A List of Contract Definitions

Average Wholesale Price
This value is generally accepted as a standard measure of evaluating the cost of a particular medication. When negotiating a rate for pharmaceuticals, request the payment methodology they will be using to pay for medications, injections and infusion therapy. Negotiating a percentage of AWP allows for comparisons against most health plans, as they also use the AWP to calculate payment rates. For instance, Medicare is currently paying 95% of AWP for their medications.

Capitation
A payment methodology in which the physician is paid a set dollar amount determined by a per member per month (pmpm) calculation to deliver medical services to a specified group of people. But, how do you know what PMPM rate you should negotiate with your HMO? The most common method employed by physician groups is by calculating a fee-for-service equivalent, and then calculating a PMPM rate from this amount. Request the encounter data for the population for which you would be at risk, select a % of RBRVS you would like to be reimbursed, and then calculate a comparable PMPM so that you would receive the same reimbursement from those lives you will be capitated for.

Discounted Fee for Service
The medical provider submits a claim to the patient's health plan for services rendered with the anticipation of payment. The reimbursement has been previously negotiated between the medical provider and the health plan at a discounted rate from billed charges. The rate could be a % of RBRVS, or a % off of billed charges. This differs from Capitation, in that capitation pays once a month to a physician regardless of the medical services provided. Fee for service pays for each encounter.

Incurred But Not Reported (IBNR)
Used in conjunction with a discounted fee-for-service payment methodology. Even though health plans have rules on timely submission of claims to be within a given time period, usually 30 or 45 days, not all claims are received and paid within this time frame. Slowly, and continuously the claims are received over several months. The estimate of future payments for a given month should be calculated to determine what the anticipated claims experience will be and to budget accordingly. This calculation is known as IBNR. 

Medical Loss Ratio
The amount of the premium revenues actually spent on paying for medical services. Request the Medical Loss Ratio from the health plan you are negotiating with. Determine how much of the premium they are actually spending for medical services. This does not prohibit accepting the contract, but provides additional information about the health plan you are dealing with. 

RBRVS (Resource Based Relative Value Scale)
The payment methodology used by Medicare to assign allowances to each CPT code. Each CPT code is given a relative value unit and is multiplied with a dollar conversion factor. The resulting calculation is the RBRVS allowance for that CPT code. More and more health plans are using RBRVS as a basis for payment to medical providers.   

Visits Per 1000
A calculation based on encounter data to determine the usage rate of a population. For instance, the number of Emergency Room visits seen by members within a health plan over a 12-month period can be calculated, translated into visits per 1000 members. This number can be compared with the ER usage rates of other plans to determine if there is a utilization problem for this contract.  

Withhold Amount
The dollar amount that is held by the health plan or IPA from the capitation or fee-for-service payment to the medical provider. This is sometimes done when the health plan is over-budget on expenses to recoup some of the losses and incentivize physicians to watch utilization.