This Web site is a component of the SAMHSA Health Information Network
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This Web site is a component of the SAMHSA Health Information Network. |
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Organization & FinancingSAMHSA Managed Care Initiative Training SessionsApril 1997
Dates: April 29, 1997--SAMHSA Group, Parklawn Conference Center, Rockville, Maryland
Title: Managed Care and Mental Illness and Addictive Disorders, An Overview of Findings from a Study of Managed Care Contracts:
Speaker: Sara Rosenbaum, J.D., Director of the Center for Health Policy Research, George Washington University Medical Center, Washington, D.C. Overview: Background: Before introducing the speaker, Dr. Eric Goplerud, Director of the Office of Managed Care, SAMHSA, reviewed the origin of the study that Ms. Sara Rosenbaum led on managed care contracts. Shortly after Dr. Nelba Chavez's appointment as the Administrator of the Substance Abuse and Mental Health Services Administration (SAMHSA), she created a task force to explore the issue of managed care vis-a-vis the changes taking place in the private and public sectors related to mental health (MH) and substance abuse (SA) services. One of six priorities identified by the task force was the assessment of managed care contracts with regard to the meaning of these agreements for MH/SA service providers, group purchasers, managed care organizations (MCOs), families, individual consumers, and public policy. The study was part of a much larger project on Medicaid managed care contracts conducted for the Pew Charitable Trusts and the Annie E. Casey Foundation, with additional support from SAMHSA and the Centers for Disease Control and Prevention (CDC). In brief remarks, Dr. Chavez stated that the study identified many strengths and weaknesses. It was her hope to build on the achievements in health care and turn the problematic areas into strengths. She urged that the Federal Government, the largest purchaser of health care, use its leverage to ensure that people receive the right care, at the right time, in the right place. Ms. Rosenbaum explained that the overall study was actually a combination of two studies-point-in-time examinations of service agreements related to MH and SA treatment and prevention services. One study examined general service agreements, carve-out contracts, and requests for proposal (RFPs) between state Medicaid agencies and MCOs. The second examined provider network agreements between MCOs and community MH/SA treatment and prevention agencies. The independent studies both involved contracts that were in effect in 1995-1996. Ms. Rosenbaum emphasized that the project was not designed to evaluate the quality of managed care systems. Methodology Ms. Karen Silver, the Project Manager, explained the methodology used for each study. The study of contracts between the state Medicaid Agencies and MCOs involved the collection and analysis of contracts from 36 states and the District of Columbia. The contracts provided mental illness and addictive disorder treatment either as part of a comprehensive service agreement or as a carve-out contract. This study focused solely on "comprehensive risk" contacts, those which are capitated for both inpatient and outpatient care. It excluded contracts between state Medicaid agencies and the individual-care, case-management providers as well as "partial risk" agreements (plans capitated for less than comprehensive care). Advisory and peer review groups assisted in developing the instruments for contract review. The groups consisted of state Medicaid agency officials, MCO representatives, community health providers, and beneficiary representatives. The review instruments, consisting of 350 questions for general review and 100 questions for supplemental review, were designed to determine whether a contract had provisions relating to a particular topic (e.g., translation services), not whether a contract met a certain predefined standard. A team of seven attorneys reviewed the documents against the instruments. A series of tables was prepared from the resulting database of extracted contract language. State Medicaid agencies were invited to review and comment on the findings. This also served as a check on accuracy. The other study-of contracts between MCOs and community-based providers of MH/SA treatment and prevention services-involved the collection of 257 intact contracts (i.e., contracts which included all appendices and addenda) from throughout the United States. Fifty contracts, representing different types of MCO arrangements and MH/SA providers of varying size, were selected for analysis. The prior authorization and medical necessity clauses of an additional 90 contracts were analyzed in a separate validation review. In addition, informal telephone interviews were conducted with 12 providers to ascertain contract negotiation experiences. The contracts were submitted voluntarily and were in effect at the time of submission. Many contracts contained sanctions for disclosure of proprietary information; therefore, they were handled with complete anonymity. Each contract was assigned a numerical identifier, and the study findings were reported by these identifiers. This study was based on an earlier unpublished project that analyzed contracts between MCOs and primary care medical practices. The review instrument developed for the earlier project was adapted for the community-based providers study. With the assistance of MH/SA experts, the basic instrument was modified to include questions designed to evaluate the special array of services that MCOs might purchase from MH/SA providers. After review, the data were entered in table form. Legal Framework for Managed Care Ms. Rosenbaum compared the legal framework for managed care to a pyramid. She stated that the interactions between sections of the pyramid must be understood to appreciate the entire legal framework. She identified four sections in the pyramid from base to top: Industry self-regulation (e.g., contracts, accreditation, quality assurance), contracts between purchasers and sellers, state laws and regulations, and federal laws and regulations. The study of contracts between MCOs and community-based providers fits into the bottom layer of the pyramid. Ms. Rosenbaum noted that in today's world, managed care companies essentially operate as virtual health care systems. Companies piece together health care services through a series of complex, interlocking layers of contracts between themselves and suppliers (or providers), subsuppliers, utilization review subcontractors, and quality assurance subcontractors. The study of contracts between state Medicaid agencies and MCOs fits into the second layer of the pyramid. This level includes the agreements between any large purchaser of managed care and companies selling managed care products, such as insurance companies, HMOs, integrated service networks, or provider-sponsored networks. Agreements between CHAMPUS and its suppliers, state employee benefit programs and their providers, and Medicaid and its companies fall into this tier. The study led by Ms. Rosenbaum specifically explored the agreements between Medicaid and MCOs. The top two sections of the pyramid include state and federal laws. State laws can regulate MCOs through insurance laws, state health laws, and state Medicaid laws. In privately purchased managed care, federal law is quite limited. The Employee Retirement Income Security Act (ERISA) preempts virtually all state regulatory law and, in some cases, state insurance laws as well. Generally, contracts will reference or incorporate state and federal laws. The pyramid reflects a classic, regulated business enterprise in a market-driven economy. It offers a model of regulation-through laws and policy at the top to self-policing activities at the bottom. The end result is the provision or manufacture of a credible, standardized product at an affordable price. The model easily applies to automobile manufacture or breakfast cereal production. Ms. Rosenbaum questioned whether the model also applies to health care. Much of it does, with some important exceptions, particularly the provision of a standardized product. Medicaid and MCO Contracts The examination of managed care contracts and related documents identified seven key domains: enrollment, benefits and services, service delivery standards, public health and social service agency relationships, quality assurance data and reporting, business terms and relationships, and payment. Ms. Rosenbaum reviewed four of these domains. Enrollment and Disenrollment Ms. Rosenbaum noted that people with mental illness, whether they are Medicaid insured or privately insured, are probably receiving treatment when they are enrolled in a managed care plan. The study examined how States handled members who are under active care at the time of enrollment into managed care. Very few States addressed the issue directly. Ms. Rosenbaum reviewed the contracts from Florida and New Jersey, two states that deal with this issue.
