Managed Care Organizations (MCOs) are healthcare delivery systems used to manage costs, utilization and quality

Abstract

Managed Care Organizations (MCOs) are healthcare delivery systems used to manage costs, utilization and quality (“Managed Care,” n.d.).  These plans have been around for decades but have become more prominent in recent years. MCOs contract health care providers and medical facilities, at lower rates, to provide care for members.  The most popular delivery models include Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), and Point of Service (POS). The purpose of MCOs is to align the interests of  medical care providers by providing fixed payments for services rendered during an episode of care (Shih, Chen, & Nallamothu, 2015). With the enactment of the Affordable Care Act (ACA), 20 million previously uninsured individuals have gained access to healthcare.  This has attributed to an increase in healthcare expenditures forecasted to grow over $5 trillion throughout the next 7 years (Hagland, 2017). As a result, legislators have created vigorous payment models to replace prior fee-for-service systems that have become unsustainable.  The University of Maryland University College Medical Center (UMUCMC) is considering adopting a similar value-based system as a measure to reduce costs and increase profits margins. This proposal discusses a MCO contract proposed by UMUCMC to enter into an MCO agreement with Kaiser Permanente.  The proposal provides recommendations for UMUCMC, while highlighting stipulations required before signing into a contract, a one year financial analysis based on performance and the new reimbursement system, and identifies essential parties required for a successful transition.

Managed Care Organization (MCO) Contracts Review

Background

The University of Maryland University College (UMUC) Medical Center, a 120 multi-skilled level three healthcare facility, formed a team of business experts to prepare a proposal on contract negotiating based on the federal mandate of the Affordable Care Act (ACA). Team members: Susyn Valenza, Katelin Alisea, Tiffany Cooper, Mariette Njumbe, Latisha Smith, Wilyne Boutz, and Tiangai Dorley completed recommendations based on the review of National Committee on Quality Assurance (NCQA), 2016-2017 health insurance plans rating.

ACA Analysis

The Affordable Care Act (ACA)— introduced and signed into legislation by the Obama Administration— made great strides to increase access to healthcare resources for U.S. citizens. Nearly 20 million uninsured adults received healthcare coverage through the ACA. Unfortunately, providing increased access to coverage did not mitigate the looming problem of increased healthcare costs in the United States. Following the Medicaid expansion in 2013-2014, the U.S. experienced a $7.4 billion dollar decrease in uncompensated hospital care (Jones et al., 2015). However, Medicare actuaries predict that total U.S. healthcare spending will increase from $3.36 trillion in 2016 to $5.55 trillion in 2025, and will account for nearly 20% of United States gross domestic product (Hagland, 2017).

Policy makers have made vast efforts to curb these costs by introducing, implementing and supporting accountable care organizations (ACOs), patient-centered medical homes, bundled payment options, and value-based hospital purchasing models. Nearly half of all healthcare payments from the nation’s largest insurers come from a form of a value-based payment model (Scott, 2017). For example, Aetna CEO Mark Bertolini set a goal of having 75% of payments come from value-based models by 2025 (Scott, 2017).

Center for Medicare and Medicaid Services (CMS) administrators have also taken significant steps to reduce spending for federal insurance. CMS administrator, Seema Verma, has supported all efforts to reduce costs and develop new models for reimbursement. The Merit-based Incentive Payment System (MIPS) is a new payment model physicians are mandated to use. MIPS determines Medicare reimbursement for physicians based on reporting on four key metrics: quality, improvement activities, promoting interoperability, and cost (Medicare, 2018). Physicians  who complete high level improvement activities can receive up to a 4% reimbursement in 2019 and up to 9% by 2022 (Scott, 2017). Models similar to MIPS incentivizes physicians to adopt new practices, increases transparency, decreases patient burden, and decreases the cost for services rendered.

Insurers and providers putting forth an additional effort have also played a large role in decreasing health costs. Collaboration is occurring where it once did not. Health insurers and physicians are teaming up to find suitable alternatives to the restrictions placed on physicians when managed care was introduced in the 1990s. A popular solution to combat restrictions is to share the costs and risks associated with treating patients (Hagland, 2017). It has been shown that health care providers, hospitals, and health systems are more likely to adopt ACO’s when the risk is distributed to the insurer and the physician, instead of the physician owning the risk singularly.

Managed Care Contract Checklist

Every contract is different and should be handled in variations when reviewing them; therefore, it is extremely pertinent to review all contracts in its entirety.  There are certain provisions in managed care contracts that providers and their legal counsel must carefully consider when entering into these agreements (Ziel, 1996).  Therefore, there needs to be certain steps in place and followed prior to signing a managed care contract. These effective steps can be followed via the checklist below:

1. Obtain and review all available information from Kaiser and other independent sources.  This will allow one to have all the necessary information needed to make an effective decision.

