Risk Assumption: More Than a Roll of the Dice

Surveying a room full of practice management executives at the Radiology Business Management Association’s Spring Summit in Las Vegas, Nev., William Moore III, then CEO of Desert Radiologists, said: “Many of you in the audience would ask the question, ‘Why in the world would a radiology practice want to implement capitation, or take at-risk patients?’”

Several hundred people attended the session “Radiology Integration Models: Overview and Lessons Learned,” but just a few hands went up when Moore, one of four presenters, asked how many practices were taking at-risk patients. In the competitive Las Vegas market, where anything over Medicare rates is considered good, Desert Radiologists has made multiple risk-based contracts work for the practice. In less than 30 minutes, Moore delivered a master class on how to not just survive but thrive under capitation.

Moore gave a great deal of credit to Desert Radiologists’ CFO Patricia Harms, MBA, CPA, who structured the contracts, which include non-global capitated reads for a large multispecialty group owned by UnitedHealthcare as well as two other integration-model contracts involving global capitation, one with an accountable care organization.

A benefit of capitation is the discretionary patients it brings, noted Moore. “When physicians are required to bring a book of business to you as an exclusive provider, they end up sending—you know how office staffs work—all of their patients to you,” he said. “I think we are one of the only groups in the country that are actually building imaging centers and expanding in that regard, just to increase our capacity.”

Desert Radiologists also has expanded hours of operation at one clinic to seven days a week and six day a week with extended hours at six others. Almost 30% of the practice’s growth last year was due to discretionary not capitated patients. “Those are patients that could go anywhere in the community and are choosing to come to us,” he said.

A numbers game

A prerequisite to negotiating a capitated contract is obtaining and understanding “good, solid trended utilization data,” Moore advised. “Preferably you want to see at least two to three years of trended data so that you know the utilization, especially for the high-cost, high tech modalities.” Keep in mind that the number of covered lives can go up and down during enrollment periods, especially with Medicare products or products tied to Medicare.

Contracts with carve-outs are preferable to all-inclusive contracts, particularly when it comes to high-cost modalities, interventional procedures and nuclear medicine. “You don’t want to get stuck paying for your radiopharmaceuticals,” Moore said.

Desert Radiologists was unable to get a carve-out for MRI in one of its contracts, but it did manage to carve out breast MRI. Breast tomosynthesis is another carve-out to strive for because it requires more work from the radiologist and is of greater benefit to the patient for that payor, Moore added.

“If the contract and entity you are working with is adamant that they want it all inclusive, then you have to try and hedge your bets,” Moore said. “Try to make some assumptions, some valuable assumptions, so that you understand you are covering what you need to in your negotiations.”

Access to trended utilization data will enable a practice to analyze that data—broken down to the modality level and multiplied by covered lives—to arrive at rates that can sustain the practice. “What is your threshold?” Moore asks. “Do you want to try and back into a percent of Medicare or some other number, say for example, 130% or 140% of Medicare?”

Ideally, your practice will be successful in negotiating the purchase and implementation of clinical decision-support, but if not, co-payments will act as a barrier to entry, particularly when it comes to high-cost modalities. “Obviously you want to get the right study for the right patient, and it’s not a goal or objective to keep patients out of your centers,” he said.

Key items

Entering into an integration-model capitated contract is a little like getting married, Moore said, so there is more involved than just setting rates. Mechanisms for quality control and communications, setting responsibilities and identifying triggers for rate-modification can make or break the relationship.

At the outset, electronic integration is mandatory. “If you have to load data off disks, and there are groups that expect you to do that, you walk away very quickly,” he advised. “You have to have full electronic integration between order entry and report delivery.”

Desert Radiologists has a high level of control over quality because the bulk of its capitation is done in its seven imaging centers. For the practice’s non-global contract, the radiologists work closely with the multispecialty practice’s staff to set protocols and monitor quality. “If you are in a situation in which you can’t control the quality, you may want to rethink whether you want to get into a capitated relationship with a provider or a payor,” Moore said, particularly with modalities that are operator or positioning dependent, such as ultrasound. 

Beware taking responsibility for utilization management if there are no mechanisms in place to manage use. “They may try to put that monkey on your back, especially in a capitated contract,” he said. “There is no motivation for them to keep volume down, so they are going to do very little if they can get away with it. If they have had utilization controls in the past, and you’ve had a relationship ongoing, then insist that those utilization controls are in place.”

Clinical decision-support for orders would be ideal, Moore said. It is in a practice’s best interest to negotiate that into your contract.