The Massachusetts contract is specific and limiting; each standard is clear. As a result the plan-initiated disenrollment is more manageable than the procedure outlined by the District of Columbia. Ms. Rosenbaum explained that behavioral health care carve-out contracts either prohibit plan-initiated disenrollment or are silent on whether MCOs have the discretion to seek disenrollment of certain members. By definition a behavioral plan is accepting people who have a serious illness. The plan is set up, not for routine mental health services, but for people with greater than average mental health needs. Allowing plan-initiated disenrollment would be paradoxical. Florida's contract addresses this issue by permitting MCOs to change members' primary care providers under certain circumstances. Benefits and Services
Ms. Rosenbaum pointed out that a number of contracts deviated from the federal definition. Delaware, Nebraska, and Oregon contracts illustrated this point. Oregon and Delaware create a 24-hour window to respond to emergencies; the language essentially dilutes the immediacy. Nebraska modified the definition to provide that it has to be an emergency that is beyond the client's control. Theoretically, the plan could deny payment for emergency services which arise from an intentional act of the client, such as attempted suicide. Ms. Rosenbaum stressed that when state terms and definitions depart from the definition used in federal law it dilutes benefits that otherwise would be covered. Medical necessity is a complex and important concept. Ms. Rosenbaum explained that federal Medicaid law does not define medical necessity, but it does establish two important provisos. First, services must be "sufficient in amount, duration, and scope to reasonably achieve their purpose." Second, a state agency may not discriminate in the provision of a covered service based on an individual's diagnosis or condition. Ms. Rosenbaum noted that several States have developed standards of medical necessity which appear to permit MCOs to make narrower coverage determinations than required under federal law. Under these more restrictive definitions, many services covered by a state Medicaid plan may remain the direct responsibility of the state Medicaid Agency instead of the MCO, whose coverage principles generally follow those of the commercial insurers. Commercial insurance medical necessity standards generally limit coverage to treatments needed to restore functioning following an acute illness and injury. Preventive, ameliorative, and development-enhancing services for children or adults with chronic illness and disabilities are usually not covered. Ms. Rosenbaum emphasized that one of the great challenges in transforming Medicaid from a fee-for-service payer to a purchaser of managed care systems involves the distinction in coverage standards between Medicaid and commercial insurers. This difference is clearly reflected in the definitions of medical necessity. In the review of contracts, Ms. Rosenbaum's team found that most States are silent on the definition of medical necessity, several contain a relatively extensive definition, and seven contracts contained references to medical necessity in an MH/SA context. Ms. Rosenbaum explained that silence is usually interpreted as acquiescence to the company's definition, which is a standard commercial definition, often unduly restrictive. Theoretically, the Medicaid agencies must pay for the care that falls outside the contract but under federal law. It is important that Medicaid agencies better understand commercial plans and modify these plans as needed. Iowa's SA contract contains a standard commercial insurance policy definition and requires contractors to follow a five-stage process for determining medical necessity. The steps are-
Ms. Rosenbaum pointed out that the contract makes reference to a disorder. If a disorder arises inexplicably, not from an injury or illness, treatment is still covered. The most extensive, complex, and potentially restrictive definition of medical necessity can be found in the Nebraska mental health contract. Ms. Rosenbaum explained that this is an example of an evidence-based definition. The definition lists eight inclusive criteria that must be met for benefit coverage. The most important is the third criterion, which states that a covered service must be-
A service, intervention, or prescription that may be the only course of treatment can be denied if there is no national evidence to support it. Very few interventions have been studied in the fashion outlined by the third criterion. Most interventions, particularly therapeutic and counseling interventions, would fail this eight-prong test and result in the denial of coverage. Ms. Rosenbaum noted that the review of contracts could not determine how this definition is applied. The insurance companies in Nebraska may not apply it to every service but only under certain circumstances. Service Delivery Standards Ms. Rosenbaum addressed two important subdomains of service delivery standards-provider network standards and access time standards. The composition and structure of the service delivery networks for MH/SA services were specified in approximately half the reviewed contracts. In general, contractors are given considerable discretion to develop their own service networks without regard to specific providers or classes of providers. Ms. Rosenbaum reviewed the contracts of Florida, Iowa, and Hawaii. Florida's mental health contract contains precise specifications but has relatively little meaning. Ms. Rosenbaum focused on the third and fourth statements of the contract, which state-
Ms. Rosenbaum noted that the reference to 1500 prepaid members is unclear. The number may refer to each MCO provider's entire patient load or more narrowly to its Medicaid patients. Theoretically, a member could be assigned to a doctor with 9000 patients, but no more than 1500 are Medicaid prepaid members. Ms. Rosenbaum stressed the importance to include cumulative maximums on patient load in the contract. The contracts in Iowa and Hawaii have only the broadest descriptions of provider networks. Hawaii's behavioral health care carve-out RFP requires-
Iowa simply uses the state's Medicaid fee-for-service provider base to determine the sufficiency of its MCOs' behavioral health networks. The study found that virtually all state contracts and RFPs establish general time access standards that would apply to medically necessary MH/SA services. However, States vary considerably in the range of times they specify for services. Ms. Rosenbaum reviewed the contracts of four states-Arizona, Delaware, Florida, and Nebraska. Arizona and Delaware state that for nonemergency mental health services, "appointments must be furnished within 7 days of request." Ms. Rosenbaum noted that the 7-day window applies to the appointment, not necessarily an actual encounter with the health services provider. The Florida contract is more specific, stating that an "assessment in nonemergency cases must happen within 7 days of request." Again, Ms. Rosenbaum targeted the ambiguities. The term "assessment" presumably refers to a clinical assessment, but it could also mean an assessment by telephone. Once an assessment is made, she questioned if treatment could be delayed beyond that timeframe. The Nebraska definition is the clearest of the four. It uses a "4-week outer limit for nonsymptomatic office visits involving children