Health Plan Contracting

    • February 27, 2011

Health plans using the PROMETHEUS Payment ECRs to contract with providers are faced with a number of unique issues. This section briefly discusses these issues and provide some suggestions for addressing them.

Role of the Health Plan

The first issue to address is the role of the health plan in contracting for ECRs. Health plans may contract with existing provider organizations that decide to accept financial risk for complete ECRs or the plan may serve as a “virtual integrator” for providers not otherwise affiliated with each other but willing to participate together for ECR reimbursement.

Whether or not a health plan chooses to serve as a virtual integrator depends on the availability and willingness of existing provider organizations to accept the financial and clinical risk associated with ECRs and the resources of the plan to undertake the development of “virtual” provider organizations.

Contracting with Existing Provider Organizations

Many types of provider organizations may desire to contract with a health plan for ECRs including Accountable Care Organizations (ACOs), Physician Organizations (POs), Integrated Delivery Systems (IDSs) or Physician Hospital Organizations (PHOs).

Before contracting with a health plan, these organizations, similar to the health plan, have likely conducted an analysis or assessment of opportunities for clinical and financial improvement utilizing ECRs—an ECR analysis or opportunity assessment. Ideally, the ECRs the health plan and provider organization would like to contract for overlap.

Once the plan and provider organization have agreed on a set of ECRs, they must negotiate and agree on the terms for pricing and administering the ECR contracts. Often plans and providers will develop pilot programs whereby they will “operate” the contracts for a specified pilot term (perhaps one-year) while limiting downside and/or upside risk to each other while they work out administrative and methodological issues associated with entering into contracts using the new payment units.

Prospective or Retrospective Payment?

A fundamental question in contracting for an ECR with an existing provider organization is whether to make ECR payments prospectively or retrospectively.

Episode of care or ECR contracting have long been seen as a potentially effective way to transfer manageable financial risk to providers through a single (global) case rate. This “technical” or “performance” risk transfer enables a provider organization to recognize the financial reward for delivering a complete case for less than the negotiated price.

A common perception is that bundling payment along an episode of care requires calculating the total case fee or payment in advance and paying the total fee upfront or prospectively to the “integrated” provider. This allows the provider organization in turn to distribute the funds internally. While this prospective payment scenario may be ideal, there are a number of challenges associated with this approach.

Digging Deeper

As mentioned, health plans using the PROMETHEUS Payment ECRs to contract with providers are faced with a number of unique and very complex issues. We strongly suggest those in this situation read the in-depth reports from PROMETHEUS Evidence-informed Case Rate (ECR) Contracting Strategies and Guidelines for Health Plans on prospective and retrospective payment for more information and background.

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