Humana 2012 Annual Report Download - page 23

We use a variety of techniques to provide access to effective and efficient use of health care services for our
members. These techniques include the coordination of care for our members, product and benefit designs,
hospital inpatient management systems, the use of sophisticated analytics, and enrolling members into various
care management programs. The focal point for health care services in many of our HMO networks is the
primary care provider who, under contract with us, provides services to our members, and may control utilization
of appropriate services by directing or approving hospitalization and referrals to specialists and other providers.
Some physicians may have arrangements under which they can earn bonuses when certain target goals relating to
the provision of quality patient care are met. We have available care management programs related to complex
chronic conditions such as congestive heart failure and coronary artery disease. We also have programs for
prenatal and premature infant care, asthma related illness, end stage renal disease, diabetes, cancer, and certain
other conditions.
We typically contract with hospitals on either (1) a per diem rate, which is an all-inclusive rate per day, (2) a
case rate or diagnosis-related groups (DRG), which is an all-inclusive rate per admission, or (3) a discounted
charge for inpatient hospital services. Outpatient hospital services generally are contracted at a flat rate by type of
service, ambulatory payment classifications, or APCs, or at a discounted charge. APCs are similar to flat rates
except multiple services and procedures may be aggregated into one fixed payment. These contracts are often
multi-year agreements, with rates that are adjusted for inflation annually based on the consumer price index,
other nationally recognized inflation indexes, or specific negotiations with the provider. Outpatient surgery
centers and other ancillary providers typically are contracted at flat rates per service provided or are reimbursed
based upon a nationally recognized fee schedule such as the Medicare allowable fee schedule.
Our contracts with physicians typically are renewed automatically each year, unless either party gives
written notice, generally ranging from 90 to 120 days, to the other party of its intent to terminate the
arrangement. Most of the physicians in our PPO networks and some of our physicians in our HMO networks are
reimbursed based upon a fixed fee schedule, which typically provides for reimbursement based upon a
percentage of the standard Medicare allowable fee schedule.
The terms of our contracts with hospitals and physicians may also vary between Medicare and commercial
business. A significant portion of our Medicare network contracts, including those with both hospitals and
physicians, are tied to Medicare reimbursement levels and methodologies.
The Budget Control Act of 2011 established a twelve-member joint committee of Congress known as the
Joint Select Committee on Deficit Reduction to propose legislation to reduce the United States federal deficit by
$1.5 trillion for fiscal years 2012-2021. The failure of the Joint Select Committee on Deficit Reduction to
achieve a targeted deficit reduction by December 23, 2011 triggered an automatic reduction, including aggregate
reductions to Medicare payments to providers of up to 2 percent per fiscal year. Although these reductions are
scheduled to take effect on March 1, 2013, at this time it is unclear how this automatic reduction may be applied
to various Medicare healthcare programs or the timing of when such reductions may actually begin. We expect
that if such reductions were to occur, there would be a corresponding substantial reduction in our obligations to
providers. Due to the uncertainty around the timing or application of any such reductions, there can be no
assurances that we could completely offset any reductions to the Medicare healthcare programs applied by the
Budget Control Act of 2011.
Capitation
For some of our medical membership, we share risk with providers under capitation contracts where
physicians and hospitals accept varying levels of financial risk for a defined set of membership, primarily HMO.
Under the typical capitation arrangement, we prepay these providers a monthly fixed-fee per member, known as
a capitation (per capita) payment, to cover all or a defined portion of the benefits provided to the capitated
member.
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