and 45 days for adults." Quality Assurance Data and Reporting Ms. Rosenbaum stated that all state contracts require MCOs to maintain an internal quality assurance and management system, but there is wide variation in this practice. A few contracts contain specifications for clinical practice guidelines and outcome measures. These specifications are broadly worded and vest considerable discretion in plans to develop, apply, and test their practice standards. The obligation of contractors to report data on utilization of MH/SA services was addressed in more than half the reviewed contracts. The most detailed set of contractual reporting specifications was found in the Massachusetts contract. It requires the submission of a broad range of utilization, process of care, and outcomes data, including data on functional status and patient satisfaction. Conclusions Ms. Rosenbaum's closing remarks about the first study summarized the following important points: Medicaid comprehensive risk managed care service agreements vary across States and generally, States vest plans with considerable discretion to select, organize, and pay their provider networks. Coverage can be quite extensive, but important services to the populations of persons with MH/SA needs may remain the direct responsibility of the Medicaid agency as coverage may be spelled out ambiguously. At the end of 1995, States were only beginning to address the complex issues that arise in the coordination of managed care service arrangements. Many aspects of these agreements can be expected to change as States acquire greater experience in managed care purchasing. MCOs and Community MH/SA Treatment and Prevention Agencies The findings of the second study were organized into 15 categories of contract provisions: identification of contracts by type of MCO, elements of group sponsor agreement, or type of group sponsor; classes of service covered by contracts, the duty to treat patients and accept patient referrals; prior authorization of covered services; access standards and treatment time lines; referrals to, and relationships with, other providers; medical necessity and emergency definitions; enrollee encounter data and eligibility verification; quality management systems; capitation agreements; fee-for-service agreements; coordination of benefits; term and termination; gag clauses; antidelegation clauses; indemnification clauses. Ms. Rosenbaum covered nine of these categories in her presentation. Identifying Contracts by Type of MCO, Group Sponsor, or Elements of Group Sponsor Agreements Ms. Rosenbaum stated that the most striking observation about the contracts themselves is the similarity of their basic provisions. The contracts are standard, and the same one is used whether the company is doing business with a private practice, classic office practice, or community-based organization. Generally, companies will not tailor, modify, or negotiate their contracts. Ms. Rosenbaum illustrated this point using a group of Long Island anaesthesiologists as an example. The doctors sought to alter some of the terms of their contract. The managed care company, Aetna Health Plans, threatened to terminate the contract with the anaesthesiologists and the participating hospitals if the doctors continued their attempt to modify the plan. The anaesthesiologists sued the company and the hospital to enjoin what they perceived as monopolistic pressure to sign the contract. The case was dismissed. The example also demonstrates the power of the purchaser, in this case the health insurer. Ms. Rosenbaum explained that the study unveiled three characteristics found in almost all the contracts. First, they set up an at-will relationship that allows the company, and sometimes the provider, to terminate the contract at will and without cause. This gives the company much power over the provider. Secondly, the contracts are designed to limit the provider's discretion to consume health care resources. The company is under pressure from the purchaser to hold down costs; this pressure is passed along to the provider. Lastly, contracts are designed to transfer financial risk and avoid language that locks companies into transferring resources. Prior Authorization of Covered Services Ms. Rosenbaum continued with an explanation of prior authorization. The majority of contracts (80 percent) require that providers obtain prior authorization for one or more contract services. The gatekeeping authority is generally retained by the MCO, consistent with the MCOs' obligation to manage access and use of specialty services. Prior authorization terms are often quite expansive in the scope of authority retained by the MCO. This is illustrated in contract 71.02, which states that-
Ms. Rosenbaum noted that this is a standard example of a benefits limitations provision and one that severely restricts the providers' treatment discretion. The last statement of the contract, referring to ineligibility, is quite common but potentially illegal. Many state insurance laws or contracts between purchasers and companies will prohibit billing the patient directly. Medical Necessity and Emergency Definitions Ms. Rosenbaum used contract 34.04 to discuss emergency services. It states-
This contract gives no authority to the provider to exercise medical judgment. The plan is designed to keep a tight hold on benefits, particularly with specialty services. Ms. Rosenbaum emphasized that the defining element in a contract between a provider and an MCO is the covered services. Also important are the procedural steps that the MCO builds into its medical necessity determinations, whether it reserves discretion to determine medical necessity, and whether the MCO builds certain limitations and exclusions into the basic service agreement. Contract 05.01 was discussed as an example of a standard definition of medical necessity. It states-
Ms. Rosenbaum noted that the definition is strengthened by the inclusion of "condition" along with illness and injury. The Medical Director retains the final discretion to determine medical services. This places the burden on the provider to document the medical necessity of each case. The majority of contracts commit medical necessity determinations to MCO discretion. Only three contracts stated that the provider's judgement would be taken into account in the plan's determination; one contract stated that the provider's determination was binding. This finding is consistent with the MCOs' basic duty to the group purchaser to ensure that coverage is in fact necessary. Enrollee Encounter Data and Eligibility Verification Ms. Rosenbaum explained that specifying preservice eligibility verification is common in contracts because MCOs cannot pay for care unless patients are enrolled at the time services are furnished. Fifteen of the reviewed contracts contained such a requirement, but only four specified that the MCO's eligibility verification services will be available on a 24-hour-per-day, 7-day-per-week basis. Ms. Rosenbaum used contract 26.07 as an example. It states-
Ms. Rosenbaum noted that the provision shifts the financial risk to the provider for errors in eligibility verification or the failure to be able to verify. It also instructs the provider to bill a beneficiary who relied on verification prior to receiving treatment. Such practices may be prohibited by law or by group purchasers, leaving the providers liable for the entire cost of care furnished to ineligible persons.
