Negotiating Managed Care Contracts

Transcription

1 I*ANAG 0 MANAGERS' SERVlC* Negotiating Managed Care Contracts This is the second roundtable in a series on managed care. The first roundtable discussed creative strategies for managing change. Future roundtables will address quality improvement and opportunities for laboratory practice. EDS. fee-for-service environment to a capitated enviin some areas of the United States, more than ronment. This is business already have on a 95% of individuals are enrolled in some type of fee-for-service basis. managed care organization.what is the By virtue of obtaining capitation contracts, laboratorian's role in negotiating contracts with will acquire other procedures that are new to managed care organizations? According to particr institution. When looking at the existing ipants in this roundtable, successful negotiation procedures, need to cover r variable cost. of a laboratory contract can hinge on several facwith regard to the new procedures, need to tors strong working relationships with adminiscover incremental cost. By pulling out these cost trators; knowledge of laboratory cost data, the elements, can arrive at a low-level threshold benefits package, and patient demographics; and above which want to submit r bid but a willingness to make r voice heard. below which probably would not accept the What information do we need before we begin nego- contract. tiating contracts with managed care organizations? Leonard Jarett: It is essential to know r cost David Gingrich: One piece of information that data and to have full agreement with hospital becomes important when negotiating contracts is administration that the institution is entering laboratory cost data. Until recently, we've done a managed care arrangements on an incremental poor job at determining our cost per test. The cost basis. We cannot have administrators throw health care organization incurs a number of all hospital overhead into the cost, which makes expenses that are passed on to the laboratory us noncompetitive. indirectly. We need to examine these expenses to AV: We have about a one-million-test outreach determine whether the expense is fixed or vari- business. In negotiating managed care contracts, able and whether it should be applied to the cost we have found that including cytology and surgiformula for determining a capitation rate (see cal pathology in the contract gives us an advan"understanding the Language of Contracts"). tage, because our pathologists have a close Historically, this method of allocating indirect relationship with the hospital's medical staff. expenses has driven up laboratory prices and put Managed care organizations perceive cytology us out of the market when bidding on managed services to have added value, so we've chosen to care contracts. include them. With some new cost accounting measures, Richard Horowitz: We need to know as much as we've been able to more accurately predict our possible about the benefits package, the democost per test and make ourselves more marketable graphics of patients who are served by the managainst some of the reference laboratories bid- aged care organization, and the physicians who ding on managed care contracts. provide the services: Are patients ng or old? Anne Venner: In calculating capitation rates, I've Does the organization cover the costs of pregnanfound it useful to look at a range of rates and ask cy and its complications? What are the practice myself, "What is the lowest capitation rate that patterns of physicians? Do physicians use the labowe could accept and still produce economic ben- ratory a lot or a little? Do physicians have patients efits at our institution?" who are not covered by managed care organizain the contracts on which we've bid, a certain tions for whom we could provide services? number of procedures are moving from a DG: Laboratorians need to evaluate the potential for pull-through business. The clinic or physician 582

2 Roundtable Participants may have a small number of enrollees in the HMO. If can provide an excellent product and service, however, may be able to capture a greater share of the laboratory business. Once we are able to show the physician or patient who may not have worked with us in the past what we can provide, often we can convert the entire patient population of a clinic to our laboratory. Ronald Weiss: Large national laboratories have resources that allow them to capture information on physician test use and to generate utilization data back to the managed care plan. The plan then can work effectively with its medical staff to control use of laboratory tests. The challenge for hospital laboratories that want to compete in this environment is having this same capability. What negotiating positions are important when contracting with managed care organizations? RH: Successful negotiation of a laboratory contract requires the support of hospital administration, other hospital-based physicians, and the medical staff. If hospital administrators and the medical staff make it clear to the managed care organization that the laboratory is indispensable to medical excellence, r negotiating position is strong indeed. LJ: We have maintained a standard of quality to which our physicians are accustomed. They demand that these standards be maintained. We showed hospital administration that in the MECON data from the University Health Consortium (an organization trying to reduce costs in university hospitals), we had the lowest costs of anyone in the survey, yet we were providing just what our medical staff wanted. Cooperation is essential because we are fighting for the same dollar. Good working relationships with administrators are essential as well. In addition, should stratify contracts for age. You can be hit broadside if don't know the age