Reference no: EM133018492

Project Management in Practice Managing Costs at Massachusetts' Neighborhood Health Plan

In just a 2-year period, Medicaid reduced its rate of reimbursement by 20 percent while the State of Massachusetts imposed higher eligibility requirements for health subscribers, thereby significantly reducing Neighborhood Health Plan's (NHP) revenues and threatening its viability. In the past, NHP had controlled costs by controlling hospital bed utilization and increasing preventive medicine. However, no matter how low hospital utilization is, if hospital contract rates are expensive, the cost to NHP will be high. Thus, NHP chartered a

project team to help it manage costs through better selection and management of hospital contracts. More specifically, the team's charter was to develop a method to examine hospital contracts to assure that proposed rates were financially viable to NHP but high-quality care would be available when needed. The team first selected the top 10 to 20 hospitals based on total annual payments from NHP for analysis. From these, they determined that to control costs effectively, NHP's contracting philosophy would have to change from the current 95 percent of all line items per episode to a fixed cost per episode or per day per type of stay. The team then constructed a spreadsheet that allowed cost comparisons to be made across hospitals, which allowed management to bargain for lower rates or, if hospitals were inflexible, suggest to health centers

what alternative hospitals to refer patients to. This and later developments by the team significantly enhanced management's ability to contain their costs while guaranteeing that

quality care would be available when needed. It also allowed management to examine and respond to contracts and proposed contract changes in a timely and informed manner.

Questions

1. Wouldn't higher eligibility requirements for subscribers cut NHP's health-care costs? Why did this exacerbate NHP's situation?

2. Explain the trade-off between hospital utilization and contract rates.

3. How did changing from a line item pay plan to an episode plan allow comparisons and save costs?