Capitation Agreements
Ms. Rosenbaum pointed out that the agreement potentially creates significant risk in the MH/SA agency for the excess cost of inpatient services and appears to leave the provider with no stop-loss protection for its own services. Under the agreement, the provider is at risk for all "facility" services, with an amount withheld and applied toward emergency services rendered at other facilities. The company has agreed to a stop loss, but the stop loss is worded ambiguously. The company also agrees to be responsible for "costs" beyond the withheld amount, but the costs are not defined. They could include the provider's own excess hospital costs beyond its capitation, or alternatively, they could be limited to the cost of emergency care furnished in other facilities. In addition, the member base against which the capitation is estimated is unclear. The base could be the company's entire panel of covered lives or some subset thereof. Ms. Rosenbaum stressed the importance of including in the contract any agreement that is crucial to the financial viability of a capitation or stop loss provision. Fee-for-Service Agreements Ms. Rosenbaum declared that the overwhelming majority of the reviewed contracts (48 of 50) provide fee-for-service arrangements. Only a few include withhold provisions such as contract 55.02. It states-
Ms. Rosenbaum explained that this is an example of an MCO trying to protect itself against catastrophic loss in the event that the premiums paid by the purchasers are insufficient. The agreement vests discretion in the plan to adjust the withhold level at any time. Also, the terms of the contract place the MCO under no obligation to lower the withhold in the event that the need for an upward adjustment abates, nor is the MCO under an obligation to return any portion of the withhold. The MCO's discretion over payment terms is consistent with the expectation that the MCO will maintain services within the budget expectations of the purchaser. Coordination of Benefits Ms. Rosenbaum stated that most contracts contain coordination of benefits clauses that obligate the provider to bill legally liable third parties prior to billing the MCO. She explained that this is another way to shift financial risk to the providers, as illustrated by contract 13.02. The contract states-
It is the responsibility of the provider to seek out other forms of insurance before billing the MCO. In addition, the MCO's fee schedule does not apply, so if the other payer's compensation is less, the plan does not make up the difference. Coordination of benefits requirements clearly slows down payment due otherwise from the MCO while liability from a third party is pursued. Term and Termination Ms. Rosenbaum emphasized the importance of term and termination provisions of contracts as they indicate how long the contract remains in effect and the circumstances under which the contractual relationship may be ended. Contracts are equally likely to grant both providers and MCO no-cause termination rights. The provision is a far more potent weapon for the MCO. In the event of termination, an MCO retains the group members. A provider that elects to terminate the agreement loses its access to the MCO's patients. Ms. Rosenbaum continued with an explanation of post-termination provisions. Post-termination treatment obligations are a safeguard for enrolled members of the plan so that members can be safely transferred to another care arrangement. Contract 49.01 contains a post-termination payment provision which states-
Ms. Rosenbaum explained that this provision allows the company to hold back all or any part of the compensation payable to the provider. The plan has a year to settle with the provider. This is another example of a provision designed to slow down payment and limit cash flow paid out by the company. Gag Clauses Ms. Rosenbaum stated that only two of the reviewed contracts contained clauses that could be construed as gag clauses. Contract 55.02 provides an example of a standard gag clause:
Ms. Rosenbaum commented that, in her opinion, gag clauses are unconscionable, medically unethical, and unnecessary. If the contract includes an at-will clause, the company can terminate a contract with a disruptive provider. The absence of gag clauses from the vast majority of contracts may indicate that the problem with these provisions is less widespread than perceived by the public. Conclusions In summarizing the second study, Ms. Rosenbaum made the following points. The study revealed that the contracts between MCOs and community MH/SA agencies are strikingly similar in their structure. Contracts are carefully constructed legal instruments which MCOs create to establish and maintain control over access, benefit utilization, practice patterns, and cost. These contracts seek to retain MCO control over the movement of beneficiaries and funds throughout the network created by the MCO. The contracts shift financial risk from the MCOs to their network providers in numerous ways such as eligibility verification, payment provisions with no specific timelines, coordination of benefits provisions, and post-treatment obligations. Managed care systems operate through a network of interlocking agreements. These agreements spell out basic coverage rules, service duties, and financial obligations. The basic agreements can be tailored for individual group purchasers, but the process of modification can be difficult. The issue is particularly pressing for state Medicaid agencies, which tend to seek products that are relatively tailored to the needs of their populations. The issue of provider response to these contracts inevitably arises. MH/SA providers may respond by forming stronger and larger provider networks to increase their negotiating leverage. Recent rulings by the Justice Department and the Federal Trade Commission may encourage such networks to develop. Even if provider networks are strengthened, purchasers and MCOs will continue to have strong bargaining advantages. A more fundamental question is whether public and private purchasers themselves will learn to balance their desire for the best health care at the lowest price against the need to limit the use of certain MCO contracting practices that raise concerns in the minds of the public.
Question and Answer Session I
1. A. No, but managed care is relatively young. In Arizona there seems to be a case every week; the courts are filling up with challenges. Sooner or later, a challenge will be mounted against denial of benefits. The courts will have to decide whether or not the plan is liable under a contract with the State, or whether the State omitted coverage of that particular benefit or omitted a particular duty. A Medicaid agency may start an enforcement action against the plan for denial of benefits, but may have to stop the enforcement action because its lawyers discover that the benefit is not in the agreement. So, there may be many cases in which a state is left with an ambiguous contract clause that essentially leaves the contractor free to deny a benefit the state thought was covered.
