Referrals pay off in MCO contracts

Failure to track outcomes, fees could bring you grief

Primary care practices with managed care contracts could compare specialist referrals to writing a blank check from your practice to another physician.

While this may sound dramatic, the reality is that managed care organizations judge primary care practices on the medical outcomes, costs, and frequency of referrals of capitated (and sometimes noncapitated) patients.

"If a plan pays an internist [or primary care physician] by capitation, the internist is financially accountable for referrals," writes Greenville, SC-based practice management consultant Paul W. Smith, CPBC, in Today’s Internist.1 Smith is a former consultant with The Health Care Group’s Greenville office. "If the physician [making the referral] is not under capitation but periodically renegotiates payment rates and other aspects of the MCO relationship, adverse referral utilization data is important. Moreover, referrals for needed services that could be provided in-house represent foregone income."

Tracking referrals painlessly

Few practices are actually capturing these data, and as a result are putting themselves at the mercy of referral data tracked by managed care organizations, says Robert Connelly, consultant for The Health Care Group, a consulting firm based in Plymouth Meeting, PA. But referrals can be tracked fairly painlessly once the upfront work is conducted to put a system in place.

Connelly recommends groups take the following steps to get a referral tracking system rolling:

1. Develop consensus among the physicians in your practice regarding referral guidelines.

The physicians in your practice need to determine, as a group, referral guidelines that state the preferred physicians for referrals and criteria for when to refer patients to specialists. Points to consider include:

• Is there one (or more) preferred specialists for each of the major specialties you refer to? This could also be broken down further within a specialty. For example, some orthopedists within your community may be known for total knee replacements, while others may be good for patients with back problems.

• Do these preferred specialists participate in the managed care organizations that represent the bulk of your patient base? If not, it’s worth a phone call from a senior physician in your practice to the physician in question, especially if you have numbers that show them the number of patients you refer to them annually that could be at risk if your practice needs to switch to a group participating with your key managed care organizations. The purpose of the call is to let the specialist know you have a number of patients who participate with this plan, and you would like to continue to send those patients to the specialist. Ideally, the physician will respond by making an effort to join the plan’s provider panel.

• For each major kind of case your practice sees, at what point does it make sense to refer a patient to an outside specialist? It is necessary to put these criteria in writing, although some providers decry this practice as "cookbook medicine." You can alleviate physician concerns regarding established referral patterns by allowing physicians to play a role in developing these standards.

Once preferred physicians are identified, files for these physicians can be set up in your practice management software system. In addition, the physician staff should communicate this information to your group’s administrative staff charged with coordinating referrals.

2. Set up an internal referral tracking system as part of your practice’s database. Many practice management software packages have this ability, Connelly says. Although he would not name specific software programs, he did suggest that practices ask the vendor that provided their software program if the system has this capability. If it doesn’t, you may want to look for one that does.

Systems that can track referrals probably have additional capabilities of tracking diagnosis codes and the cost of these services. Staff members who make referrals can track each referral by listing which physician a patient was referred to, the eventual diagnosis made, and the cost of treatment.

Specialists communicate their patient care and results of any tests to the primary care physician via a letter. The letter will contain the diagnosis and plan of treatment. Although such a letter usually doesn’t contain information on what services were rendered, a primary care physician who refers patient care to specialists controls what the specialist can and cannot do based on the terms of the contract.

Another option for practices that lack this internal system capability is to use dummy CPT codes, Smith says. This is done by assigning a different referral specialty to each of several CPT codes you never use. Have each physician fill out a referral encounter form whenever a patient is referred to another practice and whenever your physician receives information about a patient he or she referred to another practice. The downside of this option is that information must be entered manually, and you have to rely on your physicians to be diligent about filling out encounter forms.

3. Generate monthly reports to look at costs and utilization data for each physician you refer to, each physician in your practice, and your group as a whole. Practices can set up a module in their computer software system that tracks referral costs and diagnoses in this manner. (See sample setup, above.) The practice manager should review these reports with physicians in the practice as a group and discuss the following points:

• Is there a physician in your group who refers more or fewer patients than the group norm?

• If so, are there specifics related to this physician’s patient population that justify this volume?

• Are some outside specialists more efficient utilizers in terms of costs, hospital bed days, and treatment outcomes when compared to treatments of patients with the same diagnosis code?

• Are there services your practice is referring out-of-house now that could be potential revenue generators? Connelly says this is rarely the case, but the issue is worth exploring.

4. Deal with physician outliers through one-on-one discussions. Connelly recommends having a senior physician in the practice approach the physician in your practice whose outcomes data fall outside the norm. Not only does the information have more credibility coming from a physician, but the senior physician has the clinical skills to evaluate whether an outlier physician has higher-risk patients or other extenuating circumstances that justify numbers outside the practice averages.

5. Compare your practice’s results with standards set by the major managed care organizations with whom you contract. If the managed care organizations you contract with generate practice report cards, dig out the last one you received to determine how your practice has performed in the past. Also, the MCOs you contract with may provide the information to you, although it will likely be standards for overall referral patterns rather than referral patterns for each specialty.

After your practice generates at least six months of referral tracking data, you can then compare your internal reporting figures with your own internally generated numbers, Connelly says.

6. Don’t be afraid to brag about your results. Use the data generated by your monthly reports to show your practice can handle capitated patients in a cost-effective manner that generates good clinical outcomes. This may help in your next round of contract negotiations with payers.

[Editor’s note: The American College of Physicians-American Society of Internal Medicine sells a benchmarking service, "Practice Management Check Up: Examining the Business Health of Your Practice," that allows practices to compare their performance in referral patterns and 23 other key indicators against established benchmarks for internal medicine practices. For more information, contact ACP-ASIM customer service at (800) 523-1546, ext. 2600.]


1. Smith P. The whys and hows of referral tracking. Today’s Internist 1998; 12:5.