How "Managed" is Your Market: Things to Consider Before Contracting

Editor’s Note: This article on evaluating payer markets continues a multi-part series on tips for negotiating with managed care. Future issues of The Managed Care Emergency Department will focus on other aspects of the contracting process, including contract terms, billing tips, and capitation strategies.

Even though it may seem that the whole world is talking about capitation and risk sharing, ED managers must carefully evaluate their payer market before negotiating if they don’t want to end up biting off more than they can chew.

Managed care means different things depending on the area of the country and the degree of penetration by managed health plans, say contracting experts. What may work wonders for one group could be disaster for the next.

"I think we have kind of deluded ourselves into thinking managed care, managed care, managed care," says Stephen Dresnick, MD, President and CEO of Sterling Healthcare Group in Coral Gables, FL. "I think we still have to recognize that in many markets managed care is simply discounted fee-for-service. I don’t think it can stay there for very long. But when it is only 10% of the lives, nobody has enough penetration to begin talking about the other things."

As a general rule, managed health plans can compel providers to share more of the risk as the penetration of managed health care increases in their market. But, in some cases, hospitals have tried to get a jump on competitors by forming physician-hospital organizations (PHOs) to court managed care contracts, Dresnick says.

"If I had a dollar for every PHO out there with no patients in it," he says. "They read an article that said they had to form a PHO to get a capitated rates, so they did—even though the market just wasn’t ready for it."

In their desire to contract with MCOs, many hospitals have forced the EDs to take discounted rates, even when the amount of managed care penetration is minimal, he says.

"Everybody did it with this promise of, ‘You give us the discount, we’ll give you more patients,’ but I have yet to see that work," claims Dresnick. "I say, give me more patients, and I’ll give you a discount. I wouldn’t sign [the contracts], frankly, unless the hospital made me."

Which is exactly what often happens, notes Marty Karpiel, MPA, the CEO of Karpiel Associates, an ambulatory care consulting firm based in Long Beach, CA. Karpiel is also the author of Managed Care in Emergency Medicine, a textbook published by the American College of Emergency Physicians.

The emergency medical group often has very little bargaining power against a hospital that wants to contract with a particular HMO, he says.

The best they can do in most situations is find out as much about the payer as they can before signing a contract.

"Call around [to other EDs] and ask," he advises. Though it is illegal to obtain information about rates, ED managers should inquire about the general conduct of the payer in regard to emergency services.

"Payment isn’t the only important issue," he says. "There is the timeliness of payment, the issue of authorization, downcoding, denials, etc."

These issues will also impact the ability of the group to profit under the contract. Downcodings and denials will further reduce the percentage of the fees the group receives.

The American Association of Health Plans maintains data on the percent of managed care penetration in a given market and some data on the health plans themselves, says Dresnick.

Assuming risk

Sterling, which has 118 contracts in 22 states, recently merged with a primary care group to extend the range of services they could offer. Their strategy, Dresnick says, is to link primary care and outpatient services and to offer incentives to emergency physicians to find alternatives to costly inpatient admissions for their lower acuity ED patients.

But unless the market has reached at least 25% penetration, it is not ready to support this "advanced managed care," believes Dresnick.

"I think the best yardstick is when managed care companies start coming to you and want you to take capitated risk," he says. "That’s when you need to start moving in that direction. Otherwise, the incentives are still off balance."

Many hospitals are still on a per diem system, he says. "What’s their incentive? Their incentive is to keep those patients in an extra day because their costs are lowest on that day, but they get an extra day of revenue."

That scenario won’t change until the market does, Dresnick says.

Even in California, where managed care penetration is very high and MCOs are highly regulated, groups should be careful before agreeing to a capitated rate, says Lisa Parent, contract administrator for San Francisco-based Emergency Physicians Medical Group (EPMG), which manages EDs in 30 hospitals and employs more than 300 physicians.

EPMG does not currently have any contracts that are subcapitated, Parent says. They have in the past, and they are currently negotiating with two different organizations considering a capitated agreement.

"I don’t know if we’ll ever get to the point where we get something we can all agree on," she explains. "Generally, with HMO patients, our preferred methodology is to be reimbursed through a case rate, which would be a flat rate regardless of the services provided."

Dresnick says he doubts whether capitation of emergency professional services can be done satisfactorily.

"We don’t control the volume, so if you capitate emergency services, then somebody else has the disincentive to see those patients themselves," he says.

In the beginning

Before contract negotiating begins, Parent recommends getting a handle on the payers that are important to the hospital, learning how many lives they cover, and how many of those patients are seen in the department.

