Blunt Talk From HMO Blue’s Ancillary Contracts Manager

Advice From The Other Side Of The Table

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CEO SUMMARY: By now, most clinical laboratory executives and pathologists have discovered a new fact of life: provider status with managed care organizations is a critical success factor. Without provider status, the laboratory is denied access to patients and the reimbursement associated with those patients. Here is candid information about how and why a managed care organization selects some laboratories as providers and excludes others. It is revealing reading, and should be used by perceptive managers and pathologists to refocus their laboratory organization on the clinical services which matter most in the managed healthcare world of tomorrow.

PROVIDER STATUS IS NOW THE HOLY GRAIL for clinical laboratories and pathology practices. With provider status comes access to patients and the opportunity to build market share.

In fact, provider status is now so important that the clinical laboratory world is fracturing along the fault line of provider status. Those laboratories which gain provider status with major managed care organizations (MCO) in their city enjoy a better financial performance than labs which are excluded from the MCOs’ provider panels.

Despite the importance of provider status, the MCO’s selection process remains a mystery for many laboratory executives. That is why THE DARK REPORT invited the provider network director of a major HMO to address the Executive War College held last May 12-14 in New Orleans.

“When any laboratory or pathology practice seeks to become approved on our provider panel, it must first understand the needs of people with my responsibility,” stated John Monaghan, Director of Network Development for HMO Blue of New Jersey. “What are the demands of our job? What goals must we meet for our MCOs to succeed? What is the exact type of deal we want to make with clinical laboratories who join our provider panel? The first advice I give to providers is ‘Know your customer.’ And I am your customer.”

Monaghan’s HMO covers 600,000 lives and is a for-profit subsidiary of Blue Cross & Blue Shield of New Jersey. It is a regional mixed model network incorporating an independent physician association (IPA), Group, and Staff Models. HMO Blue provides services in New Jersey and Pennsylvania. It has applications pending for authorization to launch operations in New York and Delaware.

Monaghan develops and manages the provider networks used to deliver clinical services. Within HMO Blue, he is the individual who supervises the RFP process and deals with problems between providers, physicians and patients.

“I frequently describe myself as the most obnoxious SOB you’ll probably meet in the managed care business,” said Monaghan. “I say that for two reasons. First, I take my job seriously. I look upon our vendors as the people who will be providing medical care to my family. Second, like other MCOs, change is constant within our company” he continued. “For that reason, I must be tough in making decisions and implementing those decisions with our vendors and physicians. That leaves me little time to dwell on clinical laboratories to the exclusion of other providers.

“On the other hand, I can probably be the most valuable reference you’ll have in the managed care world,” Monaghan noted. “My office deals with all ancillary providers. So I deal with hospices, skilled nursing (SNF), dialysis facilities, and the like. When you go to these facilities, I can be a fairly good advocate for your organization if our working experience validates your organization’s capabilities.”

Monaghan’s background gives him unusual credibility within the managed care world. He has actuarial training and spent five years underwriting national accounts. Following that came five more years of progressive experience in managed care contracting.

“During my days as an underwriter,” said Monaghan, “I saw first-hand the reasons why large employers migrated toward managed care during the late 1980s and early 1990s. I’ve had to go out and explain to companies like IBM and AT&T why their health premium rate renewal was increased by 62% on both the medical and hospital segments.

“This gives me a leg up on industry colleagues in other HMOs that you may deal with,” he added. “As a former underwriter, I understand the numbers that go into the rates and how the rates are developed into final premiums. I understand why employers are selecting managed care programs for their employees.”

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Where The Money Goes

“Many of the insights I want to share with you derive from understanding where the money goes in the healthcare community,” stated Monaghan. “As the pie chart (above) demonstrates, typical PMPM (per member per month) costs total about $100 per month. Of that, laboratory costs average around $1 PMPM. Even the highest I’ve seen for laboratory is only $4 PMPM.

“Look at lab expense in relationship to everything else,” he added. “Laboratory is not the big cost item within the healthcare system. That is the major point I want to drive home. I realize that laboratory is 100% of your business. But it is only a small portion of mine. My time and focus is on other areas, not laboratory.

