Negotiating Payor Contracts

Negotiating Payor Contracts:
TOP TIPS FROM SHANNON SMITH

Negotiations: There is negotiation only when both parties have a reason to do the deal. Ask yourself: What’s different now? How did I approach contracting before vs. how I am approaching it now?

If there is a surgery center on every corner and all of those other centers are contracted, and everybody is offering the same services across the board and they have nothing that is really special, but they want the same rates as the guy down the street ... you have to have a carrot to dangle.

The Carrots: To intrigue payors, you increase your point of leverage if you have a very strong prominent physician group associated with your surgery center or you have unique service offerings.

Renegotiating: Most of the health plans are trying to do two-year deals, at least two-year deals, so they only have to renegotiate the contract every second year.

If I think there’s a change in the marketplace that’s going to serve me better from a negotiating perspective, but my physicians are putting pressure on me to close the deal, I’ll limit the term of the deal to one year and go back to negotiate it the following year, when the market has played out the way I think it is going to play out.

You should begin new negotiations ninety days to six months before the contract expires. Generally, if you want to renegotiate and you’re going to drive a hard line, a lot of payors put termination clauses in the contract that spell out you have to give them 90-day notice, so in that type of situation, I would start negotiating the contract again six months into it.

Common mistakes: When physicians rush to sign up for participation in payor networks. They just sign up, they don’t negotiate. That’s the No. 1 issue I see.

Most payors are going to try to limit the increase year over year to a maximum of 10 percent. I always say 10 percent of nothing is still nothing.

Both parties have to sign off on something for the terms of the contract to change. A lot of the payors will change their reimbursement methodologies. One of the things we saw was Blue Cross Anthem started indicating things were ‘incidental.’ Citing ‘usual and customary.’ You have to be able to defend your charges and have a methodology for which you establish your charges. From a payor perspective, the thing you’ll want to review the contract for is any language that prevents you from increasing your charge master beyond a certain point every year. Some of the payors will slip in ‘You can not increase your charge master more than 5 percent per year.’ One payor implementing that into one contract will penalize you across the board because you have to bill all payors at the same charge.

Mission Critical

“In seeking a corporate partner to provide ASC management services, the most critical management service is expertise in payor contracting. This will be critically important in the coming years as CMS has announced reductions in facility fee reimbursements for many common ASC procedures, especially ophthalmology and gastrointestinal, starting in January 2008. As many payors use the CMS reimbursements as their starting point for negotiating facility fee reimbursement, it is important that the ASC management company be well prepared and well armed to negotiate significantly higher rates than CMS allows, and to recruit multi-specialty cases that pay higher reimbursements, such as selected spine cases. Of the 50 ASC companies seeking to partner with surgery centers, several private and public companies have demonstrated high levels of expertise in negotiating very beneficial contracts for their centers. These centers average $300 per case higher reimbursements than independent ASCs, most of which falls to the net income line. ”
 — Jon Vick, president, ASCs Inc.

Expertise Can Help

With the proliferation of ASCs in the medical industry, a variety of business models have evolved. Whether the ASC is wholly owned by physicians, a joint venture with hospital partners, or performing single or multi-specialty procedures, success will be determined by sound management across all functions. Understanding the industry-specific measures for success, developing a plan of action, and communicating that plan to its stakeholders are the hallmarks of competent management.

With the quantity and complexity of information available to most effectively manage its business, a management company that compiles, interprets, and acts upon key indicators will serve its center best. Rob Carrera, Pinnacle III’s president, stresses the importance of open communication, adding that a “center should look for depth of resources within the management company.”

By accessing specialists in billing and coding, payor contracting, purchasing and inventory management, financial management, human resources, and clinical operations, these individuals can coordinate their efforts in maximizing revenues, minimizing costs and optimizing service delivery. “The most effective businesses empower each member of its staff with the understanding of their individual contribution to success,” adds Bob Estes, operations vice president.

Rick Dehart, Pinnacle’s chief executive officer says communication is key. “Communicating to the staff, physicians and investors the results of the center’s activities, opportunities for improvement, and clearly defining expectations is imperative for effective and thorough operations management,” he concludes.