Negotiating profitable payor contracts is essential for ASC success, particularly as commercial reimbursement rates drop and Medicare and Medicaid populations expand. Marty Winslow, director of reimbursement for Nueterra Healthcare, discusses strategies for payor contract negotiation and the effect of health care reform on ASCs and insurers.
Q: Which specialties pose the greatest challenge in terms of managed care contracting?
Marty Winslow: It's kind of on both ends of the spectrum, and what I mean by that is when you look at ASCs, on the low end of reimbursement you've got GI and pain. Those are tough in that payors are often reluctant to reimburse highly because they understand the costs are minimal in terms of supplies and procedure room time. If you couple that with the fact that the Medicare allowables have decreased for these specialties, it's a double whammy. Obviously the payors are aware of that decrease, and they would like to tie reimbursement to those lower Medicare numbers. So even though contracting for specialties like GI and pain is not overly complicated, it's often difficult to get reasonable reimbursement because the payors see these as low-end procedures.
On the other hand, for your high-end specialties such as orthopedics and spine, which have high-end cost structures around implants and OR time, those are challenging because payors aren't willing to recognize the full cost of the procedures. It can be difficult to get the operating margin you want for spine and orthopedics.
Payors are interested in ASCs to the extent that they see them as a way to lower costs. They will acknowledge that the ASC is a great place to go, but from a payor standpoint, it's all about the bottom line. Payors are interested in the ASC environment to the extent that they think they can drive some substantial discounts over what they have to pay a traditional hospital.
Q: How do you see health care reform affecting payors?
MW: I asked a payor representative the other day about the biggest challenges payors are facing through health care reform, and they just said, "Cost." They said, "We don't know what the future holds, so the uncertainty forces everyone to be conservative." For an ASC, they might acknowledge that while they're already paying you pennies on the dollar compared to what they pay the community hospital, they just can't give you an increase. I think it's partly that they're concerned and unsure about what the future holds, and they're not sure how health care reform is going to affect them.
They do know that they have to be very careful in terms of cost structures. Several of the key payors, including a lot of the Blues around the country, have said they are basically under a freeze.
Q: Are payors more enthusiastic about moving cases into the ASC because of those pressures?
MW: In general, payors are interested in ASCs because they see them as a more cost-effective approach. The other angle is that as cost pressures hit everybody, hospitals are saying they expect lower reimbursement in the future from Medicare and more hoops to jump through. Medicaid is sure to grow if health care reform stays in place, so a lot of [currently] uninsured patients will be reimbursed at rates that are unsustainable and don't provide any operational or expense reimbursement. All providers have to look to commercial payors for some operating margin, and that's going to push [payors] to look for alternatives and push business toward ASCs.
Q: How do you see payor mix changing for ASCs? Are centers seeing more Medicare and Medicaid patients?
MW: I would expect that to be the case. Over the years we've been operating centers, we've seen a larger shift towards Medicare, and we expect it to continue because of the aging population. Medicaid is the thing that concerns a lot of folks in the industry because Medicaid programs are individual for each of the states, and often the Medicaid payment rates are substantially less than Medicare. If you receive cost at best from Medicare, and Medicaid is paying you 50-75 cents on the dollar you receive from Medicare, you can do the math. They are all loss leaders, so you have to find somebody to subsidize. I can't say we've documented more Medicaid and Medicare, but we know it's a general trend.
Q: You mentioned that GI and pain have taken recent hits in reimbursement. Are centers considering dropping those specialties because of the cuts?
MW: We've not seen any of those specialties drop, because a lot of times the ASCs have partnership structures where you've got a group of doctors and they may include pain, ortho, ENT, general and several other specialties mixed in. We try to focus on redoubling our efforts in terms of cost control. Sometimes single-specialty centers don't have a lot of options, so they do need to control their costs. We've made efforts all along to say, "We've got a really good process in center A, so let's share that with the rest of our facilities."
