Evaluate risks before you agree to share

Contract Language. By Steven M. Harris, AMNews contributor. Oct. 6, 2003.

CONTRACT LANGUAGE

A column examining the ins and outs of contract issues

SEE ARCHIVES

Last month this column discussed several traps that doctors face in negotiating contracts with preferred provider organizations. Now we'll describe additional pitfalls related to risk sharing and payment methodologies.

First, risk sharing. Risk-based payment methods enable a payer to shift to physicians the economic risks associated with covering a defined patient population. This insulates the payer from the impact of underestimating the cost of enrollee utilization of services or of overestimating its own ability to control these costs.

Under risk-based payment, physicians often have greater control over patient management and utilization decisions. You also may benefit financially if the cost utilization of health care services is less than anticipated.

Certain factors to consider in evaluating your risk include identification of covered services, patient population size and cost projection. Ensure that your practice has the ability to track utilization of services so that you can manage your risk.

Risk sharing, among other things, must be kept in mind when selecting a payment method.

Make sure that you initially evaluate any proposed reimbursement arrangement to determine its financial impact on your practice. Your analysis should focus on potential financial results and worst-case scenarios of risk sharing.

If the proposed risk level is prohibitive, you should either negotiate limitations for the types of risk or propose a modified arrangement. Consider contracting for a short initial term before committing to a long-term contract. To further mitigate risk, negotiate for the ability to terminate the contract or the risk-based payment method on a short-notice period of 30 to 60 days. Also seek automatic rate increases on a periodic basis throughout the term of your contract.