2. A. Well, it is an interesting question because the biggest response we have had is from the state Medicaid agencies. We are backed up with requests to draft entire contracts as a result of the study. State Medicaid agencies have said-we believe in having a wonderful and formal working relationship with our contractors, we are in partnership together. Of course you want to achieve that kind of working relationship with your contractor. But that would not prevent me from making sure that anything that was important went into the contract. A contract is a legal memorialization of a set of promises. If the layman does not write them down correctly, or draft them ambiguously, then when it comes time for enforcement, it is not possible. If an agency thinks that it will never want to enforce a promise then maybe it doesn't need to write contracts. However, federal law requires contracts. The most common negative response comes from someone who is not a lawyer. So this study tells us, as any lawyer for an agency should tell the agency, that the most important thing to do is make sure the agency is not legally exposed. In Medicaid agencies, where tens of millions of dollars in monthly premiums are at risk, the exposure can be quite great. From the beneficiary's point of view, nonservice exposes the state to direct liability. So, I do not know how to react; our experience is so utterly contrary to those statements. I do think that the report has had a profound effect. People who dislike the report are the people who simply may not have thought about these issues.
3. A. Well, it is very hard to do. I should note that I do not mean financial exposure but exposed in the sense of service. Medicaid beneficiaries, even if they were to become liable, generally cannot pay their medical care bills, so that issue is sort of irrelevant. The Medicaid agency says that a service is the responsibility of the contractor, the contractor says the services are not covered, and beneficiaries are caught coming and going. Often the only way to resolve this is to bring an action against in order to determine liability. That is not a good way to proceed. We do not want the whole thing to break down in litigation and recrimination. So, it means very careful drafting in the front end and then probably constant monitoring to make sure that a contractor lives up to its service agreement. But when you take someone's insurance coverage and break it in two, as is the case with Medicaid managed care, you create a messier situation than you had in the first place. We need to expect that problems are going to arise. Q. And can they be eliminated through protective advocacy? A. Whether they can be eliminated or whether they can be caught and remedied before they get excruciatingly bad and a whole class of people is being denied benefits, that's the value of protection and advocacy, that's the value of legal services, although there are fewer legal services attorneys. But it is also the value of an ombudsman program, which examines patterns of complaints and grievances and corrects them before they get too bad. The problem with lower income people is that they do not complain. Contrary to popular belief, lower income families are less likely to complain than more well-to-do families. It is very hard, unless one is quite aggressive, to find the people who are losing benefits. A State has to be judicious in its contract requirements and aggressive about monitoring the requirements set forth. Agencies monitor everything about the health care system, but using commercial insurers, should be a warning that certain problems might arise.
4. A. These kinds of statements come from people who do not stop to think about what they are saying. A managed care company combines two features-an insurance feature, taking on risk and a service delivery feature. The company usually has financial reasons to stay within budget, either because it wants to make a profit or because it is at risk. The notion that the new style managed care companies have functions that are different from the old style insurers, I think is, at least legally, incorrect. As a practical matter it is like the difference between nonprofit and for-profit hospitals. They all have to function in the black; they cannot go off and do crazy things. But the belief is that somehow it is a different animal when it is a nonprofit animal. From my experience, sometimes it is and sometimes it isn't. Whether licensed as insurer HMOs or "new age" MCOs, managed care laws must be able to manage risk. 5. A. The leverage is all with the purchaser. One of the major recommendations to SAMHSA is that purchasers have leverage; that is the wonderful thing about market theory. At some point there really is some leverage; it may take some will to exercise that leverage, but as the purchaser you have leverage. One sees this phenomenon in a lot of master contracts and in the contracts between the companies and the providers. In that case, the providers are the suppliers, and the companies have all the bargaining room. Q. Given the evolution right now with States in terms of Medicaid authorities, is that where you see a great deal of the focus vis-a-vis how those master contracts are written, or is this predominantly a CMS setting? A. In a market system the focus is entirely on the States as the purchasers. Now, whether they have the running room they need to do aggressive purchasing depends on the State. If you are in Massachusetts or Minnesota, there are experienced state purchasers, who are given a fair amount of power by their governor or legislators to bargain and build real teeth into their contracts. Other States agencies are not given that kind of running room.
6. A. No, I think the key in Massachusetts, a state I have the utmost respect for, is the talent they bring to managed care purchasing. It is also a state where the model of managed care has small penetration. So, in other words, where there are only a few thousand people per plan enrolled, the state may be able to do things that you would not ever be able to do where the Medicaid book of business is huge. I think that the State also pays a very good premium in Massachusetts. We always hear of examples of very bad premiums in Medicaid managed care, and a lot of States pay a handsome premium as high as the commercial rates. The District's rates are as high as, actually somewhat higher than, a lot of the commercial rates in the city. They are going to drop, but they are now about 20 percent higher than the closest commercial rate in my health plan. It is not axiomatic that Medicaid rates are desperately low. They do not have to be, but often are. What Medicaid agencies struggle against is that their beneficiaries cannot cost-share, so they have to pay a high rate if they are going to get anything like private care. So, it the provider is not aware of cost sharing differences, it may not know whom it is treating.
The other issue, which is not commonly discussed, is that companies sometimes offer different networks. One of the things that we examined in the bigger project was network requirements. Many companies will segment their enrollees to different providers. So, the Medicaid beneficiaries in the District let's say enroll with, making up a name, Aetna. Aetna may have 800 primary care doctors, 25 hospitals, and 500 pharmacies. For its Medicaid business it may have for the same number of patients, but 400 (different) doctors, different pharmacies, different hospitals. It all came to a head in a recent incident in New York State. Plans will assign patients by their eligibility status to certain providers. In New York State, the New York Medical Society did not want to rely on quiet plan assignment because they felt there were not enough Medicaid doctors and that they, therefore, would be designated to beneficiaries.. They wrote a letter to Secretary Shalala asking her to allow the New York State waiver to specifically permit separate networks. This raises major civil rights issues, not to mention Medicaid quality issues. The answer was that New York cannot do that. The District, I know, has separate networks because I sat on the board of a health plan that will not include certain providers in its network to Medicaid beneficiaries. I am sure that plans are able to distinguish (their clients), and I am sure most providers can distinguish in one way or another. They have to know they have different books of business.