Since we've taken some hits in those areas, we sometimes need to find another specialty to offset those losses. Often when you have pain, you have orthopedics. Many folks are looking at expanding spine cases by pursuing minimally invasive techniques. Our technique and strategy is to understand we have to offset those losses.
Q: Are payors comfortable moving spine cases into the ASC setting?
MW: It's a work in progress. Some payors have hardwired some of the basic spine stuff in; United Healthcare has added the basic laminectomy procedures. When you start doing actual fusions, though, there's not a real comfort level there yet. We've had situations where we have to sit down with medical directors and develop programs so [payors] understand there are protocols and we're choosing the right patient. Then the standard payor reimbursement is not set up to pay for these, so you have to negotiate that as well.
For example, say you can do a total knee in the surgery center, Medicare pays about $10,000-$11,000 for those in a hospital, and commercial payors are used to paying about $20,000. If an ASC can do the procedure for $15,000 and if the payor can get comfortable with it, then it brings new volume to the ASC and saves the system real dollars. Again it's an educational process to help the payors get comfortable.
Q: What is your strategy for convincing payors to reimburse for implants and other supplies that affect total case cost?
MW: On issues like that, I'll present it as a business opportunity for the payor. I say, "No more than you can offer your policies at a rate that's unsustainable, it doesn't do us any good to say we'll provide spines and totals for below cost." We try to present the case and be fairly transparent and show our costs, coupled with market knowledge and competitive information from different resources. We're assuming that payor costs are $20,000, so if we can deliver the procedure at $15,000, why would we not want to do that? We just want to be reasonable and transparent, particularly when dealing with procedures that have a high-cost structure. A lot of times, you're also dealing with people who don't completely understand that cost structure, so it's all about education.
Q: Do you understand why payors fail to recognize total case cost for specialties like orthopedics?
MW: When you're in a market where ASCs and fellow providers don't manage their business, they set the reimbursement bar at a level that isn't [sustainable]. I can't say how many times we've had conversations where we say, "It's not personal. We just have to make a business decision here. We're sorry our competitor doesn't manage their cost, but we do and we have to make the decision not to contract with you." We can do some of these procedures, but payors have to work with us and give us a reasonable margin.
Q: Do you have a policy for going out-of-network at Nueterra?
MW: Our approach is this: If we can't get an overall contract that makes sense for the facility, we don't contract and we try to take the emotion out of it. If there are opportunities for patients that make the choice to use out-of-network benefits, we'll accept those patients, but our approach has been that we want to contract at reasonable and fair levels. My approach has been to maintain an open dialogue [with the payor]. It may take 18 months to get a deal done, but we'll continue to dialogue, and we've found that once they start experiencing the truth that costs at the hospital are much higher, they'll come back around and say they're interested in contracting.
Q: What advice would you offer ASC leaders going into payor contract negotiations?
MW: I think the goal is to understand your cost and that this is a business decision. You can't get emotional about it and say, "Well, I have to have this" or feel the payor is being unreasonable and you'll take action to spite them. The other part is education: Back when Nueterra started, I had a lot of conversations about the appropriateness of lap choles in an ASC setting, and that doesn't happen anymore. I'm having the same conversation about spine fusions and total knees, and we generally find that once we build a relationship and trust with [payor representatives], they'll rely on us for knowledge and education.
That doesn't always work for the single-site independent center because they may not have the breadth of experience with payors in multiple sites, but it does work for us and a handful of other management companies. We can bring that knowledge and understanding to bear when we're working on these. One of my projects is to work with the Blues in a Midwest state to extend an ASC contract to include these [procedures] we're talking about. Our doctors have worked out programs and protocols that will allow them to do more and more involved cases on a less-invasive basis. It's a work in progress, and it's going to continue because that will ultimately be one way to contain some of the cost issues we're seeing and, at the same time, drive additional volumes to the ASC.
Learn more about Nueterra Healthcare.
