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Structural requirements of managed-care reform

By Gerald Archibald


“The purpose of life is a life of purpose.” — Robert Byrne

New York State’s Medicaid Managed Care Initiative continues to create challenges and confusion for Medicaid service providers. As of Jan. 1, 2014 with the implementation of the national health-care reform law, the number of New Yorkers eligible for Medicaid will increase from 5 million to 6 million residents. This is about 25 percent of the state’s population. The increase in eligibility is a direct result of the law boosting eligibility for Medicaid to those with incomes at 133 percent of the federal poverty level.

We all know that Medicaid is big business. This is particularly true in New York state with thousands of Medicaid service providers addressing the health and human-service needs of Medicaid-eligible recipients. The recently adopted state budget for the current fiscal year, ending March 31, 2014, continued to emphasize the state’s unwavering commitment to controlling Medicaid spending through the formation of managed-care organizations and implementation of managed-care, cost-containment principles.

The Medicaid reform initiative has three primary objectives, as described in the state’s Medicaid waiver application to the federal government:

§   Better health outcomes for individuals

§   Better quality of care

§   Reducing costs through increased efficiencies

The pace of change is extraordinary. The structural requirements of managed-care reform have led to a significant increase in the formation of provider networks, which are generally supported by a contract between the service provider and a managed care organization/fiscal intermediary.

Essentially, the 50-year history of service providers contracting with and submitting claims directly to the New York Medicaid system is being dismantled. The formation of managed-care organizations (MCOs) and the introduction of competition among regional provider networks (RPNs) represents a dramatic sea change in provider procedures, knowledge, and strategies for successful Medicaid program participation.

These Medicaid reform initiatives have resulted in an “alphabet soup” of new acronyms being added to or used more frequently in the evolving requirements of negotiating and signing managed-care contracts.

The following acronyms are just a few examples of the new lexicon under Medicaid managed care:

MLTCO      : Managed long-term care organization

HH               : Health homes

BHO:                       Behavioral health organization

DDISCO:     Development disability individual service care organization

MCO:          Managed-care organization

MSO:           Management (shared) service organization

FI                 : Fiscal intermediary

PACE:         Program for all inclusive care for the elderly

PCMH         : Patient-centered medical home

CCM           : Coordinated case management

ACO                        : Accountable-care organization

ACN                        : Accountable-care network

PMPM:       Per-member, per-month payment to provider

FFS              : Fee for service

P4P  :           Pay for performance

As a result of the foregoing, each and every Medicaid service provider should have or hire a designated, experienced individual who is assigned the responsibility of negotiating the terms and conditions of managed-care contracts. The successful negotiation of these contracts, together with the state’s objective of eliminating fee-for-service reimbursement to providers results in a mandate for providers to develop and implement expert contract-negotiation skills.

While the focus of this column is on Medicaid services, the following top 10 list can also be applied to Medicare and commercial-insurance contracts.

Contract-negotiation skills are an art not a science. The following top 10 list represents the primary issues to be addressed by providers in every managed-care-contract negotiation, as follows:

§ What payment rate will the provider be paid by the contracting MCO? The contract should formally document all rates of payments for services provided under the contract.

§ What services are covered under the provider contract? These should be specified in an addendum to each contract.

§ What, if any, services can be billed separately or to the individual Medicaid / Medicare / insured recipient directly?

§ What, if any, financial risk is being transferred to the provider based on the contract terms? Payment mechanisms that reference capitation, partial capitation, and/or service carve-outs require intense focus.

§ What performance incentives or penalties are included in the contract?

§ How frequently can the provider bill for services provided under the contract?

§ What are the expected payment terms from the MCO to the provider once a “clean claim” has been submitted?

§ What requirements or initiatives are planned/contracted for by the MCO in its agreement with the NYS Medicaid program? (e.g., full capitation, health-outcome requirements, performance measures, etc.) How and when will these initiatives be implemented?

§ How will the payment rate for services by the provider be determined and when will it be adjusted? (i.e., What Medicaid rate or basis will be used for payment?)

§ What is the dispute-resolution process described in the contract and is it acceptable to the provider? (e.g., arbitration, litigation, rate appeals, etc.)

Every Medicaid service provider has been or will be deluged with standard contracts from MCOs, which essentially allow the service provider to participate in that MCOs provider network. While these contracts are frequently submitted to providers for signature without any negotiation anticipated, every contract should be subjected to provider review and development of satisfactory, negotiated terms and conditions.

The following top 10 list provides direction on the service provider’s strategies and positioning related to managed-care contracts.

1.  Beware of standard contracts and contract templates.

2.  Never accept or sign a standard/template contract without some addendum or    changes specific to your organization.

3.  Always require a supplemental schedule that specifically defines covered and non-covered services.

4.  Always be sure that the payment rates are specified, agreed to, and provide for periodic renegotiation.

5.  Avoid “evergreen contract renewal provisions” in almost all situations.

6.  Specify termination and withdrawal provisions that are favorable to you as the service provider.

7.  Define the process and approach to be used to confirm/verify individual Medicaid eligibility.

8.  Do you Need to sign this contract and be a participating provider in each and every network?

9.  What are the Specific duties and responsibilities of the managed-care organization to the service provider?

10.       What processes will be used by the managed-care organization to reduce approvals for Medicaid services and/or increase efficiencies in its Medicaid case-management structure?

Finally, here’s a third top 10 list that describes the typical contract clauses that should be evaluated and potentially negotiated by each service provider with the appropriate MCO representatives:

1. Definition of terms in the contract

2. Responsibilities of the service provider

3. Responsibilities of the MCO

4. Quality assurance and utilization-management requirements

5. Billing, claims processing, and payment arrangements

6. Description of the medical/financial records and reports to be provided by the MCO and/or prepared by the service provider. There should be a “right to audit” provision that allows the service provider to verify the accuracy of claims processed by the MCO.

7. Contract term and termination provisions

8. Requirements for liability insurance coverage for the service provider and related indemnification clauses

9. Methods to be used by the MCO for disclosure of participating network providers, use of service provider’s name, and the requirements of the MCO related to service referrals to the provider

10. Regulatory compliance requirements, dispute resolution, and written notice requirements.

Your number one priority is to develop a healthy, respectful working relationship between you as the service provider and the MCO. Careful, yet knowledgeable negotiating strategies will position your organization for success under the government’s managed-care reform initiative.


Gerald J. Archibald, CPA, is a partner in charge of the management advisory services at The Bonadio Group. Contact him at (585) 381-1000, or via email at:




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