demographics of the HMO. Obtain rates for infants, teenagers, and ng adults, and then up to and beyond Medicare age. AV: Our laboratory takes a proactive stance. When we negotiated our contract with Care Choices, we analyzed costs, justified the capitation rate, calculated it, and then presented it to administrators. Because our rate was based on cost, we obtained a good capitation rate in the first go-around with the managed care organization. That's not always the case. Richard E. Horowitz, MD, who serves as moderator, recently retired as director of laboratories at St Joseph Medical Center in Burbank, Calif, a 500-bed community hospital. He spent nearly 30 years there, most of the time as director of laboratories. He remains a clinical professor at the University of Southern California and at the University of California at Los Angeles. Nearly 97% of patients at St Joseph Medical Center are covered under some sort of managed care contract. David Gingrich, PBT(ASCP), has worked at Geisinger Medical Center in Danville, Pa, since 1991, where he is phlebotomy supervisor. Geisinger is a rural tertiary care hospital with 577 beds. Gingrich is responsible for inpatient, outpatient, and outreach phlebotomy, central processing, lab courier, and client services. Geisinger Medical Center created its own health maintenance organization, for which it has a contract to provide laboratory services. Geisinger Medical Laboratories serves 65 c o m m u n i t y practice sites throughout north central Pennsylvania. About four years ago, Geisinger Medical Center and the adjacent Geisinger W y o m i n g Valley Hospital merged laboratories. Geisinger W y o m i n g Valley now is a stat laboratory that refers routine testing and microbiology to Geisinger Medical Center. Leonard Jarett, MD, is chairman of the Department of Pathology and Laboratory Medicine and Simon Flexner Professor of Pathology and Laboratory Medicine at the University of Pennsylvania, Philadelphia. He is also chief pathologist at the Hospital of The University of Pennsylvania. Previously, he directed Barnes Hospital laboratories in St Louis and was professor of pathology and medicine at Washington University, St Louis. Approximately 40% of patients at the University of Pennsylvania Hospital are covered under managed care contracts. The hospital has merged and established affiliations with other hospitals. The institution has purchased nearly 300 primary care practices for which the laboratory will perform testing. The laboratory is opening specialty satellite laboratories in the c o m m u n i t y in an attempt to provide primary care. Anne Venner, MBA, BB(ASCP), is administrative director of clinical laboratories at St Joseph Mercy Hospital in Ann Arbor, Mich. The 519-bed hospital is part of an integrated health care system with four other local hospitals. Before earning a master's degree in business administration from the University of Michigan, she worked as a bench technologist in the hospital's blood bank. In her current position, she is responsible for marketing and finance. Her hospital is affiliated with Care Choices, an 85,000-member HMO. In 1993, she negotiated a capitated contract with Care Choices. She coauthored a paper with Sheldon Markel, MD, outlining a method for calculating a capitation rate bid range (Arch Pathol Lab Med. 1995;119: ). Ronald Weiss, MD, MBA, is director of laboratories for Associated Regional and University Pathologists (ARUP), a commercial reference laboratory in Salt Lake City w h o l l y owned and operated by the University of Utah's Department of Pathology. He is an associate professor of pathology at the University of Utah School of Medicine. ARUP laboratories was established in 1984 to provide laboratory medicine services to University Hospital and to provide reference laboratory services to hospital laboratories and other independent laboratories across the country. VOLUME 27, NUMBER 9 LABORATORY MEDICINE C 5 fa 0 c 0 1 ( (A

3 LJ: Our administrators have negotiated contracts with and without the laboratory. When they included us in negotiations, it made a world of difference, because we provided them with adequate data. I pointed out that if they didn't negotiate adequately for us, part A reimbursement (for administrative and educational activities) would increase. Since then, they have been happy to involve us. RW: Our medical staff formed a faculty practice organization that speaks with one voice when negotiating contracts. This organization has Understanding the Language of Contracts This guide to terminology can help prepare to negotiate managed care contracts. Capitation A method of payment in which the provider receives a set fee per person per a fixed period of time. In return, the provider furnishes all medical services for the covered individual, as long as the medical service required is listed in the contract. Direct cost Expenses that are directly attributable to the department that produces the product or service and to the product or service itself (eg, reagents and supplies, referral laboratory fees). Fee for service The traditional payment method of health insurers. The provider charges a fee for each service, and the insurer, patient, or both pay all or part of the fee. Fixed cost Expenses that remain constant regardless of changes in business activity (eg, administrative salaries, utilities, equipment maintenance and depreciation). Health maintenance organization An organized system of health care that provides comprehensive services to enrolled members for a fixed, prepaid monthly or annual fee. Incremental cost Expenses that are attributable to the production of one additional unit of activity by an already functional laboratory (eg, reagents, certain supplies, referral laboratory fees). Indirect cost Expenses that are attributable to the department