How I stopped an HMO from cutting our capitation rate

When the health plan asked him to work for less pay, the author did some digging. What he found helped preserve his income.

Paul M. Winick, MD
Pediatrician/Hollywood, FL

Everyone knows about negotiating a managed care contract: It's a David vs Goliath battle—and Goliath has all the facts and figures.

But negotiations needn't be a struggle, not if you're persistent and arm yourself with relevant information. I know this from first-hand experience.

My education began when the HMO's representative, a young woman, walked into our office and announced that our capitation rates for the next year would be cut in half.

That didn't make sense. Why had the plan been willing to pay us a higher rate for the past three years? I asked myself. And then it occurred to me: It was because somehow the nine doctors in our pediatric group were saving them money. Of course, that wasn't what I heard from the HMO representative.

"Why should we continue to pay you twice as much as any other pediatricians in the area?" she asked. "You'd have to agree that it's not very cost-effective," she said, answering her own question.

"But we provide good patient care," I replied. "Good enough so that you probably haven't heard many complaints from patients about our group."

"Very true," she said. "But there are a number of pediatricians on our panel who provide the same quality of care as your group does, and they're getting about half the rate you are. That's why, in your next contract, your cap rate will have to be half of what it is now."

"That's not fair," I argued. "We provided you with good service and excellent patient care when you were having trouble filling your panel. Is this how you reward us?"

I knew my plea was falling on deaf ears. The only thing that was important to the company, I understood, was the bottom line.

"I'm sorry, but that's what I've been instructed to offer you," she responded.

I wasn't ready to sign the contract—not before I checked with the woman's supervisor and not before I could confirm what she was telling me about the capitation rate of other pediatricians in the area.

"I'm sorry," I countered. "I can't sign this today. You'll have to give me 30 days to think about it."

The representative wasn't smiling. "Well, I really wanted to get this signed today, since there are other pediatricians who want to join our HMO," she said. "We've been stalling them until we could renegotiate our existing provider contracts."

"I understand, but I'll need some time," I replied. "I have to run it by my partners, and you know how busy doctors are. It will be at least several weeks before we can all get together. If it's okay with you, I'll call to set up another meeting in about a month."

She nodded, trying to hide her displeasure. We shook hands, and I escorted her out of the office.

"How do you guys get along on those numbers?"

The next day I checked with her supervisor.

He confirmed what she had told me—that the company had decided we were being paid too much and that our capitation rate would be cut in half.

But was our rate so much higher than others'? Under the new terms, we would end up losing money. How were the other pediatricians in the area able to cope?

"Why don't you check around?" one of my partners suggested. "Ask some of the other pediatricians how they earn a living on half the fee we get."

I nodded. That's what I'd planned to do anyway.

Two weeks later, I finally found time to call friends in the medical community. I discovered that the HMO was indeed paying us twice what it paid others. So I phoned a good friend in another pediatric group.

"John, I need some help," I said. "We're renegotiating our contract with the HMO, and we're encountering some problems. We'd lose money with the cap numbers the plan says it pays other pediatric groups. How can you guys do it?"

"Maybe we're willing to work for less," he replied.

Not true, I thought to myself. I was still puzzled.

"How many of their patients do you see each month?" I asked.

He looked up the information. "Well, we have a total of 1,007 patients from the plan, and last month we saw 113," John replied.

Can't be, I thought. That's a little over 11 percent of the HMO's patients each month. Our practice, which wasn't all that dissimilar to John's, saw 35 percent each month. What accounted for the difference?

"You're a friend, Paul, so I'll tell you, but you didn't hear it from me," John said. "The thing is, we have a certain number of appointments each day. When they're filled, we have no incentive to slip in patients from the HMO. So we give them the first available appointment, which might be as much as a few days out."

"But what if a mother calls, and she's worried about a child with 102 degree temperature?" I asked.

"We tell her she can have an appointment in a few days. If she complains, we send mother and child to the emergency room."

Aha! I thought. They could survive on half our capitation rate because they saw only one-third as many patients. Patients who couldn't wait were sent to the ER, something we never did. Those ER visits were costing the plan a bundle—a bundle we were saving them. That's why the HMO had been willing to pay us as much as they were.

"Thanks for the information, John," I said. "I won't say anything to anyone."

Corporate has a change of heart

The next day I called the plan representative to set up an appointment. I asked her to bring along our ER charges and those of the other pediatricians on the panel.

"I don't know if they're available, and even if they are, I'm not sure I can have them before our meeting," she replied.

"If you have trouble gathering the information, then we'll just postpone our meeting until the information is available," I said.

"I'll try," she said.

"Good! I'm looking forward to seeing you next week."

The following week, she arrived, carrying a large, black leather attache case. It had been very difficult gathering the data, she informed me. She fumbled in the briefcase, and then pushed a stack of papers toward me.

I flipped through the pages. Clearly, other pediatric offices were costing the plan a lot in ER visits. By comparison, we were a real bargain, even with our high capitation rate.

I continued flipping pages, prepared now to make my case. But the representative spoke first. "Corporate has had a change of heart," she said. "I was able to convince them that this contract should be the same as the last one."

"I appreciate your efforts on our behalf," I said. "I'm sure this will be fine with my partners."

I escorted her to the door and said goodbye. As I did, I thought to myself, "No more hassles until next year."

 

Paul Winick. How I stopped an HMO from cutting our capitation rate. Medical Economics 2001;16:39.