Understanding MCO Fixed-Rate Contract Negotiations [Case Model]

Posted on April 7, 2011 by Dr. David Edward Marcinko MBA MEd CMP™

The Hope Outreach Medical Clinic

By Staff Reporters

The Hope Outreach Medical Clinic (HOMC) is a private, for-profit, single specialty medical clinic in a south-eastern state.  It submitted its bi-annual Request for Proposal (RFP) to continue its current managed care fixed-rate contract.  Upon review of the RFP, however, Sunshine Indemnity Insurance Company, the managed care organization (MCO), denied the contract request for the upcoming year.

CEO Shock

In shock, the clinic’s CEO asked the clinic’s administrator to work with its legal team to develop a defensible estimate of economic damages that would occur as a result of the lost contract.  The clinic intended to bring suit against the MCO for breach-of-contract.  However, the administrator is not an attorney and is loathe to-enter the fray.  After consideration however, he decided to assist in filing the Statement of Claim (SOC) because he realized that changes in patient services (unit) volume would be a valid economic surrogate.  He then requested the following information from his controller, in order to develop a change in economic profit [damages] estimate:

  • Change in patient visits (unit) volume
  • Fees (price) per patient (unit)
  • Marginal (incremental) cost per patient (unit)
  • Change in current fees (prices)
  • Patient volume (units) affected

Key Issues:

1) Fee (price) per patient (units) may be obtained from the fee schedule used by the MCO to pay HOMC.

2) Marginal (incremental) costs per patient (unit) are approximated using variable costs.

3) Higher cost payers exist because lower patient volumes raise the average cost per patient (unit) due to existing fixed costs. The administrator’s financial work-product to estimate monetary damages and assist the legal team is explained as follows.

Assessment

Change in profit estimate by: www.MedicalBusinessAdvisors.com

Change-in-Profit = Change in patient (unit) volume X [Fee (price per patient unit) – Incremental (marginal) cost per patient (unit)] – [Change in current price (fees) X Patient (unit) volume affected].

Conclusion

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Understanding Modern Health Plan Delivery Models

Posted on April 25, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

By Defining Terms and Concepts

Staff Writers

www.HealthcareFinancials.comho-journal10

Here are four important health care delivery models that should be understood by all financial advisors, their clients, patients and the public:

1. PHYSICIAN ORGANIZATION (PO)

A PO is a group of physicians banding together, usually for the purpose of contracting with managed care entities, or to represent the physician component in a Physician Hospital Organization. The PO is a managed care contracting entity owned by and composed exclusively of physicians. The PO tends to be more tightly controlled in terms of members and adherence to treatment protocols than an Independent Physician Association. POs typically share information systems, claims-processing procedures, financial data, medical records, and other technical support functions.

2. PHYSICIAN PRACTICE MANAGEMENT CORPORATION (PPMC)

A firm that purchases physicians’ practices in exchange for a percentage of the gross receivables. The PPMC leases the office back to the doctor or employs the doctor on a salaried basis. The PPMC then contracts with the areas MCOs.

3. POINT OF SERVICE PLAN (POSP)

A type of managed care plan that allows members to choose whether to seek medical care within the plan’s network or seek medical care out of network at the point of service (i.e., at the time services are rendered). It allows members to pay little or nothing, if they stay within the established HMO delivery system. But, it also permits members to choose and receive services from an outside doctor, any time, if they are willing to pay higher co-payments, deductibles and possibly monthly premiums. It is also called an “open-ended” plan.

4. PREFERRED PROVIDER ORGANIZATION (PPO)

A PPO is a select, approved panel of physicians, hospitals, and other providers who agree to accept a discounted fee schedule for patients and to follow utilization review and pre-authorization protocols for certain treatments. It is a system in which a payer negotiates lower prices with certain doctors and hospitals. Patients who go to a preferred provider get a higher benefit — for example, 90% or 100% coverage of their costs — than patients who go outside the network.

Assessmentdhimc-book20

Link: www.HealthDictionarySeries.com

Conclusion

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