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Managed care credentialing of physicians

By Jerry S. Sobelman, CPA

Have you ever wondered what the purpose of credentialing is and the necessity behind it? If so, you are definitely not alone. For physicians and office administrators, credentialing is a necessary evil in order to participate in managed care plans.

Managed care organizations such as health maintenance organizations (HMOs), preferred provider organizations (PPOs) and physician/hospital organizations (PHOs) must successfully select and retain qualified health care providers who will provide quality services to their subscribers. This process of selection and retention is known as credentialing. Credentialing is the process of review and verification of the information of a health care provider who is interested in participating with a managed care organization (MCO). Review and verification includes: current professional license(s), current Drug Enforcement Administration and Controlled Drug Substance Certificates, verification of education, post-graduate training, hospital staff privileges and levels of liability insurance.

Credentialing also includes the review of the physician’s office, also known as a site review or an office audit. An insurance company employee, usually a health care professional, who is a member of an MCO’s Quality Improvement Department or Provider Relations Department, carries out such a site visit, using a long checklist of things that must be examined for compliance with the MCO’s standards. Each office is rated on individual items such as quality of clinical records, cleanliness, training, and the overall condition of the medical office. Information from a practitioner’s site visit is considered in determining whether the practitioner is accepted into the MCO’s practitioner panel.

The credentialing process should be designed to aid an MCO in choosing competent providers and to ensure providers a fair application of the selection criteria. Not only should an MCO evaluate the professional training and competence of applicants, but an MCO should also provide a fair hearing and appeal process for applicants denied participation or continued participation in the MCO.

Managed Care Credentialing

The fundamental purpose of credentialing is to ensure that applicants meet the minimum requirements for a requested status and to determine whether the applicant’s credentials are appropriate for the requested privileges within the MCO. Laws, regulations, and accreditation standards increasingly require MCOs to carry out the same level of credentialing that hospitals have long been required to carry out. Most MCOs now establish requirements that practitioners must meet to become members of their practitioner panels and review the qualifications of applicants for panel membership against these requirements. Because MCOs typically handle many more applicants than most hospitals, the credentialing process must be done quickly and inexpensively. Many MCOs have found themselves changing the way in which they do credentialing in order to respond to the demands of the constant changes in the health care industry. The credentialing basics and their importance still remain the same.

Effective credentialing, and fair hearing and appeal processes all provide several advantages for an MCO. These advantages, at a minimum, include: risk management, accreditation, immunity from providers’ lawsuits under the Health Care Quality Improvement Act and positive marketing to those seeking to purchase health care policies, consumers, and potential member providers.

Risk Management

Under the theory of negligent credentialing, MCOs are responsible and can be held liable for exposing an injured subscriber to an unqualified provider by failing to conduct a proper credentialing review. They also undertake the risk that subscribers can look to collect damages when the subscriber is injured due to the malpractice of a provider deemed later to be unqualified. An MCO that exercises reasonable care in credentialing and monitoring its providers reduces its risk of liability of a malpractice suit by one if its members.


There are many managed care accrediting organizations. The most popular are the National Committee for Quality Assurance (NCQA), the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), the American Accreditation HealthCare Commission (AAHCC), and the Medical Quality Commission (MQC).

In its inception, NCQA used to limit its accreditation to HMOs, but has recently expanded to accredit Credentialing Verification Organizations (CVOs), Behavioral Managed Health Care Organizations, and Physician Organizations. JCAHO, which started out as a hospital accreditation organization, accredits all types of MCOs through its health care network accreditation program. They also have a specific set of standards for PPOs and managed Behavioral Health Care Organizations. The AAHCC only accredits organizations that specialize in carrying out utilization reviews. They have recently broadened their focus to accredit MCOs. Finally, the smallest accreditation group, the MQC accredits medical groups and Independent Practice Associations (IPAs). MCO accreditation is important to many MCOs because the value of accreditation is looked upon as an indication to the public of the MCO’s devotion and commitment to the principles of quality and continued improvement of services. Some states require HMOs to be accredited. Many health care purchasers require or encourage accreditation before they will sign on with an insurer.