"What we generally look at first is who the bigger players are in terms of volume," she says. "We look at the capitated patients and their volume and who they belong to and we look at the non-capitated patients, the PPO patients, etc., by volume."

EPMG prioritizes their contracts with capitated payers first, Parent says. "Those are the payers that are generally in some type of risk-sharing arrangement with the hospital," Parent says. "There is a pool of money set aside for hospital services that the hospital and medical group are sharing in some kind of savings. Those are the hospital’s priorities in particular."

The group considers the contracts the hospital already has, with whom the previous ED group contracted if it did its own contracting and billing, and what the hospital’s priorities are in terms of volume and politics, Parent notes.

Analyzing the payers

If a particular plan seeks to contract with EPMG, they have several levels of "cutoffs" to get through before they actually sit down, says Parent.

"We maintain a list in this office of who the hospitals have managed care contracts with, so if someone is asking us to contract at a particular hospital, or for the whole group and it’s not a really big player at any of our hospitals, then that’s the first cutoff."

If the payer is a player, there are still other issues to consider.

How many patients does the plan cover? In what geographic area? Which employer groups are they talking about?

Once they have this, the group can do a closer analysis of what their costs would be, looking at their volume in that area and the claims experience with that particular population, she says.

"How many patients from this group have we been seeing? They have so many thousand members, but we see [maybe] two a month. Is that really worth a discount?"

If all things look favorable, and the hospital supports the negotiations, then she takes a look at contract language and what makes sense compared to what the group does in other places.

The group’s history and presence in the area also plays a big role in shaping contract terms.

"Basically, we get into different discussions in an area where we have more of a presence than in an area where there are three hospitals, we only have one, and there is a guy down the street and he’s in a different group."

In Sacramento, for example, there are only three hospitals in the entire region that EPMG does not staff, and one of those is Kaiser, Parent notes. These contracts have been in place for about 15-20 years and there is a spirit of trust and cooperation that has been developed with payers in that area.

"Those are the places we start talking about things like capitation. We’ve been there for so long, everyone has a good relationship, and nobody minds opening up."

PPOs, HMOs, and Medicaid managed care

EPMG probably has its strongest relationships with the large medical HMOs, says Parent. Those plans tend to have the flexibility to manage a case rate reimbursement contract effectively.

"We have a really close relationship with them," she says. "The process of having to call and get authorizations puts us in close contact. They usually have systems that are less rigid and can handle things like that."

The group is currently negotiating a case rate with two separate preferred provider organizations (PPOs), but she is not sure what the outcome will be.

Having a case rate with a PPO would work best with a large plan like Aetna or Blue Cross where they own their own system, Parent contends.

Some PPOs, known as "rental" or "phantom" PPOs, rent out their network to other people and aren’t responsible for third-party administrator (TPA) services, Parent explains. "We only have one current contract with that type of network. Particularly for our group, with almost 300 physicians in 30 hospitals billing out of all different offices, those contracts are very expensive to administer."

With a "phantom" PPO, the group you contract with then sells or provides the contracted rates to another network, explains Karpiel.

The degree of control the original organization has over the information once they sell it to an employer group or TPA varies widely, Parent says. And, since the people doing the contracting are totally divorced from the process, they have less influence or incentive to correct any mistakes that are made.

"Sometimes they look at it as, ‘We contracted with a network, our job is done," she says. "They are less willing to help you resolve your problems with XYZ insurance company that is processing your claims incorrectly."

It is important to include clauses in your contracts that will protect you from phantom or rental PPOs, Karpiel stresses.

Another contracting challenge, especially in California, is with Medicaid managed care carriers, Parent says. The Department of Human Resources for the state is trying to enroll as many Medicaid beneficiaries as possible in managed care. This presents a problem because many of the organizations formed to enroll these patients are composed of traditional Medicaid providers that have not had previous experience in a managed care environment.

"Some of them are not as familiar with the kinds of things that are required and don’t have the expertise in claims processing that some of the HMOs do," she says. "The group has had to spend a lot of effort educating the providers about state guidelines regarding reimbursement for medical screening exams [MSEs], for example."

Contracting with EDs not a priority for many

Complicating matters is the fact that many MCOs are not familiar with emergency services and don’t put contracting with them at as high a priority as those with other groups, continues Parent.

"When I worked for HMOs, when we did regulatory filings for service-area expansion and you had to show you had coverage in a particular area for all the specialties, the last thing the regulator would ask is, ‘What about the ED physicians?’" she says. "They are very much an afterthought."

Even though they may not be in a highly managed environment now, emergency physician groups and ED managers must still be aware of the market, how it is changing, and how they will need to adapt, notes Dresnick. "You sure better be smart enough to know that when you need to move in that direction, that you’re ready to move."