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Q: Which specialties pose the greatest challenge in terms of managed care contracting?
Marty Winslow: It's kind of on both ends of the spectrum, and what I mean by that is when you look at ASCs, on the low end of reimbursement you've got GI and pain. Those are tough in that payors are often reluctant to reimburse highly because they understand the costs are minimal in terms of supplies and procedure room time. If you couple that with the fact that the Medicare allowables have decreased for these specialties, it's a double whammy. Obviously the payors are aware of that decrease, and they would like to tie reimbursement to those lower Medicare numbers. So even though contracting for specialties like GI and pain is not overly complicated, it's often difficult to get reasonable reimbursement because the payors see these as low-end procedures.
On the other hand, for your high-end specialties such as orthopedics and spine, which have high-end cost structures around implants and OR time, those are challenging because payors aren't willing to recognize the full cost of the procedures. It can be difficult to get the operating margin you want for spine and orthopedics.
Payors are interested in ASCs to the extent that they see them as a way to lower costs. They will acknowledge that the ASC is a great place to go, but from a payor standpoint, it's all about the bottom line. Payors are interested in the ASC environment to the extent that they think they can drive some substantial discounts over what they have to pay a traditional hospital.
Q: How do you see health care reform affecting payors?
MW: I asked a payor representative the other day about the biggest challenges payors are facing through health care reform, and they just said, "Cost." They said, "We don't know what the future holds, so the uncertainty forces everyone to be conservative." For an ASC, they might acknowledge that while they're already paying you pennies on the dollar compared to what they pay the community hospital, they just can't give you an increase. I think it's partly that they're concerned and unsure about what the future holds, and they're not sure how health care reform is going to affect them.
They do know that they have to be very careful in terms of cost structures. Several of the key payors, including a lot of the Blues around the country, have said they are basically under a freeze.
Q: Are payors more enthusiastic about moving cases into the ASC because of those pressures?
MW: In general, payors are interested in ASCs because they see them as a more cost-effective approach. The other angle is that as cost pressures hit everybody, hospitals are saying they expect lower reimbursement in the future from Medicare and more hoops to jump through. Medicaid is sure to grow if health care reform stays in place, so a lot of [currently] uninsured patients will be reimbursed at rates that are unsustainable and don't provide any operational or expense reimbursement. All providers have to look to commercial payors for some operating margin, and that's going to push [payors] to look for alternatives and push business toward ASCs.
Q: How do you see payor mix changing for ASCs? Are centers seeing more Medicare and Medicaid patients?
MW: I would expect that to be the case. Over the years we've been operating centers, we've seen a larger shift towards Medicare, and we expect it to continue because of the aging population. Medicaid is the thing that concerns a lot of folks in the industry because Medicaid programs are individual for each of the states, and often the Medicaid payment rates are substantially less than Medicare. If you receive cost at best from Medicare, and Medicaid is paying you 50-75 cents on the dollar you receive from Medicare, you can do the math. They are all loss leaders, so you have to find somebody to subsidize. I can't say we've documented more Medicaid and Medicare, but we know it's a general trend.
Q: You mentioned that GI and pain have taken recent hits in reimbursement. Are centers considering dropping those specialties because of the cuts?
MW: We've not seen any of those specialties drop, because a lot of times the ASCs have partnership structures where you've got a group of doctors and they may include pain, ortho, ENT, general and several other specialties mixed in. We try to focus on redoubling our efforts in terms of cost control. Sometimes single-specialty centers don't have a lot of options, so they do need to control their costs. We've made efforts all along to say, "We've got a really good process in center A, so let's share that with the rest of our facilities."
Since we've taken some hits in those areas, we sometimes need to find another specialty to offset those losses. Often when you have pain, you have orthopedics. Many folks are looking at expanding spine cases by pursuing minimally invasive techniques. Our technique and strategy is to understand we have to offset those losses.
