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

October 1, 1995

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.

By Evelyn Eskin, MD

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

A successful plan requires accurate, relevant, and timely practiceinformation. Much of the data needed for a managed care plan isquantitative; other information is more qualitative, addressingprofessional goals as well as actual practice experience. Hereis a 20-question checklist to use as a guide in planning for thefuture 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 sharessome aspect of the practice-a physician or practice with whomyou share call, physician partners or colleagues, professionalnetworks, 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 oneswho will join with you in the 21st century. Your partners needto 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 thesame people?
Many physicians have one or more persons on their staff who arenot team players, have not adapted to new practice demands, orare simply burned out.

Retaining these staff members will be very expensive as you positionyour practice to succeed in a competitive managed care environment.Ask yourself seriously if you can move toward a situation in whichyou 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." Whateveryour answer, think about the importance of being able to changethe thing that bothers you most, so that your practice can approachthe managed care future from a position of strength.

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

If your group includes physicians from both ends of the professionallife cycle, it is important to recognize these differences andconstruct agreements that allow each doctor to achieve his orher goals. You will need to develop a plan for handling changesin patient volume, retirement of senior physicians, and additionsto the professional staff.

5. What are your sources of information about your practice? Thepotential sources are many-computer,
office manager, bookkeeper, and accountant, to name a few. Youshould list all the sources of information on which you regularlydepend. Then review their reliability, timeliness, and relevanceas resources for assessing your future and making decisions.

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

Patient Satisfaction

6. What do your patients consider the biggest strengths and weaknessesof your practice? Patient satisfaction is the most common measureof quality in a managed care environment. It is important to knowwhat your patients think and to be able to change the things thatbother them most, so that your practice will continue to be attractiveto 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 6months? Many physicians do not track this statistic, but it isextremely important in a competitive practice environment. Evenif you monitor the number of patient transfers, do not assumethat you know the reason patients are leaving.

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

8. How many new patients have joined your practice during thepast 6 months? New patients are the lifeblood of a practice. Trackboth the number and the sources of new patients, to assess thedirection in which your practice is moving. Compare these numbersover time, to measure practice growth trends.

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

Practice Descriptors

10. What are the 10 most common diagnoses seen in your practiceduring the past year? Knowing the answer to this question willhelp you describe your practice to others, enable you to begincollecting outcomes data, assist you in evaluating practice growthand evolution decisions such as adding staff and equipment, andhelp you to compare your practice with others in a managed careplan's oncology practice profile.

In answering this question, it is important to include numbersof patients and comorbidities with each diagnosis, and also tomake sure that each diagnosis is carried out to the highest levelof specificity. Severity of illness in a patient population canaffect reimbursement rates, and you need to have this informationfor your practice, to compare it with others in your profile group.

11. What are the 10 most common procedures and services performedin your practice? The reasons for tracking these statistics aresimilar to the rationale given above for monitoring diagnosiscodes.

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

12. What are your gross and net collection rates? The gross collectionrate indicates the percentage of charges you are receiving-itmeasures the discounts you accept on your charges. The net collectionrate is the ratio of payments to discounted charges-it measureshow 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 practiceand provide a key indicator of practice productivity.

13. What is the age range and distribution, and gender mix ofpatients in your practice? Managed care organizations make certainassumptions 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 averageage of 27 with a predominance of males, and your practice is twothirds female with an average age of 45, the capitation rate isnot likely to be favorable for your practice.

14. What is your current payer mix? Payer mix describes your practiceby showing the percentage of charges, payments, or patients attributableto each of the major insurers with which you participate. Knowingthe percentages of patients, charges, and payments representedby Medicare is an important part of describing and assessing anypractice.

Comparing the percentages of patients, charges, and payments attributableto a given insurer is a measure of the financial performance ofthis payer within your practice. For example, if a certain managedcare organization provides 50% of your patients, 55% of the charges,and 30% of the payments, you might draw some conclusion aboutthe productivity of that organization for your practice.

Monitoring payer mix over time is an important practice trendindicator. Knowing your payer mix will help keep you from becomingoverly dependent on a specific payer.

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

Tracking referrals over time will provide a good picture of changesoccurring in your new patient base. Knowing the managed care participationstatus of each of your most frequent referral sources is vitalto maintaining existing referral patterns in a managed care environment.

Utilization

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

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

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

When negotiating with managed care plans, ask about their assumptionsfor oncology patients. Be sure that these assumptions do not differgreatly from the actual usage patterns of your practice, especiallyif you are considering capitation or if the plan's fee schedulesfor hospital visits and procedures represent deep discounts fromyour 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, 5.5days a week. Then work backwards to calculate the percentage offull 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 leveragedif you were part of a larger organization. In other words, withmore 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 areneeded to staff the front desk, look at the patient flow duringthe week to see if your staff is working at full capacity. Alsocarefully review usage patterns of your clinical support staff.Finally, look at the utilization of special equipment, such aschemotherapy chairs, against its potential capacity.

Expenses

19. What is your overhead percentage and how is it changing? Ifyou do not routinely track overhead expenses, your accountantcan help you develop a current figure. Tracking this figure overtime 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 practiceexpense items, such as staff, drugs, and space, and to comparethese figures with national and local averages.

20. What is the cost of various kinds of patient encounters? Tofind this cost, calculate your total expenses for a given periodof time and divide by the number of office encounters during thatsame time frame. As you gain experience with this statistic, youwill be able to adjust for out-of-office time and revenue, aswell as to establish cost centers for chemotherapy and other specialservices.

It is important to have a general knowledge of the cost of eachpatient encounter and to compare it with the reimbursement ratesyou receive from each carrier. Remember, if the reimbursementrate does not cover your costs, you cannot make it up with addedvolume!

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 EconomicFuture

By Cary Presant, MD, Guest Editor

In this month's column, Dr. Evelyn Eskin has expertly crafted20 questions for you to answer ASAP! Answering them now will prepareyou to answer the question I am asked most often: "An HMOwants to see a proposal. How do I start?"

These 20 questions provide a way to understand yourself, yourgoals, and your practice. Answering them demands an understandingof the sometimes incomprehensible lists your billing computeror service provides to you.

Most important, by answering these questions, you will developdata about your cancer practice that can be compared with datafrom other practices. These comparisons will help you and youroffice manager determine the areas in your practice that needwork to improve efficiency and reduce waste.

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