“Although my major concentration is spent on more significant priorities than clinical laboratory, continued Monaghan, “I fully appreciate the potential of laboratory testing to favorably impact both the quality of healthcare and the cost of care. HMO Blue does want clinical laboratory services to be an asset for our provider networks. We also seek to address test utilization.

“That is precisely why I want every laboratory provider to ask this question of themselves during the RFP process: ‘Do you know your laboratory organization?’ As the provider selection process takes place, it is absolutely essential that you understand what your laboratory is and how it matches the particular needs and criteria of HMO Blue.”

Know Your Laboratory

“I’ve provided two lists of characteristics that you should compare,” said Monaghan. “One list is about your own laboratory organization. The other list is about the specific needs of HMO Blue from our designated laboratory provider(s). Before entering into the RFP process with us, you would be well- advised to understand how your particular strengths match up with our needs for a laboratory provider.”

Monaghan’s advice is simple: Laboratory executives need to do a comprehensive strategic analysis of their laboratory’s capabilities. They must identify how their lab can do a better job serving HMO Blue than competing labs in the target region. A well-structured RFP response by the lab allows the MCO to make a more informed decision in favor of the best-qualified laboratory.

“Before going further, I want to lay to rest the argument about quality that I constantly hear from laboratories,” Monaghan said. “Does your laboratory really understand the concept of quality customer focus? At HMO Blue, this is an important trait we look for in potential providers.

“The quality benchmarks I am interested in go beyond test result QA/QC,” he continued. “The lab industry has a variety of accrediting agencies to handle that. CLIA, CAP, Joint Commission, and others already regulate laboratories. It’s not a major point with me that you’ve processed 99.99% of your PSAs correctly or on time. I assume that your compliance with this measure of quality is 100%. What I want to know is how you serve your customers better than your competitors.”

Lab Has Three Customers

“Any laboratory on our provider panel has at least three customers: physicians, consumers and the MCO itself. I want to know what you’re doing to improve their perception of your service. I want to know what your plans are for improving existing satisfaction levels of your customers. It’s not good enough to just stand still. Your laboratory should constantly be raising the bar by giving customers higher levels of service.

“I have a good example to illustrate this point. Magee Rehabilitation Hospital in Philadelphia is one of the foremost rehab facilities in the United States,” observed Monaghan. “When I asked them this question, they had an intriguing answer. After surveying their customers, they discovered everyone coming from the outside hated their cafeteria. So they made a substantial investment to improve the cafeteria. Magee was willing to put money and action behind the service deficiencies identified by their customers.

“Laboratories can do the same thing. Are you able to show me that your ASCUS rate on Pap smears is lower than competing labs?” he asked. “If so, you allow me to prevent women from having unnecessary procedures and losing time from work. This is a quality customer focus that HMO Blue seeks from its preferred providers.

“But I am not going to sift through your data looking for this advantage,” advised Monaghan. “You will need to take the initiative to brag about that. And you’d better have the data to back it up. If you do, I’m interested.”

Another major area of interest to HMO Blue is access to service. “I manage a statewide network which is going into four separate regions,” noted Monaghan. “So access is important to me. But access involves more than just physical locations. My customers, the patients, don’t see their lab reports. They’re unaware that the lab beat the five day turnaround time on Pap smears by two days. What they see is your draw station. If you have people in your draw stations making low wage who don’t care about what they are doing, you’re in trouble with your RFP.

“Your draw stations need to be clean, accessible, and organized,” he continued. “What is the first impression that a patient gets when he walks in? Is the draw done quickly, or must he wait?

“It is similar with physician service issues,” added Monaghan. “Do you provide excellent turnaround time? I will never tell you what turnaround times should be, because you know your business better than I do. But I do care when a physician calls us to complain about missed pickups and late reports. Educate me about why your lab is better than competitors. Document why physicians believe your service is excellent. This helps me make a decision in your favor.”

Does Your Lab Know HMO Blue’s Needs?

