REQUIREMENTS FOR AUTOMATING FINANCIAL AND ACCOUNTING FUNCTIONS IN MANAGED CARE

By Bruce W. Johnson, M.S. and Steve Schafer, M.Div.

Introduction: Managed care has had a significant impact on how we perform our accounting functions. In the past it may have been adequate to report financial information for the previous month or quarter. Many businesses operated on a cash receipts and disbursements system. The cost accounting, if done at all, was calculated on a program basis or services were costed out at the end of the year by dividing the number of services delivered into the estimated program cost. In today's "real time environment" this type of retrospective historical analysis is not adequate. Financial managers require current patient utilization reports, cash flow projections based on utilization and cost calculations from the previous month based on actual staff time worked and cost calculations by plan and patient. These requirements are being driven by a need for accurate and current episode of care cost information required to negotiate fee-for-service and capitated contracts, as well as to manage expenditures for operations and clinical services. To facilitate the creation of these financial reports, the accounts payable, accounts receivable and payroll functions should be automated and integrated with the general ledger and costing modules. In a growing number of public sector managed care and privatization projects reimbursements are developed on a per case or "case rate" basis. During the planning phase for these projects providers as well as provider networks and other managed care entities must gain the ability to track detailed historical costs associated with care. This is virtually impossible to do efficiently or accurately without automation. Billing and Accounts Receivable: Due to the complicated nature of the reimbursement schemes devised by managed care organizations, the billing and accounts receivable programs have experienced the greatest impact due to managed care. The billing and accounts receivable functions will be affected by virtually all of the typical managed care techniques including: Prior authorization Gatekeeper functions Benefit limitations and cost sharing techniques Reimbursement methodologies Tracking level, frequency, and outcome of services Utilization review Controlled access to provider panels Managed care plans are becoming progressively more complex and will require a sophisticated MIS with tight integration among the scheduling, patient registration, billing, accounts receivable and other accounting and clinical applications. Authorizations: Fee-For-Service managed care contracts typically require pre-authorization of services. This may be done on a case by case basis (e.g. for more expensive inpatient services) or through standing authorization of a given number of services if an appropriate gatekeeper refers the patient. The billing and accounts receivable system must track these authorizations and calculate the services used and remaining. If the MCO requires a written request for service authorization or reauthorization, then the system should be able to produce it and update the appropriate information in the patient eligibility file. Additionally, the system will need to match the referring clinician or gatekeeper against the authorized provider file to accept the referral.. Contract Benefits and Limits: "Other billing and accounts receivable functions required include the recording of both global (payer) and patient specific contract information such as services covered, limits on those services and patient cost sharing. This includes the ability to track benefit and limit information by payer, contract and patient. This requires the ability to manage enrollee cost sharing features such as deductibles and co-payments. These may be kept in a patient eligibility or benefits file. Other features required include the capability to manage benefit limits and maximum liabilities for a specified period of time, e.g. episode, month, year, lifetime, etc. Preferably these functions are integrated with the other programs like scheduling and utilization review so that the limitations are noted before the appointment is made and/or the service billed. Some of the variables that are helpful in tracking managed care contracts include: The system should track the number of units and cost of all services delivered by month, episode of care, year-to-date and the lifetime of the patient, etc. Fee-For-Service Contracts: In the fee-for-service contract, the cost to the payer is typically limited by negotiated discounts and through the control of utilization imposed by benefit limits such as restricting the type and number of services. Various forms of cost sharing are also implemented, such as deductibles and co-pays. These procedures require the system to track services authorized, used and remaining for the duration of the benefit. It is also an advantage to have a scheduling system that checks the service authorization table for the payer before an appointment is scheduled. Since most contracts specify the credentials required to deliver a service, the staff file should also be checked to verify the staff's credentials. The system will also need to track and bill services based on authorization number. Capitated Contracts: In capitated contracts the payer will not necessarily be imposing utilization restrictions on the provider. However, it is necessary for utilization management techniques to be performed internally. Further, there are a lot of calculations that must be performed continuously to manage a capitated contract that are not typically included in a standard billing and accounts receivable system. Some of the enrollee and utilization data that are required to monitor all forms of capitated contracts include: The number of enrollees Total units/services/inpatient days by discipline Average number of units/services/inpatient days by discipline Some of the professional cost data that will need to be captured include: Cost