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Payment Predicament: The Evolution of Managed Care Contracting Challenges

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Managed care contract negotiations can seem like an uphill battle, a tale as old as time — or that the very least as old as the ambulatory surgery center industry. Adriaan Epps, abeo vice president of practice management, deconstructs the past, present and future of some of the most difficult aspects of contract negotiation.

In or out?
The question of out-of-network versus in-network strategy is a constant, heated discussion. In the past, many ASCs have employed and thrived off a high OON volume, but this no longer as easily accomplished. ASCs across the country have become subject to payer efforts to bring them into the in-network fold. "Health plans may attempt to force OON ASCs in-network by investigating ASC collection practices including write offs and fee forgiving," says Mr. Epps.

Shifts in the healthcare landscape can put even greater pressure on OON ASCs. "Over the last few years [there has] been a significant decline in reimbursement because of lack of referrals," says Mr. Epps. Physician practices are being acquired and joining increasingly narrow networks. Providers who were once a rich source of ASC referrals may no longer have the option to send patients to an OON facility. As patients themselves take on more financial responsibility for healthcare may steer away from OON ASCs as well, demanding a facility that will fall under the payer's in-network umbrella.

Whether any one particular strategy will work is highly market dependent. This remains the case for OON strategy, but as a whole its viability is shrinking and many ASCs are transitioning to in-network. "Even though negotiations to switch to in-network can result in a successful outcome, it still represents a financial loss," says Mr. Epps. The future of OON will be driven by many of sweeping trends in healthcare, such as narrow networks and consolidation, and whether or not these trends change trajectory or remain dominant.

Statewide fee schedules and the battle for rate increases
From physician groups to hospitals and ancillary services, each payer manages a high number of fee schedules. "From the payer perspective, the administrative cost associated with managing hundreds if not thousands of fee schedules is a burden," says Mr. Epps. Lumping all ASCs together, regardless of variances, under one statewide schedule is a cost-driven, logical move for payers.

From the ASC perspective, this method of reimbursement is difficult to labor beneath. The costs of retaining quality staff, physicians and general overhead are growing and vary widely from center to center, even within the same state. There is always room to negotiate rates beyond the limitations of the fee schedule, but this requires demonstration of key differentiators in addition to quality beyond other ASCs in the market and time, one of the largest demands of contract negotiation.

ASC markets across the country are reaching the point of saturation. It is difficult to find the leverage to stand amongst so many competitors. Increasing competition, amongst numerous other pressures, has led to an uptick in consolidation and partnerships. ASC physician-owners are selling and entering joint ventures with hospitals. "Payer unwillingness to negotiate is a short-term strategy with long-term implications," says Mr. Epps. "Oftentimes those health systems that acquire freestanding ASCs will be able to roll those facilities into their existing contracts." Payers may be gaining awareness of the value of ASCs as quality drivers of cost savings, but how this will impact the industry's future is uncertain.

Outdated reimbursement methodology
Payer fee schedules are often tied to the outdated grouper methodology, rather than the updated outpatient prospective payment system. Grouper rates are often below Medicare. Many payers have not made the transition to OPPS because it is a costly switch to make and, from their perspective, one with relatively little value. "Educate payers as to why this is no longer advantageous," says Mr. Epps. The ASC-payer relationship can no longer be adversarial. Work to form a partnership, rather than enmity. Present compelling data demonstrating the need to embrace ASC rate increases and leave behind archaic methods.

Risk-sharing  
"Most contracting challenges are very similar to what they have always been," says Mr. Epps. "Risk model approaches are the newer challenges." There are now more than 600 accountable care organizations in the United States, according to the Leavitt Partners Growth and Dispersion of Accountable Care Organizations June 2014 update. Not all of these ACOs will survive, but new ones will rise to take their place. It is a strategic gamble when an ASC's leaders decide to join or not. "But, you can't sit back and watch," says Mr. Epps. "You have to have a seat at the table and talk with payers." Otherwise, ASCs could be left out in the cold. No one can predict the future of healthcare with any degree of certainty, but across the board all healthcare stakeholders can agree that collaboration is the only way to move forwards.

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