Beyond the Fast Track: Making the Most of Physician Assistants in the ED

Physician assistants can deliver quality care at minimum cost with little supervision

Faced with reduced reimbursements, downsizing, and pressures to cut costs, most EDs know that using physician assistants (PAs) in their departments makes good economic sense. What many don’t know, says a leading expert, is how to use them.

"Most physicians just know that a PA is someone who is going to ‘help him out,’" says Daniel E. Goodrich, PA-C, Director of Physician Assistant Services for Lakeland Emergency Associates in Cleveland, OH. "But, they don’t understand exactly what a PA is. They don’t know what kind of education they have, what their background is, what credentials they maintain."

Depending on their training, PAs can do 80-90% of a physician’s job, while commanding a salary only about half as high as the average board-certified emergency physician. However, many departments limit the duties of their PAs to only urgent care.

"If they designate the PAs just for the fast-track kinds of things, a lot of times they will not be happy in that situation," explains Goodrich, who has helped EDs across the country to establish their own PA programs. "They might become bored, and start seeking another job with more challenges."

Many department heads or group practice managers also do not have a strong plan for recruiting and hiring PAs and don’t understand how they should be paid or reimbursed. Liability concerns and the uncertainty of supervision requirements are also problems he hears about often, Goodrich says. Consequently, many EDs may not be using PAs effectively, losing needed savings and frustrating their employees in the process.

Scope of practice

PAs are trained by doctors and go through either a two-year or four-year program, and usually a postgraduate residency, before they begin to practice. They are also board-certified and required to maintain 100 CME credit hours every two years.

"If it’s a two-year program, the person already has a degree or at least some college before they start. Their education is fairly extensive," Goodrich emphasizes. "They are trained by physicians and in a very similar way to physicians, although it is for less time."

There are occupational medicine residencies, neonatal residencies, emergency residencies, and surgical residencies, to name a few, he says. PAs practice medicine, but they do so at the discretion and under supervision of the physicians.

Columbia-San Jose Medical Center in San Jose, CA, has used PAs in its ED for over 20 years, says W. Richard Hencke, MD, FACEP, the department’s medical director. In most cases, the PAs see patients that are just as sick as the ones the attending sees, with the exception of major trauma.

"They do the majority of the procedures," Hencke says. "The PA frees up the attending to manage the room. Instead of being tied up doing sutures and splints, the attending can be the one on the floor making sure everything is happening the way it should. "

At Meridia Huron Hospital, a medium-sized community hospital and Level II trauma center in Cleveland, OH, the ED uses PAs for additional coverage in their department, which sees approximately 22,000 patients per year.

"We are in an inner-city setting, and the patients tend to be very, very ill. We have a lot of high-acuity patients come in," says Richard Frires, MD, FACEP, Chairman of the Department of Emergency Medicine. "We do a lot of major, blunt, and penetrating trauma. If we were to only be a one-doc ER, we would simply be overwhelmed."

With the payer mix in their area, however, adding another full-time emergency physician was out of the question.

"We have some excellent PAs with a lot of emergency room experience," says Frires. "We are able to preserve our finances that way."

However, limits on the PA scope of practice vary, sometimes widely, from state to state, which may affect how PAs can be used in the ED, notes Goodrich.

For example, some states give PAs prescriptive rights and some prohibit them. Some states may allow the PA to write prescriptions for some substances but not for others, like narcotics, for example.

"Each state has different rules and regulations, and what I usually do is inform them of what PAs are capable of doing in their area," says Goodrich. "Sometimes, I’ll go to a place and they won’t even know their PAs can write prescriptions."

Public perceptions, which sometimes influence payer perceptions, may also place limits on the PA scope of practice.

San Jose originally planned to staff its urgent care clinic, which now sees approximately 40% of the ED’s patients, with PAs. A large HMO, however, did not want their members treated by non-physicians. So, the hospital required the group to staff the clinic with physicians, says Hencke.

Their sister hospital across town, Columbia-Good Samaritan Hospital, is now staffing their urgent care clinic with PAs.

"I think as the public becomes more accepting, things are starting to change," Hencke says. "Fifteen years ago, private physicians would not even speak to the PA on the phone [about a patient]. They’d say, ‘Let me speak to a doctor.’ Now that they know they are capable, they don’t have a problem with it at all."

Liability issues

Because the attending physician is ultimately responsible for the outcome, even when the PA delivers the majority of care, physicians have obvious concerns about liability when working with dependent practitioners, say both Goodrich and Hencke.

"They are your right arm, and you have to be careful," says Hencke. "You have to be able to accurately judge that PA’s ability with respect to a patient."

