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ASC payer mix — developing the best in-network, out-of-network strategy

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The appropriate payer mix in today's healthcare environment depends on the center's experience and healthcare market. New centers begin out-of-network to perform cases for Medicare certification and some stay that way while others opt to negotiate in-network contracts as soon as possible.

It typically takes four to six months to negotiate a good contract with payers, says Senior Director of Managed Care for Surgical Care Affiliates Holle Ho. "The first step is to have realistic expectations on where you want to land on rates and understand that you will not be able to get contracted rates at the same high out-of-network levels," she says. "The trade-off to being contracted is to hopefully gain more volume."

ASC specialties, physicians and other distinguishing factors — such as performing total joint replacements or pediatric anesthesia — can be selling points during contract negotiations because insurance companies want these services for their members. COO of Surgical Management Professionals Reed Martin and his contracting colleagues attempt to develop a relationship with the insurance company and the company's medical director to optimize eventual contract negotiations.

"If you have a physician champion at the facility, it's helpful to have this physician meet with the medical director from the insurance company," he says. "The process starts with phone calls and then face-to-face meetings, if they are achievable. We have had success with that. Once the negotiation starts, email is the most effective communication tool."

Out-of-network strategy is still possible in some markets, but many ASCs are seeing those opportunities dry up. Payers want providers to come in-network and payers sometimes direct PPO patients to their in-network providers. As a result, some ASCs that have had success with out-of-network in the past are looking to go in-network.

"[In this situation] I would first contract with the stand alone large PPO networks as they rent their network to the major payers; thus you are allowing some discount to the major payers versus having to sign a direct payer contract," says Ms. Ho. "I would not go in-network with all payers at once; rather prioritizing the payers with out-of-network opportunities that have dried up and consider remaining out-of-network with lower volume payers."

Surgical Management Professionals centers are typically in-network with the top five payers in addition to Medicare, Medicaid, Medicaid replacement and workers' compensation. This means around 90 percent or more of the cases are eventually in-network.

Finding a good payer mix is market-dependent. In a heavy HMO market, Ms. Ho says 5 percent to 8 percent of out-of-network contracts are reasonable because ASCs will need to contract with payers to take on HMO patients that require authorizations. However, in high PPO markets ASCs can reasonably expect 30 percent to 40 percent of their contracts be out-of-network.

"[In the future] I see payers approaching ASCs to be in a tiered/narrow network, with ASCs taking a discount to their commercial rates," says Ms. Ho. "On the contracting front, payers have been more flexible in granting carve-outs for high cost procedures as they look to collaborate with ASCs to move cases out of the hospitals."

Ms. Ho says the five key steps to consider when going from out-of-network contracts to in-network contracts are:

•    Identify your current top procedures. Keep in mind the top procedures could be the highest volume or most costly.
•    Perform a case-cost analysis to determine what rate levels you need to cover your cost.
•    Contact the payer to discuss reimbursement methods. Some payers still use a proprietary groupers one to nine method and some use the current ASC Medicare methodology.
•    Request a proposal from the payer.
•    Begin negotiations, focusing on grouper or the percent of Medicare rate, unlisted rate, multiple procedure rate and carve-outs.

"The negotiations start with gathering and providing information that shows the insurance company why it would be good for them and their members if the provider was part of the insurance company’s provider network,," says Mr. Martin. "That information includes quality data and patient satisfaction data. Especially if it's very positive, it will show the insurance company how your facility will benefit their members."

It's also important to provide financial data to payers. Show them how much they are paying for out-of-network procedures versus  reasonable in-network rates. Then apply this savings to the higher in network case volumes to calculate annual savings. In this way you show the insurance company why an in network contract with your facility would be beneficial to them and with the quality and satisfaction data beneficial to their members.

When centers provide this information, it shows the win-win for both parties and the in-network contract has the best chance of success."

However, going in-network isn't necessarily permanent; there are some situations where it makes more sense for ASCs to terminate their contracts and return out-of-network. "If you've been in-network with a payer for several years and they won't discuss rate increases or multiple procedure reimbursement, implants or carve-outs, the only alternative is to send a letter of termination," says Mr. Martin. "Oftentimes that letter will cause true negotiations and discussions to take it to the next level." However it is important to understand  the payer's demographics — what percentage of their members have out-of-network benefits or have high deductible plans — before sending the termination letter, because you might end up out of network if negotiations fail.

In addition to traditional in-network contracts, payers are now more open to moving cases from the hospital to the outpatient centers with bundled payments or site-of-service differentials. There are opportunities for ASCs to take advantage of the payer's desire for quality care at a lower cost. For most ASCs, a completely out-of-network strategy won't be sustainable in the long term.

"I have seen payers be much more aggressive in implementing claim audits, investigations and payment delays that ultimately force ASCs to go in-network," says Ms. Ho. "Payers are also aggressive in enforcing their policies with physicians who use out-of-network centers."

Employees with health savings accounts and high deductibles will become better healthcare consumers as well, looking for the best deal. Accountable care organizations and health insurance exchanges are developing networks and providing incentives for organizations to contract with each other in efforts to lower costs and increase quality, says Mr. Martin.

"These incentives include less risk, more cases, better communication of quality and patient satisfaction data, and hopefully better overall reimbursement," he says. "If you are doing a lot of business with an entity, it's better to be contracted with them."

But that doesn't mean out-of-network contracts will completely go away. There are times when out-of-network strategy makes the most sense. It requires a good understanding of ASC costs, the competitive structure of other contracts and what the market will bear.

"As long as consumers make demands for choice payers, we will still need to offer out-of-network benefits that ASCs can work with," says Ms. Ho. "[But] increasingly, payers are either capping or setting fixed out-of-network payments."

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