1. Access to Service:
Draw stations-number and location.
How many physicians do you service?
2. Service the Physician:
Provide excellent turnaround time.
Is the report easy to understand?
Can the physician speak with the pathologist easily?
Be proactive.
3. Service the Consumer:
Are draw stations clean and organized?
What’s the waiting time?
Are phlebotomists consumer cognizant?
4. Service the MCO:
Be a lab consultant.
Identify trends.
Identify areas for improvement.
Communicate about problems and service issues.
Do not overextend.
Resolve complaints in a timely way.

Pathologist Involvement

Another interesting area discussed by Monaghan involved pathologists. “Can the physician easily contact the pathologist? A big issue and problem we deal with is when tests are outsourced or referred elsewhere. Your pathologists need to be ready to talk to our network physicians.

“But my experience is that most pathologists don’t do this very well. Radiologists learned this service skill ten years ago. They’ve made themselves more effective in this role and they are making more money because they have figured this out.”

Monaghan’s point should not be overlooked by pathologists. He is referencing both an attitude of service and an acquired skill of interacting with fellow physicians. Radiologists now operate in a way that enhances the clinical
effectiveness of their professional colleagues. Monaghan implies that pathologists might get paid more for their services if they learned the same lessons about customer service as radiologists.

Where Labs Have Value

“One area where laboratories have incredible value for me which they seldom use is in reporting,” declared Monaghan. “I need data in a timely fashion, not three months after the end of the quarter. But what I really want is laboratory data that makes a difference. Can you identify trends?

“You are the first people to know what the test results are,” he said. “My case managers fall out of their chairs if they get a call from the laboratory saying ‘look what we found.’ Were you to demonstrate that trait of being a patient advocate, I would always want to keep you on our provider panel.

“HEDIS (Health Employer Data Information Set) is another opportunity. You want more money for your lab? Write into your contract that if HEDIS results improve because of what you do, you get more money,” explained Monaghan. “But be ready for the downside. If HEDIS results decline or stay the same, I may ask for you to put some money back on the table. It’s the same with NCQA (National Committee on Quality Assurance). Each year that I must undergo accreditation, it costs me money. If you help with information that improves the accrediting process, I can do something for your lab.

“Innovation counts as well. Can your laboratory link test results with pharmacy prescriptions? Some labs are talking about doing that. If you could achieve that, your lab would be more valuable to me and reimbursement could increase appropriately. Disease management and prevention is another obvious area of added value.”

Insignificant Leakage

“Leakage is an issue,” he continued. “There is a good reason for HMO Blue’s long-standing contract with Laboratory Corporation of America. In just a couple of years I’ve gone from a very small network to a large network. My leakage is almost insignificant. If I am going to deal with another laboratory vendor in my service area, that lab must be prepared to deal with leakage.”

Monaghan discussed a variety of other issues and opportunities with the audience at the Executive War College. But his theme was consistent. “To become a provider for any MCO, a laboratory must understand the needs and goals of the MCO,” he said. “The only winning strategy for a laboratory seeking to join the provider panel is to provide hard data on its service performance and capabilities, and develop value-added services which align the laboratory and the MCO in a win-win fashion.

“My goal with these comments today is to help you understand, from our side of the table, what makes a laboratory valuable to an MCO,” he concluded. “Don’t think that a simple written response to an RFP is going to open the MCO’s door. Successful laboratories must invest time and effort into understanding the MCO’s needs and demonstrating to the MCO why the laboratory is a good solution to those needs.”

“Don’t think that a simple written response to an RFP is going to open the MCO’s door. Successful laboratories must invest time and effort into under-standing the MCO’s needs…”

Monaghan’s comments reinforce a consistent theme known to clients and readers of THE DARK REPORT: successful clinical laboratories understand the importance of value-added services. As Monaghan repeatedly stressed, HMO Blue is interested in a laboratory which can help it provide demonstrably better healthcare to its enrollees, physicians and employers.

Of particular significance is Monaghan’s interest in clinical laboratory providers which understand the concept of quality customer focus and its importance. HMO Blue, like other managed care plans, wants to add laboratory providers which constantly upgrade the value of their services.

For hospital laboratory administrators and directors, this should be a clarion call to institute proactive change in their laboratory. Only those laboratories upgrading their customer service capabilities will be the ones to survive in coming years.

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