Losing an MCO contract can be blessing in disguise

One practice recouped and became more profitable

Alliances, mergers, and partnerships are all common buzzwords in today’s managed care environment, where survival depends on banding together to ensure patient volume and managed care contracting strength. But has your practice considered what it would do if your present alliance changed? You may want to adopt a few lessons from a North Carolina multispecialty practice’s experience in dealing with the loss of an exclusive contractual relationship.

The story at Charlotte, NC-based Nalle Clinic has a happy ending: The loss of its sole managed care contract actually encouraged the practice to reinvent itself, emerging stronger and more profitable than ever.

The cornerstones of Nalle’s success:

• established protocols created by Nalle’s physicians, particularly concerning referral guidelines between primary care physicians and specialists;

• an infrastructure that allows the clinic to enjoy delegated case management, utilization management, credentialing, and other functions traditionally done by managed care organizations;

• utilization management skills that have given the practice an enviable bed-days per 1000 rate.

The picture is much brighter for this clinic today than it was five years ago in this stage 2 managed care market, where HMO penetration is about 25%.

"The lesson we learned is that if you put all your eggs in one basket, you’re yolk," recollects Ray Fernandez, MD, FACPE, medical director of Nalle Clinic. The eggs in this case represented Prudential Health Care System of Charlotte, which Nalle had contracted with in 1985 as the exclusive medical group for all Prudential’s Charlotte members. Prudential notified Nalle in 1992 that the organization planned to start its own medical group and that Nalle’s services no longer would be needed as of Jan. 1, 1993 — a significant date because many employers have Jan. 1 effective dates on their contracts with health plans.

Although Fernandez is quick to point out that the Prudential arrangement worked out very well for the first five years — Nalle gave Prudential an instant physician network when it re-entered the Charlotte market upon Nalle’s urging, while Prudential provided Nalle with the systems and administrative capabilities necessary for Nalle to be one of the first medical groups in the city to enter the managed care arena — he also is quick to recap the group’s recovery from the loss of the Prudential contract.

The results: Even though Nalle received only six months’ notice of the contract’s termination, the clinic was able to keep between 23,000 and 25,000 of its 35,000 Prudential patients by recovering quickly and conducting an aggressive marketing campaign.

About six to eight months before the termination, Nalle had already begun talks with two other HMOs when it appeared the Prudential relationship was beginning to unravel. "Before, we had told them we had an exclusive contract with Prudential," Fernandez said, so it was simply a matter of picking up the phone and re-establishing contact. Because the clinic had a 75-year history of practicing in Charlotte and had 75 physicians at the time, it had some built-in advantages to offer managed care organizations.

Once contracting relationships were in place for the all-important Jan. 1 enrollment date (today, Nalle contracts with seven HMOs and even more PPOs), Nalle approached patients through a direct mail campaign, an open letter to patients in the local newspaper, and personal encounters.

"We did it through direct [patient] contact," Fernandez says. "We said, ‘Check with your employer, and if you have an option [among health plans], pick one that has Nalle in its etwork."

Bringing managed care functions in-house

The loss of the Prudential contract also led Nalle to increase its own infrastructure of services by performing functions that managed care organizations typically provide for health plans. Although the clinic had started its own managed care department shortly after it began working with Prudential, the clinic increased the number of nurse case managers in the practice and invested in the software necessary to track case management, managed care contracting, and patient outcomes.

These up-front investments have led Nalle to secure delegated case management, credentialing, utilization management and quality assurance (through a joint UM and QA supervisory committee), and other functions typically handled by managed care organizations. Nalle has this relationship with most, but not all, of the HMOs it contracts with, Fernandez says.

"We were able to do it because we have demonstrated that we can manage care," he explains. "We show them our statistics and our outcomes, and they’re pleased as punch with it." Key statistics that Fernandez keeps on hand to show managed care organizations include bed days per 1000 (Nalle’s stand at 130, where most medical groups in the Charlotte community average around 280, Fernandez says), medical loss ratio as a percentage of premium, and patient satisfaction ratings.

Doctors trust their own case managers

The Nalle Clinic physicians also prefer to work with their own case managers, Fernandez says. "If a physician has to call some 1-800 number and talk to a high school dropout from Peoria, he won’t accept that. But if it’s his case manager, the doctor is more likely to call," he says. "We’ve refused with work with some HMOs who want to use their own [case management nurses]. Some of these HMOs have looked at our [outcomes] numbers and have said we’re doing a better job, so they’re happy to delegate case management out."

The practice also tracks HEDIS data for its overall patient base, and shares that data with HMOs, Fernandez adds. In some cases, each HMO may want to isolate data for its own membership.

Because Nalle Clinic’s physicians are organized by department, all outcomes data are reported by department to each department head and are discussed at regular physician department meetings. The clinic also prepares physician profiles that track utilization activity and identify outliers.

Nalle’s ability to know its costs and outcomes through these data is a big part of long-term success strategy, Fernandez says. The clinic intends to ultimately accept global capitation for all professional services. But managed care contracting still has its challenges.

"We recently had to tell one of our largest HMO providers, which represents 16,000 of our patients, that we would not accept their proposed new lower fee schedule," Fernandez says. "The schedule was so low that there wouldn’t have been any profit margin. Some groups took the contract, I believe, because they didn’t have the data we do to know what a minimum acceptable fee is. It was a real Mexican standoff, but we stood our ground." The negotiations are still in process, but Fernandez is hopeful.

In addition to global capitation, Nalle’s other long-term strategy is to move toward long-term contracts with the three to four HMOs it considers important partners, Fernandez says. These long-term contracts generally take the form of five-year agreements in which the rates are renegotiated each year. "If you change HMOs every year, you’re not going to make any real progress," he points out.