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LVCHO Signs a Shared Risk Contract with CIGNA
One of the strengths of the DRIS Initiative has been the ability to respond immediately to the crisis consulting needs of the participating DRIS Communities. In the Fall of 1999, when the Lompoc Valley physician network suddenly received a 90 day notice from PacifiCare to terminate its global risk contract and terminations from other payors followed suit, the DRIS consultants were able to assist the newly organized Lompoc Valley Community Health Organization to turn around and negotiate a creative financing arrangement with CIGNA health plan that recognized the rural issues of low beneficiary volume and the critical need to limit financial risk to the local provider network. In addition, the DRIS Consultants continue to work with other payors to negotiate mutually acceptable individual Lompoc provider contracts.
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| Lompoc Valley Community Healthcare Organization receives a recognition award for Phase III Implementation at the 3rd Annual DRIS Conference - February 2000 |
In September of 1999, the Mission Valley IPA in Lompoc received notice from its Third Party Administrator that an unusually high "Incurred But Not Reported" (IBNR) claims adjustments would need to be reflected on the IPA's income statement. This IBNR had surfaced for out-of-area claims for several severely ill patients who were PacifiCare HMO beneficiaries under commercial and Medicare full risk contracts with the IPA. IBNR adjustments continued to accumulate during the Fall months on these patients. By November, these events precipitated a 90 day notice from PacifiCare to the IPA to terminate the contracts, effective February 1, 2000. Other health plans, such as CIGNA and HealthNet, followed suit. The IPA realized that losses they incurred combined with the impending loss of key health plan contracts would push them into bankruptcy.
In response to this crisis, the Lompoc provider community undertook a number of measures. Among them, the Lompoc Valley Community Health Organization (LVCHO) Board requested the consulting support of Mike Fadden of Rural Health Consultants, in an effort to pull together a new local physician network and preserve access to care in Lompoc for the folks covered by the terminating health plans. [Subsequently, LVCHO moved to negotiate shared risk contracts, as opposed to full risk contracts, with the health plans on behalf of the new local physician network and the Lompoc Healthcare District Hospital, LVCHO and its Lompoc provider network were willing to take reasonable risk based on the size and cost of the projected enrollment.} However, for the costs of services provided by out-of-Lompoc providers, LVCHO proposed a risk sharing arrangement whereby the plans would cover these out-of-Lompoc costs beyond a per member per month target that was based on claims data for the most recent twelve month period. Risk sharing arrangements such as this, if risk is shared at all, are essential if rural provider networks are to protect themselves from the financial impact of large claims costs which cannot be sufficiently spread over a relatively small number of enrolled lives.
PacifiCare rejected the proposal in part due to the difficulty of administering a shared risk arrangement they had never before experienced. While CIGNA and HealthNet were willing to move forward, PacifiCare represented well over half of the enrolled lives. Without their participation, the shared risk arrangements proposed to CIGNA and HealthNet would not be financially sustainable for LVCHO. CIGNA, however, was interested in continuing the discussions with LVCHO. While these discussions resulted in a more diluted risk sharing arrangement than originally proposed, CIGNA saw the benefit in having LVCHO deliver a full local provider network that would save them the costs and time of contracting with providers on an individual basis.
This arrangement is unique in that it is unusual for a health plan to use a not-for-profit organization such as LVCHO to obtain access to a provider network, especially for a HMO product. For local providers, the arrangement meant assured participation as opposed to selective contracting on the part of CIGNA or other health plans.
Another advantage of LVCHO taking the lead in developing the arrangement with CIGNA was that it was able to obtain a network access fee from CIGNA to support the participation of physicians in medical management activities. While CIGNA is ultimately responsible for quality assurance, utilization management and credentialing, LVCHO and its Lompoc provider network will be responsible for primary care physician authorization of referrals to specialists and carrying out committee reviews with the participation of network providers. LVCHO and its Lompoc provider network will be working closely with CIGNA to facilitate administrative services and to hopefully take over certain services as new contracts come up for negotiation and renewal.
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| Charles Arnold & Cage Sequra of Lompoc meet with Mauricio Leiva of MRMIB at the 3rd Annual DRIS Conference - February 2000 |
Meanwhile, having rejected LVCHO's proposal to deliver a full provider network on a risk sharing basis, PacifiCare has successfully negotiated contracts with Lompoc area primary care physicians but continues, after three months time, to try to sign up area specialty physicians for their health plan beneficiaries. Health Net appears to be moving their Lompoc beneficiaries to their Santa Barbara based physician network, although they may continue to contract locally for some primary care services. So, while LVCHO was not able to capture all of the enrolled lives previously under the IPA, it has broken ground with CIGNA on a very creative risk sharing arrangement. This arrangement will help further LVCHO's goal of providing integrated medical management services for the local provider community.
Because Mike's work was substantially related to the implementation and strengthening of LVCHO as a single signature contracting entity for local providers, the cost to cover this work was subsidized in part by the DRIS Initiative. In all, the DRIS Initiative supported the transition of the providers from the IPA to LVCHO, the review of prior claims data and reimbursement so that LVCHO could structure a win-win arrangement among all parties and the negotiation of all necessary contracts. On a go-forward basis, the DRIS Initiative will also cover some of the cost to assist LVCHO in managing their payor contracts in the coming months.
© CIRHM