SHOW ME THE MONEY
“It’s a numbers game!” I hear this all the time from managed care organization (MCO) executives. And once upon a time when I was on the other side of the desk, I said so too, to a few providers.
Like thousands of healthcare executives all over Nigeria and I reckon in other climes where healthcare providers are at the mercy of the managed care industry, attempts to question, rebuff or complain about low reimbursement rates or increasing losses arising from these rates are countered by MCO executives with the nicely said “It’s a numbers game. You need to do more to attract more enrollees or patronage, then you will be profitable”.
Prior to the onset of the managed care industry in Nigeria, a few healthcare providers taking a cue from the play book of American HMOs started to offer captive provider-insured schemes to medium and large corporates. They offered a bundle of services to defined numbers of employees of those corporates for a fixed rate per employee per annum. Those provider-insured schemes eventually metamorphosed into HMOs and their products were replicated as health plans. Those HMOs then signed on hundreds of 3rd party providers: the average private HMO network in Nigeria consists of 400 providers distributed across the country. However, the distribution of enrollees among these providers follows the Pareto principle consequently for most healthcare providers, significant enrollee numbers remain out of reach akin to the proverbial donkey chasing a carrot on the end of a stick.
The first generation MCOs commenced with initially offering only pre-paid capitation reimbursements for primary care services to 3rd party providers based on their own historical cost experience with adjustments (read discounts) for their administrative costs and profit margin. Eventually fee-for-service (FFS) reimbursements were introduced to cater for high cost, low volume secondary and tertiary care services. These FFS reimbursements are paid retrospectively on the basis of actual utilization which in many instances is managed (read controlled) by the MCO. Ironically in Nigeria, FFS rates are typically less than what cash paying private individuals pay in spite of delayed payment periods averaging 90–120 days. MCOs get away with this on the basis of much touted (but illusory) enrollee volumes to healthcare providers. Eventually providers lose in more than one way — an initial discount from their standard rates and lost time value of money from delayed payments. Additional fixed cost investments in quality mandated by the MCOs and in anticipation of the illusory enrollee numbers are almost never realized.
In the managed care value chain money changes hands at 2 ends — firstly when the MCO negotiates with the corporate and at the other end when the MCO negotiates (read contracts) with the provider.
At the first interface, when MCOs receive a request to offer managed care services to a corporate, they do so in a well thought through manner designed to achieve a sale with a high likelihood of profitability. The MCO is guided by the expert advice of an actuary whose prior review would have provided an underwriting grid that recommends pricing for specific benefit packages (health plans) for determined population sizes. The actuary also provides guidance for age, sex, health risk and volume adjustments to the base rates. No MCO would accept a pricing on the basis of a Naira or Dollar offer from a corporate without collecting sufficient information to model the risk and anticipated profitability. Well run MCOs turn down business where the projected unit economics does not anticipate profitability or at the barest minimum cover their medical and operational costs. Some MCOs insist on stop loss clauses when the risk profile of a corporate population is indeterminate. MCOs literarily ensure that they see the money before they close a sale with a corporate.
At the other end of the value chain, MCO negotiation with healthcare providers is a black box laden with information asymmetry in favour of the MCO. An imperial MCO executive sends a generic contract with predetermined rates, no guaranteed volumes or population health risk assumptions to the provider. The contracts typically do not have stop loss or price review clauses. Contractual obligations to pay capitation prospectively before the commencement of the month or FFS reimbursements within 30–60 days of claims submission are rarely honoured. Hence at contract negotiations or following years of losses when the hapless healthcare provider requests for a review or complains about his losses, he is told “It’s a numbers game”
Healthcare providers in Nigeria, need to start interrogating/negotiating MCO contract terms, rates and performance. We need to ensure that stop loss and rate review clauses including inflation adjustments are built into MCO provider contracts. We also need to ensure that we hold MCOs up to their credit terms of 30–60 days. Obviously, healthcare providers need to uphold their own side of the bargain too — provide structures and processes that guarantee the delivery of appropriate evidence based services efficiently to MCO enrollees.
We need to ensure that we see the money before we ink the next contract or continue with a loss making MCO contract. We should no longer leave it to chance that the MCOs work to our mutual interest. If you are a healthcare provider, the next time that MCO executive tells you “It’s a numbers’ game”, you know what to tell him. Yes, go ahead, say it like Jerry Maguire (Tom Cruise at the instance of Rod (Cuba Golding Jnr) in the eponymous movie), “SHOW me the money”. Yeah, Louder!
PS: In my former life, I had oversight over the underwriting unit of a prominent Nigerian MCO. I do not rule out further reincarnation as an enlightened managed care executive in the near future. In my current incarnation I am Director (Operations) at PurpleSource Healthcare and MD/CEO of Mt. Sinai Hospitals — a chain of 6 medical facilities in Lagos, Nigeria which is making progress towards consistently providing quality primary healthcare services with predictable optimum health outcomes trusted by patients and payors.