Avoiding Managed Care Contract Pitfalls

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By Staff Reporters

There are several key pitfalls to watch out for when evaluating a managed care organization contract, as noted and continually revised by the Advisory Board Company, and others.

  • Profitability — Less than 52% of all senior physician executives know whether their managed care contracts are profitable. “Many simply sign up and hope for the best.”
  • Financial Data — 90% of all executives said the ability to obtain financial information was valuable, yet only 50% could obtain the needed data.
  • Information Technology — IT hardware and sophisticated software is needed to gather, evaluate, and interpret clinical and financial data; yet it is typically “unavailable to the solo or small group practice.”
  • Underpayments — This rate is typically between 3 – 10% and is usually “left on the table.”
  • Cash Flow Forecasting — MCO contracting will soon begin yearly (or longer) compensation disbursements, “causing significant cash flow problems to many physicians.”
  • Stop-Loss Minimums — SLMs are one-time up-front premium charges for stop-loss insurance. However, if the contract is prematurely terminated, you may not receive a pro rata refund unless you ask for it!
  • Automatic Contract Renewals ACRs or “evergreen” contracts automatically renew unless one party objects. This is convenient for both the payor and payee, but may result in overlapping renewal and re-negotiation deadlines. Hence, a contract may be continued on a sub-optimal basis, to the detriment of the providers.
  • Eliminate Retroactive Denials — Eliminate the rejection of claims that were either directly or indirectly approved, initially.  Sample: “MCO reserves the right to perform utilization review [prospective, retrospective and/or concurrent] and to adjust or deny payments for medically inappropriate services.”  
  • Define “Clean” and “Dirty Claims” — Eliminate the rejection of standard medical claim formats like CMS-1450, CMS-1500 or UB-92 for non-material reasons. Make payment of appropriate clean claims within some specific time period, like 30 days, in order to enhance free cash flows.
  • Reject Silent or Faux HMO or PPs, etc — Eliminate leased medical networks or affiliates and reject further payment discounts to larger subscriber cohorts than originally anticipated.
  • Include Terms for Health Information Technology — Eliminate the economic risk of leading edge electronic advancements like EMRs, PHRs, CPOEs, and so on.  
  • Establish ability to recover payments after contract termination — Eliminate financial carry forward for an excessive period of time.
  • Preserve Payment Ability — Provide medical services if requested by patients, who are then billed directly.
  • Minimize Differentials — Establish a standardized rate structure [fee schedule] for all plans and then grant discounts for administrative or other efficiencies; rather than have different schedules for each individual plan.

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