Mary Ryan, administrator of Tri-State Surgery Center in Dubuque, Iowa, managed by Health Inventures, shares 10 steps to negotiate profitable contracts and make money on every procedure.
1. Push for "percent of billed charges" contracts as often possible. Ms. Ryan recommends surgery center leaders ask for "percent of billed charges" contracts rather than contracts based on a percentage of Medicare or contracts based on grouper rates, which can be complex and frustrating. She says payors may be more likely to offer this type of contract if they know that other heavy-hitting insurance companies do. "We do all percent of charge contracts with payors as much as possible," she says. "If that kind of contract is the norm in your geographic area, you can say, 'All our contracts with third-party payors are percent of charge.'"
Under a percent of billed charges contract, the payor agrees at the time of contracting to pay on the basis of a percentage of the surgery center's billed charges. This kind of reimbursement can be profitable for surgery centers because it allows ASCs to receive higher reimbursement for cases with higher costs.
2. Understand Medicare reimbursement to negotiate "percentage of Medicare" contracts correctly. Some insurance companies will push for contracts that reimburse surgery centers based on a percentage of Medicare, Ms. Ryan says. This kind of reimbursement can work as long as the surgery center leader has a good understanding of Medicare reimbursement rates for each procedure. "You need to really understand what Medicare reimbursement is and what your costs are, so you can negotiate the correct percentage of Medicare," she says. For example, if the payor is reimbursing at 200-300 percent of Medicare, your ASC should be able to perform cases profitably with that level of reimbursement while accounting for costs.
If your ASC performs cases that will not profit from the offered percentage of Medicare, you need to carve those specific procedures out and negotiate a different rate for them, Ms. Ryan says. "If there are cases that will not make a profit because they have a very high supply cost per case, you need to be able to go into that negotiation and say, 'We're going to do 200 percent of Medicare, but for this procedure, we'll have to get more,'" she says.
3. Expect education from payors on new reimbursement methodologies. If a payor introduces a new reimbursement methodology, or you start contracting with a new payor, you should expect a lot of education on how your reimbursement will work, Ms. Ryan says. She says when her surgery center transitioned to an Enhanced ambulatory payment group system of reimbursement, she found it to be "very arduous." APGs are a patient classification system designed to pay providers on the amount and type of resources used during a patient encounter. Patients in a given APG have similar clinical characteristics and similar resources use and cost, and medical services requiring a higher level of professional and ancillary care are paid a higher rate than those of a lower intensity.
"You need a lot of education from the payor on what your reimbursement rate is going to be," she says. "They'll give you a base rate reimbursement and then a multiplier — say it's three — and then you take the three and multiply it by what they're going to pay you for that specific EAPG," she says. To make EAPG reimbursement work for you, she says you really need to understand your primary payments and how multiple procedure payments are impacted through EAPG. Ms. Ryan says you should also understand whether implants and medications are included in the payments — "there are some that will pay for implants and medications, and you need to get your arms around that if so," she says.
4. Let payors know they'll pay more at the hospital. Freestanding surgery centers lack the leverage of hospitals and surgery center management companies, but you should still be able to negotiate fair rates if you present the cost-savings opportunity to the payor, Ms. Ryan says. "It really comes down to providing the data to the payor and saying, 'This is the amount of money we need to take care of this population,'" she says. "They need to be paying you a certain amount of money, but they will still be paying less than if the patients were directed to the HOPD." Make sure the payor understands that your surgery center can save insurance companies a significant amount of money if they can negotiate a profitable contract.
She says surgery center leaders should make payors aware of their quality outcomes as well. "Not only is it a financial incentive, but if you've got great quality outcomes, that's important to the patient population," she says. "Especially in this day and age, we're going to see more and more transparency related to patient outcomes and best practices."
5. Perform your cost-cutting before you negotiate contracts. By the time you go to negotiate contracts with a payor, you should already know exactly how much money you need to make on a procedure to make a profit, Ms. Ryan says. This means you should already have gone through your supply and staffing costs and trimmed any waste from your budget.
If you haven't cut costs in your surgery center, payors may think you are asking for excessive levels of reimbursement because your expenses are too high. "As you're negotiating new contracts, you've got to be confident that you've already accessed the best pricing you can for supplies and that you're providing the best value at the lowest cost," Ms. Ryan says.
6. Trend new procedures for the first 3-4 months to compare cost and reimbursement. When you add a new procedure to your surgery center, track charges, costs and net revenue to make sure you are receiving adequate levels of reimbursement compared to your costs, Ms. Ryan says. You may have negotiated contracts without realizing one of your physicians demands the most expensive brand of implant, for example.
"When you add a brand new procedure, you better be following it for three or four months to get a trending of what it looks like by physician and by payor," says Ms. Ryan. This will tell you whether you need to focus on cutting costs, negotiate better reimbursement rates next time around or drop the procedure completely.
7. Look at return on investment for capital equipment purchases. When you negotiate a contract with a payor, think about your equipment expenses as well as your costs-per-case, Ms. Ryan says. This is especially true for new procedures requiring capital purchases to get off the ground. "If you have a management company, ask them to give you information on what other surgery centers have done in the past," Ms. Ryan says. "What types of capital purchases did they need? What kind of disposable supplies and staffing did they use?"