by discipline (MD, Ph.D., LCSW, etc.) per visit and per year Cost by type of service by discipline Average cost by discipline and program Total cost by discipline and program In addition, per member per month rates will need to be calculated using the following data: Per member per month (pmpm) by program and discipline Total cost pmpm by discipline Contingency (% or amount) pmpm Overhead cost pmpm by program Total cost pmpm by program Total service cost pmpm for all programs Full Risk Capitation: In a fully capitated contract the provider is totally at risk for the defined population. They must be very careful to control costs and to monitor actual and budgeted expenses to project the year end surplus or deficit. Ideally, high-risk patients, e.g. high utilizers or patients that require a high level of care, should be identified and case managed to assure that they are receiving the most cost-effective service in the least restrictive environment. The ability of the provider to identify these individuals is largely dependent on their ability to track outcomes and claims data by various demographic (age, gender, race, etc.) and clinical (diagnosis, presenting problem, etc.) data. Shared Risk Capitation: In a shared risk contract the provider has the comfort of knowing that the managed care organization will share some of the financial burden if the expense budget is exceeded. However, this benefit is achieved at the expense of the additional administrative burden to manage the contract. Unless the provider is willing to accept the managed care organization calculations and make year-end adjustments to your financials, they will be required to calculate and monitor expenses, receivables and payments. Some of the payment calculations required to monitor each health plan include: Gross pmpm capitation payment Referral risk withhold amount Utilization risk withhold amount Stop-loss premium Net pmpm payment Risk sharing for calculating budgeted, actual and surplus or deficit amounts Upper limit of risk ban or stop-loss provision amount Percent of budgeted amount (e.g. 110%) when risk sharing is initiated Allocation formula for determining percent of deficit amount to be paid for by managed care organization and provider Accumulated total liability Allocation formula for sharing surplus Withhold as a percent of a capitation payment withheld by managed care organization each month In addition to the functions required for managing the contract, historical utilization and cost reports are also required to derive the assumptions used in the utilization model. These data need to be available by payer, health plan, employer group, and patient. Utilization Review: When claims are submitted for payment, the MCO or its representative, e.g. utilization review company, will check the claims against their utilization review criteria to determine medical necessity. Ideally, the same criteria for medical necessity should be built into the provider's system so a claim can be reviewed before it is submitted to the payer. This can be accomplished by designing the data entry screens to collect the data required to determine medical necessity, including diagnosis, history, level of functioning, presenting problem, etc. Preferably, utilization management techniques should also be performed, even before the appointment is scheduled, to confirm that the patient has not used up his authorized services, the service being scheduled is authorized and that the clinician being scheduled has the appropriate credentials for the service being performed. A good MIS should also have the capability to generate ad hoc utilization reviews retrospectively, based on various demographic and clinical variables. To minimize the number of claims rejected, safeguards in the form of procedural and information requirements can be built into an MIS. This will help assure that all of the information required to bill a service is captured in the system. Additional functions related to billing and accounts receivable that are important for managed care include: The ability to process multiple procedure and diagnosis codes Flexible units of service Integrated scheduling & utilization review GL interface Flexibility Most providers typically contract with or bill multiple payers, e.g. primary and secondary insurance, Medicaid, Medicare, county board subsidies, state grants and FFS contracts and self pay, etc. It is not uncommon to find a discrepancy between the service codes and categories used by your billing department and those recognized by a particular payer. There are several methods that can be used to accommodate these conflicting requirements. The preferred method is to have a service re-code table that translates the provider's codes into those required by the payer. Another method is to have two or more duplicate codes, one for each payer. The least desirable solution is to create a custom program to cross walk the codes from one format to the other. Variations in coding are also encountered with diagnosis. One payer, e.g. Medicaid, may require the DSM-IV classification while another, e.g. insurance, may use the ICD-9 CM system. Some billing systems will automatically translate between the DSM-IV and ICD-9CM diagnostic codes. Another requirement for a billing and accounts receivable system is the option of recording the patient's benefits in multiple terms including dollars, hours and events. These parameters are typically kept in a user definable payer/contract file. Another feature that is useful in the service activity file is the ability to bill different rates for the same service based on the credentials of the clinician. The billing and accounts receivable system should have a service code file that tracks cost, standard fees and expected reimbursement amounts for all services. When used in combination with patient accounting, the service code file will allow the system to track the number of units and dollars for a particular procedure, for an episode of care, year-to-date and over the life time of the