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10 Key Steps to Managed Care Contracting

At the 19th Annual Ambulatory Surgery Centers Conference in Chicago on Oct. 26, 2012, Managing Principal and CEO of Eveia Health Consulting & Management I. Naya Kehayes and Senior Associate at Eveia Michael J. McClain discussed the 10 key steps for success with managed care contracting.

1. Assess the value of the payor.
Decide how to assess the value and potential reimbursement from the payor. Think about whether the payor group represents a reimbursement stream that is economically feasible with your center as well as what could happen when you go in-network or during renegotiations.

"Don't sign contracts to get access to patients — that's the biggest mistake ASCs make," says Ms. Kehayes. "You don't always make it up on volume — the contract must be economically viable."

Consider how much volume that payor represents and what your cost per case is to see whether the contract will be profitable.

2. Conduct a payor mix analysis.
Look at payor ranking and how patients are referred to the facility. Consider how much each payor represents in case volume and receipts. If a payor is highest in charges but lowest in receipts, it means they are worth a lot in volume but not in revenue. Other times insurance companies won't allow you to participate unless you sign up for certain or all product lines.

"Are you losing business because you don't participate?" says Ms. Kehayes. "If this is the case, what value does the payor represent. Understand what new business comes in from that contract. Your rent and electricity stays the same, obviously you will add direct operating costs, but sometimes that contract will be very beneficial if it is economically viable."

For example, if you don't contract with a payor because you don't have their HMO product line, you might be losing one or two HMO cases from that surgeon. But, if they are scheduling those cases, as well as all other cases scheduled that day, at the hospital, you are losing three or four cases that could be performed in the ASC.

3. Assess ASC value in the market.
Assess the value you represent to the payor in the payor's mind. Demonstrate to them that you are important to their network. Consider whether you are in a saturated market or the only ASC for 20 miles; if you are the only ASC or only single-specialty ASC in the area, you have leverage.

"Are you providing the payor with an alternative to a more cost-effective setting?" asked Ms. Kehayes. "Do you have team physicians for local teams? Special equipment other hospitals and surgery centers don't have that allows you to provide different services to the payor? Understand your market position before going to the negotiating table with the payor."

4. Evaluate case mix.
Look at your case mix by specialty and subspecialty because they can be important to a contract negotiation. Understand and assess your cases versus procedure counts, which are going to impact how you negotiate a contract. Also think about your Medicare versus commercial payor mix.

"Your ophthalmology may be 80 percent Medicare, ENT might have more Medicaid business, so consider what the commercial payors represent," says Ms. Kehayes. "High cost examples are ACLs, orthopedics, ACDFs, which are high cost at the center, but when they are done in the hospital they are really expensive."

Identify those cases if you are doing them and demonstrate the savings to payors.

5. Assess payment methodology.
Payors may have deviations from the basic payment methodology that make their payments different from others. They may also use the Medicare system as a base, but you have to figure out what year Ambulatory Payment Classifications they are using and whether they are adjusted or national waits.

"Get that from provider manuals," says Ms. Kehayes. "Sometimes it doesn't come up and all of a sudden it is a factor in the value of a negotiation. If you are a surgery center with multiple procedures, that could really have a tremendous impact driving the value of the contract."

Additionally, make sure you clearly define implant payment — whether implants are carved out or part of the overall fees. Bundled payments are on the horizon and it's not clear how they will impact the process, but interested ASCs should collect data and structure a proposal for the services provided.

6. Consider the impact of managed care early.
Assess the position of your ASC in the market and whether your current contract will allow you to make any moves. You may want to add orthopedics or spine but your contracts aren't completely set up for that. However, there could be a few procedures you could do.

"If this is a whole new service, figure out whether there are procedures you could do today," says Mr. McClain. "If they aren't hospital-based cases, consider where these cases are coming from — either the ASC down the street or a higher cost facility where the payor sees value coming over to you."

Figure out whether the procedure is an approved code or if it can be negotiated out of network. Know what you can do now and then build on it in the future.

7. Adding new service lines.
Know where these service lines are coming from because you want a running start. In some markets, a good place to start is workers compensation. "If you are out-of-network with some, maybe there are insurance companies that have better rates than others," says Mr. McClain. "Understand which company you can pick and bring cases quickly. You can't pull the trigger and be on full capacity. Target what patients you are going to bring in."

8. Payor due diligence.
Determine whether the payor is supportive of the facility. If you are expanding the ASC, know what benefit that will bring and whether it will really save money to take it out of the hospital.

"You may not be cheaper than the hospital," says Mr. McClain. "Hospitals sometimes take reimbursement decreases on low acuity cases to get much higher reimbursement on other cases. It's about providing savings to the payor for better reimbursement."

When you are bringing new specialties into the ASC, like spine, you may need to educate the payor on clinical possibilities. Figure out who the best payor is and contract with them.

9. New service line costs to the ASC and payor.
Most new services add capital expenditure, operating expenses and specialized equipment to the ASC. During contract negotiations, remind payors that while the new service will be less expensive than at the hospital, it's not free.

"Understand what is ASC-eligible and share that information with the payors," says Mr. McClain. "Also understand there is a cost to the payor as well — time, effort and administrative change. The payor might be required to begin a new medical policy."

If you are looking to add a procedure that is outside of their standard policy, figure out whether the payor can adjudicate that correctly.

10. Chargemaster/fee schedule impact.
Figure out how much you charge and whether it is the equivalent for what you will be paid. The current fee schedule needs to be updated if it doesn't make sense. Look at how all contracts play into the fee schedule and where you stand in the market.

"You might need to increase the charges, but then you would have language in place to prevent you from raising that," says Mr. McClain. "Payors want to get a discount. They want to know the value of contracting with a facility is going to get them a better rate. Demonstrate cost effectiveness and be able to stay within a market as well as your charges compared to the hospital."

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