Understanding MCO-Medical Practice Contract Standards

The Conversion to Negotiated Managed Healthcare is Significant

Dr. David Edward Marcinko, MBA CMP™

Prof. Hope Rachel Hetico, RN MHA 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 in the country are now employees of a MCO. Those that embrace these forces will thrive, while those opposed will not.

Developing an Attractive Practice

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

  • 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 switching their primary care doctors or pediatricians, 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.
  • A positive return on investment (ROI) from your economically sound practice is important to MCOs 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. 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.
  • 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, a strategy should include things such as: strong managerial and cost accounting principles, a group identity rather than individual mindset, profitability, transferable systems and processes, a corporate form of business, and a vertically integrated organization if the practice is a multi-specialty group.
  • Human resources, capital, and IT service should complement the existing management information system (MIS) framework. This is often difficult for the solo or small group practice and may indicate the need to consolidate with similar groups to achieve needed economies of scale and capital, especially in areas of high MCO penetration.
  • Consolidated financial statements should conform to Generally Accepted Accounting Principles (GAAP), Internal Revenue Code (IRC), Office of the Inspector General (OIG), and other appraisal standards.
  • Strong and respected MD leadership in the medical and business community is an asset. MCOs 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 principles. This includes a conceptual understanding of horizontal and vertical integration, cost principles, cost volume analysis, financial ratio analysis, and cost behavior.
  • The doctors on staff should 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.
  • 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.
  • Each member of a physician group, or a solo doctor, should have a valid license, DEA narcotics license, continuing medical education, adequate malpractice insurance, board qualification or 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 may require that the following standards are maintained in the medical office setting:

  • It is clean and presentable with a professional appearance.
  • It is readily accessible and has a barrier-free design (see OSHA requirements).
  • There is appropriate medical emergency and resuscitation equipment.
  • The waiting room can accommodate 5 – 7 patients with private changing areas.
  • There is an adequate capacity (e.g., 5,000 – 10,000 member minimum), business plan, and office assistants for the plan.
  • There is an office hour minimum (e.g., 20 hours/week).
  • 24/7 on-call coverage is available, with electronic tracking and eMRs.
  • There are MCO-approved sub-contractors.


What have we missed?

Front Matter Link: Front Matter BoMP – 3



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2 Responses

  1. Most Favored Nation Clause

    Doc, have your fees been reduced by a “Most Favored Nation” clause in your PPO contract, even though you are not a nation?

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  2. Adriaan Epps: 10 Steps to More Profitable Managed Care Contracts

    1. Collect as much data as possible before negotiation
    2. Start negotiating six months before your contract renewal date
    3. Isolate the codes that affect your profitability most significantly
    4. Aim for an annual increase of 3 percent — and don’t ask for more than 10
    5. Keep the payor informed when you plan to add a new service
    6. Carve out some codes and accept percent of billed charges for the rest
    7. Make sure your contracts are up-to-date on the newest codes
    8. Establish an ongoing relationship with your payor representative
    9. Don’t accept the tactics payors use to tell you “no.”
    10. Take the negotiation to your contractor’s supervisor if necessary

    Source: Becker’s ASC Review


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