Negotiating for Equitable Rates in Managed Care: One Physician's


Originally Published in Physician's Successful Practice

A Small-Town Physician Makes an Unexpected Ally and Stands Firm

(Editor's Note: for confidentiality, all names except the author's have been changed.)

I didn't think much about the while manila envelope sitting on top of the usual mess covering my desk. I nearly tossed it into my oblivion pile—the stack of stuff in the far corner of the room that had to wait until I had time to look at it, which was almost never, Then I glanced at the return address: Emerson, International. This was different. Emerson was the town's largest employer.

A Fortune 500 company, Emerson was a leading manufacturer, employing more than 3,000 local workers. In the surrounding areas, it provided jobs for another 1,000 people. Thus, 4,000 laborers and their families depended upon Emerson for their livelihoods and benefits, including health insurance. In a town blessed with a strong work ethic, good companies, and nearly full employment, Emerson was numero uno; and when numero uno talked, everyone here, doctors included, listened. I opened the envelope.


Like other rural areas, Nebo, a town 10,000, had been insulated from the upheaval of managed care—until several years ago. It began in 1992, when Emerson THE brought in the region's first managed care company, Health Benefit Design (HBD). HBD, with Emerson's blessings, bent over backward to show the medical community it surprise had nothing to fear, They held meetings with the medical staff, sent representatives to each doclor's office to discuss fee schedules, and were willing to negotiate. There were discounts, but they were minor. The first taste of managed care had not been particularly painful. For the time being at least, we could coexist peacefully.

The next episode came two years later. In response to concerns raised by employers over the ever-increasing costs of healthcare, a coalition, or Cooperative, was formed. This consisted of local employers, the two community hospitals, and medical staffs. It was an unusual gathering of rivals, but in a small friendly town like ours, it was feasible. The main focus was on providing local patients with care that was more efficient and less costly. We formed a network consisting of area physicians and hospitals, and formed alliances with tertiary clue centers for referrals. A system of incentives was designed lo keep patients within the network. There were discounts, but, unfortunately, the cuts were superficial.

As befitted to its numero uno status, Emerson remained aloof and did not join the Cooperative. It preferred instead to continue its relationship with HBD. This presented no threat to the doctors, as HBD had been reasonable. From time to time, more aggressive managed care entities attempted to break into the market, but Emerson and the Cooperative held. With the major players in town content, the cold chill of managed care felt elsewhere in the country was noticeably more temperate by the time it reached Nebo.


I opened the manila envelope and read the introductory letter. Emerson had decided to drop HBD at the end of lhe year. That was a surprise. They were going with a different managed care conglomerate, one of the largest in the United Stales, called Worldwide Compelitive Cate (WCC). I had never heard of them. I reviewed the contract. It was the usual managed care gibberish about credentialing, copies, utilization, pre-certification, and the like. Since il came from Emerson I thought it should be all right and was ready to sign. Why not? I hesitated for a moment, then scribbled a note on a sticky pad, requesting their fee schedule. I stuck the note to the contract, and tell it on my office manager's desk.

A few days later I was sent a " generic" fee schedule, probably the same one sent to all doctors. It was useless. Most of the procedures listed were irrelevant to my area of expertise. There were rates given for breast biopsy, hip replacement, angioplasty and so on, but almost nothing that an otolaryngologist could use. The one or two procedure listed that did pertain to my specialty were half of what HBD had paid. I wasn't sure what to make of it, but it didn't look good. I asked my office manager to send WCC my 50 most common codes. When they responded by sending back the same worthless generic, I decided to call them myself.


I spoke to WCC's physician liaison, Steve Benson. He told me that the fee schedule had already received was usually all they sent. As a "favor" to me, however, he agreed to look at 20 of my most common codes. I explained that otolaryngology is a procedure-oriented discipline, and 20 codes would cover only a small fraction of my work. He replied that he was too busy to deal with each doctor's individual fee schedule; I was lucky to be getting my top 20. He added that this was how WCC always dealt with doctors and there would be no exceptions. The managed care horror stories I'd heard from other parts of the country were beginning to resonate more loudly in my mind. But I didn't want a major confrontation—not yet. As I agreed to send him my list of 20, I recalled how promptly HBD had reviewed my entire computer printout of more than 650 codes.


A week later I received their allowances for the 20 codes. The numbers were not sobering, they were scary. Many of the fees were at or below the level of Medicare, which generally ran between 35% and 50% of my usual fees. How did they expect me to keep my doors open at Medicare rates? I worked those numbers for the elderly and poor, but for everyone? There was no way I, or any solo practitioner, could survive.

I called Benson. I told him his rates were outrageous. He asked me to make a counteroffer. I told him to give me HBD's rates, which were already down from my usual fees. He said I had o come down from HBD, so I sent him my HBD fees discounted 5%. It didn't help; he sent me rates that were between 30% and 50% below my reduced fees. I also reiterated my concern about getting only 20 codes reviewed. If WCC paid such appalling rates on my top 20, what horrors awaited me on the codes I was not allowed to inspect? He chanted the "company policy" refrain. I was in shock.

