The Science Journal of the American Association for Respiratory Care

2000 OPEN FORUM Abstracts

How to Respond to a Request for Proposal (RFP) for a Capitated Contract

Patrick J. Dunne, MEd, RRT, FAARC Fullerton, California

When first entering the managed care arena, providers of home medical and respiratory therapy equipment (HME/RT) services typically work under one of two reimbursement models -- a discounted fee-for-service contract or a risk-sharing, pre-paid capitation contract. In the former, a percentage discount is negotiated off of the Medicare Fee Schedule for durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) for a given year. Such a discounted fee-for-service arrangement between an HME/RT provider and a managed care organization (MCO) can last for several years. However, as the number of individuals ("members" or "covered lives") enrolled in the MCO grows into the tens of thousands, talks generally shift toward establishing a risk-sharing, pre-paid capitated contract. Under this model, the HME/RT provider is paid a fixed monthly amount based upon the total number of covered lives and the negotiated per member per month rate ("PMPM rate"). To avoid getting into a serious money-losing situation, there are several important steps that must be taken by HME/RT providers when responding to a Request for Proposal (RFP) for a risk-sharing capitated contract.
First, it is absolutely essential to clearly and precisely determine in writing what products, accessories, supplies and services the MCO is expecting to be covered under the capitated contract ("the cap"), as well as those that are to be excluded ("carve outs"). It is important to note that often, what the MCO determines to be covered under the cap may differ drastically from the coverage expectations of other contracted providers (e.g. hospitals and physician groups) and such discrepancies must be addressed at the outset if a profitable PMPM rate is to be negotiated. For example, it is not at all uncommon for hospitals and physician groups, in an attempt to reduce their own utilization, to start using HME/RT services more aggressively than would otherwise be the case.
A second vital issue to initially determine is what coverage guidelines are to be used to establish medically necessity to govern utilization of the HME/RT benefit. For Medicare-enrolled members, ("senior lives") the issue is straightforward since MCOs are required to follow existing Medicare coverage guidelines. However, the issue becomes somewhat fuzzy for non-Medicare or commercial members, since MCOs may well have their own set of coverage criteria based upon the different health plans they offer. All existing coverage criteria for all commercial plans must be identified, as well as the number of senior and commercial lives that are to be covered under the contract.
Another required element to establish at the outset is the historical utilization of the HME/RT benefit by the various hospitals and physician groups providing care to enrolled members. This information is important for two reasons. First, existing rental equipment previously provided by other companies will need to be exchanged once the capitated contract is implemented. Secondly, historical utilization data (if indeed at all available!) will provide valuable insight into the attitudes and expectations of other contracted providers working with the MCO, as well as those of the MCO itself.
Entering into risk-sharing capitated contracts is risky business and not for the feint of heart or inexperienced. Failure to exercise due diligence or to not utilize experienced personnel during the preparation process can be, and regrettably often is, a recipe for disaster.

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