For hospitals just starting to negotiate managed-care contracts, success can hinge on the ability to sift through payment terms and chase down all the revenues they've got coming.
But for an increasing number of health networks at the leading edge of managed-care contracting, the revenues side of the equation is becoming the given-literally.
Recently released figures show that accounts receivable from HMOs have doubled in less than a year, and the trend is on the rise. HMOs contributed 16% of total hospital receivables in the third quarter of 1994. Only a quarter earlier, HMO receivables were only 12.6% of the total, and at the end of 1993 only 8% (Nov. 7, p. 26).
But while revenues from HMOs continue to rise, industry observers are predicting that collecting receivables will become less of a focus for hospitals in the drive to deliver managed care profitably.
As employers and HMOs embrace the beauty of wellness as the measure of value in healthcare, they'll be handing providers their payment up front to take care of a defined number of people-by the procedure, by the illness episode or even all-inclusively by the month or year, consultants said. This changes the rules of profitability for providers. Instead of chasing after money, they're running down the costs of providing care for the money. And they're trying to keep track of the people to whom they're committed to provide care.
That's because success under these new arrangements can hinge on the ability to monitor treatment costs and to tailor those treatments to the contractual limits of care agreed to by payer and provider.
And a small army of computer software vendors is trying to stay one step ahead of the shift from contract management to managed-care membership management.
"The market (for computerization) is very much in transition to a broader basis than just the contract management function," said Thomas G. Morrison, partner with Charles J. Singer & Co., a Wakefield, Mass.-based market research firm specializing in managed-care information systems.
Shift changes.The more advanced systems now taking root in California and other managed-care bastions continue to make use of basic contract management features-maintaining contract databases, calculating reimbursement, modeling contract performance and forecasting profitability of new contracts (Nov. 7, p. 60).
Vendors of managed-care information systems generally have these basics well covered, Mr. Morrison said. "But as that capability is becoming fairly generic, the vendors are all moving in different directions on what they see is coming next," he said.
Some vendors are focusing on merging financial and clinical information to help manage the way physicians and administrators use resources and deliver care, Mr. Morrison said. Others are putting their money on managing referrals and authorizations, paying out-of-network claims and subcontractors, and splitting up that all-important capitated fee among providers.
Whatever their strategy to distinguish themselves in the market, managed-care software vendors are headed for "the intersection of payers and providers-the future organization of healthcare," said David Engert, vice president of sales for the managed-care group of HBO & Co., an Atlanta-based healthcare information systems vendor.
At that point in healthcare's business evolution, he said, health networks will be fully at risk for a set of "covered lives" and in need of information to manage that financial risk.
A report on contract management software compiled by Charles J. Singer & Co. describes the features that vendors are developing to address networks' needs. Among other things, they will need to determine a patient's enrollment status and eligibility for treatment, manage resource utilization throughout the network, nail down costs of specific treatments or procedures and manage capitation payments.
Eligibility, enrollment.Whether information systems monitor a blizzard of terms and conditions or all-inclusive capitated arrangements, a key feature is the capability to determine what services are covered in a contract and whether a patient is eligible for the care being sought. "The best way to prevent uncovered services payment problems is to avoid providing the services at the time of admission," according to the Singer report.
Capitation is usually described as a simple per-head responsibility, but it's not always that simple: "Arrangements range from episodic capitation, which covers inpatient and outpatient services for a given episode (such as obstetrics)...to per-member, per-month capitation, a form of prospective reimbursement," the report said.
Capitated contracts also may have deductibles and cost-sharing to keep premiums down, and the place to know those wrinkles is at the point of patient entry, according to Singer.
Utilization and costs.Advanced contract management systems mesh data on resource utilization with information on costs of providing care, enabling networks to manage costs across sites of care, the report said.
For example, Dilts Kappeler Durham & Co. of Rocklin, Calif., established a data repository that allows health networks to develop computer models of treatment costs.
If a network wants to put a price tag on heart bypass surgery, the DKD managed-care information system will go through the database looking for elements of that procedure and build a profile of resource consumption for a typical patient, said Walter Dilts, president and chief executive officer.
Those profiles can be used to determine profitability of a capitation proposal, he said. For instance, if an HMO offers $35 a month per person for all the care of its 10,000 enrollees, the network can model the expected risks of that population and calculate what it needs to break even.
If the calculation amounts to $45, the network can work to resolve the $10 gap, either by lowering its expenses or making a counteroffer.
Capitation management.When healthcare organizations begin managing money instead of billing for as much of it as they can, information systems have to change their focus from underpayments to overpayments.
The tables begin to turn: A health network acting like an HMO may be responsible for paying specialists per referral, or tracking and reimbursing care provided outside the network. Failure to keep track of and control the authorization of such care can leave networks with rising expenses for care that has to be paid for out of pocket, consultants said.
As these and other costs of providing care play out during the contract term, managed-care software tackles the equation of capitation profitability when renewal time approaches.
Most contracts are still based in some way on patient volume, so tracking that volume by contract remains important, said Andrew Lederer, a healthcare consultant with the Kennedy Group, a Redwood City, Calif.-based consulting firm. "You have to verify how you're doing so you can determine reasonable return" on a contract, he said.
On a package-price treatment for HMOs, "if it turns out they're contracting with every competitor in town, you're not going to get the volume," Mr. Lederer said. "A good contract management system is going to have that modeling capability" to detect insufficient volume for the money, he said.
Purchase dilemma.With managed-care vendors racing toward internal resource management as the goal of their products, hospitals are left with the investment question of what to buy now: a contract-sifting system that monitors billing for scores of payment terms and conditions, or a more comprehensive system geared to the next phase of managing care.
The Kennedy Group's Mr. Lederer said although the more basic contract management systems are relatively new to regions where managed care is getting a foothold, their days are numbered. "In the long run, they're going to go the way of dinosaurs because they're not needed," he said.