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Signing contracts isn’t all you need
You’ve marketed to managed care organizations and been rewarded for your efforts in the form of several managed care contracts. You’re treating numerous patients and your staff is swamped — but your bottom line is getting weaker by the day. What went wrong?
Having managed care contracts does not necessarily translate into making money on those contracts. Variables can arise at any time, altering whether your contracts are profitable. That’s why Karen Lovell, director of business relations and development for Baylor HomeCare in Dallas, regularly evaluates each managed care contract to ensure that it is profitable.
"We have had managed care as a principle payer on the infusion side of our business for several years now," she says. "Although that does bring in business, fewer visits are approved per patient, meaning costs are allocated over fewer visits."
Lovell has found that, by looking at Baylor HomeCare’s managed care contracts, not all are as profitable as originally hoped. Hence the need to periodically review the contracts to see exactly what they are adding to — or detracting from — your bottom line.
"You need to evaluate these contracts and ask yourself if you are making money," she advises. "We started looking at that more seriously about a year ago and at the point now of actually terminating some contracts because they are not as lucrative as we had anticipated."
Lovell notes a common problem is expecting a certain volume of patients but getting fewer patients (and visits) than the payer originally indicated would come your way.
Lovell notes before doing any analysis of your managed care contracts, you first need to know your costs. If you haven’t done this prior to negotiating the contracts, that’s another story altogether.
"The hardest thing for us to do has been evaluating costs," says Lovell. "It’s not hard figuring the direct costs, but you also have to add in the indirect costs associated with each visit, therapy, and drug we administer. It involves a lot more than looking at the salary of the nurse making a visit and the mileage."
For example, salaries for all employees must be accounted for. In addition to the nurse making the visit, you have to add in the supervisor’s salary, as well as the salaries of other employees such as medical records and billing.
You also have to consider business expenditures such as a new computer or computer system. Only when you add in all such ancillary costs will you get an accurate view of your cost of doing business.
One suggestion Lovell makes is to not get wrapped up in considering the payer sources for each visit, as your costs shouldn’t change based on that variable.
"It doesn’t matter if your nurse is doing a Medicare or managed care visit. Your costs for sending her out are going to be roughly the same: supplies, the nurse, travel," she says. "If you can get that down and apply that same principle to any of your contracts, then you just have to look at what you are getting reimbursed by that particular payer."
Once you have your costs figured, you can take aim at your contracts. Here is the four-step process Lovell uses to evaluate Baylor HomeCare’s managed care contracts.
1. Total revenue.
The first step for Lovell is to run a report that shows the total revenue that has come in from a contract.
"I’ll look at the revenue the contract produces for us and whether that revenue is profitable after costs," she says.
2. Timely payment.
"We’ll look at if we are getting paid within the time frame negotiated in the contract for clean claims," says Lovell. "We also look to see if there is a trend that the payer is reimbursing us incorrectly."
Lovell notes Baylor HomeCare’s billing department will let her know if an MCO is regularly paying incorrectly.
"I try to determine what is going on, and usually we work with a representative at the payer and they in turn usually go to their claims department," says Lovell. "Many times there is a delay of claims being paid, and it takes us extra manpower in the department because you have to call several times to find out why you didn’t get paid. You have to look at the time it takes to administer a contract. Is that particular payer easy to work with, are they sending you referrals, is it easy to get the visits authorized?
3. Total value.
"We’ll look at the contract’s value to our entire system because we are a hospital-based organization (Baylor Health Care System)," says Lovell. "If the contract is profitable for our entire system, we may be in there just as a continuum of care, so I stay in close touch with the managed care department of our system."
This area basically looks at the hassles involved in dealing with any particular payer. The more work staff has to do to receive reimbursement, the more it costs to do business with that payer source. Lovell notes that some areas to consider include:
• Do they deny a lot of claims that require Baylor HomeCare to resubmit?
• Does the payer source require a lot of documentation and research?
"I look at things such as whether or not we have to send nurses’ notes before we can get an authorization," says Lovell. "Sometimes that can be critical. If a physician wants us to visit a patient three times a week; after we do the first visit, we are on hold for authorization for the next visit in two days, and there is a lot of information the payer is requesting, it becomes a judgment call. There is a lot of research to do and we don’t have the authorization, but we know the patient needs the visit."
Lovell works closely with Baylor HomeCare’s internal departments to get the answers to many of her questions.
"For example, I will talk to the intake department and ask, When you get a referral from this payer, do they give you the necessary information when they call the referral in? Is it coming from an insurance case manager or from the physician’s office? Do you get stuck with just a patient’s name and you have to research, or do they give you all the information you need? How many calls does it take to verify this patient’s information for us to even go do a visit?’" says Lovell.
By looking at such subjective information, you can get a solid grasp on both the bottom line and the hassle involved in any managed care contract.