patient. The amount that exceeds the contract limit should be available as well as projections of the annual utilization based on previous service. The charges, fees billed, dollars collected, and write offs should all be automatically posted to the general ledger along with all related transactions. The software should have the ability to create multiple contracts for a provider. Associated with the payer/plan should be a user defined authorized service table that lists all services that are billable under a given plan. Some systems have an interface between scheduling and the patient eligibility file that will warn the user that the patient's benefits are exhausted. Other systems rely on printed reports to access this information. A good patient benefits screen should list the number of services authorized, used and remaining and the effective and lapse dates of the contract. The scheduling system should also interface the billing system to automatically post the charges when the appointment has been completed. The contracting and reimbursement methodologies vary by state, company and plan. If one took the time to review 100 managed care contracts it is highly likely that that he would find 100 different models employed for benefits, limits, authorizations, billing and reimbursements. Consequently, it is important to have a system that will allow the user to accommodate this variability. Therefore, a key characteristic of a good management information system is flexibility. There are some specific features that relate to flexibility and are therefore important to consider. The user should also be able to add data elements and define screens. Finally, a powerful ad hoc report writer that can access multiple files is essential." (Johnson 1996b in Stout) Sample Mental Health Managed Care Contract Management Information System Elements: Payer Contract name Contract ID Address Phone number Contact person Status of contract (active, in-process or inactive) Global contract maximum limits (units, hours & dollars) Patient maximum limits (units, hours & dollars) Effective and lapse dates Pre-certification required (y/n) Number of services pre-authorized Number of services authorized Number of services used and remaining Period of limit Co-payment by service type Deductible (percent & amount) Access to information on a client's managed care plan including benefits and limits Access to information on the number and types of services authorized for a client Service limits (days, episodes, etc.) Dollar limits Fee limits Duplicate authorization checks On-line service criteria with look-up capability that is user defined On-line prior admission/treatment/service history On-line summaries of plan review requirements Flags for re-admissions Discharge planning Episode of care data generation On-line length of stay norms Quality flags by provider Quality flags by procedure (for example, over or under utilization of expensive consultations) Service plan templates adjustable to fit sponsor requirements User defined rules for service criteria and pathways User defined authorization and approval criteria Authorization tracking and reporting Tracking capitated payments for enrollees covered under managed care contracts Tracking information on each enrollee including Id#, group#, plan#, effective dates, copays, deductibles, covered services Tracking inbound referrals Tracking outbound referrals to out-of-network providers Translating between internal service codes and those required by the managed care company Tracking encounters with clients that are not billed on a fee-for-service basis but have a cost component Notification when re-authorizations are due Notification when benefits or limits expire Tracking aggregate utilization of a covered population and comparing it with case rate or capitated payments and risk corridors Calculating any contract incentives or disincentives tied with performance Accounting for per member per month or case rate payment deductions like re-insurance, withholds, stop loss premium, etc. Accounting for contract surplus or deficit allocations to the agency and managed care organization Track episodes of care Calculate rates for services by case, by episode of care, by covered population Calculate write-downs for discounted fees by payer Prepare benefits report that lists clients whose benefits are about to run out Prepare uncovered services report that lists clients who received services that were not covered Budget variance reports that list budgeted amount used and remaining dollars by client and program Capitation analysis report that compares the cost of services for a particular plan with the budget Track exclusions for specific location, clinicians, programs, and services Track limits on the number of services that can be provided per case, per episode, per year, lifetime, etc. Track limits on dollars of service that can be provided Account for withholds on capitated and fee-for-service contracts Track pre-authorization of benefits case management information Monitor treatment protocols and service plan elements in accordance with payer guidelines verify that services are delivered Track services delivered by multiple programs Manage multiple mental health plans for each managed care organization with different rate schedules, requirements, limits, and contract elements Calculate and post all related transactions to the General Ledger for clients in a capitated health plan About The Authors: Bruce Johnson, M.S., is President of Johnson Consulting Services, Inc., an information management consulting firm that specializes in working with healthcare, social service and managed care organizations. He can be reached at (800) 988-0934, www.jcsconsultants.com or by e-mail at jcs@eos.net. Mr. Schafer is a clinical records and operations management consultant. He specializes in working with managed care, behvavioral healthcare and child welfare organizations. He can be reached at (800) 661-2435, www.schaferconsulting.com or by e-mail at steve@schaferconsulting.com.