Q: Are payors comfortable moving spine cases into the ASC setting?
MW: It's a work in progress. Some payors have hardwired some of the basic spine stuff in; United Healthcare has added the basic laminectomy procedures. When you start doing actual fusions, though, there's not a real comfort level there yet. We've had situations where we have to sit down with medical directors and develop programs so [payors] understand there are protocols and we're choosing the right patient. Then the standard payor reimbursement is not set up to pay for these, so you have to negotiate that as well.
For example, say you can do a total knee in the surgery center, Medicare pays about $10,000-$11,000 for those in a hospital, and commercial payors are used to paying about $20,000. If an ASC can do the procedure for $15,000 and if the payor can get comfortable with it, then it brings new volume to the ASC and saves the system real dollars. Again it's an educational process to help the payors get comfortable.
Q: What is your strategy for convincing payors to reimburse for implants and other supplies that affect total case cost?
MW: On issues like that, I'll present it as a business opportunity for the payor. I say, "No more than you can offer your policies at a rate that's unsustainable, it doesn't do us any good to say we'll provide spines and totals for below cost." We try to present the case and be fairly transparent and show our costs, coupled with market knowledge and competitive information from different resources. We're assuming that payor costs are $20,000, so if we can deliver the procedure at $15,000, why would we not want to do that? We just want to be reasonable and transparent, particularly when dealing with procedures that have a high-cost structure. A lot of times, you're also dealing with people who don't completely understand that cost structure, so it's all about education.
Q: Do you understand why payors fail to recognize total case cost for specialties like orthopedics?
MW: When you're in a market where ASCs and fellow providers don't manage their business, they set the reimbursement bar at a level that isn't [sustainable]. I can't say how many times we've had conversations where we say, "It's not personal. We just have to make a business decision here. We're sorry our competitor doesn't manage their cost, but we do and we have to make the decision not to contract with you." We can do some of these procedures, but payors have to work with us and give us a reasonable margin.
Q: Do you have a policy for going out-of-network at Nueterra?
MW: Our approach is this: If we can't get an overall contract that makes sense for the facility, we don't contract and we try to take the emotion out of it. If there are opportunities for patients that make the choice to use out-of-network benefits, we'll accept those patients, but our approach has been that we want to contract at reasonable and fair levels. My approach has been to maintain an open dialogue [with the payor]. It may take 18 months to get a deal done, but we'll continue to dialogue, and we've found that once they start experiencing the truth that costs at the hospital are much higher, they'll come back around and say they're interested in contracting.
Q: What advice would you offer ASC leaders going into payor contract negotiations?
MW: I think the goal is to understand your cost and that this is a business decision. You can't get emotional about it and say, "Well, I have to have this" or feel the payor is being unreasonable and you'll take action to spite them. The other part is education: Back when Nueterra started, I had a lot of conversations about the appropriateness of lap choles in an ASC setting, and that doesn't happen anymore. I'm having the same conversation about spine fusions and total knees, and we generally find that once we build a relationship and trust with [payor representatives], they'll rely on us for knowledge and education.
That doesn't always work for the single-site independent center because they may not have the breadth of experience with payors in multiple sites, but it does work for us and a handful of other management companies. We can bring that knowledge and understanding to bear when we're working on these. One of my projects is to work with the Blues in a Midwest state to extend an ASC contract to include these [procedures] we're talking about. Our doctors have worked out programs and protocols that will allow them to do more and more involved cases on a less-invasive basis. It's a work in progress, and it's going to continue because that will ultimately be one way to contain some of the cost issues we're seeing and, at the same time, drive additional volumes to the ASC.
Learn more about Nueterra Healthcare.
Related Articles on Coding, Billing and Collections:
Surgery Center Coding Guidance: Total Disc Arthroplasty Procedures
Louisiana Bill Would end Medicaid Switch in 2014 Without Reauthorization
Deadline Passes for Illinois Workers to Choose Health Insurance Plans