Hencke’s medical group, Associated Emergency Physicians/EmCARE, staffs both the ED at Columbia-San Jose and a smaller community hospital, Santa Clara Valley Medical Center. New PAs begin work in the lower-volume ED and are shifted over to work in the higher-volume ED at San Jose as they get more experience in the ED.

"You have to develop that level of trust and confidence in the individual PA and his or her abilities," he explains.

Goodrich emphasizes that in the 17 years that Lakeland has used PAs, there has never been a lawsuit involving a case with the PA on the patient’s chart.

In fact, he says, PAs can actually reduce liability in some ways by providing a second opinion in addition to the physician. In their practice, all of the cases are discussed with the attending, and the ECGs are reviewed, etc. "It makes a difference when you are both reviewing a case. When the physician’s doing it, he’s doing it himself."

Supervising PAs

PAs are dependent practitioners who, by definition, only work under the supervision of a physician. But, the degree and method of supervision vary based on state requirements and the individual practices at different institutions.

If it’s a minor complaint, such as a simple laceration, the PAs at Lakeland will discuss the decision-making aspects of care with the physician, but the PA will do the sutures, says Goodrich. If it’s a more serious complaint, the PA may go see a patient, do the work-up, evaluate the patient, and then present the patient to the attending. The attending then assesses the patient.

In both cases, the care provided by the PA is part of a physician-directed service.

Both direct and indirect supervision are good models for the ED, says Hencke. Supervision should vary based on the acuity of the patient and the skill and training of the PA.

"A lot of our PAs do lumbar punctures," he says. "But, there are some people who are not comfortable with them doing that, or some PAs that we have not reached that level of comfort with."

He requires some PAs to get the physician’s signature before ordering ancillary testing, such as a CT scan. But, he knows that others can order at CT when necessary, but won’t over-order them, he says. "PAs can and should do anything the physician feels is within that individual’s scope of practice."

Cost-effectiveness issues

Before hiring PAs to work in the department, managers need to know about the volume of patients and the payer mix to design a good program, says Goodrich.

"Is it a managed care system?" he asks. "How are they going to be reimbursed? In our situation, we individually contract out for the hospital. We bill, then we pay the PA ourselves. That’s how we do it. If it’s managed care, they might pay the doctor and the PA.

"It’s very much like a private insurance company in that they determine the method and the amount of reimbursement." Therefore, he continues, "It’s critical in a managed care system that they involve the PA in the discussion."

Some state registration requirements also add to the cost of hiring PAs. In Ohio, for example, groups planning to use PAs must register, file a utilization plan with the state, and have a written supervision agreement, a process that is costly and expensive.

"In order for us to file a utilization plan, we pay $75 for each doctor in the group," says Goodrich. "To initiate the utilization plan, they have to pay $25 every two years for each physician who is going to supervise the PA. That may not be a lot for a small group, but when you get to the larger groups, it gets to be expensive."

Managed care in some areas is also driving the salaries of many physicians lower, says Hencke. It is worth considering that hiring a PA with a lot of ED experience might cost as much as hiring an emergency physician. "Experienced PAs can cost in the six-figure range when you count the benefits."

Another issue complicating the cost-effective use of alternative care providers such as PAs is the new clarification by the Health Care Financing Administration, which administers the Medicare program, that eliminates "incident to" service from the hospital setting.

Physicians traditionally billed for services provided by the PA they supervised, under the concept that the services provided by the assistant were an "incidental" part of the total service provided by the supervising physician.

"Medicare now says there is not ‘incident to’ with PAs or NPs or other allied professionals in the emergency room," Goodrich explains. "The doctors cannot bill for the doctor’s fee unless they can show they provided most of the exam, care, and medical decision making."

Physicians must either perform the vital parts of the service themselves or designate the service as a PA service, which is only reimbursed by Medicare at 75% of the fee schedule. (See related story.)

"Basically, 75% is not enough," Goodrich says. "It is barely making the PA survivable."

Many departments expect that the guidelines will be changed, says Goodrich. In the meantime, they are hoping that they will not become the standard practice for other insurers.

"I know some departments where they have a policy that PAs don’t see Medicare patients," he says. "And that is just totally inappropriate."

Despite the complications associated with differing state regulations and carrier requirements, PAs are still the best option for most departments facing cost constraints, says Frires.

"Ideally, we would all have board-certified emergency physicians," he says. "But, practically, when you need help, in some payer mix situations, you just cannot afford to do that. You’d have to leave."

Editor’s Note: Daniel Goodrich and Richard Frires both work with emergency directors across the country to set up PA programs for their departments. For more information, call (216) 531-7550.