Rate modification options should be a part of any capitated contract, so it is important to define the circumstances and events that would trigger a rate increase, such as a specified increase in utilization per 1,000 members, either all-inclusive or tied to certain modalities. “We’ve found that it is very beneficial to measure on a per-1,000-member basis, and if that utilization goes up, then it should trigger an increase in your capitation rate,” he said.

If you are successful in setting triggers for a rate increase, most payors and providers will want triggers for decrease in the per-member-per-month rate as well. “Try not to negotiate that into your contract,” Moore said, emphasizing that it is the practice that is assuming the risk. One way to avoid that is to add value by exceeding your performance standard, so that everything is not tied to volume.

Performance expectations

In addition to elevating a relationship beyond volume, negotiating performance standards into the contract can provide an edge against a competitor. “If an RFP was put out and you are vying with another radiology group to take on this capitation, you may want to put in some performance qualifiers and standards that would result in a penalty if you don’t meet those standards,” Moore suggested.

Moore has found scheduling availability to be a successful standard in contracting. “We use third available appointment as our measure of performance,” he said. “Can we get that patient in within three days and preferably to the outpatient imaging center of his or her choice?”

Turnaround times are fundamental, and Moore advised trying to negotiate a measure that is somewhat less than industry standard. “If you can’t, then you have to hold yourself to those industry standards,” he said.

Other standards likely to make their way into a contract are critical results reporting and satisfaction survey scores for patients, employees and referring physicians. “We use outside entities to measure that satisfaction, so that we are not manipulating that data, and this is something we can sell,” he said.

“When we are willing to put those penalties into the contract, we are turning it from volume to value,” he added. “That’s why we typically try very diligently to argue that there does not need to be a triggered decrease in the per-member-per-month rate, because we have already built penalties into the contract if we are not performing at the standard they are expecting of us.”

Employee engagement is particularly important in the capitated environment. “On an annual basis, we do a lot to ensure that our employees are providing the highest level of service,” he said. “The way you do that is to make sure they have an enjoyable work environment. If they are satisfied employees, we find that they are going to provide excellent service.”

The capitated patient can be a difficult one, Moore said. The practice is in the process of negotiating a capitated Medicaid contract, and the principle pointed out that many of his patients don’t have homes and may not have the best hygiene. 

“The bottom line is you’ve got to take into consideration your employees,” he said. “Sometimes the capitated patient can be very demanding, but our employees understand that we have been able to grow the practice and add a tremendous amount of staff over the past several years.”

When Moore joined the company in 2006, Desert Radiologists had 36 radiologists who read ~850,000 imaging exams. Today the practice has close to 70 radiologists and reads more than 1.4 million studies per year. “We work very hard, and the employees are expected to work hard,” he said.  “It is very important that they see the example set by leadership—the physician owners and radiologists—and we do try to provide a lot of positive feedback.”

Fostering the relationship

Once the ink has dried on the capitated contract, don’t let it go dormant until 30 or 60 days before it terminates. Moore recommends a working joint operating committee with regular meetings, as often as monthly in early stages of contact. “It’s important that your executive team and contracting staff are meeting with the payors on a monthly, but no less than quarterly basis,” he said. “That’s an opportunity for you to address what’s working, what’s not working, how you can improve. The joint operating committee provides a wonderful venue to get problems out on the table and rectify the situation.”

Both of Desert Radiologists’ global capitation contracts are for five years with five-year renewable terms. “We found it beneficial to lock in for a long period of time and with a no-out-without-cause—you are locking into a short-term marriage, if you will, and you want it to turn into a much longer-term relationship than that.”

Nonetheless, it is important to negotiate termination options into your contract in the event that some unforeseen event occurs that impacts the profitability of the contract.  “If you thought you were going to be getting 130% of Medicare, and utilization goes through the roof or covered lives are not what you expected they were going to be and you are getting something less than Medicare, that should potentially trigger a potential exit from the contract,” Moore said.

The ultimate goal, however, is a long-term relationship that works for both partners. “Our competitors are seeing how valuable these relationships are and that this is part of the integration that, I hope, you are going to face eventually, because this is where the payors are moving toward,” he said. “They want to pay you less, and they do care about value, because they are tied to that, especially if they are a Medicare product: They have to get their ratings and there are qualifiers that they have to meet.

“It’s a scary business, for those that have not been involved in capitation, but we found it to be a very beneficial and productive contracting tool as we transition away from volume and toward value-based medicine.”