The Disparity Factor: How to Improve Anesthesia Managed Care ContractsNegotiating managed care contracts for anesthesia services is unlike that of all other healthcare services and presents unique challenges to anesthesia providers.
Adriaan Epps is the director of contracting services for abeo Management Company. He discusses how the traditional methods of anesthesia reimbursement can be problematic for providers looking to negotiate increasingly lucrative contracts. Additionally, Mr. Epps suggests approaches providers can take to improve their contracted rates and increase their overall revenue.
How is anesthesia reimbursed?
Three key components of anesthesia reimbursement must be accounted for in managed care contracts — the ASA conversion factor, carved out case rates for obstetrical anesthesia services, endoscopy services, or cardiac services and the reimbursement for non time-based procedures.
The anesthesia conversion rate — the number of dollars reimbursed for every unit of anesthesia administered — is the "bread and butter" of profits for anesthesia providers, Mr. Epps says. Anesthesia is the only specialty where reimbursements are based on base units and time unlike other specialties with payments tied directly to a percentage of Medicare. When negotiating managed care contracts with commercial payors, anesthesia providers often focus on the ASA conversion factor and overlook obstetric anesthesia payments and non-time based procedures.
Procedures not tied to the time or base units of anesthesia, such as Swan-Ganz, arterial lines and blocks, are typically undervalued by payors resulting in a financially unsustainable reimbursement structure and reducing the overall per unit value of the contract. These procedures must be targeted, carved out and paid using a compensation model based on the ASA-RVG base units multiplied by the ASA conversion factor or other payment methods, he says.
Endoscopy, cardiac, obstetrics and other services are commonly carved out at case rates or flat fees. Understanding the payors payment policies for these services is pivotal to achieving a financially viable rate structure. Obstetrical anesthesia services are often misunderstood and undervalued by payors. Common unit cap limits for obstetric anesthesia services can range from 10 units to 23 units when an average labor delivery can last up to 29 units. Failure to understand the reimbursement methodology of a health plan's payment policies could result in a significant financial loss if the payor enforces unit cap limits for specific procedures.
Various methods can be used to calculate the time and non time-based case rates, but Mr. Epps discourages anyone including payors from using Medicare as comparison or benchmark. "Medicare should never be used as a benchmark for calculating anesthesia reimbursement," he says. "It is well known throughout the anesthesia community that Medicare payments for anesthesia providers is undervalued." Anesthesia providers should educate payors about the "33 percent problem," a term used to describe the unique disparity issues resulting from undervalued Medicare reimbursement. Other physician specialties receive Medicare payments at 80 percent of commercial rates in contrast to anesthesia which represents only 33 percent of the prevailing commercial rates for the same services.
Why is this problematic?
Providers will find from analyzing their total collections over a 12 month period that a disparity exists between the contracted ASA conversion factor and the overall per unit rate paid by the entire contract, Mr. Epps says. All payment types combined do not add up to the rate many anesthesiologists believe they are receiving. In most instances payors are unaware of the disparity issue.
"The ASA conversion factor specifies the dollar value paid using the time rounding methodology, but if you calculate how the commercial payor pays all services under the contract, the majority of the time it will not equate to the conversion factor in the contract," he says.
The disparity rate for anesthesia contracts could be as low as 3 or 4 percent or it could be significantly higher. Mr. Epps has seen anesthesia services contract for $70 per unit but only receive an actual realized rate after collections of $55 per unit which represents a 21 percent or more disparity level.
Prior to negotiating or renegotiating a contract, anesthesia providers should do the following:
1. Market research:
• What differentiates the anesthesia practice from others in the market?
• Update the provider roster and facility affiliation list.
• Understand the payor's market position, benefit plan designs and their largest employer groups.
• Who is the contract negotiator for the payor, who is their boss and does this person have the authority to revise anesthesia payment policies?
• What is the payor's out-of-network payment methodology for anesthesia services?
• Obtain a copy of the payor's provider reference manual and anesthesia payment policies.
2. Understand your contracts:
• Evaluate all payments collected over 12 months to effectively analyze the per unit value of every contract.
• Identify the disparity level between the contracted ASA conversion factor and the actual per unit rate paid to the practice.
• Compare each commercial payor contract and pinpoint disparity levels, payment policies, unit cap limits, case rates, reimbursement for non-time based procedures and payments for physical status modifiers.
• What is the initial term and auto renew period, termination without cause provision, notice guidelines, over and underpayment policies, charge master cap limitations and effect to reimbursement if the contract is terminated?
3. Strategic planning:
• What is the anesthesia provider's best alternative to a negotiated agreement?
• What is a financially sustainable and acceptable rate structure?
• Determine if the new agreement should be extended beyond two to three years.
• If negotiations fail to result in an agreement, is the practice willing and able to remain in-network?
• Understand the financial and political implications of terminating a contract. Do the facilities and surgeons support this position?
• Evaluate the best negotiation tactics and supporting arguments with each payor.
What can providers do?
Payors focus their time on the total annual volume paid to providers, the ASA contracted rate and the discount achieved as a result of the contract, Mr. Epps says. They are often less focused on the actual per unit rate and value of the contract. Providers should actively pursue reducing their disparity levels using several methods.
Providers can use local and national benchmarking data to pursue closing the payment gap. Also, zeroing in on how non time-based services are reimbursed is an effective way to reduce the disparity. A more lucrative contract would include billing a percent of charges with a specified payor discount for non time-based services, Mr. Epps says. If that payor will not accept a percent of total charges, then offer a carved out flat fee rate based on the ASA relative value guide base units multiplied by the ASA conversion factor. This methodology can result in a financially viable solution for the providers and still offer an acceptable discount to the payors.
As for limiting clauses, Mr. Epps recommends showing payors supporting data why such cap unit limits result in financial losses resulting in an unsustainable reimbursement methodology.
"You need to effectively explain why the unit cap results in a financial risk to the practice if cases extend beyond the cap," Mr. Epps says. "Explain you are losing money on each case. Have measurable data, industry benchmarks and competitive payor data to support your arguments."
Use resources, such as MGMA cost survey data and the annual ASA conversion factor survey that gives blended anesthesia contracted rate information from providers across the country, broken out by region. "Identify where your practice lies in comparison to other contracts and what you may be able to achieve," he says. The more data a provider has, the more likely they will be able to prove their payment disparity and convince payors to improve the contracts.
Understanding the market, the payors, the contract language and reimbursement terms, the value of each contract and creating an effective negotiation strategy is essential to successful negotiations.
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