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'An HMO Wants to See a Proposal, Where Do I Start?'

'An HMO Wants to See a Proposal, Where Do I Start?'

By Evelyn Eskin, MD

It is by now axiomatic that information is vitally important in a managed care environment. Whether you are preparing for participation with managed care plans, beginning to evaluate the results of ongoing participation, considering expansion of existing managed care arrangements, or assessing capitation, you will need a plan.

A successful plan requires accurate, relevant, and timely practice information. Much of the data needed for a managed care plan is quantitative; other information is more qualitative, addressing professional goals as well as actual practice experience. Here is a 20-question checklist to use as a guide in planning for the future success of your practice in a managed care environment.

Your View of Your Practice

1. Who are your current and potential partners or affiliates? Almost every physician has someone with whom he or she shares some aspect of the practice-a physician or practice with whom you share call, physician partners or colleagues, professional networks, and institutions such as a hospital, nursing home, hospice, or other provider organization with whom you work.

Assess your response to these partners and affiliates as the ones who will join with you in the 21st century. Your partners need to share your goals, values, and vision of oncology practice, and be able to adapt and thrive in a managed care environment.

2. If you were starting your practice today, would you hire the same people?
Many physicians have one or more persons on their staff who are not team players, have not adapted to new practice demands, or are simply burned out.

Retaining these staff members will be very expensive as you position your practice to succeed in a competitive managed care environment. Ask yourself seriously if you can move toward a situation in which you feel positive about each staff member you employ.

3. What one thing would you most like to change about your practice? The answers to this question run the gamut from "people" to "systems" to "physical environment." Whatever your answer, think about the importance of being able to change the thing that bothers you most, so that your practice can approach the managed care future from a position of strength.

4. What do you want to be doing in 5 years? Keeping your eye on your personal and professional long-range plans is extremely important in this changing environment. The decisions made by oncol-ogists just beginning their practices will be different from those of physicians contemplating retirement.

If your group includes physicians from both ends of the professional life cycle, it is important to recognize these differences and construct agreements that allow each doctor to achieve his or her goals. You will need to develop a plan for handling changes in patient volume, retirement of senior physicians, and additions to the professional staff.

5. What are your sources of information about your practice? The potential sources are many-computer,
office manager, bookkeeper, and accountant, to name a few. You should list all the sources of information on which you regularly depend. Then review their reliability, timeliness, and relevance as resources for assessing your future and making decisions.

To handle the complex decision-making processes involved in managed care, you will need information that helps you understand capitation, develop a plan to maximize managed care incentives, and identify the costs of the most common procedures done in your practice.

Patient Satisfaction

6. What do your patients consider the biggest strengths and weaknesses of your practice? Patient satisfaction is the most common measure of quality in a managed care environment. It is important to know what your patients think and to be able to change the things that bother them most, so that your practice will continue to be attractive to patients. It is also good to ask these questions of employees, physician colleagues, and your larger practice community.

7. How many patients have left your practice during the past 6 months? Many physicians do not track this statistic, but it is extremely important in a competitive practice environment. Even if you monitor the number of patient transfers, do not assume that you know the reason patients are leaving.

You may think it is because you are not participating with a certain plan when the real reason is a parking problem, long office waits, or an inaccessible telephone. It is definitely worthwhile to follow up with patients who leave the practice, to obtain valuable market information and also to maintain good public relations.

8. How many new patients have joined your practice during the past 6 months? New patients are the lifeblood of a practice. Track both the number and the sources of new patients, to assess the direction in which your practice is moving. Compare these numbers over time, to measure practice growth trends.

9. What are your cancellation and no-show rates? The number of patients who cancel or who simply do not appear for their scheduled appointments is an important indicator of patient satisfaction. Following up with these patients is important, not just from a medical-legal standpoint but also for monitoring patient satisfaction.

Practice Descriptors

10. What are the 10 most common diagnoses seen in your practice during the past year? Knowing the answer to this question will help you describe your practice to others, enable you to begin collecting outcomes data, assist you in evaluating practice growth and evolution decisions such as adding staff and equipment, and help you to compare your practice with others in a managed care plan's oncology practice profile.

In answering this question, it is important to include numbers of patients and comorbidities with each diagnosis, and also to make sure that each diagnosis is carried out to the highest level of specificity. Severity of illness in a patient population can affect reimbursement rates, and you need to have this information for your practice, to compare it with others in your profile group.

11. What are the 10 most common procedures and services performed in your practice? The reasons for tracking these statistics are similar to the rationale given above for monitoring diagnosis codes.

If you are considering capitation, know which procedures and services are included in the capitation rates for each managed care plan you are considering. Be especially careful to list specific drugs used, so that you can be sure you understand how each managed care plan handles the drugs you administer.

12. What are your gross and net collection rates? The gross collection rate indicates the percentage of charges you are receiving-it measures the discounts you accept on your charges. The net collection rate is the ratio of payments to discounted charges-it measures how much of expected revenue you are actually collecting.

