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Contract Talks Are Like Dating: Ask Those Important Questions

MANAGED CARE June 1999. © MediMedia USA
Legal Forum

Contract Talks Are Like Dating: Ask Those Important Questions

Neil Caesar, J.D.
MANAGED CARE June 1999. ©1999 Stezzi Communications

Neil Caesar, J.D.

Providers should enter into managed care arrangements with the intent that they be long-term relationships. Even when the contract term is short (for example, one year, renewable), the contract is only worth the effort to negotiate if the relationship will probably survive for a while.

Would you seek out a romantic relationship with someone who is arrogant and belligerent? Would you stay in a social relationship with someone who was dishonest and did not honor promises? Would you marry someone who was often incompetent, unable to fulfill many of the responsibilities he or she accepted in the marriage? If you said "yes" to any of the above, would you at least admit that you did not expect the relationship to be healthy and long-lived?

Then why don't physicians and MCOs routinely ask the same questions, and demand the same qualities, from their managed care relationships?

It is essential for physicians and managed care organizations to check each other out carefully before signing a contract. A provider organization and MCO that evaluate each other properly will not only negotiate a better contract, but will probably have a more profitable relationship over the years. This is true because the evaluation process establishes an ongoing dialogue, which makes it easier to identify and negotiate contract opportunities.

Also, careful evaluation helps profitability because it improves the parties' ability to reduce burdens on patient screening, late payments or claims, and frustrations in getting the other party to honor its promises. All of these problems add to overhead, thus reducing profitability.

Evaluation keys

Basically, there are five keys to evaluating a potential managed care relationship successfully. Two of these apply to both parties:

  • Be willing to be selective.
  • Evaluate the other party's attitude and support.

The other three keys apply to the physician, who should evaluate what the MCO's:

  • members tell you;
  • panel tells you;
  • and proposed fees tell you.

Each of these keys will identify areas of compatibility that are important to the physician and the MCO, and will flag areas of conflict that need to be resolved by negotiation or clarification. These items should all then be written in the contract, to ensure that they remain clear throughout the contract term.

Let's discuss two of these tips. The first key to effective evaluation is to be selective. Not every MCO or every provider is worth a contract. Sometimes the MCO or provider is a poor partner under any circumstance. More often, the contract relationship is not worthwhile for a particular MCO or provider, although certain other MCOs or providers might find it so.

Regardless, remember that the single greatest weapon in your negotiation arsenal is "no." If you are willing to say it, and if you are willing to walk away from the table, you will generally be able to negotiate a far more favorable contract than if you sign the document without the other side making concessions.

Therefore, when evaluating whether a particular physician practice or MCO is an entity worth the time and effort of negotiation, look at its record. Physicians, read the MCO's data, gather information from the Internet, your state's insurance department, colleagues, and patients.

Experience counts

MCOs and physicians should ask whether the other party appears to have sufficient experience to back up its promises. Does it have enough capital and resources to meet its obligations, and is it willing to expend resources appropriately? What is its reputation among your peers and among plan members? Is it easy to get along with? Is it open to fair negotiation?

There certainly may be times when a practice may want to pursue a contract relationship with an inexperienced, low-funded, or inflexible MCO, or when an MCO may wish to deal with an arrogant group practice. But do so knowingly, and only because you perceive that the relationship will be worth the effort despite these deficiencies.

It is important for the physician to evaluate the plan's membership because the fairness of fees paid by an MCO is directly related to the quantity of compatible patients that the MCO offers. Are there enough members in the MCO to make the enhanced business worth the physician's contracting effort?

It may also be worthwhile for a physician to inquire about the incidence of specific diseases. An oncologist, for instance, will want an idea of how many of the plan's members have been active oncology patients. Do these percentages reflect local percentages for the patient population, or are they better or worse?

All of this information should be available from the plan. Local and national statistics, of course, are available from state agencies and professional societies.

When analyzing a plan's membership, also look at utilization by members. Compare the MCO's profile for member age, sickness, and sex to the physician's patient profile. If the plan's profile, for example, contains a larger number of elderly patients than the physician presently services, the physician can expect a greater incidence of illness among the plan's patient population.

This is important to know when negotiating a capitated payment. It is also important when negotiating fee discounts or a new fee schedule, to ensure that payments for illnesses specific to an elderly population are adequate.

Alternatively, the parties can negotiate a fee schedule that is premised on the continued validity of a specifically negotiated utilization profile (age, sickness, sex, or whatever). When the profile ceases to be accurate, renegotiation is possible (or, alternatively, the parties may negotiate in advance).

The lower the patient copayment or deductible, the higher utilization will be. Many plans offer a menu of options, with varying deductibles and copayments. Find out the members' preference among those options. Higher utilization is more advantageous for fee-for-service contracts, and less advantageous for capitated or budgeted contracts. Plan accordingly.

Neil Caesar is president of The Health Law Center (Neil B. Caesar Law Associates), a national health law consulting practice in Greenville, S.C.