When They Want Your Network But Don’t Want All Its Members

All for one, and one for all! Such was the rallying cry for my new client, a physician contracting network. “If we look out for each other,” the network members declared, “we will all enjoy the same opportunities and negotiate the same favorable contracts!”

But over the next year, reality set in. One managed care organization was wary of the ability of certain network physicians to operate cost-effectively. Two others had contracted only with hospitals where certain of the network’s members did not have clinical privileges. One contracting opportunity hit a snag because it required the network to team up with a second physician alliance, which already had sufficient depth in certain specialties. Ironically, a second contracting opportunity, which also involved another physician alliance, hit a snag because that alliance had enough primary care physicians and only valued my client’s specialists.

A lesson learned

Each time, the physician network needed to prove that other parties were not required to include all of its membership. My client quickly learned an important lesson: It’s wise to persuade contract parties that your panel is uniformly excellent and valuable. But the choosers and payers must be comfortable with each doctor. If your network insists on “all for one, and one for all,” its contract opportunities may be few and far between.

With careful structuring, your physician contracting network, physician-hospital organization, home care alliance or other organization can offer size and depth as well as flexibility in panel choice. For example, most contracting networks operate under some variant of the “messenger model” in which the network sets up arrangements between its physicians and third-party payers, employers and other alliances. The network will not be a direct party to these contracts as the provider of services, although it may have an arrangement covering its obligation for administrative or financial activities.

Under the messenger model, the service contract relationship exists only after an individual network physician signs a contract with a managed care organization, self-funded company or another network that does not operate under the messenger model. Once the contracting party signs on with the network, it will offer contracts to the individual physicians. A third party that does not wish the services of a particular physician typically may decline to offer a contract to that physician, even though it may have a model contract with the network.

Similarly, if the network wants to negotiate with another provider alliance, and that second alliance in turn negotiates with a third-party payer, the same flexibility remains. Even under this “multi-tier” contract process, the third-party payers will have individual agreements with the panel physicians, tied to the model contract negotiated by the second affiliated network. Again, if the payer does not wish to engage the services of a particular physician it may decline to do so.

Sooner or later, some outside parties will not want to contract with all of the network’s physicians. It therefore is wise for a network to provide, in its documents with its physician members, that membership in the network does not assure any physician of any particular contract.

Flexibility remains even if the physician network contracts with a service provider–a physician group practice, an integrated delivery system or a sufficiently integrated physician contracting network. If your network is structured under the messenger-model concept, it will negotiate the model contract with these other providers, but the individual service documents will be executed by the network’s physician members. Thus, the provider may elect not to contract with individual network physicians. Members must be told clearly that the network cannot and should not guarantee contract opportunities for all of its physicians. All it can do is offer third parties enhanced services or value.

No guarantees

There are variations. If your physician network were to team up with another, the combined panel could be offered to managed care organizations and employers. All of the physicians in each network would participate in the alliance, but none would be assured of acceptance by the third-party payers.

Also remember that, for most network opportunities, signing a service contract means only that mutual promises are made in the event of future service. These promises do not become relevant until the physician is actually chosen by a patient. The only consequence of a physician deciding to sign with a managed care plan or employer is that he or she is listed on the published physician panel. No patient is required to use the physician, and no other physician is required to refer to that physician. This rule applies primarily to “open panels,” which permit a patient to choose from any outside physician who has signed a contract with the managed care organization/employer. But the rule applies to most semi-closed and closed panels as well.

Performance-based deselection

Finally, we must recognize that any contracting network can succeed only if it offers more value than is obtainable without the network. Usually the network must be able to assume financial risk (or help its physicians assume risk), conduct effective utilization review and credentialing programs and gather and utilize data effectively. Therefore, if any managed care organization, employer or alliance has concerns about the quality, cost-effectiveness or value of any particular physician, these concerns may be addressed by your network’s performance tracking system.

Your network may condition participation on quality assurance/utilization review performance. Or physicians could collectively assume the risk of a fee withhold, agreeing to penalize those whose inefficiency contributed to a shortfall. Another idea is to increase the size of the fee withhold for poorly performing physicians. The consistent theme here is that the network will allow the QA/UR process to weed out physicians who are inefficient.

One difficult truth physicians must face is that an alliance based primarily on solidarity or collegiality cannot be fully competitive. A successful network can be “physician-friendly,” helping deficient physicians learn how to be more valuable. But there are many legitimate reasons why third parties may not wish to deal with all of the network’s panel members. An effective alliance recognizes the need for flexibility to respond to these attitudes.

The author is president of The Health Law Center (Neil B. Caesar Law Associates, PA), a national health law/consulting practice in Greenville, S.C.

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