How to Benefit From a Managed Care Check-up.

• Author: Abernathy, J. Mark

Over the past year, the number of bankruptcies, insolvencies and receiverships among managed care organizations increased substantially -- and there's no compelling reason to believe MCOs' financial woes are over. More rigorous state regulations, the threat of federal health care legislation, the improved bargaining power of hospital and physician providers in some regions and class action lawsuits are having a substantial impact on the fiscal health of HMOs.

One of the MCOs' biggest problems is information systems. These systems were designed to process claims, not to handle the complex contracts that frequently were set up with providers such as doctors and hospitals. The health care industry has lagged behind others in improving the quality of its information systems. The result often is an inability to calculate and report financial data accurately and on a timely basis.

Yet despite the problems, in most situations HMOs deliver high-quality, affordable medical care. In a fee for service system, doctors are paid every time they provide a service, so some may have the incentive to do more than what could be considered medically necessary in the delivery of patient care. In the managed care environment, limits are set and standards are based on "medical best practices." Managed care organizations are monitored by the National Commission on Quality Assurance in Washington, D.C., which provides a level of oversight that traditional fee for service systems lack.

CFO Headaches

In this challenging environment, the last thing CFOs needs to learn is that one or more of the HMOs they work with are in deep fiscal trouble. Despite frustrations with HMOs, employees in many corporations become accustomed to a health care service provider and the benefits it offers. A last-minute change might trigger a mad scramble to find a new provider. Or it might substantially increase employee frustration with the current provider as it tries to juggle claims and financial problems simultaneously.

Therefore, it's critical that a CFO evaluate an MCO's health before signing up a new one or renewing an existing contract. This process requires more research than reviewing an HMO's balance sheet, because problems frequently are hidden in an HMO system. Take Harvard Pilgrim, for example. It was highly respected for the quality of its practitioners and the level of care they delivered. Harvard Pilgrim's problems largely came from an expansion plan during which it bought...