She says knowing your equipment expenses will tell you how much you need to make on each case to make that money back in the long-run. "You need to be able to do a return on investment and see how long it's going to take you to pay for that capital investment," she says. For example, if your ASC is adding ophthalmology and investing in a laser for cataract surgery, you will need to ask for higher reimbursement rates than a surgery center that already has the equipment.
8. Determine how volume and reimbursement work together for your specialties. Volume and reimbursement work together in interesting ways: While no amount of volume can make up for cases that lose money, the right amount of volume can take the place of a high contribution margin for a particular procedure. For example, orthopedics has a high contribution margin but relatively low volume, so the specialty is profitable because the surgery center makes a large profit on each case.
Specialties like ophthalmology, GI and pain management have a lower contribution margin, but the specialties can be profitable if the surgery center can schedule many cases in one day. If you are going to accept a lower reimbursement rate for a specialty, make sure you know your physicians can bring enough volume to make money.
9. Check your percentages of Medicaid and Medicare. Medicare and Medicaid can work for surgery centers, as long as the ASC leaders understand the percentage of each government payor before negotiating commercial contracts. If your surgery center performs a high volume of ENT, look at your payor population to determine how many of your patients will be Medicaid beneficiaries, Ms. Ryan says. Many surgery centers steer clear of Medicaid because the reimbursement rates are too low for ASCs to make a profit. ENT, which concentrates heavily on children, often accepts a high percentage of Medicaid because many Medicaid beneficiaries are minors.
In the case of ophthalmology, look at your expected percentage of Medicare and make sure you can survive on a high volume of Medicare reimbursement if necessary. "For example, retina has a population that's very heavy in Medicare, but it's also very expensive to buy the equipment," Ms. Ryan says. "The capital purchases are huge, so you need to be aware of your payor mix percentages when you're calculating everything."
10. Keep an eye on "questionable" cases. If your surgery center is performing a particular case that seems to be verging towards unprofitable, keep an eye on the case to determine whether you need to send it to the hospital, Ms. Ryan says. Don't let cases sneak onto the schedule without noticing that your ASC is losing money on them. If you notice a particular procedure is high-cost, low-reimbursement, work with your payor continually to determine how you can avoid sending the case elsewhere.
Learn more about Health Inventures.
Related Articles on Coding, Billing and Collections:
NJ Surgery Center Hosting Information Session on Proposed PIP Regulations
Blue Shield of CA Recommends Use of ASCs Over Hospitals
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1. Push for "percent of billed charges" contracts as often possible. Ms. Ryan recommends surgery center leaders ask for "percent of billed charges" contracts rather than contracts based on a percentage of Medicare or contracts based on grouper rates, which can be complex and frustrating. She says payors may be more likely to offer this type of contract if they know that other heavy-hitting insurance companies do. "We do all percent of charge contracts with payors as much as possible," she says. "If that kind of contract is the norm in your geographic area, you can say, 'All our contracts with third-party payors are percent of charge.'"
Under a percent of billed charges contract, the payor agrees at the time of contracting to pay on the basis of a percentage of the surgery center's billed charges. This kind of reimbursement can be profitable for surgery centers because it allows ASCs to receive higher reimbursement for cases with higher costs.
2. Understand Medicare reimbursement to negotiate "percentage of Medicare" contracts correctly. Some insurance companies will push for contracts that reimburse surgery centers based on a percentage of Medicare, Ms. Ryan says. This kind of reimbursement can work as long as the surgery center leader has a good understanding of Medicare reimbursement rates for each procedure. "You need to really understand what Medicare reimbursement is and what your costs are, so you can negotiate the correct percentage of Medicare," she says. For example, if the payor is reimbursing at 200-300 percent of Medicare, your ASC should be able to perform cases profitably with that level of reimbursement while accounting for costs.
If your ASC performs cases that will not profit from the offered percentage of Medicare, you need to carve those specific procedures out and negotiate a different rate for them, Ms. Ryan says. "If there are cases that will not make a profit because they have a very high supply cost per case, you need to be able to go into that negotiation and say, 'We're going to do 200 percent of Medicare, but for this procedure, we'll have to get more,'" she says.
3. Expect education from payors on new reimbursement methodologies. If a payor introduces a new reimbursement methodology, or you start contracting with a new payor, you should expect a lot of education on how your reimbursement will work, Ms. Ryan says. She says when her surgery center transitioned to an Enhanced ambulatory payment group system of reimbursement, she found it to be "very arduous." APGs are a patient classification system designed to pay providers on the amount and type of resources used during a patient encounter. Patients in a given APG have similar clinical characteristics and similar resources use and cost, and medical services requiring a higher level of professional and ancillary care are paid a higher rate than those of a lower intensity.
