsor. Not only are the financial risks too great, but also, as with managed care agreements, your malpractice insurance may be voided if you take on this "contractually assumed liability." Be sure to check with your carrier before signing anything.

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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 © 1998-2000, Gil Weber, MBA. No part of this newsletter may be reproduced or distributed in any form whatsoever without the author's prior written authorization.

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