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Ten commandments of managed care

By Robert A. Wade, Esq.

According to Exodus, after Moses led the Israelites out of Egypt his people wandered in the desert for many years, waiting for direction. When things looked hopeless, Moses climbed to the summit of Mount Sinai and received the direction his people needed which would guide them to the Promised Land. Moses descended with the Ten Commandants.

Many physicians today are wandering aimlessly, and have been for years, in the desert of managed care. To find their way out of that parched and barren land, they, too need guidance, for there are many false prophets and graven images to confuse and bewilder them. For example, there is the false god of “strength in numbers.” “Form an IPA and all your problems will be solved.” “All you need is leverage.” There is also the idol of indiscriminate acceptance. “Sign on for all contracts, all panels—no matter what the cost.” “Be a member of every IPA.”

And while there is much to bemoan about the desert of managed care, it is also true that wandering through a desert can be a purifying and refining experience. Indeed, when one climbs a mountain in search of direction, the landscape below begins to take shape. It then becomes possible to discern rules that offer guidance.

Having climbed the mountain with numerous physicians, we now offer the following Ten Commandments of Managed Care Contracting, and we have seen the Promised Land. While milk and honey do not yet flow freely, it is a place where important health care decisions are made not by insurance companies. Rather, such decisions are made by individuals who should be in charge of making those decisions—namely, physicians.

I. Thou shalt practice the highest quality medicine at all times, paying heed to the sacred god of quality, and thou shalt have no other god before that.

In the days before the government became one of the biggest players/payers in health care delivery, the public’s perception of the medical profession was high. Few would have thought that financial considerations would have influenced medical decisions. But then there came abuse. Some physicians learned that overutilization meant vastly increased revenues. Insurance premiums skyrocketed and companies responded with managed care products that discouraged utilization. Some physicians then learned that underutilization might mean increased revenues. But on an individual and societal level, we have learned that providing only the appropriate level of care is what is right. That means offering the highest quality of care and knowing the difference between high quality and high utilization.

Managed care companies are being forced to learn (through verdicts and an angry public) that the answer to increasing costs is not to withhold care. At the same time, physicians are learning that by placing the god of quality care first, in the long run they will profit—both from a better public perception as well as financially.

II. Thou shalt embrace capitation as a way of controlling the system so that quality care can be offered.

Physicians need to understand the economics of their practices before agreeing to accept the risks associated with capitation. Even—and especially—with quality as your practice’s highest priority, you should not ignore the economies of medicine, for medical services are scarce resources, and must be allocated appropriately.

III. Thou shalt know the cost of doing business.

If capitation is to be embraced, physicians need to know how much providing the services likely to be required in a capitated environment will cost. This means knowing not only what one’s “overhead” is, but also being able to allocate overhead between one’s capitated population within a practice and the non-capitated population. That, however, is not enough. Physicians must be able to break down costs by procedure. For example, an ophthalmologist must know how much it costs to perform a cataract surgery, conduct office visits or provide tests that result from those visits. In some cases this may mean making arbitrary allocations of cost items (e.g., rent, utilities, etc.). Nevertheless, practices should try to match costs to services to the extent and as closely as possible. Thus, for example, if a technician only performs certain procedures, his or her salary benefits should be allocated directly to those procedures.

IV. Thou shalt know and learn about utilization.

It is not merely enough to know how much it costs to perform particular procedures, tests or provide certain services. In a capitated environment, physicians should know what the likelihood is that those procedures, tests or services will have to be performed. They must also know how often their practices will be seeing and treating patients, categorized by age and sex, as well as the range and frequency of services to be provided to that patient population.

Knowing your practice demographics alone, however, will not give you enough insight on the trends and needs of a covered population. Your patient population may not be reflective of the needs of the population at large or within your particular community. Thus for example, ophthalmologists will need to know in a given population how many people of a particular age group and/or sex will suffer a retina detachment in the course of a year. This type of information is not always easy to come by, but it is critical and available. Different specialty groups are now beginning to develop utilization data and actuarial information—the same kind of actuarial information that insurers have used for years in determining what appropriate premium payments should be.

