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10 Tools to Bring to an 'Evidence-Based' ASC Payor Contract Negotiation

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Earlier this year, Dan Connolly, MHS, ARM, vice president of payor contracting for Pinnacle III, noticed something had changed. Like everyone else in the industry, he had heard for years that payors were cracking down on providers, pushing cripplingly low rates for new contracts or refusing to discuss increases for established centers. But he had never personally experienced it — until now.

At the beginning of the year, the consistent message received from payor after payor was the same: We're not looking to increase rates. You're already paid better than most. Our budget doesn't allow for additional reimbursement. It became clear that the old contract negotiation tactics, which had served him well in the past, were no longer sufficient. He decided to take a new approach — a system he calls "evidence-based negotiation."

"Evidence-based negotiation" means never going into a contract negotiation without substantial backup, in the form of hard data. For every contract he negotiates now, Mr. Connolly lays out a formal presentation that clearly defines his objectives. "Even our principals have asked at points, 'Is this necessary? Is it worth it?'" he says. From his perspective, the answer is absolutely. Without hard data to convince them otherwise, payors are increasingly telling surgery centers they're already paid enough — or in some cases, too much.

Here, Mr. Connolly discusses 10 tools to bring to an evidence-based negotiation.

1. A clear objective. Go into the negotiation knowing what you want, Mr. Connolly suggests. He indicates a formal presentation will go a long way toward convincing a payor representative that you are serious. In your presentation, define your objective right away, and let the payor think about it while you argue your case. For example, you might want to change the methodology of your reimbursement to a process that's easier to administer for both parties. You might want to stop providing invoices for implants. You might want to narrow the gap between the payor and the market. Whatever your goal, write it down and present it up-front.

He recommends presenting the objective as a "win-win opportunity" for the payor. "When you define your objective, say something like, 'I want to bring more of your members to the ASC and take them out of the higher-cost HOPD setting, and to do that, I need a higher reimbursement rate to accept those cases,'" Mr. Connolly says. In your formal presentation, your objective and supporting data should be laid out clearly, in case your proposal is passed on to a staff member who didn't hear your initial presentation. Mr. Connolly points out that you might not be there to fill in the gaps with someone else; make sure your goal speaks for itself.

2. Knowledge of current Medicare rates. You should understand how reimbursement has changed in the market since you last spoke to the payor. If ASC payment updates based on the CPI-U have dropped in the last year, you need to know how that drop has affected your center. You should also know how the payor's rates compare to Medicare rates, which are generally lower than commercial insurance rates.

"Look at where Medicare is currently, and tell the payor when they're paying less than Medicare," he says. This information may be useful to the payor representative, who may honestly not know that the payor's rates are significantly under market expectation.

3. An understanding of the payor's peers. "Who is the payor's main competition?" Mr. Connolly recommends asking yourself. There's no point bringing data to your payor on insurance companies they don't compete with directly, because your representative won't care that they offer higher rates. "There are major league payors and minor league payors," Mr. Connolly says. "If you're comparing a major league to a minor league, that won't lend any credibility to your comparison." He suggests isolating the top four to six payors in your payor's classification, which can be found by consulting the state Division of Insurance about payor market share.

For proprietary reasons, if you're going to present hard data from other payors, you need to blind the data. Mr. Connolly recommends presenting the data in a graph to demonstrate how the payor differs from the market average, rather than comparing one payor to another. He says it's useful to determine how the payor views its market. In some cases, a payor's market could be a city; in others, an entire state. Once you understand how the payor's rates compare to the going market rate, you can ask, "What can we do to narrow that gap?"

4. Data on reimbursement rates at the local hospital. One of the greatest tools an ASC has in payor negotiation is the ability to save the payor money. If your ASC is located near a hospital, your payor is probably losing money every time a physician takes an ASC-appropriate case to the higher-reimbursed hospital outpatient department. Emphasize this fact. "I recently reminded a payor that the cost of having a case in the hospital was 2.5 times greater than the cost of having a case in the ASC," Mr. Connolly remarks.

In your presentation, numbers will have the greatest effect. List the hospital's reimbursement rate, your requested reimbursement rate, the difference between them, and the number of cases you could perform every year if they were sent to the ASC. Multiply the number of cases by the difference in reimbursement, and present the payor representative with a hard estimate of their cost savings.

5. A list of your physicians and their affiliated facilities. If your physicians aren't taking cases to your surgery center, they're probably taking them to the hospital. Mr. Connolly recommends giving the payor a list of affiliate physicians and, by physician, where the physician has privileges. "I'll show them that three-quarters of the ASC's surgeons have privileges at the hospital," he says. "By doing that, I can demonstrate that by not reimbursing well enough for high-cost implants, the payor is allowing those cases to go to the hospital."

6. Evidence of your cost-saving approach.
Surgery centers are low-cost, high-quality providers, and those characteristics should be first and foremost in a payor contract discussion. Show the payor the measures you have taken to cut costs in your surgery center, and present hard numbers on the difference between your reimbursement rates and your expenses. ASCs operate on a thin margin, which makes the case of a negotiator more sympathetic. "Give the payor a comparison between your center and other facilities," he says. "Most ASCs can be proud of their cost-effectiveness."

7. Data on your costs.
Mr. Connolly says as more payors move to APC methodology — which eliminates the process of paying for implants separately — the importance of cost data increases. "If we don't have the data at the primary CPT level to know what we're getting paid for implants, we're severely handicapped," he states.

He points out most ASCs collect data at the implant log level for billing purposes, but don't necessarily use it for contracting purposes. He says your center should know your costs down to the CPT level. For an orthopedic ACL procedure, you should know exactly how much the procedure is going to cost you, as well as how that cost is divided. "As we move to a new platform where payors are transferring more risk, which is the tenet of managed care, we've got to be able to slice and dice the data so that we know we're fighting the right battle."

8. Details on patients who have to be turned away. Don't just say, "I think we have had to turn away patients because our rates are too low," Mr. Connolly asserts. You should know exactly how many patients have been turned away in the last few months, and you should be able to provide names if necessary. "It puts a burden on the center to proactively collect information up front," he says. "Collect the information as you go. When your schedulers are working with the physician schedulers and turning down cases you can't afford, record that data so that you have something specific to reference in your negotiation."

9. A value proposition. Your presentation should wrap up with a value proposition, or an "if-then" statement that tells the payor what you expect and what you will give in return. "'If you pay us better, then we're going to save you money as a result of having these patients,'" Mr. Connolly gives as an example. "It's got to be balanced, because if it's self-serving, it won't work." He says this approach will build a solid long-term relationship with your payor because the representative will understand you desire to forge a sustainable partnership.

10. Plan B. Sometimes the payor will simply say no. "You have to have a back-up plan," Mr. Connolly says. "Give the payor as many opportunities to step up as possible." He notes more often than not, payor representatives are operating under strict guidelines about what they can offer. He indicates you may not get increases in the areas you expected, but you can effectively "mix and match" rate changes to achieve the necessary bottom line.

Learn more about Pinnacle III.

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