Building Managed Care Business

While more and more providers are interested in diversifying out of Medicare, the prospect of building a strong managed care business line has come back into the forefront of home medical equipment company marketing strategies. Managed care is a much more complex business than Medicare because there are many different types of managed care organizations, and each works a bit differently than the others.

But managed care should be an important part of any home care company’s strategy. While enrollment has declined slightly since its peak at the end of the 1990s, managed care remains the majority of coverage for the U.S. population. In 2004, HMO and PPO enrollment made up 60 percent of the country’s population excluding Medicare and Medicaid HMO enrollment.

The penetration of managed care differs significantly by state, but even in states that have relatively low penetration, managed care companies can have a large influence over HME patients by keeping them away from providers.

Sort Them Out

Managed care organizations are numerous, but they can be divided in two essential categories: payer-based and provider-based organizations.

Payer-based managed care organizations raise funds from employers, individuals and government sources (e.g. Medicare and Medicaid), then establish their services. With the development of risk contracts, many functions traditionally performed by payer-based MCOs were transferred to hospitals, physician groups and alternate site companies. These functions include utilization review, case management and subcontracting for services from other health care providers. The number of risk-based contracts has steadily declined, however, as capitation and other risk-sharing pricing strategies have proven difficult to manage profitably.

Since HMOs and PPOs represent the most dominant forms of managed care organizations in the U.S. today, focusing on marketing and sales strategies for these two organizations is a good place to start. Let’s look at the differences and similarities within these organizations.

HMOs (health maintenance organizations) are corporations licensed under the insurance laws of the states in which they operate, and which assume financial responsibility for providing a defined set of medical services to their enrollees in return for a fixed premium.

HMOs began as “prepaid group practices” in the 1930s. In 1973, Congress passed the Health Maintenance Organization Act, which gave HMOs their current name and promoted their growth. The law required any employer that offered health benefits and had more than 25 employees to offer an HMO option whenever a “federally qualified” HMO was available in the area.

HMOs are generally distinguished in this industry as they usually have exclusive HME contracts in place. This means that if you contract with the HMO, you will receive all of the business for a particular product line or in a specified geographic services area.

It is important to understand the relationship that the HMO has with its physicians so that you know how to approach the HMO and identify the decision-makers for HME services. Often, providers can approach the medical groups or individual physicians who work with the HMO to influence them to contract. This back-door strategy is especially effective when HME providers are blocked by the provider relations personnel.

A PPO (preferred provider organization) is essentially an organization that receives funds from employers or individuals. The PPO establishes a network of hospital, physician, alternate site and home care providers to provide medical services to its members. PPO providers discount their services to the PPO in exchange for being a part of the network. However, contracts with PPOs are generally not exclusive and instead are more “hunting licenses.” This means that if you get onto a PPO panel, you can then go get referrals from discharge planners or physicians and tell them that you are part of the panel.

Enrollees in a PPO can receive reimbursement for their medical services from both preferred and non-preferred providers. However, there are financial incentives for the enrollee to use preferred providers. Most PPO plans pay 80 to 90 percent of preferred providers’ charges, and 50 to 70 percent of non-preferred provider’s charges. Some plans also waive the deductible when PPO providers are used.

While many enrollees think they can use non-preferred providers, they do not understand that there can be a significant financial penalty for doing so. At any rate, there are HME providers who remain in a non-preferred status and charge enrollees more than if they were preferred providers.

Figure Out Your Best Bets

There are a multitude of resources available to identify HMOs and PPOs in your area. You can purchase reports through Web-based searches or contact the state insurance office to get a list of HMOs and PPOs registered in your state. One of the easiest ways to find out the top MCOs in your area is to ask your referring physicians which ones they are contracted with, and then use these as your top target list.

After you have your list of possible contacts, use the following five criteria to screen through these providers:

1. Prioritize HMOs that have a contract for HME coming up within the next year.
2. Prioritize PPOs that have open panels.
3. Check the local listings in your newspapers to see which HMOs and PPOs are coming to town and prioritize these, as they will be seeking providers.
4. Prioritize those HMOs and PPOs that match up to your referral sources and your service area. If they need a broader service area, see if you can bring in other organization(s) to work with you.
5. Prioritize those HMOs and PPOs that have a good history of paying on time; most states have laws in place that force early payments for clean claims.

