Physician's Capitation Trend-Capitation audits check your payers' accuracy, integrity

Focus on contract elements, performance patterns

What's good about tax season? Often it's a good time for a medical practice to audit its carriers' capitation performance. Another good time might be just prior to contract renewal season. Or if you have capitation contracts, which involve intermittent settlements, you may choose that as audit time.

Whatever time period you choose, a financial checkup is an excellent management tool that should be approached systematically and with some advance thought as to what level of detail you need.

Auditing can be especially valuable if you have a significant number of capitation contracts — for at last two reasons. One, auditing for capitation calls for quite a different process from auditing other areas of your practice, advises Jonathan W. Pearce, MBA, CPA, a principal at Dan Grauman Associates Inc., a Bala Cynwyd, PA-based health care consulting firm. The elements of analysis and the level of detail you need can significantly differ for the capitation portion of your practice than for more traditional areas.

Secondly, there's nothing like a track record to assess your contractors' performance in one year to prepare you for advantages and pitfalls in the coming year.

Don't let the sometimes onerous image of an audit turn you off, advises Pearce. "This is not a financial audit like a CPA firm would do. You're only doing this if you think it would be financially advantageous for you to do. There are no FEC [Federal Economic Commission] requirements, or other regulatory requirements." Instead, this is an audit that amounts to a checkup or oversight of basic carrier practices.

Interestingly, another difference between capitation audits and internal audits you may have performed is that typically physicians serving capitated patients don't submit individual claims. That means the tried-and-true audit process of matching services with payment levels is much less applicable. So you need to look at other performance indicators.1

In capitation, the audit process is "testing the pieces of things," or checking patterns and elements of an insurer's payment methods, Pearce says.

He recommends taking these steps when auditing capitated contract records:

Re-check payment rates per contract.

Payments made to physicians need to be checked against what the contract had specified it would pay — both the per-member per-month amounts (PMPM) and any fee-for-service payments made for exempt services.

Also, often primary care physicians are paid incentive payments for remaining within certain budget targets. If that's the case, your audit should distinguish which payments are PMPM and which are for incentive agreements. If they don't, Pearce recommends extrapolating from a sample of reports and in the future having the insurer provide this information in some format that you can use.

Review settlement calculations.

Some capitation contracts pay a settlement at various intervals of the year — quarterly, twice a year, etc. (See story on how settlements can work with arbitrage in Physician's Managed Care Report, January 2000, p. 7.)

If you have this arrangement, this series of payments should also be audited.

For example, in some cases, insurers will estimate payment levels, which may or may not be of benefit to your practice. Key factors to check for are what you determine to be the total of stop-loss payments, incurred-but-not-reported (IBNR) adjustments, and any medical expenses charged against the practice.

Recalculate member counts.

With physicians and plans swapping names and agreements so often, it can be tricky to determine what plan a patient is covered by within one year, or from one year to the next and whether or not the doctor is in the plan claimed by the patient. (Verifying effective enrollment dates can be sticky proposition with many changes and specifics, even for Medicare HMOs 2000. See related story, p. 25.)

Don't assume that because the insurer holds the contract that it has all the information correct. To obtain your member count, establish the actual date a primary care physician started or stopped participating in a particular plan. Pearce recommends doing that by checking the signature dates of each physician with each plan — both beginning and ending any contract. Check that against what the insurers use for their member counts to obtain your projection of the appropriate PMPM payments the practice as a whole and each physician should be receiving.

Check insurer's use of countywide rates.

Medicare HMOs always use a countywide factor in determining their payment rates; sometimes commercial insurers do, too.

In either case, it can be beneficial to check to see if the insurer is using the accurate county-specific number. Payers often use estimates based on the lowest paying county in the area, which isn't always a fair application to a specific physician practice or patient population.

Audit for accurate application of demographic factors.

Demographic characteristics that the Health Care Financing Administration applies in payment calculations include the age and the gender of the enrollee, whether he or she has end-stage renal disease (ESRD), is institutionalized, and/or is eligible for Medicaid.

The presence of any of these factors is applied in the Medicare HMO payment formula along with geographic payment rates. You can check for institutional status by scanning for codes which reflect physician visits to nursing homes and other nonoffice settings. ESRD status can be checked by scanning for dialysis treatments. Sometimes payers fail to take into account these factors, or they estimate them even though you may be aware that your patient base may not be "average" for the nation.

Review age factors in Medicare enrollees

Conversely, your audit may find your practice did not account for Medicare HMO enrollees who are younger than typical Medicare enrollees. If that's the case, you can make more accurate projections for your costs in the coming contract period. The same omission could be true for other patient factors. More accurate assessment of all of these factors can only make your financial projections for capitation more reliable.

Recalculate commercial capitation revenue.

The level of difficulty for checking back on insurer commercial HMO payments varies significantly based on how much latitude state insurance regulations allow insurers. In some states, insurers are limited to certain standard HMO rate formulas, and in other states they aren't regulated that tightly.

Also in some states, discounted services are not disclosed or regulated, making it difficult to audit. In those cases, about the best you can do is ask the payer to tell you how rates are calculated, or to make projections based on other state's published formulas.

To take on a capitation audit, you need to have certain data available. Here is a list of minimum data requirements that Pearce recommends:

— Complete listing of all patients specifying whether the member is covered by Medicare, Medicaid, or a commercial plan. This list should at a minimum contain each member's health plan ID number, primary care physician identifier, and the date of enrollment with each primary care physician.

— All claims billed under the risk contract (when claims are used), including information for tracking their accuracy such as member and provider ID numbers, service dates, payment amounts, claim numbers, benefit codes, service or CPT codes, and the setting of care.

— Estimates of provider payment rates, the amounts actually paid to providers according to each capitation contract, and current payment rates for enrollees under Medicare HMO contracting.

Overall, this sort of financial checkup is a cost itself, notes Pearce. And, there is no magic formula for how much should be devoted to any particular practice for audits. Cost benefit is the key guideline to consider.

"With one client, we decided that the things [the insurer] did as a normal course of business they probably did right, and we wouldn't audit that," Pearce says. "Check how they [your contractors] generally are handling their business."

You may have an experience like this, says Pearce: "These guys are almost always paying us wrong — using 1998 fees instead of 1999 fees." If their daily practices suggest weaknesses, don't presume you are being paid at the right amount, he says.

This often is the case with the smaller payers, Pearce adds, and it may mean that investing time in an audit is worth it. On the other hand, in the case Pearce described in which the payer seemed to be efficient and timely with payments, an $80,000 investment in staff time or consulting fees was not worth it. Overall, your practice's level of confidence in the payers' ability to administer contracts appropriately is the key factor in assessing just how comprehensive your audit needs to be.

Reference

1. Pearce JW. Annual audits of IDS risk contract settlements improve payment accuracy. J Healthcare Fin Management Assoc 1999; 53:31-34.