Health maintenance organizations (HMOs) continue to grow and physicians are responding rapidly to the new challenges that are presented. But HMOs want to work with physicians that understand managed health care medical protocol, terminology and financial issues.

However, because of industry attempts to reduce costs, physicians are being asked to take on additional financial risks. Before committing to any contract, physicians and many other providers will have to evaluate how the risks will financially impact their practice and their ability to provide quality care. For such evaluation a utilization tool is essential and Ensure Data Solutions preset the best software now available.

Risk contracts

HMOs continue to transfer the financial risks of providing health care to physicians through multiple layers of contracts. The financial results for physicians have been mixed. For some that have successfully managed capitated contracts with incentives and risk pools, the results have been better than under the traditional fee-for-service contracts. For others, lower fees and higher costs have resulted.

HMOs seek to control health care costs by emphasizing preventive care and reducing critical care services, including surgery. HMO representatives say they maintain high quality services by carefully selecting physicians and reviewing their policies, procedures and medical records.

If a primary care physician (PCP) is used as a gatekeeper, patients select a primary care physician during a specific enrollment period. These patients constitute the panel upon whom future reimbursements will be based.

Under a capitation agreement, physicians are paid a set amount monthly for each member of the panel. Payments vary based on the age, race and gender of the members of the panel. Contract amounts vary based on the copayments required of patients and the benefits of each plan. Payments for commercial members (those under age 65) are substantially less than payments for Medicare beneficiaries. HMOs offer a policy for Medicare beneficiaries who elect to replace their Medicare benefits with a policy that offers more benefits and less out-of-pocket costs than direct Medicare.

Since the physician receives a fixed amount of money for the services provided, the incentive is to practice conservative medicine; the physician makes less as the volume of service increases. Under fee-for-service medicine, physician profits increase as the volume of services increase. Therefore, it is critical that physician practice styles be consistent with the financial incentives of capitation.

Any physician signing a capitation agreement is taking a risk that he or she will not be fairly reimbursed for the services provided compared to a fee-for-service contract. Also, if the physician assumes the responsibility to reimburse others as a part of this contract, the contracting physician could lose money. As the physician assumes more risk, it becomes even more critical that the practice be professionally managed, which includes a financial management system, such as Ensure Software.

Under this type of contract, the PCP is capitated as to his or her services, but does not assume the financial risk for referrals to other physicians or for the patient’s stay in the hospital. There will be financial incentives for the PCP to minimize referral costs, control Rx cost and restrict hospital stays.

The PCP will contract with specialists for services on a discounted fee-for-service or a subcapitation basis. Under a discounted fee-for-service arrangement, the PCP retains the risk that the specialist’s services could exceed the anticipated volume, resulting in a loss to this physician. Under a subcapitation agreement, the PCP fixes the payment to the specialist and transfers the risk of an adverse outcome to this specialist. Insurance is available to reduce the PCP’s risk.

HMOs strive to reduce their risk of hospital costs by sharing this risk with the PCP. If hospitalization costs exceed the budget, this excess cost will be consider a deficit for the PCP, but if the physician manage to reduce the cost receive a bonus, also known as surplus.

How to succeed with Risk Contracts

To be successful in a capitation environment, it is critical that physicians focus on preventive care and minimize critical care, surgery and hospital stays. At the same time, physicians need to have their health care team focus on the critical success factors.

The most important factor is to understand capitation, since every patient receive a different amount of capitation. Medicare pays the HMO based on the patients historical conditions and costs, giving a number MRA that determines the amount received for each individual.

When a PCP understand the importance of an MRA that reflects all the conditions that the patients have, a risk contract becomes manegable.

Understand MRA and reduce costs might sound easy, but without a utilization tool like Ensure Data Solutions is a very hard mission to accomplish.

In the past only larger providers were able to acquire the technology and management needed to successfully deliver health care in a more sophisticated environment in wich they make money and deliver the best care to the patients . But today with accesible tools like Ensure Software all physicians can successfully manage Medicare risk contracts.