If you know these two numbers for each payer in your practice, you can identify which payers are problematic for your practice and provide a key indicator of practice productivity.

13. What is the age range and distribution, and gender mix of patients in your practice? Managed care organizations make certain assumptions about the community as they establish capitation rates. Thus, you need to compare your practice profile with their assumptions. If a managed care plan's capitation rate is based on an average age of 27 with a predominance of males, and your practice is two thirds female with an average age of 45, the capitation rate is not likely to be favorable for your practice.

14. What is your current payer mix? Payer mix describes your practice by showing the percentage of charges, payments, or patients attributable to each of the major insurers with which you participate. Knowing the percentages of patients, charges, and payments represented by Medicare is an important part of describing and assessing any practice.

Comparing the percentages of patients, charges, and payments attributable to a given insurer is a measure of the financial performance of this payer within your practice. For example, if a certain managed care organization provides 50% of your patients, 55% of the charges, and 30% of the payments, you might draw some conclusion about the productivity of that organization for your practice.

Monitoring payer mix over time is an important practice trend indicator. Knowing your payer mix will help keep you from becoming overly dependent on a specific payer.

15. Who are your 10 most frequent referral sources? Every physician knows intuitively the major sources of his or her patients, but it is important to check these perceptions with actual numbers and to measure changes over time. Patients, primary care physicians, and managed care rosters are all referral sources, but they have different implications for practice stability and growth.

Tracking referrals over time will provide a good picture of changes occurring in your new patient base. Knowing the managed care participation status of each of your most frequent referral sources is vital to maintaining existing referral patterns in a managed care environment.


16. What was the average number of office visits per active patient last year? This is a straightforward but important number. Count your active patient charts and determine how many office visits you had last year. Divide the number of visits by the number of active patients.

Compare this to the assumptions used by managed care plans. Large differences indicate either different expectations with regard to practice style or differences in the kinds of patients seen.

17. What was the average number of hospital days per 1,000 active patients last year? Lowering the number of inpatient days is one of the most explicit goals of managed care. In an oncology practice, it is vital to determine and monitor this statistic. Use a computerized list of procedure volumes to calculate the number of hospital visits, and divide this figure by the number of active patients.

When negotiating with managed care plans, ask about their assumptions for oncology patients. Be sure that these assumptions do not differ greatly from the actual usage patterns of your practice, especially if you are considering capitation or if the plan's fee schedules for hospital visits and procedures represent deep discounts from your customary reimbursement rates.

18. How fully utilized are your office space, staff, and equipment? Start with a full capacity premise, such as 10 hours a day, 5.5 days a week. Then work backwards to calculate the percentage of full capacity that your space is actually used.

While space costs may or may not be a large part of your overhead, each unused session represents excess capacity that could be leveraged if you were part of a larger organization. In other words, with more physicians, your space can be used more effectively.

Similarly, develop measures of capacity for your staff. For example, if one person can handle two telephone lines, but two people are needed to staff the front desk, look at the patient flow during the week to see if your staff is working at full capacity. Also carefully review usage patterns of your clinical support staff. Finally, look at the utilization of special equipment, such as chemotherapy chairs, against its potential capacity.


19. What is your overhead percentage and how is it changing? If you do not routinely track overhead expenses, your accountant can help you develop a current figure. Tracking this figure over time will allow you to see how your practice expenses are changing, ie, which items are stable and which are increasing.

It is useful to know the percentage of income spent on major practice expense items, such as staff, drugs, and space, and to compare these figures with national and local averages.

20. What is the cost of various kinds of patient encounters? To find this cost, calculate your total expenses for a given period of time and divide by the number of office encounters during that same time frame. As you gain experience with this statistic, you will be able to adjust for out-of-office time and revenue, as well as to establish cost centers for chemotherapy and other special services.

It is important to have a general knowledge of the cost of each patient encounter and to compare it with the reimbursement rates you receive from each carrier. Remember, if the reimbursement rate does not cover your costs, you cannot make it up with added volume!

Dr. Eskin is president of Health Power Associates, Inc., Philadelphia, and Dr. Presant is president of California Cancer Medical Center, West Covina.

Answers to These 20 Questions Are Key To Your Practice's Economic Future

By Cary Presant, MD, Guest Editor

In this month's column, Dr. Evelyn Eskin has expertly crafted 20 questions for you to answer ASAP! Answering them now will prepare you to answer the question I am asked most often: "An HMO wants to see a proposal. How do I start?"

These 20 questions provide a way to understand yourself, your goals, and your practice. Answering them demands an understanding of the sometimes incomprehensible lists your billing computer or service provides to you.

Most important, by answering these questions, you will develop data about your cancer practice that can be compared with data from other practices. These comparisons will help you and your office manager determine the areas in your practice that need work to improve efficiency and reduce waste.

Answering these questions may prove far more valuable in the long run than the proverbial "$64,000." To those of you who cannot or will not respond to these queries, "Beware the future!" for you may not be equipped to deal with it.

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