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Should ASCs Move From Out-of-Network to In-Network? Assessing the Switch

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At the 20th Annual Ambulatory Surgery Centers Conference on Oct. 25, I. Naya Kehayes, MPH, and Matt Kilton, MBA, MHA, of Eveia Health Consulting and Management discussed the process of assessing the movement from out-of-network to in-network. and it's impact on profits.

Cost analysis
The first step is to perform an initial cost analysis that assesses incremental costs as well as direct operating expenses. If an ASC elects to shift in network it needs to identify what the new services will be and what will they cost. Factor in the incremental direct operating cost to adding new services and the expected cost reductions to fixed cost with new volume.

Payer value assessment out-of-network vs. in-network
In the typical out of network scenario, one payer represents a moderate amount of volume in the market. ASC leaders are concerned about losing access to case volume, either directly or indirectly. Deductibles and co-payments are rising and the common fear is that access to contracts may vanish.

When surgery center leaders begin to consider moving from OON to in-network, they assess the payer's current financial value as OON. Then, volume, charge per case, net receipts per case and overall averages of closed accounts vs. open accounts are identified.

When considering the move, payer relationships become even more important. "At least establish communication with the payer," said Mr. Kilton. Without an open line of communication, negotiations will be difficult to even begin.

Payer & case mix analysis
Another important factor to determine is what will the payer mix be after the shift to in-network? Payer enrollments may be evolving and the potential trending towards insurance exchanges must also be considered. Evaluate all of the products that will be part of your overall contract offered by payers. It is possible that there will be access to new plans, such as HMOs and narrow network options that are normally not accessible OON. During this step in the analysis, determine the distribution of case volume and the forecasted revenue.

Lost volume analysis
Lost volume analysis is helps to identify the potential additional casemix. This step requires coordination with physician partners, and should involve consideration of each payer and their various product types.  A facility should also seek to identify any cases that have been lost in “to-follow” situations; those being cases that were scheduled elsewhere because the surgeon had to seek an alternative operative location due to your ASC being out of network.

Negotiation

ASC leaders have the most power in terms of their ability to negotiate when they begin to make this move. A payer's opening offer will most likely be an 80 to 90 percent loss so do not agree on rates until you have negotiated a favorable contract that does not yield a loss; it is unlikely you will recover significant losses on volume. Always make an informed decision before signing a contract, and remember that once a contract is done you must plan to start over again before the term ends.  Continually negotiate into the future otherwise you run the risk of contracts becoming dated or obsolete.

Putting it all together
The final step is assessing the financial value of making the shift. Quantify the net revenue value of lost volume on in-network contract rates based on CPT codes. Analyze the payer product mix of the lost volume, evaluate the financial impact of the total cost of adding new volume and assess the effect on EBITDA. "It's important to account for the fact that the cost of adding new volume will be balanced as your fixed costs go down," said Ms. Kehayes.

Normally the time period following a move towards in-network will result in lower revenue per case, but volume should help offset some of those reductions if the contract rates negotiated are not an excessive reduction compared to out of network..
When and how to begin the shift from OON to in-network is market dependent, but OON remains an option for some centers. "There will always be some out-of-network, the percentage is anyone's guess," said Ms. Kehayes.

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