7. A. Well, this is an area that has received almost no attention. So far, the only article on the issue is "Civil Rights and Managed Care," which we wrote in Health Affairs a couple months ago. The Office of Civil Rights has not answered any questions about the application of civil rights statutes to managed care. Generally speaking, the issue of nondiscrimination is different from the issue of affirmative action. Under federal civil rights law you plans may not be able to set up two networks, but you may not have to, as a federal matter, take steps to make the network look like the group of patients. The State on the other hand, may insist on that because as a qualitative or access matter it knows that the care is profoundly affected by who is in the network. For example, Massachusetts says if a plan is serving an area where there is more than one prevalent language, then the plan has to offer at least two providers who speak the language of the enrollees. The contract does not say that plans have to make translation services available; it requires a choice of a couple of providers. If that choice cannot be offered, then there may be provisions for out-of-plan care.
8. A. Generally, between the State and the MCO we got a standard agreement or a standard RFP that did not have rate information attached. Now, some of the contracts did have rate information in them. Some States rate by "rate cells"; some States do a crude risk adjustment by categorical eligibility status. In the case of the agreements between the company and the provider, most contracts are actually silent on the rate. There was some rate information, and we actually broke that off from the contracts, blinded it, and sent it out to SAMHSA. But most of the contracts say-we'll pay you in accordance to our fee schedule. The contracts always have clauses in them that allow the company to modify the contract at any time. If a provider negotiates a great rate, a great stop-loss arrangement, and good profit-sharing, the company, in the middle of the contract period, still can notify the provider that it is modifying the agreement. Interestingly, there was an article a couple of days ago in this week's BNA Health Law Reporter about the issue of rate. The article was about a phenomenon known as silent PPOs, in which a company will sign up its providers into a network and then represent a payment structure which is not an accurate portrayal of what the master agreement requires the company to pay. It will only pass through a portion of the payment. So, although I thought it was unusual to be silent on a rate, it turns out it is quite common. This was an article about hospitals that feel they are losing millions of dollars because they are in what turns out to be a silent PPO. The hospitals are not getting the benefit of the payments that the purchaser specified. Generally, the contracts provide for a fee-for-service payment, which means you do not have a working monthly cash flow, there may not be any stop-loss, and there may be a withhold. contracts also contain other financial risk-shifting devices, the biggest one being third party liability recovery which involves identifying other primary sources of insurance. The contract will say-if our member has third party liability, it is on you, the provider, to go get it, and you can collect from us when you can prove that you sought and collected whatever was owed. If it turns out that nothing was owed under the other plan, you may not get anything. Your contractor may say, well then we owe you nothing. So, rather than being able to give you a dollar figure, I can tell you that the financial framework is structured to minimize the flow of funds from the company to the provider, and this is consistent with the fact that the company is taking on a lot of financial risk and may be subject to fund flow restrictions from its purchaser.
9. A. I think that some companies may get out of the business, and others will always go in. I mean it's like what will refrigerator companies or car companies look like? There will be fewer of them, and they will be looking for new markets. For example, my husband practices health law, and recently was sent to Moldova, where they had neither heat nor electricity. They had so little heat and electricity that everybody froze, and there wasn't enough electricity to run the overhead projector. He was there to explain the benefits of private insurance to Moldovans. Now this is a country where he was served quail eggs, sauerkraut, and potato salad for two days, no electricity or heat, it was snowing, and he was there on a trade mission. So, companies will form and look for markets; they will find markets; they will segment markets. I think the one thing that will happen is that the small, indigenous community-based companies will collapse. Q. So what is the relationship between the company and the provider going to look like? A. I would say, in the case of the indigenous companies, there is the possibility of a kind and gentle buyout. If a big company sees the benefits of a small community-based network that has a lot of cache, the big company is going to buy it out, and let it run as before. Other providers will collapse, or their networks will collapse, they will be picked up by a bigger network, and they will slowly but surely conform their practices to the exigencies of the financing system and the legal requirements. I think it is like any market consolidation; it really is the application of the purest market law and economic principles to medical care. The check on the system would be if the country decides to step in and re-regulate. But that means much more than just Medicaid, it means taking on ERISA. It is hard to regulate the Medicaid line of business and leave the employer line of business unregulated. Q. Is the fee-for-service portion going to continue? A. Well, most of these companies pay their providers fee-for-service. They just pay a discount to fee-for-service.
10. A. Again this goes to the question of whether the purchaser is from a commercial insurer that offers a health plan of managed care market products, or from provider-owned networks, such as integrated networks. They still perform all the functions that Aetna performs, it is just that the ownership that is different. They do not have the reserves that the big insurance companies would have. There are people who say because they do not have the reserves, they should not be allowed to do this. I think the flip side of your question is the more interesting one-what is it going to take for big purchasing groups to insist on certain changes in the way in which these companies do business? That's the nice thing about the market, in theory companies are going to be market responsive. So, if Medicaid develops a clearer vision of what it wants in the way of mental illness or addiction disorder services or pediatric services or pregnancy-related services, that gives everybody some power. One of the things that we have said in our study, and we have reiterated here, is that Medicaid agencies ought not to act alone: they ought to form a purchasing group, they ought to behave like purchasers. They will tell you that it is cutting across state lines, and it is too hard as we are all different. Yes, there are some things that you ought to do to tailor your product to your state's own conditions. But there is a lot that states can do collectively. There is no reason a pregnancy-related benefit cannot be a uniform benefit, or that all Medicaid agencies expecting that a mental health benefit is going consist of certain things at a minimum. Additional items can be added as needed. And you should not have agencies reply-I do not know what a mental health benefit is. I think that is the area for SAMHSA: how to influence purchaser decisionmaking.
11. A. Well, I think the way Medicaid is structured it going to have to be a state function, just as provider certification is a state function. But the important question is, will state legislatures and governors allocate enough funding for proper contract compliance oversight? And that is why I have advocated not writing a 900-page contract. First of all, do not have standards only in contract language, but also regulatory language to back them up, especially the benefits package. Second of all, do not take a kitchen sink approach that tries to include all of HEDIS (Health Plan Employer Data and Information Set).
