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CFO & Managed Care thru Mega Plan Health

You sat in the CEO chair and studies real world hospital accounts receivable problem with your team, and came up with a process improvement plan to reduce days in accounts receivable and improve cash flow to your hospital. Well great news is that your plan worked! This morning your days in AR stand at 67. Not perfect, but much better, and you have five payrolls of cash on hand right now. Things are looking up for community memorial!

And then just before lunch, you get a call from Bill Jacobs, HR Director at Commercial Intertech (CI), the largest employer in the community. Bill says "I wanted you to hear it from me first. We signed a contract yesterday with Mega Plan Health. They will be the managed care organization for all 4500 of our employees and their families. About 9000 patients total. I'm sure that you will want to get a contract with MegaPlan as soon as possible. I noticed that your hospital is not on their Preferred provider Network (PPN), and I am pretty sure that you will want to be, so that our employees can continue using the facility."

By the time you thank Bill for the heads up, the acid is already churning in your stomach. In the hospital world, MegaPlan is known for cut throat tactics, negotiating steep discounts with hospitals, and fighting every claim the hospitals make. Commercial Intertech has every right to contract with any Insurance provider they like, but now you have a problem. If you cannot get a decent contract with MegaPlan and become a part of their preferred provider network (PPN), many local patients may bypass your hospital and go to the next closest PPN facility. Delivered to your office this afternoon, by no coincidence, is a contract proposal from megaPlan. It calls for the hospital to provide a 35% discount from charges to megaplan and all of its members. And it includes service pre-authorization requirements which will make life very difficult for your business office. You know from experience that the hospital loses money whenever the discount from charges exceed 20%.

Is the hospital CFO trying to solve the managed care problem?
So, what will you do? Whose advice makes the most sense to you in this situation, and how will you proceed?

1. Chief of staff Dr. Evans: "I know you are not going to like this, but probably 1/3 of my practice comes from Commercial Intertech--employees, spouses, kids. I have had multiple generations of patients who all work out there. You need to sign a contract with MegaPlan and soon. I looked at a contract for my own office. It is not great, but if I donĂ¢??t sign I could risk losing many of my long-time patients. And I'm sorry to say this, but if the hospital does not sign--frankly, I might have to take my patients, elsewhere."

2. CEO Katarina Eaton: "Well, we do need to form a relationship with Megaplan if commercial intertech has selected them. I would suggest preparing your own contract proposal for them to look at. Be reasonable, but make it something we can live with. Remember, we have some power in this situation ourselves. If the commercial intertech employees and families cannot use our hospital, they will be forced to travel a long way for care, and may even have to change doctors that will not make them happy at all. You can bet that the HR folks at the factory will get an ear full from their employees if we cannot come to terms with megaplan. Make your own counterproposal, and don't panic."

3. Business office manager Linda Freed: "there is simply no way that we can work with MegaPlan. I went through that at another hospital. They make it impossible to get claims approved, and when the payment finally comes, it is usually wrong. And then we have to fight for the rest of our money. Don't sign! In fact, tear the contract up and mail it back to HR at the factory. The employees will revolt at the factory when we say NO, and MegaPlan will be sent packing down the road."

4. CNO Nancy Strittmater: "Well, as you know, my husband works at commercial intertech, and quite a few of the nurses here are in that situation. What happens if we all cannot even use our own hospital for medical care? I am with Dr. Evans, you'd better sign the contract they sent and do it today so that no rumors get started around the hospital about this situation. Our people will panic if they cannot get healthcare here in town. I could even lose some of my best nurses!"

Solution Preview

CEO Katarina Eaton's advice makes the most sense to me. It is crucial to accept the inevitable, which is Commercial Intertech's contract with MegaPlan. At the same time however, the hospital's sustainability must be considered. MegaPlan obviously works with many hospitals and health care providers and has experience in dealing with them. Both the hospital and MegaPlan are better served by providing heath services at reasonable prices, with reasonable requirements. This is the time to come up with a contract proposal that is reasonable and fair to all ...

Solution Summary

THis solution outlines a solution to a case study in which a hospital CFO is presented with the problem of the largest employer in their community signing a contract with a managed care organization, Mega Plan Health, that will mean the hospital will be put in a financial bind if it must agree to the contract Mega Plan Health has presented the hospital. It outlines several alternative solutions to handle the situation, and discusses the best option. It includes examples.