How to Negotiate a Capitated Contract for Oncology Care

SAN DIEGO—Many oncologists attending a session on capitation at the Association of Community Cancer Centers’ 14th National Oncology Economics Conference may have hoped the speaker would reveal the “ideal rate” to charge for capitated oncology care, but, unfortunately, “there is no such thing,” Philip L. Beard told the gathering.

What really matters is not just the money promised but all the variables and the level of risk the physician is asked to assume. Even if a payer won’t budge on the rate, there are ways to make the contract workable—by negotiating exclusions, said Mr. Beard, president of ProSTAT Resource Group, a Kansas City consulting firm. Mr. Beard has represented more than 2,000 physicians in negotiations with managed care providers.

The path that could ultimately lead to a signed contract is littered with land mines, Mr. Beard warned as he outlined some contract “hot spots” physicians need to watch out for:

• Bonus incentives: “I could write a book on complicated bonus formulas that nobody ever had any intention of paying,” Mr. Beard said. Bonus incentives that may look great at first glance are often revealed as worthless when carefully scrutinized.

Watch out for language that says the plan “in its sole discretion” will decide whether physicians have met the bonus incentive. The requirements are often so vague, he said, that “it’s like trying to nail Jello to a tree.”

In one contract, the payer stated that the providers and the corporation would have to meet or exceed targets on mutually agreed upon quality indicators, but the payer did not provide the indicators.

• One-rate contracts: Physicians will often be offered a contract that provides a single rate for all types of patients, a phenomenon he calls the Pizza Hut Super Supreme contract because all possible toppings are fitted onto a single pie.

Physicians need to push for a contract that provides different rates for commercial, Medicaid, and Medicare patients. The contract should also include a statement that rates will be renegotiated if the demographics of the patient pool change.

• Primary care and specialty interface. “This is a biggie for oncologists,” Mr. Beard said, because cancer patients often receive primary care services from their cancer specialist instead of a general practitioner. He suggested that oncologists try to negotiate a fee-for-service carve-out for services related to primary care.
• Stop-loss criteria. Stop-loss provisions are critical to oncologists, Mr. Beard said, because of the high costs certain patients incur. He favors aggregate stop-loss coverage based on the total amount of services provided to all patients annually. Typically, payers prefer stop-loss provisions on individual patients so that any patient who uses more than, say, $30,000 per year of services would be taken out of the capitated pool. This would be a high ceiling even for oncologists, who can be treating many cancer patients with hefty bills that aren’t quite big enough to trigger the escape clause, he said.

Physicians should push for protection in case the payer’s enrollment figures fall below a specified level, such as requiring that payment then revert to fee-for-service. Doctors should also try to exclude unpredictable services, such as emergency and out-of-town services or drugs.

• Medical loss ratios: This ratio refers to the percentage of the patient’s insurance premium dollar that goes to pay for health care benefits. Mr. Beard said that he likes for this ratio to be in the mid- 80% range. If the ratio drops to 70%, that is good news only for the payer’s investors, he said. On the other hand, a ratio that is 95% suggests that the company is one step away from bankruptcy.

Questions to Ask

When negotiating a contract, physicians must be prepared to ask specific questions on specific issues. Mr. Beard recommends the following:

• Physician services: Are covered services defined by CPT codes? It is to a physician’s advantage, he said, to submit a comprehensive list of CPT codes and descriptions, and a similar list of those services that he or she wishes to be excluded from capitation, possibly through “carve-out” provisions.
• By what mechanism does a physician approve the addition of covered services, facilities, equipment, or supplies? Are treatment protocols in place for referrals? Are emergency services included in the rate? How does the plan define emergency services? Who decides whether a situation is an emergency? Is the physician’s service area clearly defined?
• Compensation: Is the PMPM (per member, per month) rate clearly stated? Is it reasonable? How was it calculated? If historical data were used, has an inflation adjustment been applied? How are carve-outs for items such as drugs, costly procedures such as transplants, and new technology to be reimbursed?
• Legal protections: Is there a hold-harmless clause? If so, try to get it deleted. If that’s not possible, ask these questions: Can the clause be modified so that it will be mutual, obligating both sides to be responsible for their acts? Will the physician’s personal malpractice insurance cover this contractual indemnity?
• Disputes: Is the payer barred from making unilateral amendments to the contract? Is the payer prohibited from brokering the capitation rate to other payers? Is there a binding arbitration procedure specified in case of disputes?