A blueprint for monitoring managed care contracts

Give yourself a competitive advantage

The first step toward monitoring your managed care financials is making sure you have a contract specifying that the HMO you are doing business with must provide specific information in a timely fashion — and what will happen if it fails to perform.

The Westchester, IL-based Healthcare Financial Management Association (HFMA) advises that certain financial data related to practice contracts, such as capitation reports, are compiled by all managed care organizations (MCOs) and should be shared with your practice. Each of these reports — along with their formats, frequencies, and age of the data included — should be specified in your contract

Make sure you can audit data

Tip: To guarantee the accuracy of the data you are receiving, include a provision in the agreement giving you the right to audit and inspect any related information.

Your contract also needs to specify any consequences should the plan fail to provide the agreed-upon data. Consequences could include provisions allowing you to terminate the deal, making the plan pay fines, or having it assume more of the financial risk.

Note: The law generally requires the provider to notify the plan when the MCO has breached the contract and give the plan an opportunity to "cure" the problem before the termination clause can be activated.

To dissuade the plan from entering into a constant breach/cure cycle, the HFMA recommends providers also include language stating that the "notice-and-cure" provision only applies to the first breach. If the plan commits the same or a substantially similar breach within a specified period from the date the breach is cured (e.g., six months), the provider may terminate the agreement immediately upon written notice.

Keep track of key dates

Other key elements of a successful managed care contract monitoring program include:

Reviewing the contract for key dates and performing appropriate follow-up. The Centers for Medicare and Medicaid Services (CMS) recommends drawing up a comprehensive list of key dates, such as deadlines for submitting certain reports, or dates that indicate an opportunity to terminate the contract or renegotiate rates. These should be kept in a separate binder or software-driven reminder system to alert whoever is charged with tracking this information that a critical date is approaching.

Reviewing the contract for key performance obligations and rights. Create a comprehensive summary of your contractual obligations and rights, including timetables and/or events associated with those rights.

Establishing benchmarks. Monitor both the plan and the practice’s performance against key "best practice" benchmarks produced by relevant trade associations or consulting studies.

Assigning responsibility. Assign responsibility for contract monitoring/information gathering to a specific person in the practice, and designate someone to back that person up. The HFMA says these duties should include: monitoring key dates; performing administrative duties; reviewing and analyzing plan reports; performing routine audits of plan information (preferably in monthly or quarterly increments); comparing plan performance (e.g., timeliness or amount of payment) against contractual obligations; and comparing performance of plan and provider against adopted benchmarks.

Besides monitoring how well the MCO is complying with its managed care contract obligations, it is just as important that you monitor your own compliance performance.

For instance, administrative requirements or new government regulations sometimes are passed onto providers by health plans as part of their contract, notes the HFMA. A provider’s contract with a Medicare risk plan may require the provider to supply the plan with certain encounter data that the plan is required to give to regulators. The contract also may include a clause that requires the provider to indemnify the plan against penalties and sanctions imposed by Medicare if the plan fails to provide the requested data. That, in turn, exposes the practice to potentially painful financial penalties should it fail to comply with the contract.

Facilitating performance improvement

Other benefits of self monitoring include:

Improving performance. Self-monitoring specific performance indicators provided in the contract gives the practice a source of new data to improve its operations. For example, having the MCO provide a list of why it denied or reduced payments over a certain time period is a great way for the practice to spot trends and potential weaknesses in its coding and claims processes. It also can pinpoint flaws in the MCO’s reasoning and can be used to improve clinical outcomes such as reducing lengths of stay.

Financial analysis and management. A key reason to monitor a contract is to assess and manage the organization’s financial performance. For example, unless a provider knows that it receives $100 for a service costing $125 to provide, it cannot take the steps necessary to reduce costs or renegotiate the contract.

This kind of ongoing review can also help distinguish whether a performance problem is a matter of poor utilization, high costs, or a combination of the two.

Contract negotiation and renegotiating. Maybe the best argument for a contract monitoring program is that it gives you the information you will need to determine if you need to renegotiate your current contract before you find yourself awash in red ink. It also can pinpoint what changes you need to make when renewing an agreement.