Are you case-managing your hospital out of business?

Case managers must adjust to changes in managed care for hospitals to stay afloat

Is your case management department managed care-savvy? If not, your efforts could be costing rather than saving your hospital money.

A main concern of some experts we talked to is that the staff delivering care in hospitals are generally uninformed about exactly what managed care is and how it works. Connie Burgess, MS, RN, a health care consultant in Long Beach, CA, is quick to point out that there are many exceptions to that, but, "in general," she says, "front line staff don’t understand how managed care works. Often they don’t understand what their hospitals are trying to achieve because they’re not in sync — they’re not on the same page."

To many, the terms "HMO" (health maintenance organization) and "managed care" are synonymous. They don’t understand the various payment mechanisms. "The lack of education about managed care for the clinical staff is huge," Burgess says. Burgess’ firm specializes in managed care reorganization and educates hospital staffs so they can create their own clinical models that meet the needs of the patient.

Richard Vernick, MD, senior vice president of St. Petersburg, FL, consulting firm the Hunter Group, says he and his colleagues saw an increase in the number of managed care denials in 1999. "That has been happening for lots of reasons, including administrative ones," he says, "such as where someone didn’t register the patient correctly or didn’t get a preauthorization. The plans may stall legitimately by asking for pending information or documentation." Plans are citing a lot of reasons for holding up claims from being paid or for denying them outright, and that hurts the hospital’s cash flow.

Ed McCarthy, another senior vice president at Hunter, says sometimes a hospital will negotiate an increase in a per diem for an inpatient stay, and everyone thinks it’s done pretty well. "But as there’s been an increase in downgrades in the level of care they’ll pay for or an outright denial of a day — at the end of the stay, predominantly — that really negates the increase you got through the negotiation."

Both Hunter consultants say that because of this increase in medical necessity denials, the departments of a hospital must work together better than ever before. "Case managers have to make sure admitting is getting everything it needs — the name of the plan, where to send the bill, whether there is a physician group involved, and preauthorizations," McCarthy says. "Is the case getting denied a day at the end of the stay? Or downgraded to a SNF [skilled nursing facility] day payment rate rather than the acute med-surg rate they thought they were getting? Is that being appealed and tracked before it’s outright denied? What is the business office actually getting paid? What are they writing off because they think they won’t get anywhere with the denials process?"

However, why would it be important for hospital-based case managers to keep up with changes in managed care? How do managed care developments affect case managers’ day-to-day jobs? Burgess says managed care should be important to case managers because the level of insurance benefits available to the patient is almost as important as the patient’s diagnosis. "If I’m planning care and I don’t know what the patient’s benefits are, I might recommend treatment that is outside the benefits. And I’ve done it out of ignorance, not out of good case management. The patient’s plan may cover this, but not that. I could have planned it differently, so I’ve done a disservice to the patient. I stayed on automatic instead of individualizing that patient’s care."

She says case managers have to ask themselves: What are the key issues for this patient? What support systems does the patient have? What is the discharge plan? What benefits are available to support the patient in his illness? What resources does he have? Case managers have to look at everything from a patient’s pathology to his discharge plan and build those factors into every patient’s plan of care.

What is the objective of case management?

"Get a good understanding of managed care," advises Vernick. "Why are case managers managing cases? For better outcomes? To improve the reimbursement level of the hospital? To increase the effective capacity of the hospital by increasing the number of patients put through?" He says many people haven’t asked what the objective of case management is. That objective may change depending on what contracts the hospital has with various payers.

Everyone working in a hospital has to understand how the business runs, Burgess says. "The fantasy that managed care is going away is a fallacy, but it’s going to continue to modify considerably. Managed care is fully implemented at the executive level, but in lots of cases, people at that level haven’t done a very good job integrating managed care with the clinical side. As a result, managed care becomes a financial model, not a clinical one." If the executive group administering managed care contracts is communicating with the clinical group regarding the parameters the hospital has to work within and what it costs to keep the organization afloat — including case management — how can the clinical side know what’s going on?

Case managers need to know what drives the hospital and what keeps it open, experts say. They have to understand how their facilities get paid and the level of contracts in their hospital — whether they are cost-based or revenue-based. They need to know that if care is capitated, that’s a cost-based contract and the hospital receives a flat monthly fee for each health plan member. Everything they do for a patient takes money out of the hospital’s coffers.

