MCO Contracting: "Nightmare on Elm Street"

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Judith Otto

Sometimes, it's even a challenge to identify WHO your contract is with!

Even when we consulted experienced sources for clarification regarding current contracting questions and issues, we discovered contradictory answers based on varying perspectives. From those representing the MCO perspective, we even faced a reluctance to venture any answers or observations at all, based on the advice of their legal departments.

With continued perseverance, we were able to get to the bottom of some of these issues. This and future issues of The O&P EDGE will explore and clarify some of the murkier aspects of MCO contracting.

"Rate shopping"-What is it? Is it new? Is it on the increase?

Example: The local widget factory, insured by Widget Workers International Insurance Co., has been faithfully sending its workers' comp patients to your O&P facility for years, and for you it's a perfect marriage, since WWIIC always reimburses at 100 percent of your customary rate without batting an eye.

One day, however, a claim for a patient insured by WWIIC comes back with less than 100 percent reimbursement. You investigate, and discover that WWIIC is farming its workers' comp business out to a third party administrator (TPA) who has been rate shopping. The TPA has discovered that your facility has a contract with Mark the Mogul's Managed Care MasterPlan, and that you have agreed to discount claims from Mark the Mogul at 30 percent off your usual and customary rate.

So the TPA has made a deal with Mark the Mogul, and now those widget workers are covered through Mark the Mogul's MasterPlan-even though they may still be listed as WWIIC insureds. Now you are legally bound to accept reimbursement for their claims at Mark the Mogul's rate, which is 30 percent off your usual and customary rate.

Suddenly, you've taken a cut in your reimbursement income, and probably didn't even see it coming.

It may be cold comfort, but this ploy has been around for awhile, blind-siding other providers. Alison Cherney, president of Cherney & Associates, a Tennessee-based marketing consulting company notes that "Rate-shopping has been going on forever-at least 15 years that I know of. There are about 400-500 TPAs in the US; basically, they go out and rent PPO networks and serve as claims administrators."

So what is a provider to do?

(A) You could sever your contractual relationship with Mark the Mogul as soon as you discover the situation-but there's probably a valid reason why you accepted a 30 percent discounted contract from him in the first place. (Perhaps you receive a large enough volume of patients that the discounted price is worth it.)

(B) You could-and many do-review your usual and customary fee schedule and make sure it is at an appropriate level to allow for discounts.

Keith Senn, chief operations officer of the Center for Orthotic & Prosthetic Care based in Louisville, Kentucky, a former associate executive director for Humana, points out that providers' usual and customary rates can be changed anytime they want, without notice. It is legal to charge whatever you wish for your services, as long as all parties receive notice of your changed usual and customary fees-and as long as your existing contracts do not specifically preclude this.

So you, the O&P facility, should review your stated fee schedule for the Widget Workers International Insurance Co. You may even cite your contract with Mark the Mogul as your precedent, identifying the usual and customary fee schedule you intend to use across the board. Senn points out, however, that adjusting rates before granting agreed discounts is not only an ethically questionable area, but that most insurance companies, having previously been burned by this practice, now use a fee schedule directly related to Medicare allowables, so rates can't be inflated before discounting.

(C) You could-and should-be proactive to prevent this from happening again. If the MCOs, HMOs, PPOs (or TPAs) with whom you have contracts have not already provided you with a client list identifying all groups covered by their plan-including other, smaller plans like WWIIC-be sure to request one immediately. When it arrives, look for insureds on their client list with whom you may already have a contract-and make sure you're not going to wind up accepting a lower reimbursement rate than you had anticipated.

Senn believes that rate shopping is only a problem insofar as it relates to the insurance-network companies, rather than MCOs. He cites MultiPlan and Private HealthCare Systems (PHCS) as primary examples of such networks, also known as third party organizations (TPOs-another name for TPAs), but there may be others. These companies only develop and set up the network, then lease it to the insurers who are too small to set up their own systems for locating providers, negotiating rates with them, etc.

E.g.: The small workers comp group for those widget workers cited above. "It's not that they actually went out and rate-shopped, but that they finally realized that they had been paying 100 percent all these years while other folks were making deals," explains Senn, "so they looked for a network they could join in order to cut their costs."

Having realized that 30 percent discounts are available to them and that their TPA can probably find such discounts elsewhere, if not at your facility, Widget Workers International Insurance is never again likely to be satisfied with paying 100 percent to you or any other O&P provider. Those days are nothing but a blissful memory.

Senn agrees that if the Widget Workers went out searching for a lower rate and a better deal on their worker's comp care, the days of their willingness to reimburse their traditional O&P provider at 100 percent are definitely over. If they hadn't made the connection that led them to Mark the Mogul, it would have been someone else. This step was undoubtedly the result of some diligent financial officer wising up and starting to watch the budget.

Rate shopping has been around Senn's Kentucky neighborhood since he first became involved in health care as a Humana officer, he recalls. Workers comp, auto workers comp, and other groups routinely call his O&P facilities for a price for a particular patient prescription, promising to call back after talking to other providers and comparing best deals. Sometimes, they even call back and effectively promote a price war by noting that a competitor has offered to do the job for $1,000-can Senn's Center for Orthotic & Prosthetic Care match or better that price?

The advantage of contracts, says Senn, is that there isn't any rate shopping-once they have a contract which comes complete with a specified discount arrangement, the MCOs don't have a need to rate-shop each item and each patient.

Senn believes that more contracts are being pursued and less rate shopping is going on because "people are getting smarter-they can't pay billed charges and survive. A lot of factors in today's business environment force them to be competitive-and that means contracts with built-in discounts."

Silent Networking

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Cathie Griffith

An anonymous source at a major MCO with nine million covered lives explains that rate shopping is known in the TPO world as "silent networking" and is regarded as an ethical gray area by those TPOs with higher standards. Ideally, says our mole, a TPO makes a rule for employees and insurance providers on their client lists that requires all covered individuals' insurance cards to bear a sticker that identifies the TPO. For example, if insurance company A contracts its administrative business to TPO B, there should be a sticker on the insured's card that includes TPO B's contact information, etc.

In silent networking, explains the source, the TPO does not apply such a standard, and thus is not identified on the patient's card. That gives the TPO the opportunity to rate shop when the claim is received-and leaves the provider in the dark regarding which insurance company (or possibly which TPO) is actually going to be reimbursing-and at what rate.

Companies who apply and honor this rule, however, will reimburse 100 percent of billed charges if the TPO is not identified on the patient's card-but the provider should be prepared, in this case, to provide documentation in the form of a copy of the patient's insurance card in order to demonstrate proof of silent networking.

In order to protect themselves from silent networking, says Cathie Griffith, president of the PrimeCare O&P Network, "providers should be looking for a clause in their contracts that states that the TPO must be identified on the card, or else the reimbursement will be 100 percent of billed charges. If it is not so stated in the contract, providers should at least make an attempt to include this language as an addendum to the contract."

Editor's Note: How do you know if your PPO has been rented by a TPA? Is the MCO or TPA delaying in providing you with a client list-or even outright refusing to do so? What should you do? For the answers read Getting Behind the Scenes: Who's Really Paying You? . (Exclusively Online)

Judith Otto is a freelance writer based in Holly Springs, Mississippi.