Looking for win-win contracting? Tap new ‘bricks and mortar’ of health care

Vague language can be your ruination

Competent medical care aside, few things are more important to a risk-bearing health system than securing solid contracts with payers. But ill-prepared hospitals and physician groups often end up casting their fate to the wind, taking just about any contract terms that come along. This results in vague language or sneaky clauses that, in the end, damage not only health systems but also individual careers.

It doesn’t have to be this way, say experts who collectively have decades of managed care contracting experience. What they say about this make-or-break exercise can be boiled down to one word: data. One expert calls data the new "bricks and mortar" of health care in this country.

"Without good data on both your internal structure as well as external factors, you are at a significant disadvantage," says Constance Thomas, MHS, vice president of integrated delivery services for Healthcare Management Advisors, in Alpharetta, GA. "In the past, health systems were built with bricks and mortar. Today, they are built on data."

These data lie in two main areas: external and internal. Who are you going to treat and how much is it going to cost to treat them?

Central to any risk contract are the demographics of the plan population, which will provide insight into potential resource utilization. There are a couple of ways to get this information. One is simply to ask the insurer for the age and sex make-up of its enrollees, Thomas says.

Specific information to ask for includes:

• average length of stay for the lives the insurer currently covers;

• average inpatient expense;

• average outpatient expense.

"It’s tough a lot of times to get this type of information out of [plans]," Thomas says. "But you should at least try, because it is so valuable."

If the payer doesn’t release this type of information, don’t give up. HMOs are required by law to file some information with their home state’s insurance commission. "This is public information," Thomas says. It may not be as detailed as you like, but it should give you at least a basic sense of the plan’s utilization rates and what they are paying out in medical expenses."

Another way to get a sense of a plan’s enrolled population, both present and future, is to ask plan executives more subtle questions, Thomas adds. This could be as simple as asking for a list of current employers that the payer covers. If this list is dominated by the manufacturing industry, you could reasonably deduce that utilization is going to be higher than, say, if the list were rich with service industry companies.

You can also take that a step further and ask what companies the payer is targeting for future growth. "You won’t be able to put hard numbers to anything like this," Thomas says. "But if it’s Coca-Cola vs. Atlantic Steel, that can also tell you about potential future utilization."

Partner with payers

Ideally, you want to elevate the payer-provider relationship to that of a partnership rather than a stock business-to-business venture, says Colleen Dowd, MHS, vice president of Baptist St. Thomas Health Associates in Nashville, TN. "It has to be a cooperative approach," Dowd says. "Think of it as more of a partnership. I haven’t said ‘no’ to any one payer that has come in and approached me. Instead, I’ve said, ‘How can we do this? How can we make it work?’"

Over the past few years Thomas says she’s seen payers increasingly warm up to this cooperative attitude. "Overall, the relationships between payers and providers are becoming less adversarial," she says. "We’re seeing a trend toward payers releasing the kind of information that providers need to settle on good contracts."

But what if the payer has the information but won’t give it to you? "That should send up a red flag for you that you might not be able to develop a true partnership with the payer," Thomas warns. "This might tell you that they want to control the show and that they want you to be responsive to them, rather than it being a partnership."

Partner with physicians

Just as health systems need to partner with payers, they must also make sure their components, most likely a hospital and its physicians, operate as a unified team, says Andrew Demetriou, JD, with the Los Angeles office of the Jones Day Reavis & Pogue law firm.

Without this internal union, payers sometimes will position themselves between the two. "Many times, the payer will try to play one off against the other, particularly if there is an overlap of services that both can provide," Demetriou says. But when the hospital and physicians negotiate as a team, the result can be a better contract for both, he adds.

For risk-bearing contracts, remember that capitation suffers fools lightly. Just as it is critical to charge a competitive rate, it is equally important to know what providing that care is going to cost. Yet, as important as this is and as basic as this sounds, many hospitals still don’t have a handle on what it costs them to provide quality care, Dowd says.

"This is especially problematic in the outpatient area," she says. Her advice: Bite the bullet and invest in a good management information system that tracks both fixed and variable costs. Fixed costs are what you pay for medical hardware. Variable costs cover staffing, or what you pay people to use the hardware. This is especially important in risk arrangements, which are based on generating increasingly competitive rates with good outcomes and acceptable profits.

"The most important internal component is tracking cost, and the second is the ability to track utilization across different procedures and across different diagnoses," Thomas stresses.

Thomas uses hip replacements as an example: "You need to have the capability to look at all of the physicians within your organization who do hip replacements and see where there are variances." Such a system will allow executives to identify the best doctors and the best care paths at the lowest costs.

If you have good doctors and outcomes at an affordable price, "this is the best bargaining chip you can have when you go into contract negotiations," Thomas says.

But this competitive edge doesn’t come cheap. Tens of thousands of dollars — or even $100,000 or more — can be spent on a high-end information management system that can slice and dice the data in innumerable ways. This kind of price tag causes many health systems to balk. "But think about it," Thomas says. "You’re making multi-million dollar decisions [based] on that data. When the stakes are that high, you really need the best information you can get."

Colleen Dowd, Vice President, Baptist St. Thomas Health Associates, 3401 West End Ave., Nashville, TN 37203. Telephone: (615) 386-2640.

Constance Thomas, Vice President, Integrated Delivery Services, Healthcare Management Advisors, 11940 Alpharetta Highway, Suite 150, Alpharetta, GA. Telephone: (770) 751-1199.

Andrew Demetriou, Jones Day Reavis & Pogue, 555 W. Fifth St., Los Angeles, CA 90013-1025. Telephone: (213) 489-3939.