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Tip of the week: Know what to consider to profit in a competitive landscape

Managed Care Weekly Advisor, April 11, 2007

Provider-sponsored plans, or health system-owned plans, aren't as prominent in the managed care landscape as they were a decade ago. Direct competition from national plans will force the provider-sponsored plans and their health-system owners to consider their best prospects for profitability in an environment of razor-thin profit margins. The following are eight contracting questions for provider-sponsored health plans and their healthcare affiliates to consider:

  1. How much autonomy does the managed care organization (MCO) exert? Burdening an MCO with the same bureaucracy and conditions that exist in an acute-care structure could be detrimental to the longevity of the managed care entity.

  2. What is the MCO's emphasis on care management? Look at the number of full-time equivalents related to care management, the MCO's hospital admission, length-of-stay data, and the medical-loss ratio as a whole and by service line.

  3. Who's running the show? It's essential for the MCO to recruit expertise outside the acute-care arena.

  4. Does the MCO's chief information officer (CIO) have real clout to improve the IT infrastructure, or is he or she beholden to administrative committees and physician stakeholders? With the life cycle of technology in any industry now just two or three years, and with the push toward electronic medical records and electronic connectivity for claims, clinical record-keeping, and disease management, there will be increasing demands to create a more robust IT infrastructure.

  5. What resources are provided to the MCO? As the core business, the provider entity is likely to consume more time, attention, and capital than the peripheral managed care business, which makes the health plan more vulnerable to external market conditions and other competitive forces.

  6. How extensive is the sales and marketing effort? Provider-sponsored plans need to grow a significant member base beyond health system employees-especially in light of growing competition.

  7. What is the plan's penetration in the local community? Providers are more likely to agree to a preferential discount off billed charges or per diem with the provider-sponsored plan if the MCO is able to generate incremental activity at the institution or practice.

  8. Does the provider-sponsored plan conduct due diligence in its contracting? If the plan agrees to pay a surgery center for a string of CPT codes for an ambulatory payment grouper with an exception for more labor-intensive arthroscopies, that exception will create a manual process in the claims shop that's likely to result in claims that are denied or paid inaccurately. A better strategy is for the MCO to reject these exceptions and offer another type of concession during negotiations.