A guide to evaluating managed care companies

Physician Executive,  June, 1994  by Robert Teplin

• E-mail
• Print
• Link

Over the past 15 years, the practice of medicine has changed dramatically, and further changes appear to be on the horizon. A technological explosion has contributed to remarkable success rates in the areas of limb reattachment, organ transplantation, and anesthesia safety. These are changes welcomed by patients and doctors. Traditional medical training keeps pace with the techniques of the practice of medicine, but the rapid changes on the commercial side have left many doctors angry and frustrated.

Many of these commercial changes go under the generic term of managed care. Managed care has no universally accepted definition, but to many doctors it means interference in the care of patients. Managed care is practiced by the federal government in the way it administers the Medicare program, by state governments in their regulation of Medicaid programs, and by the private sector through entities such as preferred provider organizations (PPOs), health maintenance organizations (HMOs), and their variations.

Managed care seeks to insert a layer of control in the way a doctor treats his or her patients, from regulating which drugs can be prescribed to which operations can be performed in various settings. It serves to modify physician decisions with the lofty goal of maintaining quality and holding down prices. Blue Cross and Blue Shield of Wisconsin states in its PPO literature to prospective enrollees that "cost-efficient care is quality care." This statement puts the wrong end first. There is no credible evidence that cheaper is better.

Unfortunately, it is very difficult to regulate quality and very easy to regulate cost. Based on this flawed principle, entrepreneurs have created an entire industry. The blossoming of the industry has, unfortunately, created weeds as well as flowers. Just as some gardeners see flowers where others see weeds, some doctors will see advantages in some managed care firms where others see trouble. I hope the following information will give physicians enough information to determine which is which.

A well-organized evaluation of managed care programs is important to obtain financial security and to ensure emotional comfort that will allow the provider to practice at peak potential. A physician must decide which managed care plans to join, and this is often dictated by emotional or social pressures rather than sound business judgment. Choices are made without regard to the long-term consequences and have, at times, contributed to excellent physicians' leaving medicine to pursue different careers. The alteration in practice patterns required for participation in some managed care programs may be contrary to physicians' training and beliefs.

Physicians are trained to act as patients' advocates. They are often uncomfortable in the role of limiting access to care and are frequently ignorant concerning the rules of managed care programs. They may not know they are paying for the privilege of participating or may be unaware of appeal processes when disputes arise. The interests of patients are best served if the doctor understands the workings of the managed care team he has joined.

Financial reimbursement is at the top of most lists when evaluating managed care participation. Additional areas of concern are restrictions on patient care and what I have chosen to define as logistic parameters.

Financial Considerations

The reimbursement rate a managed care company uses must be fully understood and can prove elusive. Managed care companies set their compensation fees using one of two basic techniques. They may use a preset fee schedule or a negotiated fee schedule. Methods of setting fees may be loose and vary for different providers or may be tightly structured and carved in granite.

Preset fees are usually based on a national or regional fee schedule. A managed care company contracts with a provider, who agrees to accept a percentage discount of this schedule on a fee-for-service basis. This percentage rate may be negotiable. Providers are often asked to sign contracts after seeing only sample lists of fees, but they must insist on seeing all fees applicable to their practice. This is easily done by submitting a list of relevant CPT codes to the managed care company.

Another preset fee schedule, usual and customary (U&C), is based on a database of varying size that is used to calculate what other providers charge for similar services. Ideally, U&C rates should be based on a very large database that reflects the charges of providers with similar training and expertise. It should be adjusted for regional overhead costs, such as malpractice premiums and cost of living expenses. U&C schedules can be internally generated or purchased by the managed care company from outside sources. Providers are not given the opportunity to validate or challenge U&C fees.

Most managed care companies will not reveal details on how their U&C fees were determined. Unless the provider or the patient requests the fee for a specific procedure before the work is done, neither will know what the compensation will be for that procedure until payment is received. Many benefit plans cover only U&C payment.