On the other hand, "A lot of hospitals still have revenue-based, or per diem, contracts, especially in the Midwest," says Burgess. Often, those contracts are either front-loaded, meaning the more intensive days are in the beginning, or flat. "The hospital may not get as much as it used to, but it still gets paid for every day and everything done."

For example, says Burgess, if a unit decided to try to cut its length of stay (LOS) from seven days to three and the case manager there didn’t understand the payment mechanism in her hospital, that cut in days could cut the revenue flow for the hospital.

McCarthy says he knows of a large urban hospital where if diligent case management had resulted in a decreased LOS of one day, the institution would have lost $18 million per year because most of the hospital’s contracts were per diem.

"The category of hospital where that would be true is one where a large percentage of payers are per diem and where the hospital doesn’t have 100% occupancy," says McCarthy. How would you case-manage in that scenario? How do you handle cases that are fee for service, compared to cases that are per diem, compared to capitated patients, compared to cases that are case-rated — where the payer pays a certain amount for a specific type of case no matter what the LOS is?

"All these different forms of payment exist," says Vernick, "and the goal of case management needs to be clearly delineated before you manage yourself out of business." You cannot treat patients differently depending on payment class, but you might select certain groups for case management.

"You might want to say, We’re going to case-manage our DRG patients, but we’re not going to case-manage our per diem patients, because the case management of our per diem patients might result in a decreased LOS, depending on the occupancy rate of the hospital,’" says McCarthy.

"Many think that nurses and case managers shouldn’t talk about money, because that’s not their job," says Burgess. "But they do have to know the business and what the incentives are." For example, they have to know whether the facility is on a per diem plan. They have to know how to prioritize care and provide the patient with days in the hospital when he cannot be anywhere else — when his medical care is complex and he requires 24-hour nursing care. After that, the patient can be placed in the continuum.

"Knowing what’s going on on the business side may change the order in which case managers plan care," says Burgess. Then they can ask: What does the patient need, given the resources available — medical stabilization? An adjustment in medications? What does he or she need to do to move to the next level of care? As part of the facility’s managed care contract, the insurance company case manager may have said, "You’ve got 12 days to do that." If the case manager doesn’t know that and hasn’t prioritized care, her patient could be discharged before the program is finished.

Burgess says that happens often. "A patient can learn to dress and bathe himself later on in a much less costly level of care. He doesn’t need to be in a hospital to do that. If the only reason he can’t go home is that he can’t feed himself and there’s no one at home to help him, the case manager needs to know what that insurance company case manager said — how many days they have in the hospital to work on that."

She points out that a lot of staffs are angry with managed care. "We need to replace that anger with information and knowledge so they can make better decisions through understanding what’s going on." If the clinical staff were more informed about how to work within a managed care environment, she says, they could be contributing more to stronger clinical models and better quality care within the limited financial parameters. But the way things are now, many can’t think critically about managed care because they don’t understand it. No matter how many contracts an executive team negotiates, if the people delivering the care don’t understand how the payment system works, they can get an institution in trouble quickly, not out of any deliberate intent but because they don’t understand what’s going on.

Has managed care been a failure? "No," says Burgess. "It has raised awareness and saved many dollars. But it hasn’t saved as much as we anticipated and has not done everything we hoped it would." She says most HMOs are having to raise their rates on benefits packages by 8% to 9%, and employers — particularly the small ones — are struggling with the cost of running their employees’ health care benefits and for the most part are having to regroup. "Employers are starting to say with louder voices, This isn’t working for us.’" She predicts we’re beginning to see the demise of capitation.

"But I’d never abandon managed care as hopeless," says Burgess. "It has brought about many innovations, and one of the biggest has to do with prevention. Because of its efforts, there’s now a national surge among consumers toward wellness and prevention."

(Editor’s note: In next month’s installment of our series on managed care, you’ll read about changes looming in the managed care arena and about how one facility’s case management department was completely eliminated due to managed care pressures.)

For more information, contact:

Connie Burgess, MS, RN, Connie Burgess and Associates, Long Beach, CA. Telephone: (562) 493-8188. E-mail:

Ed McCarthy, senior vice president; Richard Vernick, MD, senior vice president, The Hunter Group, St. Petersburg, FL. Telephone: (727) 866-1330.