that produces the product or service but not directly to the product or service itself; intradepartmental overhead (eg, administrative salaries, facility lease expense, utilities). Preferred provider organization A delivery system consisting of a contract among providers, employers, and third-party administrators, in which physicians assume no risk and are paid on a fee-forservice basis. Pull-through business Non-managed care business obtained from a single client (eg, Medicare, fee for service). Single-service carve-out A contract for one service only (eg, laboratory services, outpatient services). Utilization Number of services provided (usually on a per-member per-month basis). Variable cost Expenses that vary directly with changes in business activity (eg, technical and clerical salaries, reagents and supplies). Downloaded 5 8from 4 begun to deal with managed care arrangements in the greater Salt Lake City area. The hospital negotiates separately for its services. The Department of Pathology, with ARUP, has agreed to provide laboratory services in those kinds of arrangements. Based on our experience with other hospital laboratories we serve, it is apparent that if the laboratory doesn't take a strong, visible position with its hospital administrators and medical staff, it risks being left out of managed care negotiations. The managed care plans may carve out laboratory and pathology services in some cases and send that work to one of the large national laboratories. That's a critical blow to these hospital laboratories, so it is important to be represented at the bargaining table. RH: You must come to the table with viable data. So often being proactive is 90% of success. If arrive with financial and demographic data, including physician utilization of laboratory services and the laws and regulations that apply to managed care organizations in r state, often can control the negotiations rather than be subject to them. How can the hospital laboratory compete with the large commercial laboratory? RW: That's the major challenge faced by hospital laboratories and even small independent laboratories. It's extremely difficult to compete with the large commercial laboratories on the basis of price only. Capitation rates, in some cases, have been set at ridiculously low levels. But because the hospital laboratory is able to obtain the socalled pull-through business, it can offset capitation losses. Individual hospitals are disadvantaged in terms of providing broad-based access to care. It is important for hospitals to network across geographic regions so that managed care plans can ensure their members ready and convenient access to health care services including laboratory services. The power of the hospital laboratory and the small independent laboratories will be in forming these provider networks. Reference laboratories, particularly those not competing directly for managed care and outreach business, can support the development of these networks by advising on ways to create courier networks and ways to establish

4 point-of-care facilities for specimen collection and on-site testing. Networks must deal with a multitude of complex operational issues if they are to compete effectively. Do merged laboratories have greater clout in negotiating with managed care organizations? AV: If can increase r test volume, productivity, and efficiency in the laboratory and drive costs down, have an advantage. You don't need to merge with a commercial laboratory partner; it can be with any partner. We have successfully partnered with other hospitals. RH: As hospitals and their laboratories begin to merge, central laboratories, which have high volumes, increased productivity, and economies of scale, will perform most of the inpatient laboratory work. Central laboratories also will be able to compete with commercial laboratories for outpatient business. RW: As these networks form, they must overcome, in some cases, tremendous political obstacles regarding governance and control. As an alternative, many hospital laboratories are forming jointly owned central or core laboratories. Many realize that cannot achieve the necessary economies of scale and overcome the logistic complexity of shared testing until have formed a centralized core laboratory. Ultimately, the design of these core laboratories should enable them to minimize their dependence on outside reference laboratories and to keep as much testing in the local or regional environment as possible. These actions keep the revenues within the strategic alliance and result in a superior level of service. LJ: Economy of scale will only be reached through centralization. We are installing a robotics system that will give us infinite capacity 24 hours a day. We are open 24 hours a day right now. We will operate with fewer people, unfortunately. The only way we can become more competitive is by reducing personnel costs and at the same time increasing automation, and not decreasing quality. We are deciding whether to perform other than stat procedures at some peripheral locations. We are taking over the laboratory at one hospital. We will do as much back up as we can at this time and to centralize. Distances may come into play, but we will determine whether we can use computer relay of information to overcome that problem. We have allowed the control of medicine to shift from the physician to the businessman who focuses on the bottom line more than on the care of the patient. Managed care is here. We all have to live with it. Managed care groups are now seeking us out. When they see our laboratory operations, they want to do business with us because of the quality. That's becoming the name of the game. Prices have gone as low as they can. To laboratorians in general, if we improve our operations and provide quality services, we