Medicare/Medicaid HMOs want your business, but are you ready for risk?
Medicare/Medicaid HMOs want your business, but are you ready for risk?
Providers don’t have a choice in the matter; here’s why
Health plans are fishing for your outpatient business and offering purportedly lucrative Medicare and Medicaid contracts. Should you bite?
"You don’t have a choice," says veteran health care consultant Frank D. Strickland, MBA, CPA. "You can’t afford to turn away those contracts nowadays," says the managing partner of Strickland Consulting, an Atlanta-based health care management firm.
Why? "If the hospital or surgery center down the street signs with those very same plans, you’re going to lose a significant number of patients to the competition," Strickland says. Providers are vexed about what to do concerning this latest, most troublesome incarnation of managed care. Health plans nationwide are heavily marketing themselves to seniors and the poor and are offering an array of attractive benefits from easy access to providers to rich pharmacy, dental, and vision benefits.
The growth of both Medicare and Medicaid health maintenance organizations (HMOs) has been stunning:
• The number of patients enrolled in Medicare capitated HMO plans has doubled since 1992. In one year alone, between 1994 and 1995, Medicare HMO enrollments jumped 20%. According to the Health Care Financing Administration in Baltimore, more than 10% of Americans eligible for Medicare benefits are currently enrolled in a Medicare HMO. (For a graph that illustrates this trend, see box, at right.)
• Virtually every major HMO in the country offers some form of Medicare risk program, and the number that offer Medicaid plans is growing steadily.
• As of 1996, every state, excluding Alaska, Vermont, and Wyoming, had a Medicaid HMO program. According to the National Academy for State Health Policy in Portland, ME, the number of Medicaid beneficiaries enrolled in at least one managed care program ranged between 12 million and 13 million.
• States such as Wisconsin and Arizona are experimenting to simultaneously offer both Medicare and Medicaid managed care to high-risk patients from both programs in an effort to stem costs.
For outpatient administrators, the choices aren’t always clear. HMOs are clearly pursuing outpatient providers due to the cost-saving factor, Strickland notes. But the competition for contracts is keen.
Hospitals and provider networks may see large advantages in contracting with these high-risk plans. One reason is that the financial risk inherent in treating Medicare and Medicaid patients is more easily spread over a large provider network, Strickland says.
In response, small independent providers such as single ambulatory care centers may feel compelled to assume risk just to avoid being squeezed out of the market.
Outpatient providers are particularly exposed to losses from high utilization due to the heavy emphasis by these plans on less expensive outpatient treatment options. Most also are required by law to offer enrollees health screenings that include regular immmunizations and tests that can drive up costs.
On the other hand, facilities such as same-day surgery centers "are extremely volume-driven facilities. Our profits are a function of the numbers," says Jerry Mazzolla, chief executive officer of North Shore Surgi-Center in Smithtown, NY.
In effect, small independent providers can’t afford the luxury of bypassing these opportunities and losing patients to others, says Mazzolla.
But what exactly are the opportunities inherent in these contracts?
"If you can keep a close eye on your costs, they can work for you," observes Jennifer S. Eslami, JD, director of health plan services with Little Company of Mary Health Services, a three-hospital system based in Torrance, CA.
But that’s a tall order for facilities faced with already high levels of indigent and uncompensated care. Here’s why:
• Medicare and Medicaid HMOs frequently offer providers a variety of reimbursement options ranging from capitation to some form of fixed pricing such as case rates. In most cases, the choice isn’t left to the provider unless administrators push for a certain option during negotiations, says Strickland.
• Capitation places the provider almost entirely at risk. Often, the per member per month rates are set unrealistically low by the managed care organization (MCO).
Yet, the typical Medicare and Medicaid HMO enrollee is demographically a high-risk patient, says Charlotte L. Kohler, RN, CPA, CPAM, vice president of diversified services with HelixHealth, a five-hospital system in Lutherville, MD.
Also, capitation has proven to not work well for facilities in specialties such as outpatient surgery. By nature, surgeries are difficult to postpone and financially manage when cost-cutting. And the lump-sum payments don’t necessarily cover the higher cost of complex or multiple procedures, administrators say.
On the other hand, the eight-level Medicare payment schedule is preferred over capitation because the rates are fixed by procedure, and the technical components of the charges are already bundled into the rates.
• The patients enrolled in these plans are not only considered high-risk (seniors, disabled, and the poor); many have multiple chronic disorders, and they’re difficult to track on a continuum-of-care basis, Kohler says.
"They don’t often show up for appointments and are hard to track," Kohler says.
• As a result, these patients require more office staff attention and scheduling follow-ups, which tend to drive up your overhead, Kohler says.
• MCOs also typically impose tough pre- certification criteria on providers when treating their patients. Conventional Medicare and Medicaid programs lack those barriers. Provid-ers are unhappy about these conditions. They tend to interfere with clinical decision-making and delay treatment, Strickland observes.
• Furthermore, single-specialty facilities such as eye surgery centers are particularly vulnerable to low payment rates because they can’t spread their risk over a mix of different services, says Mazzolla.
"Unless these single-specialty facilities can vary their payer mix to offset the low income potential, they face real hardships," he adds.
• And many times the provider doesn’t know which Medicare patients are enrolled in HMO plans and which have traditional fee-for-service coverage. New York law, for example, forbids MCOs from distinguishing their enrollees from conventional Medicare or Medicaid beneficiaries. While the law prevents negative bias, it financially hurts providers, Mazzolla says.
How beneficial are these plans? Financial managers have mixed feelings. Reluctantly, ambulatory surgery centers are signing on to enhance their perceived competitive edge over hospitals, Mazzolla says. Meanwhile, hospitals need the business to remain viable to their communities, Eslami says.
"At one time, we viewed managed care as a lucrative source of incremental patient business. Now, we’ve become increasingly dependent on these plans for basic revenue," says Kohler. (For advice on how to make these managed care plans easier to live with, see story, p. 3.)
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