Managed care has become the dominant payment and utilization management business model in the United States and is generally touted as a core business model for healthcare reform. As a result of this market challenge, Managed Care Organization (MCO) contracts (commercial and public sector) have become the single largest source of NPSR for many hospitals, health systems and physician practices. In addition to MCOs becoming the dominant source of NPSR for providers, the managed care business model often results in (a) unfavorable changes in patient service mix and volume, (b) significant reimbursement variation for the same services in the same market, (c) complex payment rules, (d) a misalignment of incentives between physicians and hospitals, and (e) variable clinical care protocols which are MCO driven, not provider driven all resulting in reduced net revenues and increased financial risk for providers.
If the above market challenges result in a net patient service revenue (NPSR) loss across all patient financial classes, a provider is forced to rely on non-patient care revenue sources of funding to remain financially viable. If the provider reaches the point of where non-patient revenue sources no long offset NPSR financial losses or the provider can no longer sell or borrow against assets and/or they can no longer receive government subsidies to offset financial losses they will become insolvent. Such financial decline generally occurs over a period of years, however, failure to reverse the course of financial decline results in the same outcome insolvency.
Which provider organizations are at greatest financial risk?
Hospitals and physician practices which have a payer mix of 40% or more of NPSR derived from MCO contracts.
Provider organizations in which 60% or more of the patient service volume comes from Medicaid, Medicare and Uninsured patients.
What does managed care truly represent for a provider?
Their only significant opportunity to improve their NPSR and offset underpayments/bad debt from government payers and the uninsured.
The catalyst for aligning and integrating interests between hospitals and physicians to create future state business models which focus on quality of care/outcomes, demonstrated efficiency/cost-effectiveness, enhanced accessibility, incentive alignment and clinical integration.
To accomplish the above requires that a hospital move well beyond traditional physician alignment and selective joint venturing initiatives as these tend to be incremental solutions which largely maintain the status quo. Hospitals, affiliated physicians and key MCOs willing to be collaborative partners, need to develop and implement strategic initiatives which support the core service line strategy and which significantly improve physician alignment and integration, thereby improving long-term competitive positioning with managed care payers.
Hospitals are increasingly under scrutiny for cost-efficiency and the latter is primary consideration in current Medicare deliberations on payment reductions to hospitals. In an era of price transparency it is important that the public know that a hospital is doing all that it can to reduce costs. Many of the key goals as often stated by corporate, governmental and health plan purchases of care is that they want a health care delivery model of care which is: demonstrably cost-effective, efficient in resource use, accessible, patient centric and patient safe, of high quality and which provides value driven services. Clinical integration across key hospital service lines provide as vehicle for the hospital, its physicians and MCOs to achieve the latter while appropriately reimbursing providers for the value of the services provided to patients.
This presentation will identify key industry trends with respect to clinical integration, discuss the development and implementation of contracting strategies with core service line business development strategies and provide illustrations of actual best practices case examples which also include alliance initiatives with health plans.