Understanding risk-based payer contracts

In the mid- to late 1990s, and even into the early 2000s, the physician-targeted literature was replete with articles about how to evaluate a managed care contract offered by a payer, typically a health maintenance organization (HMO) or a preferred provider organization (PPO). Most of these contracts are very similar and contain provisions that establish the services the physician is contracting to provide, the payment rates (capitation or fee-for-service), not charging for covered services and required in-network referrals. In fact, many physicians’ current contracts have not been significantly updated in some years.

Unless a physician is part of a large group, in today’s world there is very little negotiation with the payer. The rates are the rates. The appeals mechanisms are established. There are some variations in termination clauses – e.g. none allowed for the physician until the initial term has expired and thereafter on 60 days notice, or only 60 days before the renewal term.

Requirements to comply with medical management programs (e.g, utilization review, prior authorizations, quality measurement programs) and patient grievance processes are similar, although the content of the programs may vary.

Related:Direct-pay medical practices could diminish payer headaches

From the beginning of the heyday of managed care contracting, physicians had complaints about how health plans interacted with them. In the late 1990s many states enacted laws to control some of the more egregious plan practices, including establishing prompt pay requirements and banishing gag clauses that restricted how physicians could describe treatment options to their patients. These requirements now are reflected in many health plan contracts.

Similarly, class action litigation around the country has changed certain aspects of how health plans manage data over the course of the participation agreement, how they narrow their networks and based on what data. Against this evolution of health plan contracting, we see now the advent of new payment models such as patient-centered medical homes, bundled payments, accountable care organizations, and other risk models. Because they are new, they may be part of a pilot project, with some evaluation of results later.

In virtually every instance these new payments, if addressed contractually at all, are set forth in amendments to the basic physician or group participation agreement. But these amendments bear special scrutiny as well.

PCMH payment

Here, the plan typically requires some form of recognition by the National Committee for Quality Assurance of which there are three levels. Some plans only pay for Level 3 practices. Others tier the enhancement for all 3 levels.

The typical payment is an enhanced capitation rate to recognize the increased care coordination activities and infrastructure necessary to deliver what the PCMH standards require. Leading primary care physician societies have called for a three-part payment model to include a monthly care coordination fee, an enhanced visit fee and a performance bonus based on achieving quality targets. But most plans do not take such an approach. Some merely make payment if the NCQA recognition is met.

If there is an amendment to the physician participation agreement, in many instances it states a term-typically a year, but sometimes longer-and when payment will be made (e.g., for the succeeding month or for the preceding month).

Related:Patient-centered medical homes: making care coordination work for your practice

If additional bonus payments are available for meeting targets, the amendment also addresses what those targets are, and when they are measured and paid.

Because these are amendments to the basic participation agreement, however, an issue that frequently gets overlooked is how the practice can challenge the data on which the payment determinations are made. The basic agreement sets forth the typical appeal process for denial of claims or termination from the plan.

But whether an opportunity to challenge data is available, and then in what forum or to what body, is rarely addressed, but should be.

NEXT: Bundled payments and ACOs

Bundled payment

Most bundled payment programs are modeled on a gainsharing basis so that physicians are paid in the ordinary course of business and then, depending on the savings achieved against the specific case rate for the targeted condition, a predetermined portion from a pool of dollars (e.g., 50% of net savings) is also paid.

The most critical issue is whether one party (a hospital, network or physician group) will hold the money for others. If that is the case, then there will be an amendment to that entity’s payer contract.

If, instead, the program uses a bundled budget, but can pay separately, as in “PROMETHEUS Payment,® then each participating provider will have an amendment. The amendment typically addresses when gainsharing reconciliation occurs, using what data, and when payments take place. If administrative costs are deducted from the savings pool before allocation to the providers, clear definitions of those costs can be important.

Related:Shifting reimbursement models: the risks and rewards for primary care

Some bundled payment models merely offer shared savings over a predetermined amount, such as total payments for cardiac services in the previous year, without using episode or case rates. While amendments are also necessary for using this approach, the contractual issues are simpler than where episode payments are used.

The most critical issues in episode or case rate amendments are clarity on what triggers the episode, how long the episode lasts, what ‘breaks’ the episode (e.g. the patient develops comorbidities which overtake the primary reason for the original bundle) and when the episode expires. Definitive statements as to the data on which these judgments are made is also important.

In addition, however, because these agreements, unlike PCMH amendments, are often negotiated, it is important to look at the basic provider participation agreement and ensure that the typical utilization management, prior authorization, and post payment review processes don’t get in the way of the new approach. Those issues that are subject to appeal (e.g., anything that turns on the application of data to payment decisions) and those which are not (e.g., the budget in the episode, when an episode is triggered or terminated) should be addressed.

Again, a different appeals process may be necessary since the issues under these agreements are quite different from the medical necessity or absence of prior authorization issues that are addressed in the typical provider participation agreement.

In cases where the bundled payment is made to an entity other than the physician group, then the contract that is the basis for the payment will be with another provider (e.g., a hospital or health system), or a network which contracts for payment.

Any bundled payment that is not made to the physician group has all the contracting issues that arise in an ACO.

ACOs

Most ACOs have formed networks that accept bundled payments or the hospital is the lead contracting entity. In some of the Medicare shared savings ACOs, physician organizations will receive the payments. Almost all ACOs, even those devoted to a single service line. (e.g., orthopedics, cardiology) use some bundled payment using gainsharing payments at the conclusion of some predefined period. Others use global capitation rates (e.g., percent of premium, or true capitation).

If a physician group contracts to receive the bundled payment and then pay the other providers including the hospital, then the physicians hold the risk of having to pay the others.

Related:ACO or PCMH: making a crucial decision for your practice

When a physician group is offered the opportunity to participate in an ACO, it will include a contract governing how payment will be made, grounds for termination, and other basic aspects of payment. For primary care physicians, the participation sometimes must be exclusive. This is true in the Medicare shared savings ACO.

When physicians may terminate is an essential issue, Often the required time commitment is longer than for a typical managed care contract, because the gainsharing opportunity may come far later than the regular payments. Dispute resolution also is important because whether physicians have qualified for bonus payments, whether they must share in downside risk, and whether the data on which these judgments are made are accurate all can be subject to dispute.

What happens when more than one clinician claims to be eligible for a bonus for the same patient? Unless the rules are very clear in the contract or supporting materials the ability to obtain the additional monies, which is the reason for participating, may be speculative.

While there are common contracting concerns in new payment models, the amendment to the provider participation agreement can be widely variable in specificity and impact. Good legal advice can help in negotiating clear language.

Alice G. Gosfield, JD, is a healthcare attorney with Alice G. Gosfield and Associates in Philadelphia, Pennsylvania, and a Medical Economics editorial consultant.

NEXT: Four ingredients of successful payment models

4 ingredients of successful payment models

There are four aspects any payment model must have to successfully provide physicians with enough income and improve patient outcomes through accountability and quality measures.

• Flexibility: In many of today’s payment models, physicians don’t have the flexibility to adapt their practice in ways that match what the payer requires in terms of outcomes and cost savings. Giving physicians the flexibility to build a program that makes economic and clinical sense is key.

• Accountability: Holding physicians accountable is the flip side of flexibility. If physicians are going to have leeway to adapt their methods to achieve outcomes, then they must be judged on whether their methods are effective.

• Adequacy: Physicians must be paid enough to achieve the outcomes that the health plan seeks.

• Adjustment: Payments must be adjustable to reflect the real differences in patient needs. Sicker patients require more resources, and physicians should not be put at risk financially for treating sicker patients.