Question

We are told in the text scenario related to quality of care (Fos and Fine Chapter 12) that Mid-City Hospital has recently initiated quality of care strategies. A multidisciplinary team has been formed to form quality objectives for a report to the hospital board. They are also in the process of finalizing a contract with a national managed care organization. If the facility has been engaged in quality processes for less than a year is it realistic to expect them to be ready for the managed care contract negotiations? At minimum, what information can they have for the prepared for these contract negotiations in two months and for the board in six months?

Answer 1

Managed care contract is defined as a legal agreement between

1) an insurer (the MCO) and

2) healthcare provider organization
- defines which health benefits the MCO will pay for
- how much the MCO will pay for the services
- provider agrees to accept the contracted rate as payment in full

Terms & conditions :

is a part of the contract structure:
- preamble: defines parties to the agreement
- definitions
- participation in MCO's credentialing, utilization management and quality improvement initiatives
- claims submission
- payment provisions
- liability insurance
- licensure requirement
- term and termination
- dispute resolution
- confidentiality
- signatures of corporation officers

Managed care contracts are the foundation of many practices' revenue streams. Poorly negotiated contracts can result in ineffective patient flow.

1. Know Your Market, Your Competition, and the Network Composition

As a provider, understanding your place in the market is one of the best negotiation tools at your disposal. Networks want to look attractive to employer groups, so they strive to offer a breadth and depth of providers. Reporting on health outcomes is an effective, albeit uncommon, contracting strategy. Though health outcomes are not widely tracked within the O&P field, the power of data is a strong tool for negotiating profitable contracts.

2. Build Your Network Participation Based on Key Referral Sources

Developing strong relationships with key referral sources such as orthopedic surgeons, podiatrists, and hospital emergency staff who also belong to the network you hope to contract with can help you negotiate if those sources are referring the majority of their business to you or are willing to request your participation within the network for the continuity of their patients' care. Specialists are harder to contract within a network because, from a contracting perspective, they are in higher demand. Usually, a limited number of specialists serve a contracted service area and, therefore, hold a little more negotiating power. If the specialist uses your practice exclusively, it may present your practice with a greater probability of negotiating a higher rate. You should strive to participate in the same networks as your referral sources; participation in networks that do not match those of your referral sources will net a decrease in your patient flow.

3. Understand Your Raw Costs and Profit Margin Before You Negotiate Rates

There are several rules for establishing the costs of the services and products you provide to your patients. Many providers look at the competition to establish the prices they charge, which is only one component of establishing costs. Providers use different suppliers, order different quantities, and produce different amounts of products, so the price of materials is different for each provider. Correctly establishing charges should be based on the combined costs for materials, overhead, staffing, and labor, as well as on your desired profit margin. If you eliminate this cost-analysis step, negotiating reimbursement rates becomes risky and will most likely lead to a loss.

Since a provider must charge the same amount for a product to self-payers, insurance companies, and government payers, it is critical to understand the business aspects of pricing before establishing your prices and negotiating your contracts. Once you have completed your cost analysis, compare it to the rates in your contracts and determine which contracts should be kept, renegotiated, or dumped.

4. Be Aware of Contract Terms that Could Negatively Impact Your Business

There is more to a contract than the reimbursement terms. Don't sign a contract just to sign it; read all of the pages and make sure to review all of the terms. Although it is critical to negotiate the most profitable contract for your business.

5. Negotiate a Smart Rate for Your Business

All payers will send you a base contract with their lowest possible fee schedule or terms for contracting. It is your responsibility to ensure the "sample" fee schedule they provide to you is applicable to the services you provide. If it isn't, you should provide the payer with your top 25 codes (most used, largest reimbursement opportunity) so that they can provide you with their reimbursement for your specific codes. Evaluate the payer's reimbursement rates for those top 25 codes and compare them to your cost analyses for the same devices to determine whether or not the reimbursement would be profitable for your business. You'll also need to consider what profit margin is acceptable to you. If you don't know what the profit margin is for your costs, compare the fee schedule to Medicare's. Through my experience working with providers, I have found that most providers can break even at 70 percent of Medicare. Be aware, however, that this is an average only; some providers have higher costs, while others' are a little lower.

6. Know When to Walk Away

Participating in networks is important; however, sometimes you have to walk away to save your business from reimbursement rates that will eventually bring a negative return. For both small and large providers, contracting with large national payers is typically the key to serving the patients in the payers' service area. Some national payers begin contracting at rates as low as 40 percent of Medicare fee schedules; this is detrimental to an O&P practice's bottom line. Never agree to the original proposal; always negotiate above your break-even point. Though you may need to accept rates just above the break-even point in order to gain the contract, you should never start there during the negotiation process.

Successfully negotiating managed care contracts takes a lot of patience, determination, drive, and perseverance.

In successfully negotiating managed care contracts, parties should mutually benefit in a number of ways. First, a healthcare provider adds a list of patients to its practice. They also have an opportunity to engage with a group of diverse patients who prefer specific doctors. The patient benefits by knowing that they can now be seen directly by their chosen doctor on a long-term basis. The patient and doctor will build excellent rapport and promote continuity of care. Patients will also enjoy the benefits of being “in network” that includes receiving care at a lower cost. The managed care company, who is the payer, in this case, is happy that they have a new revenue stream.

The amount a hospital is reimbursed is very important, but it is not as critical as numerous other factors that make the contract doable.

Payers can also be particularly slow in responding to claims from the start. This creates a backlog and makes it hard for hospitals to monetize their service. Files can pile up, delays will occur and, sometimes, patients are kept waiting unacceptably long periods of time for their care.

Long-term contracts are good for the hospital because they guarantee a flow of revenue over an extended period of time. They are normally more flexible and should be filed away for future renegotiation. Importantly, the content of any managed care contract needs to align with the financial and logistical goals of the provider or institution.

Payers will want what they consider to be appropriate rates for giving patients the coverage they choose. Hospitals want the same thing. On occasion, disagreements surface between the payer and the provider over minute issues. More often than not, these issues can be settled easily given each side is willing to give a bit of ground. Each party also needs to understand that there are times when a request simply won’t be met or agreed to.

.