V. Thou shalt understand the scope of services to be offered in a capitated environment, and in particular, under any specific contract.

If your practice is capitated with respect to services beyond what you are capable of providing or beyond your current geographic market, you may be required to subcontract for those services. Depending upon whether you subcontract for those services on a capitated or fee-for-service basis, your risk will be greater or lesser. It is also important to understand the characteristics and needs of the population covered by the contract. Are you providing services largely to an elderly population? Or, is this primarily a commercial population? Different age groups have different utilization data. It will be important to know in as precise a manner as possible what the likelihood is of providing particular services, and what the potential risks are under a particular contract. Has this patient population been serviced by someone prior to you who might have under-withheld services? If so, if you assume a contract, then you might expect a greater incidence of utilization than otherwise might be expected in a given population.

VI. Thou shalt know that all contracts are negotiable.

Despite the prevailing perception, all managed care contracts are negotiable. Negotiability is a function of supply and demand; however, it is also a function of knowing what a plan is looking for and how that plan stacks up in the marketplace. Moreover, provider leverage also affects negotiability, depending on the provider’s reputation, size, specialty, economics, level of integration and the like. Accordingly, in evaluating the negotiability of a particular contract, a provider must analyze the marketplace, the financial status of the managed care plan in question, alternative plans, as well as any negotiating leverage that may exist.

VII. Thou shalt not covet thy competitors’ information.

Even as we look to a relaxation of rules, antitrust is still an issue providers must contend with. The current status of the health care marketplace favors some level of integration among physicians. But as of today, only members in fully integrated enterprises can share price information. This may change (and is being considered by federal agencies), but one cannot expect that the rules regarding antitrust will simply disappear overnight. If you act as competitors, you must recognize the limits of sharing price and related information. You must also be acutely aware that prohibitions on agreements to fix prices, boycotts and the like apply.

VIII. Thou shalt support and be involved in quality assurance and peer review within the context of managed care plans and organizations.

Bowing before the god of high quality medicine necessitates that you live by quality assurance demands and dictates, as well as eliminate from panels those physicians who do not live by such dictates. For only in practicing high quality medicine will utilization be appropriately managed and costs minimized. But while all physicians should adhere to and incorporate quality assurance into their practices, you should not sign any managed care contract that references such programs without reviewing and understanding the demands (which might be conflicting) on your practice.

IX. Thou shalt endeavor, always, not to indemnify managed care companies for their own decisions.

In the current world of managed care contracting, decisions about the provision of medical care may sometimes fall outside your authority. To indemnify a managed care company for its decision to provide or not provide certain kinds of care is dangerous and can expose you to significant liability.

X. Thou shalt have every contract reviewed by counsel who understands, and helps you to understand, the terms and conditions—including even seemingly the most trivial definition.

Managed care contracts frequently include provisions relating to the definition of specific terms. These terms include: provider services, reimbursement, legal indemnification and insurance, disputes and appellate procedures, duration and termination, disenrollment, utilization management, quality assurance programs and medical, administrative and financial records. It is important that all such terms are clearly stated and understood, for these set the boundary lines for what services you are ultimately obligated to perform and for what you will get paid. Disputes in managed care contracts arise most frequently from ambiguities caused by badly defined terms, and result, inevitably, in contention over reimbursement.

These then, we say to you, are the Ten Commandments of Managed Care Contracting. There are many more rules, concerns and guiding principles to follow, and no doubt, issues over which one may take exception. However, it is clear that these commandments must guide you as you move forward in managed care contracting. Failure to abide by these commandments may have you sacrificed on the altar of the new health care economy—with the sacrifice being performed by the High Priest of Bureaucracy.

Robert A. Wade, Esq., is with the law firm of Wade, Goldstein, Landau, Abruzzo, MacKarey & Davidson, P.C. in King of Prussia, PA.

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