Greg Horner, MD, is managing partner of Smithfield Surgical Partners and a board member of the California Ambulatory Surgery Association.
Q: Is this a good time for ambulatory surgery centers to consider dropping out-of-network status and start negotiating contracts with insurers?
Greg Horner: Insurers have been elevating deductibles dramatically and prohibiting fee-forgiving, the practice of not collecting the entire responsibility from the patient. And they have been kicking doctors out of their networks for referring to out-of-network ASCs. I recently helped a physician group reverse a termination from an insurer. They were able avoid expulsion from the network. But the writing is on the wall – insurers are pressuring ASCs to go in-network.
Q: How does a center know when a payor is starting to get tough with out-of-network cases?
GH: Watch the yield of cases per physician. Specifically, get a report by key surgeons from their office billing system. Determine the percent of eligible cases that they bring to the center. If this yield is dropping quarter after quarter, consider this pathognomonic. [In clinical medicine, this means a disease is present beyond any doubt.]
Q: If an ASC sees the writing on the wall, when should it start negotiating with payors?
GH: Start negotiating as early as possible, even before there is a big change in the viability of out-of-network business. When that happens, there will be a rush into contracting and, trust me, the negotiations will be very short.
If you can give yourself lots of time, you can improve your negotiating power. You will have a chance to get a feel for the market. Initial contract negotiations take a lot time. They can last six months or even a year, in tough markets.
Time is always a critical factor in an insurance negotiation. Not being in a hurry gives you a chance to throw the ball back into the insurer's court. With each iteration of the contract, the insurer may to give you a little more. To use a medical term, the payors are generally titrating to find the market price.
Q: Is there any way for an ASC to improve its chances of getting a good contract the first time around?
GH: Contact the largest employers in your area. Employers are the bosses that the insurance companies have to answer to, and they tend to be more open to your arguments than the insurers are. Employers actually want to provide good care and access to the patient. The insurers do as well, but this is mitigated by their urge to save. To establish contact with employers, identify the key companies headquartered in your area and look up the HR executives there.
Working with the employers, you can develop a set of fair standards that can then be taken to the insurance companies in negotiations. Employers understand the concept of cost and equity. They understand that the center has to make enough money to survive. From their point of view, survival of their contracted ASCs assures competition vis-à-vis hospital monopolies.
Q: When ASCs go in-network, typically their volume rises but their revenue per case declines. How can they deal with this?
GH: Look at your costs in this situation. Most ASCs are doing the best they can with fixed costs but not necessarily with variable costs, like supplies and staffing. When they are out-of-network, surgery centers make relatively high revenue per case, so there is little incentive for them to focus on supplies and staffing, except to get the very best to keep the physicians happy. They are generally price insensitive to a 1 or 2 percent cost improvement.
That situation changes when you go in-network. Management must model its center at the per-case revenue proposed by the insurers. The break-even point and profitability are determined by the operating margins. Even with more volume, you cannot grow out of negative margins.
Increased volume can also be a challenge for staffing. It involves bringing in extra staff who are less familiar with working in the center and thus will be less efficient. The problem can be exacerbated by a tight labor pool, making it harder to find good staff. Eventually the staff is going to be able to deal with the higher volume, but there will be a learning curve during which the center may lose money.
A way to gauge this potential problem is by using a historical stress test. Take nursing, the biggest staffing category. To predict how the center would handle higher volume, find a period in the recent past when volume was relatively high. Determine nursing hours per case and nursing cost per case for each month of the past year, then plot that against your volume in each month. If your NHC or NCC shot up during high volume months, you may have either a problem with efficiency or with a tight labor pool. These issues must be identified and dealt with before you start contracting for a large percentage of your commercial business.
Use the figures from your historical stress test to determine the extra expenses the center will need to make in the transition and budget accordingly. To help staff deal with higher volume, initiate in-house training and determine the right mix of different staffing categories, from full-time to per diem to hourly workers. Adjust your physician block times as well.
Learn more about Smithfield Surgical Partners.
6 Key Ways to Save on ASC Supplies
4 Ways for ASCs to Boost Income on Payor Contracts
6 Changes in Surgery Center Staffing That Boost Profits