Immunity Under HCQIA

Another reason for an MCO to implement and perform proper credentialing is to qualify as a “health care entity” under the Health Care Quality Improvement Act (HCQIA). As a “health care entity” under the HCQIA, the MCO can query the National Practitioner Data Bank in order to learn the malpractice claim history and disciplinary history of provider applicants. To qualify as a “health care entity,” an MCO must have written procedures for formal peer review of its physician members, engage in peer review activities, and provide health care services. Most HMOs qualify as “health care entities” and many PHOs and PPOs may also meet this definition if they provide health care services.

Another advantage of being a “health care entity” under the HCQIA is that the MCO can seek the immunity protection of the HCQIA. In order to be entitled to HCQIA immunity, the MCO must report certain adverse actions against providers to the National Practitioner Data Bank (NPDB). MCOs must also provide a full list of due process rights to a provider whose membership is denied, modified, suspended or terminated. There are many reasons why an MCO can decide to deny, modify, suspend or terminate a provider’s participation. These reasons, however, must be based on the reasonable belief by the MCO that the action would interfere with the physician providing the best quality of health care services. In order to render such a major decision, the MCO must obtain the facts, make a reasonable decision once all the facts are known, notify the physician of the decision, and offer the provider hearing procedures to file his appeal if he chooses.

The immunity conferred by the HCQIA is broad. It protects the MCO’s credentialing committee members, and any other MCO committee members engaging in credentialing-related activities, including covering committee members with respect to credentialing decisions. The immunity can help to avoid suits against an MCO by a physician adversely affected by a credentialing decision, including suits for defamation and abuse of process. The immunity does not protect a health care entity from any civil rights claims.

The HCQIA provides health care professionals affiliated with HMOs various due process rights that must be accorded to the professional if the HMO plans to terminate its relationship with the professional based on quality of care concerns. A credentialing plan that includes the requirements of a state’s peer review statute will ensure that an MCO will be able to seek the protection of the broad immunities and privileges of those statues.

Positive Marketing

Finally, another important reason for an MCO to engage in effective credentialing is for marketing purposes. Well-established credentialing policies and procedures and a thorough credentialing plan can provide positive marketing benefits to MCOs in two ways. First, an MCO can attract more health care purchasers and consumers by marketing the fact that it engages in a thorough investigation and credentialing process before it accepts member physicians. Health care purchasers and consumers are more likely to choose an MCO if they can be sure that a proper credentialing policy will weed out unqualified physicians from the MCO’s applicant pool.

Second, a well-established and thorough credentialing process will attract the best health care professionals to an MCO. A reputable health care professional will want to associate with an MCO that has high selection standards and will avoid association with an MCO known for admitting professionals with substandard qualifications or a long history of malpractice claims. Health care professionals will appreciate a proper credentialing process that is done efficiently and timely because an MCO that engages in a thorough credentialing process attracts more health care purchasers and consumers, thus increasing a provider’s patient base.

Credentialing and managed care definitely share a strong relationship. With effective and thorough credentialing, MCOs are able to prosper and grow. It also provides several benefits to MCOs, which include a decrease in liability risk for malpractice and negligent credentialing, strong accreditations, immunities from physician lawsuits, and positive marketing. While effective credentialing takes time and effort, most MCOs feel that its benefits clearly outweigh the costs.

Obviously, the entire credentialing process could be made easier if there were required standardization among the format used by insurers. This would allow physicians to maintain a database of all of their information in a standardized format and send the same information and application to each managed care organization. Physicians need to lobby for this uniform credentialing legislation through their state and local agencies. This one decision could drastically curtail the long hours spent by physicians completing credentialing applications and compiling information.

Jerry S. Sobelman, CPA, is a principal of Margolis & Company P.C.

One comment

  1. Is there anywhere i can find a physician credentialing audit form?

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