"Firing An HMO"

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"Firing An HMO"

A story about one doctor who did the inconceivable — and increased profitability as a result. Here's how you can do the same.

by Gil Weber, MBA

Adapted with permission from Ophthalmology Management
© Copyright, 1999. All rights reserved.
March 1999


Antonio Bolet, M.D., is one of a growing number of administrators who are willing to drop managed care plans that don't measure up.

As someone who's been analyzing managed care trends for more than 21 years, I think it's a breath of fresh air to see physicians and administrators taking this rational and necessary business approach to managed medical care — finally!

Let's take a look at how Dr. Bolet succeeded.

One doctor's success

Dr. Bolet is responsible for the business and contract administration of an ophthalmology practice in South Florida — a particularly difficult managed care market. Dr. Bolet said that he recently dropped a capitation agreement covering about 5,000 Medicare patients because, "I had a sense that this contract was causing us all sorts of problems, but I didn't appreciate the magnitude until I started looking at the data. I quickly discovered that this one contract was causing a snowball effect.

"The first thing I noticed," Dr. Bolet elaborated, "was that our appointment schedule was full, but we weren't achieving the monthly gross or net we'd expected, given our full schedule and the fees we were receiving on our fee-for-service agreements. In fact, our appointments were booking 4 weeks ahead, so something had to be amiss financially if we were that busy."

Dr. Bolet ran a few quick calculations. They revealed that the monthly capitation revenues weren't covering practice expenses to care for this particular contract's population, which seemed to have extraordinary pent-up demand for both office visits and surgical procedures. (He also looked at utilization and did determine that the physicians were providing appropriate services in a cost-effective setting.)

But even the capitation shortfall didn't explain why the overall financial results were falling short of expectations. So he looked deeper.

"Our staff started surveying patients and collecting data," explained Dr. Bolet. "We discovered that the majority of our new patient appointments were from this capitated plan for which we weren't breaking even. And 60% of the patients we'd turned away from timely appointments were from the profitable fee-for-service plans we serviced.

"Clearly, the capitated patients were overwhelming our capacity. Our inability to promptly schedule better-paying fee-for-service patients was a problem that could've put us in breach of other provider agreements that specified that patients had to be scheduled within defined time frames."

When Dr. Bolet told the other physicians that they had to drop this plan to get the practice's financial house in order (and improve patient care), the first reaction was "We can't do that; we need access to those patients." But the numbers didn't lie.

"We dropped the capitated plan, and all of those appointment slots immediately filled with better paying fee-for-service patients," said Dr. Bolet.

"Our scheduling backlog dropped to a manageable few days. Our fee-for-service patients and referring PCPs and optometrists were much happier. Stress on staff was significantly reduced. And, our revenue rose 75% the first month, with a good bump in the net, and it continued upward in subsequent months.

"All of this was achieved because we were willing to terminate a managed care agreement and give up a portion of our patient base," explained Dr. Bolet. "Our financial rehabilitation is proof that you can't take market share to the bank. Volume alone just doesn't work."

Here's what you need to do to achieve similar success.

Selectively cull current plans

Perform an immediate analysis of all your managed care contracts and measure:

  • actual utilization
  • cost per current procedural terminology (CPT) code
  • average cost per patient.

If you're not making a comfortable profit, consider dropping that contract if you can't renegotiate the reimbursements to acceptable levels.

Whether your provider agreement is fee-for-service or capitation, remember that if, on average, you lose money per patient, you can't make it up in volume. If utilization is higher than expected, particularly on surgeries, or if overall cost per patient surpasses projections and you're not able to fundamentally change these trends, you'll go deeper n the red as the number of patients you serve under that contract increases. Ultimately, you won't be able to financially recover as long as the agreement remains in effect. Your only escape is to terminate the plan.

Medicare HMOs have done very much the same thing. They've stopped the mad rush to add new enrollees to their rosters and, instead, have closed down plans whose government reimbursements were insufficient to generate acceptable profit margins. This isn't rocket science. It's basic accounting and finance.

By following Dr. Bolet's example, you just might find that your physicians and staff really can see fewer patients, take better care of them and work in a less stressful and more patient-friendly environment — all with an associated improvement in the bottom line.

Consider alternatives to growing your patient base

In many cities, managed care market penetration is so great that there aren't that many new patients for the health plans to sign up. As a result, these plans end up cannibalizing each other for new members, in some cases collecting premium rates that don't result in viable provider reimbursements. Physicians seeking to grow their patient bases in this environment face a difficult, perhaps no-win situation.