I could not believe that Emerson would sign on with so hostile a firm. Emerson was a Nebo company, their founders were born and raised here. Their executives sat on the hospital board; some of them lived. in my neighborhood. I had operated on their kids. How could they betray us like this? For the first time, I considered doing without the 10% of my practice that came from Emerson. I didn't like it, but I would not work for those rates.


I also worried about the other employers. In this small town there were no secrets, and everyone knew about WCC's ultra-aggressive tactics. Maybe the other employers would expect the same discounts. If everyone demanded these rates, the entire commercial pay base that, the other doctors and I depended upon would disappear. My concerns were prophetic. At the next medical staff meeting the physician representative for the Cooperative announced that the member employers, the town's largest employer aggregate, were insisting upon "most favored nation" status. As the group with the greatest number of "covered lives," they expected the best deal; aware of the arrangements WCC was negotiating for Emerson, they wanted a piece of the action.

I called Benson again, and asked for 100 codes. Once more, he read the riot act. I told hire that HBD had had no problem with this. lie restated his position. Enough was enough. I decided another tack was needed. I decided to call Emerson.


I had toyed with the idea for a week, but hesitated. Why should Emerson care about my problems? Weren't they the ones who had invited WCC here in the first place? On the other hand, maybe Emerson didn't know what was going on, and maybe they were curious. Besides, Emerson had its concerns, too. They needed a network of doctors for their 4,000 employees and dependents, and the first of the year was approaching. It was common knowledge around town that most of the doctors were dissatisfied with WCC's strong-arm tactics and had not signed. The employees were grumbling about where they would go for their healthcare; they didn't want to lose their doctors, and they didn't want to travel 50 miles to sec someone else. It was unorthodox, but the liming was right. A direct appeal to the giant could help and I had nothing to lose.

I spoke to Emerson's human resource person, Sue Price. I explained that I wanted to work with Emerson, appreciated their business, and didn't want to lose it; but I needed better rates and more codes. I added that in a specially like mine, 20 codes barely scratched the surface of what I did. She was receptive. Making no promises, she agreed to look into it.


The next day Benson called. Astonishingly, he agreed to look at 125 of my most common codes—the first crack in the fortress wall. I sent them out the same day, and he responded before the end of the week. The rates were terrible. All I had accomplished was to find out how bad it would be in more detail. I called him again and told him his rates were the same as Medicare's. He said, almost patronizingly, that WCC's figures were based on regional and national data surveys and the resource-based relative value scale. I replied that they were obviously using the same low conversion factor as Medicare; HBD, also a large company, had access to similar data pools and had arrived qt significantly different rates. He didn't seem to care.

I called Sue Price at Emerson again. I stated, in earnest, how much their business meant to my practice and how much I wanted to continue working with them, I explained that I did not want to disrupt the relationships that I already had with nay many Emerson patients. I pointed out that it would be inefficient and costly for Emerson patients to have to travel long distances for their healthcare if local doctors did not sign.

She was sympathetic, but again she made no promises. As before, she agreed to investigate. Because she had convinced WCC to look at more codes, I was cautiously optimistic. On the other hand, maybe she was secretly cheering for WCC. I waited a few days before sending Benson my fee schedule again. When it was sent back, I noticed the numbers had risen, albeit only marginally. I was making progress, but the rates were still lower than what I was comfortable with.

I contacted Benson again. He whined and complained. He said lie didn't have time to dear with cacti doctor this way. I told him he was too low. He sent me back another schedule. Amazingly, the fees rose another increment. I pushed. Benson fussed. I le acted as if I were the most demanding physician Ire had ever encountered—but the fees rose further. I fought with him again. But now we were arguing over specific codes instead of the whole schedule. He was irritated, even out-raged, but I didn't care. A few days rater, after a process that had taken months, I received a fee schedule I could rive with.


There was a moment of elation and relief after this surprise victory. Kindly thoughts began to cross my mind. But I could have no illusions about what had occurred. WCC had not suddenly changed to a policy of fairness and cooperation. If they could have gotten away with Medicare rates, they would have done so gladly. They applied the same cut-throat tactics they had used effectively in the bigger markets. Here, they ran into a brick wall. Why? It's a different market. In urban areas the competition is more fierce, the doctors less cohesive, and everyone so fearful of losing market share that physicians feel they must sign or risk losing large numbers of patients to their colleagues down the block. In rural areas, the medical community enjoys a relative monopoly. Small town hospitals are often a vital economic center for the community; the sole location for emergency treatment, rehabilitation services and cancer care and the only vehicle for attracting needed physicians to the area. Everyone in the community appreciates that essential role.

Small town doctors enjoy a similar prominence and singularity. Ruthless poaching by large managed care systems threatens hospitals and their medical staffs, Ultimately, it threatens the communities themselves. WCC didn't expect me, or the other doctors, to hold out. They didn't anticipate my calling Emerson, or Emerson's being sympathetic. But Emerson needed doctors, we needed Emerson, and the town needed both of us. There must be a balance between giving discounts and allowing doctors and hospitals to survive. If you can't communicate this to the managed care company, consider calling the employer. You may find an unexpected ally. Be reasonable, respect their position, and figure out a way to do business. It's in everyone's best interest.

THE AUTHOR is an otolaryngologist in Indiana.


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