How to Use Readmission Rate Data to Create More Lucrative Opportunities with Managed Care Organizations

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Originally published in Market Research Letter: January/February 2011

It’s a challenge for home care agencies today to make much of a profit when dealing with managed care organizations (MCOs). In this issue’s feature, we provide a great example of how home care agencies can use readmission rate data to build business opportunity with MCOs.

Managed care organizations are economic beings – they respond best to arguments couched in dollars and cents. Because managed care accounts for only a minority of the home care activity in many markets, MCOs operate on the greater fool theory: They rely on agencies that are desperate for volume to take their ridiculously low rates. This works out for them in most cases, with MCO visit rates even less than Medicare low-utilization payment adjustment (LUPA) rates.

Home Care Organizations Must Demonstrate Their Value to Create Opportunity in the Managed Care Arena

As MCOs have gained greater experience with home care, some have also gone to episodic payment or extended authorizations in order to eliminate internal costs. But few have realized the value or impact that home care can have on other healthcare segments. If home care agencies can demonstrate their value, they can help create opportunity in the managed care arena. Capitalizing on the current buzz about Medicare readmissions, for example, is one area home care can demonstrate a positive impact on cost savings for MCOs.

How can your company use readmission data to demonstrate your value to MCOs? Here are three steps to do just that:

  1. Take a look at the performance of agencies in your market on Home Health Compare, focusing specifically on the readmission metric. This metric includes Medicare fee-for-service patients and Medicare Advantage patients. Since home health agencies’ treatment is designed not to differentiate based on patient payor, it’s likely that the usage of these hospital services is similar for managed care patients by themselves.
  2. If your agency’s performance is superior to your competitors’ who are contracted with a particular MCO, calculate the average readmission rate for this group of competitors. If your readmission rate is 21% and your competitors’ is 29.5%, for example, then you have an advantage of 8.5%. Then, let’s say you served 200 patients from this MCO, which means you saved them 17 admissions. If the average admission in your market costs $6,500, the savings would total $110,500.

    Table 1 – The readmission rate weighted average calculation is illustrated below:

      Your Agency Competitor 1 Competitor 2 Competitor 3 Weighted Avg Competitors
    Episodes 1000 1200 800 600  
    Readmission Rate 21% 29% 33% 26% 29.5%

    Source: Readmission rate data comes from the Home Health Compare Web site; episode data comes from Healthcare Market Resources’ Market Share Report.

  3. Demonstrate to the MCO the amount of money your company can save them compared to your competitors, and argue for more business or higher rates to reflect a portion of these savings. You could also propose a “pay-for-performance” approach. This would involve creating a risk corridor that pays your agency more or less depending on your performance on a specific metric.

Thus, by demonstrating to MCOs your organization’s economic advantage over other home care agencies in your market, you can ask for the following:

  • More patients
  • Higher rates, justified by past savings
  • A retrospective savings-sharing arrangement at the end of each year
  • A risk corridor arrangement, which bases rates on how your agency performs on a given metric (in this case, readmissions).

You’ll find that MCOs are more likely to listen to an economic argument than to the familiar chant that their rates are not economical.

Do you need help in developing an effective strategy for creating growth opportunities for your organization? Click here or give us a call at 215-657-7373 today for information about how Healthcare Market Resources can help.