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Specialty capitation and effectiveness assessment.

In 1988, the Southern Region of Blue Cross Blue Shield of Florida undertook a major initiative involving Health Options, Inc., its HMO subsidiary. The intent was to convert specialty contracting from a discounted fee-for-service methodology to capitated payment. Each specialty network is radically transformed into a freestanding IPA, independently incorporated and contracted to the plan for the provision of all included services. The project has financial and legal implications, and maintenance of quality and member satisfaction has been a paramount consideration.

Health Options, Inc., is a federally qualified IPA model HMO with approximately 74,000 commercial members and 18,000 Medicare enrollees in a risk contract. The plan directly contracts with primary care physicians (PCPs) and specialists in independent practices for delivery of care. PCPs have long been capitated, and their reimbursement program includes variable levels of withhold and incentive distributions derived from cost and quality performance indicators. Specialists have traditionally been paid on a discounted fee schedule substantially below average community charges. The region serviced by the plan is culturally diverse and includes three counties (Dade, Broward, and Palm Beach) comprising the major urban centers of Miami, Fort Lauderdale, and West Palm Beach and a host of smaller communities. Large numbers of physicians (14,572) and acute care hospitals (64) are available. The medical delivery systems in the three counties remain fairly separate and distinct from one another. The current HMO physician and hospital network, while sufficiently large (figure 1, page 33), nevertheless is a modest subset of total existing providers.

A capitation project was undertaken primarily in order to achieve significant cost savings in specialty expenses, while simultaneously ensuring that these expenses would become fixed and predictable. Capitation was deemed to be preferable to a fee schedule alone, because it addresses both the price and volume aspects of medical expense. Capitation entails the derivation of a "per member per month" (pmpm) fee payable to the specialty entity representing complete, prospective payment for all professional services. Secondary considerations in the new design included reducing claims and provider relations burdens; streamlining utilization management needs; revamping and upgrading the quality of the physician panel in each specialty; enhancing our quality management program; and creating long-lasting, mutually beneficial business relationships with specialty providers. It was determined that discrete capitation agreements with individual physicians would not meet the above objectives and would present formidable logistical barriers.

The route chosen to accomplish these ends involved encouraging a carefully selected specialist manager (the "lead physician") to create a new, global, incorporated entity that would in turn contract both with the HMO and with participating specialists (figure 2, left). This specialty IPA, prospectively funded by capitation, would assume full responsibility for providing adequate specialty coverage in the entire region and would be at full financial risk for professional costs incurred.

Because resources typically permit only two to three concurrent efforts, an analysis of the plan's referral costs was performed in order to prioritize the sequence of specialties to be targeted in the project. This analysis focused attention on specialties with above average costs and those with above average rates of growth in costs. Each specialty project has required seven to nine months of preoperational planning and preparation. The key stages of the process appear in figure 3, left.

Selection of the lead physician is perhaps the most critical step in determining the success of the outcome. A survey of all current participating physicians in the targeted specialty is performed in order te generate potential applicants. Other internal and external recommendations are pursued as well. A lengthy and deliberate process occurs, involving multiple interviews and submission of a formal proposal. The ideal lead physician possesses the following attributes:

* Recognized clinical expertise.

* HMO experience.

* Tri-county affiliations.

* Management skills and experience.

* Computer literacy.

* The entrepreneurial motivation to expend significant time and energy in an innovative and challenging task.

A full-time plan employee is dedicated to capitation network development and works closely with the lead physician. Financial analysis yields mutual agreement between the plan and the lead physician on an appropriate contractual capitation rate. Analysis of network needs results in a tentative provider network that the lead physician will refine and finalize. Physician selection is based on:

* Qualifications and attitude.

* Office location and hospital affiliation.

* Interest expressed via survey response.

* The physician's track record as perceived by internal staff (utilization and quality management and provider relations) and external sources (PCPs and hospital administrators).

Concurrently, the legal framework for the arrangement is completed via the contractual linkages documented in figure 2. At this point, the lead physician begins to earnestly recruit and contract with participating physicians, often a time-consuming task requiring considerable personal intervention. Both individual physician selections and the final network composition require the mutual agreement of the HMO and the IPA. Preference is always given to existing plan specialists; "out of network" physicians are sought only if necessary to supplement deficiencies.

Completed networks are generally one-third the size of the preexisting fee-for-service panel.

Finally, all aspects of the new program are communicated to all concerned parties. Members are notified via newsletter of forthcoming network changes; PCPs receive updated referral directories reflecting the changes; the marketing staff alerts enrolled groups; and plan staff are trained to handle the inevitable inquiries and disruptions that arise during transition.

Key responsibilities and benefits of all involved parties are listed in figure 4, left. The plan clearly bears ultimate responsibility for guiding the project to completion and ensuring that the specialty IPA fulfills its obligations. A successful outcome brings the plan financial savings and a superior and more manageable provider network.

The IPA entity is required to develop, and subsequently maintain and monitor, the specialty network. Capitation funding from the plan is distributed to providers by the IPA manager according to self-administered mechanisms unique to each entity. Specific utilization and quality management functions are assumed by the lead physician, who typically retains a small portion of gross capitation revenues to cover operational and administrative expenses. The lead physician and the entity acquire valuable managed care organizational experience and are not limited to the HMO with respect to future.

Providers who are selected to remain in the panel can expect to benefit from enhanced income, because dramatically increased volumes of referrals will more than offset the additional discounts they generally experience. Concerns that they may have regarding reimbursement or other issues are dealt with by a peer specialty physician, a novel and welcome change.

Numerous technical issues must be addressed in creating these relationships. Foremost among them is careful a priori definition of what services are deemed to be inclusions under the capitation payment. The parties must anticipate and resolve whether office-based diagnostics, "facility charges," emergencies and "out of network" care, and referrals to academic centers are intrinsic to the negotiated capitation rate or are separately funded by the plan.

The plan has dedicated considerable resources to measuring patient satisfaction with this program. Annual surveys are mailed to each member who has used a capitated specialty network provider, soliciting responses to a variety of questions relating to the accessibility, acceptability, and outcome of services rendered. An example of an overall satisfaction rating is shown in figure 5, below. Statistical summaries of survey results, including provider-specific profiles, are provided to each specialty IPA for feedback and corrective action when appropriate.

Lead physicians of each entity serve on the plan's Quality Management committee and are in the process of collaborating in the development of programs customized to the needs of their own specialties. Capitated specialty networks have achieved a higher ratio of board-certified physicians than have noncapitated panels (85 percent versus 65 percent), reflecting more stringent selection criteria. Finally, each IPA entity is reevaluated annually, at the time of contract renewal, using an objective rating tool assessing key attributes, such as network stability, satisfaction survey scores, cooperation with plan personnel and procedures, sophistication and responsiveness of its administrators, etc.

Several years' experience with this innovative program have confirmed it to be a successful approach for restraining referral expenses while simultaneously maintaining, and even enhancing, quality of care. A deliberate and comprehensive implementation strategy is critical to ensure that consensus is achieved within the plan on the feasibility of the program and that timely communication helps to mitigate the transient conversion difficulties that inevitably occur.

Jacob Lazarovic, MD, is Regional Medical Director, Blue Cross/Blue Shield of Florida, Ft. Lauderdale, He is a Diplomat of the American Board of Medical Management and a member of the College's Society on Managed Health Care Organizations. This article is based on a presentation at the 1991 National Conference on Medical Management of the American College of Physician Executives, Toronto, Ontario, Canada.
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Title Annotation:Managed Care
Author:Lazarovic, Jacob
Publication:Physician Executive
Date:Jan 1, 1993
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