"You need a lot of education from the payor on what your reimbursement rate is going to be," she says. "They'll give you a base rate reimbursement and then a multiplier — say it's three — and then you take the three and multiply it by what they're going to pay you for that specific EAPG," she says. To make EAPG reimbursement work for you, she says you really need to understand your primary payments and how multiple procedure payments are impacted through EAPG. Ms. Ryan says you should also understand whether implants and medications are included in the payments — "there are some that will pay for implants and medications, and you need to get your arms around that if so," she says.
4. Let payors know they'll pay more at the hospital. Freestanding surgery centers lack the leverage of hospitals and surgery center management companies, but you should still be able to negotiate fair rates if you present the cost-savings opportunity to the payor, Ms. Ryan says. "It really comes down to providing the data to the payor and saying, 'This is the amount of money we need to take care of this population,'" she says. "They need to be paying you a certain amount of money, but they will still be paying less than if the patients were directed to the HOPD." Make sure the payor understands that your surgery center can save insurance companies a significant amount of money if they can negotiate a profitable contract.
She says surgery center leaders should make payors aware of their quality outcomes as well. "Not only is it a financial incentive, but if you've got great quality outcomes, that's important to the patient population," she says. "Especially in this day and age, we're going to see more and more transparency related to patient outcomes and best practices."
5. Perform your cost-cutting before you negotiate contracts. By the time you go to negotiate contracts with a payor, you should already know exactly how much money you need to make on a procedure to make a profit, Ms. Ryan says. This means you should already have gone through your supply and staffing costs and trimmed any waste from your budget.
If you haven't cut costs in your surgery center, payors may think you are asking for excessive levels of reimbursement because your expenses are too high. "As you're negotiating new contracts, you've got to be confident that you've already accessed the best pricing you can for supplies and that you're providing the best value at the lowest cost," Ms. Ryan says.
6. Trend new procedures for the first 3-4 months to compare cost and reimbursement. When you add a new procedure to your surgery center, track charges, costs and net revenue to make sure you are receiving adequate levels of reimbursement compared to your costs, Ms. Ryan says. You may have negotiated contracts without realizing one of your physicians demands the most expensive brand of implant, for example.
"When you add a brand new procedure, you better be following it for three or four months to get a trending of what it looks like by physician and by payor," says Ms. Ryan. This will tell you whether you need to focus on cutting costs, negotiate better reimbursement rates next time around or drop the procedure completely.
7. Look at return on investment for capital equipment purchases. When you negotiate a contract with a payor, think about your equipment expenses as well as your costs-per-case, Ms. Ryan says. This is especially true for new procedures requiring capital purchases to get off the ground. "If you have a management company, ask them to give you information on what other surgery centers have done in the past," Ms. Ryan says. "What types of capital purchases did they need? What kind of disposable supplies and staffing did they use?"
She says knowing your equipment expenses will tell you how much you need to make on each case to make that money back in the long-run. "You need to be able to do a return on investment and see how long it's going to take you to pay for that capital investment," she says. For example, if your ASC is adding ophthalmology and investing in a laser for cataract surgery, you will need to ask for higher reimbursement rates than a surgery center that already has the equipment.
8. Determine how volume and reimbursement work together for your specialties. Volume and reimbursement work together in interesting ways: While no amount of volume can make up for cases that lose money, the right amount of volume can take the place of a high contribution margin for a particular procedure. For example, orthopedics has a high contribution margin but relatively low volume, so the specialty is profitable because the surgery center makes a large profit on each case.
Specialties like ophthalmology, GI and pain management have a lower contribution margin, but the specialties can be profitable if the surgery center can schedule many cases in one day. If you are going to accept a lower reimbursement rate for a specialty, make sure you know your physicians can bring enough volume to make money.
9. Check your percentages of Medicaid and Medicare. Medicare and Medicaid can work for surgery centers, as long as the ASC leaders understand the percentage of each government payor before negotiating commercial contracts. If your surgery center performs a high volume of ENT, look at your payor population to determine how many of your patients will be Medicaid beneficiaries, Ms. Ryan says. Many surgery centers steer clear of Medicaid because the reimbursement rates are too low for ASCs to make a profit. ENT, which concentrates heavily on children, often accepts a high percentage of Medicaid because many Medicaid beneficiaries are minors.
In the case of ophthalmology, look at your expected percentage of Medicare and make sure you can survive on a high volume of Medicare reimbursement if necessary. "For example, retina has a population that's very heavy in Medicare, but it's also very expensive to buy the equipment," Ms. Ryan says. "The capital purchases are huge, so you need to be aware of your payor mix percentages when you're calculating everything."
10. Keep an eye on "questionable" cases. If your surgery center is performing a particular case that seems to be verging towards unprofitable, keep an eye on the case to determine whether you need to send it to the hospital, Ms. Ryan says. Don't let cases sneak onto the schedule without noticing that your ASC is losing money on them. If you notice a particular procedure is high-cost, low-reimbursement, work with your payor continually to determine how you can avoid sending the case elsewhere.
Learn more about Health Inventures.
Related Articles on Coding, Billing and Collections:
NJ Surgery Center Hosting Information Session on Proposed PIP Regulations
Blue Shield of CA Recommends Use of ASCs Over Hospitals
Congress Deficit Reduction Panel May Target Medicare Supplemental Health Plans