A firm grasp of a surgery centers P&L statement is perhaps the most important factor to succeeding in managed care contract negotiations. This goes beyond operating revenues and expenses and requires delving deeper into the P&L.
Relying Exclusively on Benchmarks
While comparing rates to ASC and HOPD Medicare and other benchmarks is a key component to understanding your reimbursement, they don’t take the cost of operating your center into consideration. Your centers specific cost profile will change your perspective on what an acceptable rate is relative to these benchmarks.
Taking the High Level P&L Approach
Delving into the details of your P&L will really pay off. What about that piece of equipment you will need to start that new service line? How about the debt service on the note you took out to finance the upgrade of the OR? If you do not factor in these added costs, suddenly the operating margin you thought you had on a contract is disappearing fast.
Taking a Short Term Perspective
A P&L is only a snapshot of a point in time. You should consider what your P&L may look like over the term of the contract. Cost of living increases will drive up your Salaries & Benefits cost. Equipment will become obsolete or otherwise require replacement. Have you thought about what future capital requirements are and have you accounted for this in terms of contract rate requirements? While the individual expense components that will increase, and the rate at which they will increase is impossible to pinpoint, it is worth the time to create a two or three year forecast to capture these changes.
Other Considerations
Finally, since you are unable to negotiate with government payors, it is important to look at your Medicare and Medicaid payor and case mix. Determine if you are operating at a loss with these patients. Payors often offer Medicare, Medicaid and now Exchange products, with the commercial product in your contract. If your analysis indicates your Center is realizing a loss on these patients, presenting this data to the payor is very important and should be factored into your rate negotiation.
Avoiding the pitfalls noted above and having a firm grasp of the all-in cost of operating your surgery center will ensure that you don’t come up short in your next contract negotiation.