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How to beef up your managed care contracting strategy

Posted Jan 05 2011 2:33pm

by Maria K. Todd , MHA, PhD

This past year was not pretty for hospitals. The single-fix solutions to escalating costs, the lack of electronic and clinical integration and innovation through accountable care organizations (ACOs) and other ideas associated with the Patient Protection and Affordable Care Act (PPACA) are collapsing in adoption.

Organizations have begun to recognize that the 'harder road' of sustaining innovation takes more than one fix to solve all. It involves complex work that is painful to complete without a clear, comprehensive roadmap.

In simpler terms, raising fees in an annual escalator clause (You put one in there, right?) in your managed care contracts is not a managed care contracting strategy. Neither is an action plan that reads "contract with everyone who comes through that door" no matter how bad the offer.

Take stock of existing contracts

If you are responsible for building or proposing a managed care contracting strategy for 2011, here's a simple way to do it:

Write down the names of contracts onto 3x5 index cards. Every contract must be inventoried that will show you how many you cannot locate, are incomplete, or ("OMG") were single case agreements that someone listed in the system as a "regular" contract and the terms and discounts have been applied beyond the intended "single case." I say "OMG" because this really has very serious implications, but more on that in a future post.

An affordable ($1.55) business intelligence (BI)system

On the front of each index card write the name of the payer and the type of contract:

* Cigna HMO
* United HMO
* Humana Medicare Advantage
* Humana PFFS

...and so on. Don't forget TriCare contracts, Prison Health, Direct to Employer contracts, etc. Fill in one card for each brand and line of business.

On the back of the card indicate the following * Gross billed charges for 2010
* Paid-to-billed ratio
* Paid-to-allowable ratio
* Average daily net revenue - outpatient
* Average daily inpatient census for this payer
* Average daily outpatient encounters for this payer
* Number of refunds requested and dollar amount
* Number of appeals filed, dollar value

By the way, for all you rich people who paid more than $3.00 for your fancy schmancy BI software, if you cannot do this with what you bought... well, I'll leave you to sort out how to save face.

Next, make three piles--as if you were playing solitaire. You are doing just that at this point. Divide the cards into:

1. Best overall performers
2. Marginal performers
3. Bad actors or not enough impact to matter

By the time you finish those tasks, part two of this article will be published. In part two, we are going to use this $1.55 rudimentary business information tool to build the strategy.

Maria K. Todd, MHA, PhD, is founder and CEO at the Mercury Healthcare Companies . She is an entrepreneur, consultant, speaker, and author of 9 books, including the Managed Care Contracting Handbook with over 28 years experience in healthcare administration, including integrated health delivery systems (ACOs, IPAs PHOs, MSOs) development, HMO provider contracting, managed care and global healthcare program development in several countries. Tweet her with questions on Twitter at @AskMariaTodd

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