Michael Richardson, Director of Managed Care and Business Development, at Boston University Medical Center Hospital (BUMCH), had just been notified that HealthSource New Hampshire had accepted BUMCH’s proposal for specialty referrals for urology and cardiology/cardiothoracic cases. The pricing proposal for all urology cases was a per diem rate. For selective cardiology/ cardiothoracic DRGs, it was a fixed fee or “bundled price” per case that included both physician and hospital services.
Mr. Richardson initially had submitted the proposal to HealthSource at the request of the cardiologists and cardiothoracic surgeons. Although New Hampshire was not considered part of BUMCH’s principal service area, the cardiologists and cardiothoracic surgeons had established referral relationships with the physicians in these areas. Recently, the physicians had been unable to accept a number of referrals because the patients’ insurer was HealthSource and BUMCH did not have a contract with HealthSource.
Although the initial request had come from the surgeons, they had not seen the proposal prior to its submission. Mr. Richardson now needed to meet with each of the key physician groups involved in the program to negotiate their fees per case. He realized that the fee per case to be offered to each of the key physician groups (i.e., cardiothoracic surgery, cardiology, radiology, and anesthesiology) was crucial to assuring the acceptability of the venture to the physicians. He also realized that the hospital’s management control and reporting systems might need to be modified to monitor financial performance and clinical outcomes, so as to ensure the delivery of efficient, effective, and quality care. These changes, in his view, were critical to the financial viability of the new program.
Mr. Richardson had to work quickly as the hospital had just been notified that the first HealthSource cardiothoracic patient would be admitted next week.
BUMCH, the smallest of three academic medical centers in Boston, Massachusetts, was located in the southeastern portion of the inner city. The hospital’s primary objective in managed care contracting was to develop relationships with as many reputable and high profile HMOs as possible. A primary focus of the contracting efforts was to establish relationships for providing primary care.
A secondary focus was to obtain referrals for the hospital’s specialists. When there were barriers to the development of a comprehensive relationship with a specific HMO, BUMCH developed specific product or pricing strategies that might be appealing to that HMO.
One product pricing strategy that BUMCH had developed was a bundled price per case that included both the hospital’s and the physicians’ fees. The hospital’s management believed that a bundled price would be attractive to managed care organizations because it: (a) was administratively simple, (b) offered one-stop shopping (one entity negotiated for the hospital . . .
- Is bundled pricing a good idea? Why or Why not?
- Under a bundled pricing contract, what can a hospital do to limit its financial risk/exposure? What risk/exposure does the managed care plan have?
- How should Mr. Richardson handle the determination of a fee per case for the physicians, including consulting physicians and ancillary services?
- What is your assessment of the approach Mr. Richardson followed in developing the contract? What advice would you give him about negotiating his next managed care contract?