SPECIALTY SERVICE CONTRACTING – Class 7
Success in specialty service contracting depends on four factors:
- Finding the right partner (customer)
- Selecting the right service
- Setting the right price
- Implementation (Running an efficient operation)
Specialty service contracts can offer providers and payers the opportunity to market and purchase health care services on a highly selective basis. These contracts typically arrange for the provision of a limited number of tertiary procedures. In response to the ever-increasing cost of catastrophic care, virtually all types of payers and MCO’s have developed “centers of excellence” networks in an effort to direct high-cost care to institutions that meet their price and quality criteria. Providers typically look to specialty contracting with MCO’s to increase provider market share.
Success in specialty service contracting depends on four factors:
(1) Finding the right partner (customer)
(2) Selecting the right service
(3) Setting the right price
(4) Implementation (Running an efficient operation)
An internal assessment is necessary to assure that the prospective contracted service can meet the expectations of provider, payer and patient.
Consider these four areas in more detail:
(1) Finding the right partner (customer): For a provider contemplating specialty service contracting is a payer who has enough beneficiaries needing the service, has the ability to channel these prospective patients to the provider, and is at financial risk for the service. If several provider’s competitors have already contracted with key payers, it may be very difficult to dislodge them without significantly greater and more costly discounts. In some area such as Los Angeles and Chicago, providers considering package pricing of cardiac services might be faced with having to offer prices that will not meet their variable costs. Conversely, if few are engaged in package pricing, it may offer the opportunity to alter historical patient and physician referral patterns.
(2) Selecting the right service: Specialty services that tend to be package priced include transplantation services market and gaining popularity for specialty service contracts are cardiovascular, neurosurgical, orthopaedic, and ophthalmologic procedures and quite often in managed care contracts there are case rates for routine obstetric services. Physicians must be willing to incorporate their fees into the global price and to practice as efficiently as possible. Further, physicians must be able to demonstrate quality by having excellent patient satisfaction and clinical outcomes, since payers in turn need to demonstrate to their beneficiaries that they will benefit, both medically and financially, from using the contracted physician.
(3) Setting the right price – Package pricing is becoming the norm for procedure-based services in specialty service contracts. The reason package pricing is so attractive to MCO’s is because package pricing enables the payer to better predict health care expenses by establishing a separate, predetermined rate or rate structure for a specific diagnosis or procedure that covers a broad range of services, usually over a given time period.
(4) Implementation (Running an efficient operation) – While creating and marketing the package-priced specialty service can be challenging, careful implementation is crucial for long-term success. Physicians and payers must periodically reassess their pricing strategy and their contract’s performance to assure that they meet organizational objectives. This review should determine whether the package pricing has successfully delivered the expected volume, revenue, and market share.
Some employers are already attempting to implement direct contracting for specific services that are separate from their regular group health or worker’s compensation benefit plans: Navistar is implementing a cardiac services network, and USX, a burn care network.
4 “Ps” Taught in MBA Programs:
- Price
- Product
- Promotion
- Place
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