Beware: Don’t sign your income away

When not to sign a managed care contract

Some practices have convinced themselves that if they are to survive in a managed care market, they should sign every contract that comes their way. They are wrong, according to Reed Tinsley, CPA, a partner with the Houston-based accounting firm O’Neal, McGuinness & Tinsley.

"Every practice, every region, and every specialty is different," he says. "But unless you are a new practice, then you have to be selective about who you sign contracts with."

While Tinsley and other consultants can’t offer many hard and fast rules to guide you when not to sign, there are some indicators that should lead you away from particular payers:

• Doesn’t steer patients your way.

Tinsley says new preferred provider and HMOs may do nothing to ensure that you get a share of patients when you sign a contract. "If that’s the case, why bother signing?" he asks.

• Poor pay rates.

If the rates offered are so poor that your practice ends up working more and earning less, then the contract isn’t good. "You have to know your costs or be able to compare what this particular contract offers with others you have signed," Tinsley says. "Many managed care organizations are nearing Medicare rates, and that is more than likely not acceptable unless you have excess capacity that needs to be filled."

• Onerous administrative requirements.

Most practices that deal with managed care organizations know that there are some administrative hoops you have to jump through. But if the hoops involved in the new contract will require you to hire new staff, or if you are new to managed care and don’t understand the requirements, then Tinsley says you are not ready to sign this particular managed care contract.

Knowing the administrative demands means more than just knowing the referral process, says Joe Wierzba, executive director of the Physicians Medical Group of Santa Cruz County in California. "You have to look at hold harmless clauses, how many phone calls it takes to get information, and the referral process," Wierzba says. "It’s hard to tell this from the contract, so you should call around and ask other practices that might have signed whether the administrative demands are too heavy."

Wierzba says as long as two of three conditions are met — the contract improves volume, has few administrative demands, and has good pay rates — then you can sign. "But if two of the three are missing, then don’t sign."

Jim Raggio, MHA, CLS, administrator at Valley Medical Group in Lompoc, CA, tries to learn lessons from those contracts which have not met the payment needs of the practice. For example, he recalls one payer that offered Medicare rates with a 20% withhold — until the practice proved it met certain utilization requirements, a fifth of even that low pay rate was withheld from the practice. "It was not an acceptable situation."

The money withheld from the practice was being shifted to the local hospital, which was getting 100% of its charges, says Raggio. That situation has turned him into a demon for financial details.

Ask the money questions

Now he asks potential payers what they get from employers, what they take for their own profit pool, how much is left for patient care and how that money is divided between physicians and hospitals.

"If they don’t want to tell me, then I push a little," he says. If they still resist, Raggio says he is willing to walk away from the table. "We have to move beyond the Hatfield and McCoy attitude. Insurers, hospitals, and practices are all vital to the system, and we shouldn’t be badmouthing each other or working against each other." Those payers not willing to be part of a more positive relationship are not companies with which Valley Medical will do business, he says.

"You can’t blindly sign all contracts that come your way," Raggio warns. "You have to look at things carefully and consider what is best for both the practice and the patients. I hope some day people will really negotiate in good faith to provide excellent care at competitive rates."

Reed Tinsley, CPA, partner, O’Neal, McGuinness & Tinsley, Houston. Telephone: (713) 933-0847.

Joe Wierzba, executive director, Physicians Medical Group of Santa Cruz County (CA). Telephone: (408) 479-6810.

Jim Raggio, MHA, CLS, administrator, Valley Medical Group, Lompoc, CA. Telephone: (805) 736-1253.