Typically, physicians adopt the flawed position that things will be okay if only they can get the patients in the door and the resulting cash flow in the bank. If you're in the middle of a similar scenario, facing the prospect of adding new (and likely financially marginal) contracts to generate additional patient flow and dollars, then it's time to take a step back and reconsider alternative options for building profitable patient volume.

Again Dr. Bolet offered some insight on techniques that made a difference for his physicians.

"We're on nearly every HMO and PPO plan in South Florida," said Dr. Bolet. "It simply didn't make sense to grow our patient base by going to health plans and trying to capture other providers' patients by underbidding existing contracts. I chose to focus on our managed care contracts that were already making us money.

"Every month I pulled 10 charts at random from each plan we served," Dr. Bolet explained. "I looked at the codes, the charges and the reimbursements. Then, I charted the time it took us to get paid by each plan. I also monitored the 'hassle' — the claims returned for whatever reason.

"Eventually, I built a profile on the best and fastest-paying plans (which may not be one and the same). Those were the plans whose members I really wanted to see in the office."

Dr. Bolet then tracked the patients from the better-paying plans to see which doctors referred them. Simultaneously, he started a program to cultivate those referral relationships and increase the numbers of patients received from the best plans. He did that, in part, by communicating to the referring doctors, helping them to provide the best possible care in or out of their offices, and remembering to return their patients.

"For example," explained Dr. Bolet, "we've started a telemedicine consult service over the Internet for our community optometrists. They can dial our office and send us digital photos. Then, via mini-cameras on each terminal, we can do real-time consults with the doctor or even speak directly with the patient. We're also very careful to return patients to the referring optometrist or physician. It helps solidify referral relationships in a part of the country where optometrists and physicians have practically unlimited choices as to where to send their ophthalmology referrals."

Win the war

Investing a fistful of money and lots of sweat pursuing new contracts doesn't always make financial or administrative sense. You may "win" the battle and capture patients but you'll ultimately lose the war when the dollars leaving exceed those coming in.

You can succeed like Dr. Bolet by building on success and known quantities. Cultivate successful referral relationships and bolster weaker ones. Narrow your risks by avoiding questionable contracts that promise volume but don't offer a reasonable chance at profitability.

Work less, net more, enjoy life. What a concept!

Can You Really Insulate Yourself from Managed Care with LASIK?

Some industry "experts" are talking up the idea that it's possible to insulate a practice from managed care and avoid the rapacious fee slashing so prevalent in vision care and medical/surgical ophthalmology

These experts would have you believe that financial nirvana is just around the corner if you focus on one or both of the most commonly discussed "cash-money" services — refractive surgery and cosmetic plastic surgery (e.g., lid procedures).

The thought process behind this is that because these services aren't covered by managed care plans they can be marketed at fee levels established by the physician — not by some managed care "suit." Well, that might have been the case yesterday, but tomorrow may reveal a sharply different reality.

Recent public announcements tell us that several of the national laser surgery center chains have teamed up with HMOs and third party administrators to offer health plan enrollees significant discounts on refractive surgery.

For example, Kaiser Permanente members who previously paid the going rate for laser-assisted in situ keratomileusis (LASIK) to the physician of their choice will now be offered discounted LASIK from a select group of physicians affiliated with Kaiser Permanente or its laser facility partner. If you're part of that affiliated laser network, you'll have access to patients who will have a financial incentive to select physicians whose names appear on the marketing brochure. The LASIK fee you charge will be set or, at a minimum, will be significantly affected by the agreement between Kaiser Permanente and the laser center.

Another major player, Cole Vision, announced in mid-July that it had entered into an agreement with LCA-Vision to offer discounted refractive surgery to 40 million people covered under the Cole Vision routine vision care programs. And Eye Care Plan of America just announced that effective August 1999 all 10 million of its covered vision care members will have LASIK available at 20% off the usual and customary fee.

We're not talking small numbers here. Obviously these agreements could have enormous impact on the future pricing of refractive surgery and the direction of patient flow.

Don't be reluctant to go for refractive surgery if the circumstances are right. Just don't count on it as a sure-fire method to make your practice "managed care proof." In the future, managed care executives will be pulling the strings to some extent.

And be prepared to live with the fact that in the not-too-distant future, cosmetic surgery will also be wrapped up as a health plan "perk" benefit offered at discounted rates.


Gil Weber, Ophthalmology Management's consulting editor, is a nationally recognized author, lecturer and practice management consultant to the managed care and ophthalmic industries, and served as managed care director for the American Academy of Ophthalmology.

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