2. Determine how long Kaiser has been in operation and if it is a financially stable and legal entity?

3. Review Kaiser’s product lines and determine which ones are applicable to our facility?

4. Review the medical services that are covered by Kaiser and if it is the services the organization needs?

5. Ensure that Kaiser’s policies regarding referrals are clearly spelled out in the contract or and/or attached.

6. Ensure the contract clearly states how and when Kaiser will pay  providers and determine if the compensation plan is beneficial to our providers and organization.

7. Review clauses, liabilities, and contract termination protocols Kaiser outlines.

Financial Analysis

The purpose of this financial analysis is to predict the financial performance of the University of Maryland University College (UMUC) Medical Center based on the adoption of the Kaiser Permanente health plan and reimbursement model.

The financial metrics used include the medical loss ratio (MLR), administrative loss ratio (ALR), underwriting ratio (UW Ratio), and risk-based capital ratio (RBC Ratio). These matrices focus primarily on a predictive income statement value of the finances and the RBC Ratio focuses on a capital measure (Palmer & Pettit, 2014). The projected profits to be recorded during the 2018-2019 period under the new health plan should average about 3 percent (3%) of the capital.

Financial Matrices 2018-2019 Predictive Cumulative Results.
Premium Revenue (in millions) 648
Medical Loss Ratio (MLR), 87.9%
Administrative Loss Ratio (ALR) 11.5%
Underwriting Ratio (UW Ratio) 0.8%
Risk-based Capital Ratio (RBC Ratio) 300%
Member Months (in millions) 3.6

FIG 1: Financial Performance prediction for UMUC Medical Center: 2018-2019 cumulative results

 

The ratios in the table above are based on premium revenue only and exclude adjustment from federal income tax. These projected values under the Kaiser Permanente health plan (MCO) will ensure that UMUC Medical centers provides high quality of care, because they project successful execution of managed care business practices and the ability to enroll individuals with better health status and lower costs.

Key Contributors

Managed care contracts require decision makers in the healthcare industry to discern the internal and external factors that have an impact on negotiations. These decisions also “depend on accurate, timely, and relevant information” (Cleverly & Cleverley, 2017). Factors influencing health care finance are: “rapid expansion and evolution of the healthcare industry, healthcare decision maker’s general lack of business and financial background, also financial and cost criteria increasing importance in health care decisions” (Cleverly & Cleverley, 2017). Three key players who contribute to managed care contracts are financial and business advisors along with a high-level medical staff serving administrative duties. Specifically, hospital governing board, financial accountants, and top management (Cleverly & Cleverley, 2017).

The governing board as well as senior management’s input on the contract ensures the strategic alignment of the hospital’s intent is met. A holistic view on whether the contract adds value to the organization in conjunction with the cost of the contract is evaluated. The financial accountants in the decision making process will ensure proper stewardship, efficiency and effectiveness of operations and compliance with directives, as well as the financial condition of the entity (Cleverly & Cleverley, 2017). Accountants are able to properly assess whether the facility possess the capital to invest in the contract and assess the necessary overhead required to successfully execute the contract. Insight gathered from this collaborative interaction has the ability to produce guidance and assign the appropriate risk level of the business venture.

Recommendations

The NCQA rates plans from <1.0 to 5.0 for high performing plans.  Kaiser Foundation Health Plan of the Mid-Atlantic, Inc receives a 5.0 rating from NCQA and a 4.0 for consumer satisfaction. According to the NCQA (n.d) rating, Kaiser’s lowest ratings pertained to patients receiving treatment for asthma related treatment—receiving a 2.5 rating—and patients being able to conveniently make appointments with their providers. In other areas of prevention and treatment, NCQA rated Kaiser with a 4.5 average.

The ACA implementation has encouraged providers to place more responsibility patients rather than take on full responsibility for successes of patient treatment. By doing so, the accountability has led to decreases in spending. Kaiser will contribute to this decrease in spending due to their rating for prevention and treatment. According to CMS (2018), the ACA requires insurance companies to spend 80 to 85 percent of premium dollars to be spend on medical care. According to the figure, the plan has a 87.9 percent MLR. This does meet the requirement set in place by the ACA.

Conclusion

References

Cleverley, W. O., & Cleverley, J. O. (2017). Essentials of healthcare finance. Jones & Bartlett Learning.

CMS. (2018, July 24). Medical loss ratio. Retrieved from https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Medical-Loss-Ratio.html

Hagland, M. (2017). One foot in the boat, one foot on the dock: providers and payers forge a new social contract under value-based healthcare. Healthcare Informatics. p. 14-20.

Jones, C., Scott, S., Anoff, D., Pierce, R., and Glasheen, J. (2015). Changes in payer mix and physician reimbursement after the Affordable Care Act and Medicaid expansion. Journal of Medical Care, Organization, Provision, and Financing. p. 1-3.

Managed Care. (n.d.). Retrieved October 21, 2018, from https://www.medicaid.gov/medicaid/managed-care/index.html

Medicare. (2018). MIPS overview. Retrieved from: https://qpp.cms.gov/mips/overview

NCQA. (n.d.). Retrieved from http://healthinsuranceratings.ncqa.org/2016/HprPlandetails

 
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