Coming to Terms

December 1, 2005

Just mentioning "contract negotiations" can put plans and providers on the defensive or maybe even the offensive. The sometimes-contentious relationship between the two, triggered by the high cost of healthcare and complaints from providers about not being paid enough, escalates while both parties try to come to some kind of agreement.

Mark Jasper, a managing consultant in New York City-based PA Consulting Group's life sciences and healthcare practice, says that although the broad network with "discounted" hospital and provider rates continues to predominate contracting, the supply-side approach of tiering, the demand-side trend of consumer-driven health plans (CDHPs) and pay-for-performance (P4P) models are weighing in.

"CDHPs potentially reduce the use of 'risk-sharing' with providers, while they also introduce the opportunity to reward the demonstrably 'better' providers. The use of criteria in tiering is also an attempt to identify providers, in qualitative terms, who have favorable outcomes and who are cost-efficient. This rewards providers with good outcomes with an increased patient flow," Jasper says.

"Plans are really trying to standardize their arrangements so that there is less flexibility," she says. "The payers want to put providers on network-wide fee schedules and one structure of inpatient rates instead of many different forms of payment. One hospital may have per diems based on the type of service, while another may use diagnosis-related group (DRG) arrangements."

With less differentiation in payer negotiations, providers are attempting to level their rate structure across the major local payers, giving providers little reason to give a better discount to one payer over another, Burke says.

THE VALUE INITIATIVE

Whatever drives contract negotiations, many health plans will tell you that collaborating with providers is key to success. BlueCross BlueShield of Tennessee, based in Chattanooga, designed a one-and-a-half year pilot program that started May 2004, based on input from industry stakeholders-providers, purchasers and payers. The objective was to develop reimbursement methodologies to better align incentives among all players. The program took a different tack-accepting accountability for outcomes, while placing responsibility for the process in the hands of providers.

BCBS of Tennessee is working with 1,000 providers in five provider organizations-two groups affiliated with Vanderbilt University-and requires physicians to use evidence-based guidelines to treat patients, all of whom are fully insured plan members. Physicians are evaluated on how well they meet predefined clinical criteria in the treatment of diabetes, congestive heart failure (CHF) and/or hypertension.

In turn, the health plan pays providers for telephone consultations, Web visits sponsored by Relay Health and group sessions, if criteria are met; physicians receive $35 for every patient enrolled in the Value-Based Reimbursement Pilot. Copayments, deductibles and coinsurance are waived during the pilot program for these services, which routinely are not reimbursed.

BCBS of Tennessee evaluated the success of the program by looking at guideline compliance, improvement in clinical outcomes, patient and provider satisfaction and cost savings.

"We are studying the functional status of patients against a baseline taken at the start of the pilot," says Mark Austin, senior vice president, network management for the health plan. "We want to determine if outcomes improved when communication with providers increased. We are attempting to change the way we approach providers by paying them to do more."

Since the inception of the $35 incentive, enrollment in the pilot has increased by 61%. Final results will be available in 2006. One thing that Austin already knows, however, is that the program has been well received by providers, who welcome the partnership with a health plan.