12. A. You can take the Massachusetts approach, which will give you at least two bilingual providers in every service area in all the languages that are spoken. The first question is-what is cultural competency? Is it what Florida attempts with its ethnic and racial composition requirement and Massachusetts its language requirement? Does it mean having on the staff of the HMO people who are familiar with unique cultural issues affecting the population in the area? The first thing a buyer has to do is define what is meant. We have a table in this study on cultural competency, and one of the questions is-does the contract have a definition of cultural competency? The answer is no. We are not always sure what the state agencies meant by that. One of the things that I think is very powerful, and we have a separate study of this going on now, is the issue of autoenrollment. Autoenrollment is the movement of all the nonselecting Medicaid beneficiaries into plans. In a lot of States, it is the principal means by which people get into plans. It is a very lucrative business for plans because autoenrolled people use fewer services for a lot of reasons, not necessarily because they are healthier, but because they may not know where they have been assigned. They may go out-of-plan a lot. So, if it is a lucrative line of business, one thing a state could do is say is that it will give plans a larger share of the autoenrolled business if they have a network, offer translation service, and do a host of other things that are culturally competent. So far, most agencies use price as a determining factor to assign autoenrolled lives. That makes price the big driver of the system and that may or may not be the world's best driver. Question and Answer Session II
1. A. The Nebraska definition is the best example of evidence-based medical necessity standards that we have seen. I do not know if it is more widespread in this year's contracts, but evidence-based medical necessity definition standards are very uncommon in any reviewed contract. The movement is in that direction, but the more common definition and the one quite typical is the one you see in 05.01. With Medicaid, when an agency wants to deny or terminate a benefit, the burden of proof is with the agency to show that it is not covered because it is a constitutional due process requirement. In contract law, the burden is with the claimant; it is the reverse. But even where the definition is broader than the Nebraska definition, it will be the claimant who has the burden of proof to come forward and demonstrate that he or she is satisfied with the definition in dispute.
2. A. Generally, if there is a post-termination clause, it says that upon termination the provider will continue to treat patients of the Plan until patients can be moved, and usually it is silent on payment. Actually the normal thing is not to say anything about how the payment will be made. In this case, the company decided to write out what was on its mind. Q. The provider actually signed it? A. Let me make clear, these are executed agreements. The other thing about these agreements that you need to understand is that they are "evergreen." Either evergreen documents are of indefinite duration, or they have the phrase "shall be renewed automatically" unless either side decides to terminate. One of the issues raised in our study is that the contracts may be outdated. My guess is that a large proportion of what we looked at a year ago is still in place; there may have been a change in the fee schedule. These are standard documents; companies do not change their contracts frequently. They have to currently, due to the change in law concerning physician incentive plans. There are other reasons they may have to change their contracts, but it is not done often. In the 3 to 4 years that we have been reviewing contracts, we are seeing exactly the same documents. In fact, we used the same basic instrument that we initially developed in 1994, and it was absolutely current; we added almost nothing except provisions relating to specialty services.
3. A. Absolutely, there are options other than one-on-one negotiation. A point of caution though: while it is clearly better for providers to get into a bigger group, it is always better to try and group specialties for this kind of community-based specialty service. However, in order to pass muster with the Department of Justice and Federal Trade Commission antitrust guidelines, the network has to maintain a relative arm's length agreement with its members. It is still better to have the network, in which you sit on the board, because if there is money to be made, then it comes back to the governing members of the network. Your theory that you can negotiate a better deal together is correct. Comment. The problem is that when a bunch of providers get together, if they are talking about price negotiation in terms of price or services, it may be an activity in violation of the antitrust laws. Q. An informal get-together of people could create a problem with antitrust laws, but if a formalized system is established, there is a need... A. For that you need a lawyer, there is a series of formal steps that need to be taken, and there are guidelines that have been evolving over the decade on this activity. It was precisely this informal activity, as I understand it, that got Tennessee mental health centers into trouble. They basically got together informally, but did not set up a legal network. They intended to negotiate as a group, and they found out that it is section one antitrust violation, as a classic horizontal conspiracy restraint of trade. Q. I have to say, maybe it is time to change the antitrust laws. A. Good luck! Q. Back to the network, what is the messenger model? A. Well, there is a whole series of options for setting up provider networks; the messenger model is one of them, probably the least intrusive. It carries a minimal amount of risk; it is also probably the least flexible negotiating model.
4. A. First of all, a lot of nondisclosure clauses may be illegal precisely because the prime document and all the subdocuments under the prime document are public, and that is going to depend on the state law. There may be other provisions, other state insurance laws that would make a public contract and subcontract subject to public disclosure. I do not know enough about proprietary law to know if you can categorically say that it would be unlawful to have a proprietary agreement pursuant to a public contract. My guess would be no, because when we did our big contract study, we used the standard documents; we did not use executed contracts. If I had wanted to get the rate information from the executed contracts, I probably could not have gotten those. So there are proprietary elements of even public documents. Now, whether as a public policy matter there should be a nondisclosure clause, I do not know. The funny thing is, if you go to a meeting of the National Health Lawyers Association and say that you would like to see a few samples, you would get tons of these things. There is nothing in these documents that is particularly secretive; what may be secretive is the rate that is being paid. Sometimes we got rate information, but a lot of the contracts are silent contracts; they are silent on the rate. Essentially the plan is going to determine the rate on its own and pay you depending on the book of business it is dealing with; this rate may fluctuate. There are organizations called silent PPOs that are precisely set up to be silent to their members on the rate.
5. A. Well, the reality of moving into a deregulated system of heath care financing is that one deals with market law. You are dealing with antitrust and related principles having to do with transactions. That law is very ferocious to suppliers; it does not matter if you are supplying steel for a car or the medical care for the health benefit component of the automobile company. If you are a supplier, you are on the short end of the stick, and in the managed care environment, the community provider becomes the supplier to the company, which is the agent of the buyer. After watching the efforts of the suppliers to change market law in 1993-94 and some of the aborted efforts made in 1995, I would say that the suppliers have given up, and instead they have tried to change the law of market entry. What they have tried to do is become the company. That explains the whole move on the part of physicians to become the agent, the industry itself. In this country, with our belief in markets, the notion that you would ever build up supplier power is probably absurd. I think the best that you are going to see are these 1996 antitrust guidelines that do let providers come together. Now, the other trend is unionization. That may be happening more and more as providers realize that the potent weapon they have, at least in certain markets depending on the balance of power in the market, is to unionize to be able to act in concerted ways. In Tucson, Arizona, right now there is a unionization effort among the physicians. They are becoming employees of the plan. Right now we are in a period of excess supply; therefore for the time being there is going to be a lot of tough negotiating. Banding together, I think, is the most sensible thing to do.