can offer continuing medical education opportunities to the physicians we serve. The commercial laboratories cannot do this.! i What payment issues are critical in managed care contracts? AV: In developing these contracts or developing the payment mechanism and payment rate, it is necessary to understand what services will be covered. In addition to anatomic vs clinical pathology services, we need to consider the If w e arrive at the bargaining table with financial and demographic data, often we can control the negotiations rather than be subject to them. ML J Richard E. Horowitz, M D esoteric services that will be covered (eg, emergency room or urgent care stat services). The laboratorian needs to understand what the contract does and does not include. Will any testing be performed in physician office laboratories, and how will that be paid? When obtaining utilization information from the managed care plan, make sure that the information has the same copay, coinsurance, and deductible characteristics as the plan for which are setting the rate. Sometimes utilization information from comparable plans is used, and it is important to understand what the information are getting includes. How can we minimize the risks of managed care contracts? RH: Be specific about the services are asked to provide under that contract. Become involved in utilization review, in outcomes management, and in developing critical pathways and practice VOLUME 27, NUMBER 9 LABORATORY MEDICINE 585

5 Free Educational Services from Si^iiia Diagnostics parameters. Try to become involved in the governance of a managed care organization whether an HMO or PPO. If are on the board of a managed care organization, can determine not only what fees will be covered but where tests will be sent. DG: Some of the value-added services we provide have helped us clinch contracts. This may include the pathologist or PhD consultation, or the ability of the caregiver the physician, nurse, and so on to talk directly to a technologist and ask questions. We also have provided routine and stat phlebotomy services for nursing home and some homebound clients. These are value-added services that other laboratories are unable or unwilling to provide. We cannot lower our costs much more, and some of the contracts on which we have bid are very, very close. Value-added services and the quality of the product are selling points that have helped us obtain some contracts we may not have otherwise. What advice do have for the medical technologist in this arena, which seems to be controlled by hospital administration, insurance companies, and pathologists? DG: Medical technologists must realize that this is the path most laboratories are following. Laboratories will survive through joint ventures and contracts. The medical technologist needs to buy into this idea and to participate, which he or she has not done in the past. As a group, we med techs like to sit in the laboratory and do our work. But we need to be more participative and customer-service oriented. We have to realize that we have expertise that we can provide too. Our microbiology laboratory has had phenomenal success with some of our contracts, because these people are providing services and information that some of the other laboratories cannot. The bench technologist is answering some of these questions and phone calls they are not necessarily going to our PhD. The bench tech also is performing in-services and other activities. The medical technologist is getting off the bench and into the public eye. He or she may become involved in education. AV: The knowledge that medical technologists, particularly medical technology administrators, have in understanding laboratory costs, and in understanding physician clients of outpatient services is invaluable when negotiating managed care contracts. Hospitals have advantages in these kinds of contracts. It may even be the wave of the future. In terms of outpatient contracts, if hospitals can get ancillary departments to band together to write contracts for groups of services, that is an advantage over the single-service carve-out. It would make sense that managed care organizations would prefer to make fewer contracts with one provider who can offer the continuity of care between an outpatient event and the inpatient stay. I think a hospital provider would have an advantage in that arena. RH: The major role of the medical technologist in this area is to assist pathologists and hospital administrators design and implement systems and methods that will make the laboratory more efficient and effective. There is a real concern that as the market consolidates and faces the challenges of managed care and cost containment, laboratories will undergo significant downsizing. The only defense against being eliminated is to be sure that what do adds value to the delivery of laboratory services. LDL Info-Pack Free Info-Pack with technical and clinical information on the LDL assay, including specifications, a list of analyzers approved for moderate complexity, article reprints, case saidies and a Summary Report by lipid experts. Circle no. 030 on card LDL Teleconference Qualified laboratory personnel and physicians can register for a one-hour teleconference on "The Value of LDL-cholesterol Measurement and the Benefits of Aggressive Treatment." Given by lipid experts, the teleconference is approved for 1 credit hour of CME credits. IMBNiUSOf Circle no. 031 on card LDL Bibliography biography LDLbyimmuno; ~ separation has been SSsEF' widely studied and HESSE published by leading ^Z I lipid centers. For a complete bibliography listing studies, abstracts, and comparisions, along with available reprints of papers published by Dr. Cohen, Dr. Jialal and Ms. McNamara, circle below. k Circle no. 032 on card For Faster Service Call