The sales process to HMOs and PPOs can be quite long because it depends on the contracting cycle of each organization. The typical sales time to convert an HMO or PPO can range anywhere from nine to 18 months, so you will want to have a number of accounts in different stages of the sales cycle.

Follow Through Key Events

There are nine specific key events that must take place to convert any HMO or PPO.

Key Event #1

Identify and Prioritize Targets. It is important to spend time analyzing in this first phase. You need to decide if you want to go after HMO targets, as these rates can be based on large volumes given to you by the HMOs. It makes sense to have an administrative employee gather up the total list of targets in your area, then have the sales team help you prioritize those that match up to key customers.

Key Event #2

Identify the decision-makers and influencers. There are both clinical and administrative decision-makers and influencers in both HMOs and PPOs. Most companies enter these organizations through the front door with provider relations or the contracting personnel. But the back door can be opened with the clinicians in the organization, who can give your team specific information about the kinds of patients that are costing them money because they are readmitted to the hospital or into emergency rooms.

Selling to a managed care organization is really a “system sell.” This means that you need to contact multiple decision-makers to find out their preferences for specific services. When an MCO adds a new provider, there is often a combination of administrative and clinical decision-makers that rate potential new providers.

Check the accompanying list of these decision-makers and their interests.

Key Event #3

Ascertain current providers and contracts. An important step in evaluating HMOs and PPOs is to ascertain the number and type of current home care providers. Generally HMO contracting personnel are quite open about their current providers, which are usually organized by service area and/or services provided.

If you can’t get the names of the current providers, just ask one of your favorite referral sources to call and get them. If the HMO is large in town, then the discharge planners also will know the preferred providers. PPOs generally give their physicians a list of preferred providers. Again, you can pick up these lists either directly from the PPO or from the list of preferred providers.

Find out when the current contracting cycle is complete for HME providers. Many contracts have an “evergreen” clause, which means that contracts renew annually unless either party disputes the agreement.

Find out whether the organization plans to send out RFIs (requests for information) or RFPs (request for proposals) prior to the contracting cycle’s end, and ask that your organization be added to the list. Find out whether the organization is interested in exclusive or non-exclusive contract arrangements.

Key Event #4

Ascertain needs. Each of the organization’s decision makers have different interests, and these are important to keep in mind. There is nothing more frustrating to a senior executive, for example, than to have a salesperson come in to “detail” them on HME services. The senior executive is interested in saving general costs and how a specific HME service can help them accomplish that goal.

There are four general interests that managed care decisions-makers have:

1. Member satisfaction: HMOs and PPOs want to keep their members happy and offer unique services that other organizations do not.
2. Disease management: This is a relatively overused term but one that means keeping specific populations (e.g. diabetics) out of the hospital, ER and physician office by keeping them compliant with their medications, diet, exercise and other programs.
3. Cost savings: Home care can influence other costs in an organization; while home care represents 1 or 2 percent of the total costs of a managed care organization, good home care management can mean a reduction of acute, physician or ER expenses. Be sure to translate any of your services into cost savings to the MCO. The more documentation, the better. Another aspect of cost savings to the MCO is to contract with the fewest providers possible because that saves administrative expenses.
4. Outcomes: Outcomes are both clinical and administrative. Few HME companies have outcomes measured, but all MCOs are looking for real, measurable outcomes.

The language of managed care is also much different than the language that HME salespeople normally speak to physicians and other referral sources. Make sure that your team is identifying needs that are important to the managed care organization.

Key Event #5

Introduce services. Once you have identified the “hot buttons” for the particular decision maker, the next step is to discuss the particular aspects of your firm that would make it unique to the provider.

This is where many companies get into trouble because they really don’t have anything unique to offer the MCO. If you have something unique to offer, introduce it. If you don’t, it is time to put it together.

Key Event #6

Design programs and services. Many HME providers have found that they need to alter something about the services they offer, whether it is changing the intake function to work with other HME providers or collecting particular outcomes data for an MCO. If your organization is committed to generating managed care contracts, you may need to change something about how you do business.

