Negotiating managed care and capitated contracts to minimize risks

Successful negotiation of managed care contracts requires understanding of your managed care organization. Larger physician panels, increased medical costs, and insufficient health care premium rate increases have recently created losses for many managed care organizations.

By negotiating managed care and capitation contracts, managed care organizations can effectively transfer risk to the medical providers, thereby controlling their medical costs. The medical providers are then forced to either reduce medical costs, or accept reimbursement far less than under a traditional fee-for-service agreement.

A number of strategies can be employed to minimize the risks physicians face in negotiating managed care contracts: (1) stop-loss protection insurance to pay excess medical costs, (2) defined limits for risks and profits, (3) reimbursement increases for excess referrals, (4) inclusion of contract cancellation clauses for cause and for no cause, (5) contract renewal that allows for rate escalators, and (6) inclusion of incentives for such items as reduced hospital stays and reductions in drug prescription costs.

Physicians must understand and, when possible, limit the risks they assume. They must have a good information system and must know their costs. Once a managed care contract is negotiated, providers should be vigilant in finding better ways to practice effective medicine and control costs.