Physiatry Practice Management Resources

Fixed fees for managing complex or high-cost cases may jeopardize the volume of services you provide each patient. Doing so can really throw your cost projections off if you attract cases under a contract that are significantly more complex than your average patient. For these you may want to negotiate variable rates based on severity scales or comorbidities, or ask for stop-losses for cases that go significantly beyond your average cost.

Carve-outs and capitated arrangements carry risk for the volume of cases and services a given population will generate. Here again, stop-loss arrangements, both by case and for an aggregate population, may mitigate your risk.

How much is the contract worth to my practice?
Managed care contracts can have an impact on your practice finances and structure that goes well beyond the revenues they immediately generate, says practice management expert Robert J. Solomon, Ph.D. If a contract promotes your practice in other ways, you may want to consider signing a contract with a discount you otherwise wouldn’t consider.

For example, a contract may call for office visit reimbursements that are below your costs. That may be acceptable if you project the contract will also generate enough hospital business at a high enough rate to make the entire package profitable.

Or a contract with a certain plan may make it easier for you to get admitting privileges at a prestigious hospital. While you may break even or even lose money on the contract, your practice ultimately may grow and prosper because patients outside that health plan will want to go to that hospital.

If your market is in the early stages of managed care and several plans are competing for market share, you may consider signing on with more than one plan to better your chances of staying on with the eventual winner. While such a strategy may cost you money in the short term, it may help position you for long-term success.

Having a goal for your practice helps, Dr. Solomon says. Do you want to stay in your area? Do you want to migrate toward a managed care practice? Are you looking to eventually form or join a group? The answers to these questions will help guide you in determining whether a given contract is worthwhile.

How much will the contract affect my costs?
Managed care contracts can have a tremendous impact on your practice operations, notes practice management professor, author and consultant Robert J. Solomon, Ph.D. Projecting that impact will give you a better sense of the discount you can afford to give.

One impact of capitated contracts is a lower collections cost. Instead of paying staff to chase after patients for payments, you receive a lump-sum check every month for everyone covered by the plan. If this allows you to get by with one less office person, saving approximately $30,000 per year, you might consider giving back half of that as a discount on the contract.

However, be aware that managed care contracts can, and often do, increase staffing requirements and costs in other areas. Many practices find that they must submit detailed utilization and quality data to managed care plans, and doing so requires additional staff. These requirements are especially common in capitated contracts, which managed care plans worry might result in a lower use of services. In this situation, there may be no net staff savings from switching to capitation.

Another way managed care contracts can affect some practices is by allowing them to specialize in a few procedures. This can result in greater efficiency and lower costs, which can be partially passed on as discounts to the plan, making the practices more attractive than those of competitors.

Keep in mind, though, that as your operations change, so do your costs. The activity-based cost survey that you did as a fee-for-service practice may be wildly off once you convert to capitation. You may need to periodically re-evaluate your practice to keep your cost information current.

When should I say “no”?
Knowing when to refuse a managed care contract can be crucial to maintaining your practice’s viability, says practice management professor, author and consultant Robert J. Solomon, Ph.D.

The first sign of a bad contract is that it doesn’t cover your costs, or it is so loosely worded that you don’t know what it covers. If it lacks other strategic qualities, such as the potential to generate other, better-paying business or the opportunity to get your foot in the door with a particular company, you are often better off passing on the contract.

Refusing a contract can be difficult, especially if it means having to give up business that you already have, Dr. Solomon acknowledges. But it may still be best for your practice.

“If the choice comes down to keeping a contract that is 20 percent of your business but loses you money, and restructuring your practice and reducing costs so you can do without the contract, you may want to [restructure],” Dr. Solomon says. “Your energies may be better spent trying to build your practice in other areas than sticking with a company that isn’t going to pay you.”