Here are some ideas for unique services:

• Identify services required by Medicare that may not be required by MCOs, and eliminate them from your service and cost structure.
• Eliminate unnecessary products and services from your MCO mix to reduce your cost structure. Consider a product formulary.
• Maximize operational efficiencies to reduce costs.
• Consider subcontracting for services that are unprofitable for your organization.
• Find out the specific types of data of interest to the MCO and put this collection process in place.
• Identify programs that reduce acute, physician and emergency room services.
• Identify programs that you can offer with the MCO’s favorite physicians or medical groups, and promote them jointly to the MCO.

Key Event #7

Establish trial if possible. A trial program is an interesting strategy to use with managed care organizations. A trial program is just that: the design of something unique that you get paid for and that helps you generate interest at the MCO. Here are the steps for establishing a trial:

1. Identify the case types of concern to the MCO. Specify criteria for identifying these cases using treatment or diagnoses criteria.
2. Establish treatment guidelines to be followed during the trial.
3. Determine the reimbursement method to be used during the trial.
4. Clarify case referral and reporting procedures.
5. Determine the number of patients that will be in the trial.
6. Determine the criteria that will be used to evaluate the trial.
7. Establish procedures for collecting data during the trial.
8. Conduct the trial and collate the data.
9. Assess the trial results and negotiate a further relationship.

Be creative when you think about trials. We all know the most expensive cases in the HME industry. Think about those cases and how your organization can save the MCO money.

Work with the case managers and/or UR managers to identify their most expensive cases, then get buy-in from the medical director to initiate the trial. There are all sorts of creative trials going on in MCOs around the country, and these have resulted in some very large conversions of MCO business.

Key Event #8

Gain the managed care contract. This step means that you sign an agreement with the MCO for their business. Prior to getting the MCO contract, you may need to complete an RFI or an RFP for the MCO. Here are some tips for completing RFPs:

1. Obtain as much background information on the MCO as possible, including demographics of the enrolled population, financial status and marketing plans.
2. Interview decision-makers to determine their needs.
3. Carefully assess the specific services and products requested by the MCO. See if you can turn it into a product formulary, and reduce service costs where possible.
4. Try to validate any utilization data provided to you by the MCO.
5. Address how your services will save the MCO money.
6. Consider creative responses that include innovative product or service ideas, tracking of specific data for the MCO, establishing unique trials or offloading administrative expenses for the MCO.
7. Make sure the proposal is well written and has no grammatical or spelling errors.
8. Answer all of the RFP questions that do not require confidential information. For any confidential information, get them to sign a confidentiality agreement.
9. Consider including stellar references from top physicians in the RFP.

If you don’t have a professional writer, get one to put together your RFP. Those that look the best and are well written get the most attention from those reading them.

Key Event #9

Maximize referrals from the MCO. If you are fortunate enough to get an exclusive MCO contract, then you don’t necessarily need to worry about maximizing referrals. However, remember that few MCO contracts are exclusive.

Once you get the contract, your sales team needs to spend time converting referral sources by letting them know you have picked up the contract. Make sure you have coordinated sales efforts and that your team updates their managed care contract lists regularly so that you can maximize your business from the HMO or PPO.

Alison Cherney is president of Cherney & Associates, Inc., a marketing and sales consulting firm based in Brentwood, Tenn. She may be reached at 615/776-3399 or through the company’s Web site at www.cherneyandassociates.com.

Lots of HMOs

HMOs are often classified based on the way that they contract with or employ physicians. These are:

• IPA (Independent Practice Association Model) HMOs: These HMOs contract with physicians who are in an individual practice or small groups; these are the most common types of HMOs.
• Group Model HMOs: Contract with one or more multi-specialty physician groups; the HMO compensates the group at a negotiated rate and the group is responsible for paying its physicians. The largest group model HMO is the Kaiser Health Plan, which contracts with the Permanente Medical Groups.
• Network Model HMOs: The HMO contracts with two or more medical groups.
• Staff Model HMOs: These HMOs employ their own physicians.