Chapter 3 Index

A. The Business of Private Practice
--Interviewing for Private Practice
--Negotiating Contracts for Pediatric Practice
--Managed Care

Managed Care: A Second Look

Introduction: Managed Care will ultimately be the way most medicine is practiced in this country.  Now 50 million are covered; expected to rise 12%/year.  Higher percentages in urban areas.  Risk is now shared by physicians whether through discounted charges or through capitation.

FOUR STEPS TO SUCCESS IN A MANAGED CARE ENVIRONMENT:

I. Assess Your Managed Care Market: Need to learn terms (see glossary below)

• Must determine early on the payer mix in your area: Medicaid, Indemnity, and Managed care. Checklist of questions.
• Rank the major employers in your locale and % of population they employ.
• Identify provider competitors and affiliations with MCOs.

II. Evaluate Your Business Strengths: Advertise the following:

• Accessible practice location
• Community Reputation with board certified physicians
• Loyal, satisfied patients (do surveys)
• Hospital affiliations
• Preventive, diagnostic services, evening weekend hours

III. Analyze Managed Care's Financial Impact:

• Be aware of what increases your risk as a physician:

Least:
Fee for service
Capped fee schedule
Fee for service, or capped fee with withhold
Global fees: flat fee to cover everything
Primary Care Capitation

Most:
Full Capitation: no control over utilization

• Capitation: MCO should have 15000-30000 members; this transfers entire risk to the physician.  Each doctor should have enough patients assigned; if <300 then you have enormous risk.  Need to negotiate carefully if entering this type.
   
• There are formulas for predicting utilization, cost, and profit for each type of MCO situation

IV. Master the Contract Negotiations: <10% MDs negotiate; of those that do: >90% achieve concessions. YOU MUST NEGOTIATE!

• Term Issues: contract duration, renewal, and termination
• Compensation Issues: what is covered, withhold, ancillary services, co-payments, deleting problem patients
• Liability issues: stop-loss; UR; hold harmless clause
• Operational Issues: Administration, audits, referrals
• Miscellaneous: marketing, arbitration, QA

Glossary of Managed Care Terms:

MCOs (Managed Care Organizations):

I. HMO: Health maintenance organizations provide members with a defined package of health care services in exchange for a fixed monthly premium.

1. Staff Model: HMO facility where MDs are employees.
2. Group Practice Model: Single multispecialty group provides service to the HMO members.
3. Network Model: Several doctors or groups provide service to HMO
4. IPA (Independent Practice Association): doctors have independent offices and medical practices.  Very common in market now.  By this method, IPA can compensate specialists on a discounted fee-for-service basis, and reimburse primary care doctors on a capitated basis.
5. Direct Contract Model: HMO contracts to doctors without intervention of an IPA.  Gatekeeper concept key here.  Capitation is also common with this type.

II. PPO: Preferred Provider Organizations: networks of independent physicians contracting directly with insurers and employer health benefit plans.  Discounted fee-for-service reimbursement.

III. EPOs: Exclusive Provider Organizations are similar to PPOs, but beneficiaries are required to utilize EPO-contracted MDs.

Other Types of Alliances/Provider Organizations

1. IPAs: negotiate contracts with HMOs on behalf of independent contracting physicians.

2. MSOs: Management service organizations similar to IPAs; often used by hospital-based integrated systems to manage purchased physician practices.

3. PHOs: (Physician-Hospital Organizations)

a. Open model: any staff physician may join; often ineffective.
b. Closed model: limit participation to the efficient MD
c. Staff model: purchase practices and employ MDs
d. Equity model: each practice employed holds equity in the PHO; achieves the highest degree of integration.

In addition to information above, you must also recognize the market stage of managed care your community is presently in.

Four Market Stages of Managed Care:

1. Physicians cling to their independence: fee for service.  Doctors are the most vulnerable in this stage, since they do not want to talk to other doctors in their community about organizing; they may just want to practice medicine.

2. HMOs and PPOs force doctors to align.  Doctors need to have 40-50 doctors to have impact.  An example of early alignment would be the formation of an IPA.  Often these groups of doctors do not allow specialists or subspecialists in.

3. Hospitals try to get involved.  The more successful ones form PHOs which sometimes are open, sometimes not (see above).  Doctors need to decide whether they think one particular hospital will make it or not.

4. Capitation.  If group of doctors is small, this market stage is the most risky for doctors and should be avoided.  Doctors take all the risk in this type of scheme.

References for this Managed Care Discussion:

1. Medical Economics. April 1995. Entire issue devoted to this subject.
2. Sheila Dunn. Managed Care Strategies for Physician Practices; Published by Washington G-2 Reports. 1996.

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Department of Pediatrics  |  Medical College of Georgia
Please email comments, suggestions or questions to:
John T.  Benjamin M.D.,  jbenj@mcg.edu

February 27, 2004