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What HMO’s Seek in Private Managed Care Contracts

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Whole Sale – Not Retail – Medicine is Growing

By Dr. David Edward Marcinko; MBA, CPHQ, CMP™


The conversion to managed healthcare, and capitation financing, is a significant marketing force and not merely a temporary business trend. More than 60% of all physicians (MD/DO) in the country are now employees of a MCO, HMO, PHO, etc. Those that embrace these forces will thrive, while those opposed will not.

Achieve Geographic Desirability

After you have evaluated the HMOs in your geographic area, you must then make your practice more attractive to them, since there are far too many physicians in most regions today. The following issues are considered by most MCO financial managers and business experts, as they decide whether or not to include you in their network.

General Standards:

1. Is there a local or community need for your practice, with a sound patient base that is not too small or large? Remember,  practices that already have a significant number of patients have some form of leverage since MCOs know  that patients do not like swithcing their primary care doctors or pediatrician, and women do not want to be forced to change their Ob/Gyn specialist. If the group leaves the plan, members may complain to their employers and  give a negative impression of the plan.   

2. A positive Return on Investment (ROI) from your economically sound practice is important to MCO’s because they wish to continue their relationship with you. Often, this means it is difficult for younger practitioners to enter a plan, since plan actuaries realize that there is a high attrition rate among new practitioners. On the other hand, they also realize that more established practices have high overhead costs and may tend to enter into less lucrative contract offerings just to pay the bills.

3. A merger or acquisition is a strategy for the MCO internal business plan that affords a seamless union should a practice decide to sell out or consolidate at a later date. Therefore, such as strategy should include things as: strong managerial and cost accounting principals, a group identity rather than individual mindset, profitability, transferable systems and processes, corporatized form of business, and a vertically integrated organization if a multi-specialty group.

4. Human resources, capital and IT service to synergism with existing MIS framework? This is often difficult for the solo or small group practice and may portend the need to consolidate with similar groups to achieve needed economies of scale and capital, especially in areas of high MCO penetration.

5. Consolidated financial statements conforming to GAAP (Generally Accepted Accounting Principals), IRC (Internal Revenue Code), OIJ (Office of the Inspector General), and other appraisal standards.

6. Strong and respected MD leadership in the medical and business community? MCO’s prefer to deal with physician executives with advanced degrees. You may not need a MBA or CPA, but you should be familiar with basic business, managerial and financial principals. This includes a conceptual understanding of horizontal and vertical integration, cost principals, cost volume analysis, financial ratio analysis and cost behavior? 

7. Be willing to treat all conditions and types of patients. The adage,”more risk equates to more reward” is still applicable and most groups should take all the full risk contracting they can handle, providing they are not pooled contracts.

8. Are you a team player or solo act? The former personality type might do better in a group or MCO driven practice, while a fee for service market is still possible and may be better suited to the latter personality type.

9. Valid license, DEA narcotics license, CME, adequate malpractice insurance, board qualification/certification, hospital privileges, agree with the managed care philosophy, and have partners in a group practice that meet all the same participation criteria.  Be available for periodic MCO review by a company representative.

Specific Medical Office Standards MCOs Desire

·         Clean, presentable with a professional appearance.

·         Readily accessible with barrier free design (OSHA).

·         Appropriate medical emergency and resuscitation equipment.

·         Waiting room to accommodate 5-7 patients with private changing areas.

·         Adequate capacity (i.e., 5,000-10,000 member minimum), BP and office assistants for the plan.

·         Office hour minimum (i.e., 20 hours/week)

·         24/7 on-call coverage with electronic tracking.

·         MCO approved sub-contractors.


Always remember, in the game of negotiations, today’s enemy – may be tomorrow’s ally.


Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com


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One Response

  1. Dr. Marcinko

    Interesting post.

    And, for a historical review of national healthcare, please take a look at this white paper:

    Consumer Choice: Health Plan:
    The Debate about the Tax
    Exemption of Nonprofit Hospitals
    Alain C. Enthoven, Ph.D.

    Link: http://www.chas.uchicago.edu/documents/Publications/MD/MD1978.pdf

    It appears almost as true today as it did when originally presented. It has stood the test of time, in my opinion.

    Thank you


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