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8 Steps to Re-Negotiate Profitable Payor Contracts in 2013

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Rebecca Overton, director of revenue cycle management for Surgical Management Professionals, discusses eight ideas for strong payor contract re-negotiation.

1. Create a contract matrix to keep contract terms and renewal dates straight. Ms. Overton recommends creating a contract matrix that lists all renewal dates and terms for the contracts you have in place. "Every contract is different, and if it's not outlined in the contract, it's best to contact the payor at least 90 days prior to the renewal date to notify them of your intent to renegotiate terms," Ms. Overton says. "It typically takes 30 days for the payor to load a contract, and you want to allow yourself ample time to handle the re-negotiation process." Some contract terms can require as much as 180 days prior notice. Tracking this information is a must or you could end up missing the opportunity to increase revenue for the next term.

Many contracts are set up to auto-renew, meaning you could keep the same rates for another year if you don't keep track of the renewal date. "For example, the contract might auto-renew unless 90 days notice was sent to the payor via mail," Ms. Overton says. She says it's important to keep the contract matrix up-to-date, so that nothing slips through the cracks and causes the surgery center to lose the opportunity to realize increased revenues.

2. Be careful when transitioning from grouper to APC methodology. ASC reimbursement is moving from grouper methodology to APC-based methodology in the commercial setting, and Ms. Overton says she's seeing ASCs lose money because of the transition. A lot of payors still base their reimbursement on old grouper reimbursement methodology, and those rates are frequently below current Medicare rates. "It's very important that if you have grouper-based contracts, you explore the possibility of moving to an APC-based reimbursement model," she says.

However, in some cases, the transition may not be in the best interest of the facility; for example, the movement to APC-based reimbursement negatively affected specialties such as GI and pain management. "This means that facilities running high pain and GI volumes will take a hit unless carefully negotiated, and surgery centers with higher orthopedic volumes typically see an increase in reimbursement," Ms Overton says.

"Payors want to stay budget-neutral during the transition to APC methodology; your best defense to this stance by the payor is data, by proving a case for increased reimbursement," Ms. Overton says. The important thing is to perform a proper analysis so that you understand where your revenue lands in the aggregate when all volumes and reimbursement are considered.

3. Outline what you're going to ask for. Ms. Overton outlines the following steps to prepare for a payor contract re-negotiation:

• Pull top procedures for the facility (for example, top 50 procedures)
• For each procedure, list current contracted reimbursement, Medicare reimbursement and top three payor reimbursement
• Plug in cost per case for each procedure
• Compare current contracted reimbursement a) in comparison with Medicare, b) in comparison with cost, and c) in comparison with largest regional payors
•    Understand multiple procedure reimbursement, unlisted/ungrouped reimbursement and implant/supply reimbursement as it relates to rates

Once you have that information, you'll be able to make a determination about where to focus your efforts. "Decide what makes the most sense," Ms. Overton says. "Would it be helpful that you get carve-outs on specific procedures instead of asking for an overall increase?" She says it's also important to collect information from your staff on your relationship with the payor. For example, does the payor pay multiple procedures correctly? Do they cover implants separately, and are you having trouble getting them to pay for implants? Understanding these issues can help determine the best model for the contract going forward.

For example, if they are not paying for implants consistently when they are designated for separate payment in the contract, bring this into the discussion. It can provide leverage in getting contract language changed. In this scenario, for example, make sure payment of outstanding implants is addressed before moving forward and discuss different models for ensuring they are paid correctly.

4. Think ahead to negotiate for procedures you may add in the future.
Before you go into the negotiation, talk to your physician partners about procedures they may want to add in the future and know your facility initiatives for adding specialties or service lines. "There are more complex cases being done in surgery centers, and you need to be thinking to the future," Ms. Overton says. Ensuring your contracts have separate reimbursement for unlisted or ungrouped procedures can add value as you add more complex procedures, especially those not yet approved by CMS for ASCs.

5. Never accept less than Medicare, and know your dominant payor rates. "Less than Medicare rates are never acceptable, in my opinion," Ms. Overton says. She says there are certain situations where a facility might accept less than Medicare on a few procedures while putting more focus on specific carve-outs, but for the most part, surgery centers should look for rates higher than Medicare. She says "how much higher" varies based on the region. In the Midwest, surgery centers might achieve up to 250 percent of Medicare; on the east and west coasts, those numbers are sometimes unrealistic. It's a matter of supply and demand; saturated markets typically have reimbursement lower than that of more rural areas.

In general, it's important to understand the percentage above Medicare you receive from most commercial carriers. She also says it's important to know the rates of dominant payors in your market. You may work with smaller payors who want to offer rates lower than those of the dominant payors, but this can cause problems for the ASC in the future. "If you contract at lesser rates than the dominant payors offer, that smaller payor is able to offer lower rates to their member base," she says. "This eventually affects your more dominant payors, which then begin to implement decreases in contracted reimbursement. It's very important that you're not letting smaller payors set the precedent for lower-than-reasonable rates." Larger payors are able to gather data on contracted rates through secondary claim coordination of benefits, so while your contracted rates are not shared between plans, the payors do have ways of gathering this data.

6. Don't threaten to go out-of-network if you don't have a plan. If a payor offers you unreasonably low rates, you may need to cancel the contract and go out-of-network. But Ms. Overton warns surgery centers not to threaten to move out-of-network unless they have a plan for making that move. "You have to know the impact on your revenue and operations," Ms. Overton says.

If you go back and forth with the payor and they refuse to raise your rates, you can issue a letter of termination. This may spur the payor to give you a better rate — or they may accept your decision. You need to be prepared for either eventuality. It’s critical to have your physician partners on board with this decision and to share your strategy for ensuring success regardless of the payor's response.

7. Collect data on Medicare rates at the local hospital. In order to demonstrate your worth to the payor, you need to have an idea of how much they save by sending cases to the ASC. In order to do this, collect data on Medicare rates paid to the local hospital.

"This gives me some information to share with the payor on the potential savings if these cases remain in or move to the ASC," Ms. Overton says. "I'll say, 'We'd like to carve-out this procedure because we currently can't bring these cases to our facility at a realistic margin. If we're unable to do them, we could end up having to send them to the hospital. This would bring additional costs to both you and your members.'"

8. Concentrate on initial negotiation to make re-negotiation easier. Ms. Overton says it's a lot harder to re-negotiate a poor contract than to negotiate a robust one in the first place. If you're negotiating with a payor for the first time, push for good rates, because it will be difficult to convince a payor to give you a significant increase if you don't.

Learn more about Surgical Management Professionals.

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