6. A. We started this study by saying that this is not a study of the quality of managed care; this is not a study about the relationships between the clauses and outcome. This is a study to show people what the legal framework is. We make the point that there are two things in life that heavily influence the way providers function-first, how they are paid, and second, the legal requirements under which they operate. Somebody told me last week that in one of the communities where United Health Care is experimenting with capitation of specialists, the use of specialty care dropped by 30 percent within months of putting specialists on capitation payment. Certainly the financing or legal arrangement that embodies the financing has an immediate impact. Whether that 30 percent was excess, or whether that 30 percent was medically unnecessary, we'll never know. So far, to the best of my knowledge, no one has designed a study to try to get at the relationship between the rules you are operating under, whether they are formal rules or what you think you have to do, and the quality of the care that is furnished. Clearly at some point a deregulated industry may affect quality. That is what this debate is-do gag clauses affect quality, do physician incentive plans affect quality? We can wait for the proper test, or you can see what happens, people just decide as a matter of public policy that they do not want certain things to happen. There are some overt things-such as publishing communications with members about treatment options. If Congress passed a law doing that, my theory is that this would deal with about one percent of the contracts. Because that is not a common occurrence, it becomes a frivolous piece of legislation. The physician incentive plan provisions potentially have more impact, but the regulations set such a high threshold before the incentive plan is deemed to be a problem that it is not clear that will have a big impact. It is hard to draw the causation line that you want. I think what we will face more is a public policy debate about whether you want the framework to be utterly deregulated or not. Q. The subjective impression that I get is that we are charging ahead with this; yet we do not know what the impact is on quality of care one way or the other. A. But starting a study that will do that is always hard, and it will always be subject to a lot of interpretation, and I think where we are more likely to head is that the public policy arm will come together and say that these are things we do not want to have happen.
7. A. Well, what it says is: ". . .consistent in type, frequency, and duration of treatment with scientifically based guidelines of national medical, research, or health coverage organizations or governmental agencies." They can basically say that even if you came forward with lots of evidence that is a standard of practice, not only in the community but in fact among practitioners across the country, that it is not consistent with scientifically based guidelines of a national organization or agency. That phrase is seen in the testing of drugs or in the movement from experimental to standard practice. It leaves out, it omits the world of custom. In fact, the last clause of the law, "The fact that the Physician has performed or prescribed a procedure or treatment for a particular injury, sickness, or mental illness does not mean that is medically necessary." Nor does the fact that this is the only treatment for a particular condition mean that it is medically necessary. The phrase eliminates custom-and it is designed to eliminate custom-and it is probably an unlawful test of medical necessity under the Medicaid program. It has never been tested, and we do not know how it is applied. We have no idea what the decisionmaking looks like. It could be one of those phrases which someone hauls out and uses on a rare occasion, or it could be a phrase that is consistently applied in Nebraska to rule out a host of interventions that do not have national scientific guidelines to support them. It is a very tough standard, and the burden falls to the claimant to demonstrate the consistency with national guidelines.
8. A. Well, you ask a very good question; we do point out in this study that CMS signs every one of these contracts. They have to under federal law; they have to cosign every contract. We did a separate briefing for CMS in December on the full study, including the mental health component of this large study. Now there is an easy answer-it really does not matter, if the State wants to set up an insufficient contract, it is the state's problem. The State cannot contract away the rights of beneficiaries, the State is simply going to remain liable, and if I sue to get my benefits, I am going to sue the State. The State brings in the company, the judge decides who pays, and it is probably the State. That is not an answer because most people, until we did the study, did not understand that Medicaid beneficiaries remain dually insured. What is happening is that thousands, if not millions, of people are simply losing their benefits. There are seven or eight cases on this issue of dual coverage that in one way or another hold the State liable for violations of the law by managed care companies. But for every case there are 50,000 people who have no one to represent them. We think that it is important because Medicaid is "noninsurance"; it needs these insurance companies to do things that insurance companies do not do. The real policy question is how much is the insurance company going to bend in the direction of Medicaid? Do we need to rethink the whole structure of the Medicaid statute, do we need to divide Medicaid into two, have a Medicaid program for commercial insurance and then a Medicaid program that is clearly a wraparound in the law, that says unequivocally what is outside the standard agreement. That is a possibility. Right now, because the dual enrollment or coverage problem is not understood, people have lost a lot of benefits. The States end up making themselves financially and legally vulnerable. I think CMS is actually quite interested in trying to eliminate as much of this problem as possible. My sense of the agency is that it finds itself in a difficult position of giving directions to States. It is not seen as a program that CMS can direct the way it directs the Medicare program. I think Medicare also takes up more of the agency's thinking. The people at CMS are terrific, and they have some incredibly astute people who understand this problem, and we have had many conversations with the agency on how to move along our recommendations for greater technical assistance, some sort of consensus process, and some sort of attempt to standardize the contract language at least on some of these very basic issues such as pregnancy related care. So, it remains to be seen what the agency will do.
9. A. State and commercial because they have whatever is suppose to be in that contract plus everything that is left out, all the classes of benefits and arguably the amount, duration, and the scope issue create dual coverage.
10. A. The big concern for me is the children, for children-given the scope of Medicaid and given the demographics of your user population in a lot of communities-this dual coverage problem is going to be a problem for every child that you see up to about 150 percent of poverty. It is the children whose benefits rely on Medicaid. The other group is pregnant women because Medicaid by covering pregnancy related care should cover addiction disorder treatment, mental health treatment. We are now up toward 45 percent of births in the United States are paid for by Medicaid, and we found that very few of the contracts covered addiction disorder treatments for pregnant women; that is not a contract service, and yet under their Medicaid card they should be getting that treatment. It is going to be your nonpregnant adults who do not have the benefit of dual coverage.
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