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10 Steps to More Profitable Managed Care Contracts

Managed care contracting is essential to surgery center profitability, particularly as out-of-network billing becomes less feasible in many markets. Adriaan Epps, director of contracting services for abeo Management Corporation, discusses 10 ways surgery centers can achieve substantial increases year-over-year without hurting relationships with their payors.

1. Collect as much data as possible before negotiation. Mr. Epps says surgery centers should do as much preparation as possible before sending a proposal to the health plan. "You always have to have as much ammunition and data as possible to demonstrate why your ASC or group deserves a higher rate than maybe anybody else," he says. This means understanding where you are in the marketplace — maybe you're the only ASC that performs orthopedic procedures in your community; maybe you have the best physicians and the best outcomes. He says you also need to know your costs inside and out in order to negotiate profitable insurance rates. Before you submit a proposal, break down costs per case for each specialty and determine where you can afford to maintain the same reimbursement rate and where you need an increase.

He also recommends focusing on those payors that represent the majority of your business. Look at data on patient volume to determine where your volume comes from. "Maybe the Blues is the biggest payor for you, or maybe it's a medical group," he says. "You need to figure out what percentage of your business that payor represents and how important it is to you."

2. Start negotiating six months before your contract renewal date.
Mr. Epps says surgery centers should start negotiating six months in advance of the renewal date — at least. "If you wait until a month before the renewal date, health plans will draw it out," he says. "They'll use a variety of different excuses to not give you a proposal in a timely fashion." He says payors will tell you the analytics team is still reviewing your case for months or up to a year before they finalize your contract. Start talking to your payor six or eight months in advance to ensure an increase.

3. Isolate the codes that affect your profitability most significantly.
Mr. Epps recommends isolating your top five payors and then looking at your contracts to determine which facets of each contract represent the ASC's "bread and butter." Look at your top volume services and determine which codes fall under each grouper. "You try to look line-by-line in the contract to see where you get the biggest bang for your dollar, and then figure out how to increase those rates," he says.

He says surgery centers can take acceptable losses on some codes, but not on others. For example, if a code is billed at your center 95 percent of the time, you should not accept a loss, compared to a code that's only billed five times a year. Try and negotiate increases on the codes that represent the largest volume for your ASC.

4. Aim for an annual increase of 3 percent — and don't ask for more than 10. As long as a surgery center is "in the black," Mr. Epps recommends asking for an annual increase close to a cost of living adjustment — around 3 percent. He recommends using the Medical Service Index to determine a good benchmark for your increase. "The MSI typically increases by 3 percent annually, so it's a good benchmark to use," he says. He says while you might want to aim for a 5-6 percent increase in case the payor tries to negotiate down, you shouldn't ask for 10 percent or more. "Asking for a 10 percent increase sends off bells and whistles and alarms at health plans," he says.

The only exception to the "10 percent increase rule" is if your surgery center's contracts are several years old and represent a significant volume with the payor. If your contracts haven't been renegotiated in five years, you might ask for a more substantial increase.

5. Keep the payor informed when you plan to add a new service. If your surgery center plans to add a new service, you will need to negotiate a new contract to account for the new codes you'll be using. Because you won't have historical data on the new service until you start performing the cases, Mr. Epps recommends going over your plans with your insurance companies. "You can often tell them, 'We're hired a new doctor, and he specializes in this type of procedure. We're going to start this service in the next few months, and it's important that you understand our plans as a business partner even though we have no historical data'," he says. Introduce the physician to your payor contractor if possible, and present any quality data on the physician's services from his or her time at other facilities.

6. Carve out some codes and accept percent of billed charges for the rest. Health plans hate carve-outs for codes, Mr. Epps says. "The problem that health plans have with multiple carve-out codes is that it's an administrative nightmare to pay the claims," he says. If your health plan is balking at the code carve-outs you have requested, you might want to consider a simpler contract that pays based on percentage of billed charges.

Mr. Epps recommends looking at your current contract and deciding whether you have certain codes carved-out that you don't actually bill very often. "If you notice that over the last year you don't bill those codes as often, you can remove those as a carve-out," he says. "All other services might then be paid at 50-80 percent of billed charges, which still equates to a decent reimbursement level." He says you can also sometimes compare data with the health plan itself. Ask them what their data shows as your most commonly billed codes and compare with your data to see if it matches.

7. Make sure your contracts are up-to-date on the newest codes. If your contracts are five or even 10 years old, you may be billing with old codes that are outdated and have been retired, Mr. Epps says. "Make sure that your contracts are up to speed with the latest and greatest codes," he says. "You may be billing with old codes and, as a result, losing money."

8. Establish an ongoing relationship with your payor representative. A better rapport with your payor representative generally means a better annual increase and an easier negotiation process, Mr. Epps says. While you don't have to set up an annual meeting, he recommends inviting your payor contractors out for lunch every two years or so to keep up the relationship. "I'm an advocate of meeting face-to-face and talking about your goals or bringing them out to the surgery center for a meeting or to give them a tour," he says. "Relationships and networking are so key to our business that you're likely to get a higher rate if you have that relationship."

9. Don't accept the tactics payors use to tell you "no." Mr. Epps says there are a variety of different tactics payors will use to tell you "no" on a negotiation. You may hear things such as, "You're already at the top of our reimbursement level for ASCs" or, "Due to the current economic environment and pending healthcare reform, we're in a position where we can't do anything."

Mr. Epps says while plans will use a variety of tactics to shut you down, that doesn't mean they won't offer you an increase. "It's kind of like claims denials — there are a variety of different ways to deny claims until you fight, fight, fight and they finally pay it," he says. He says you simply have to keep pushing the value that you bring to the organization and differentiate yourself from other centers. Explain that you're not asking for an increase for all your codes, only some of them — and don't forget important codes, because the payor will not be happy if you have to come back for renegotiation.

10. Take the negotiation to your contractor's supervisor if necessary. Mr. Epps has a handy trick if your contractor isn't responding to your queries — go on LinkedIn and look up his or her boss. "I look up the VP of network management in Texas or wherever because 50-60 percent of the time, I have to escalate the negotiation to the regional manager because the contractor is not working in good faith or does not respond at all," he says. "If you don't receive a response in a few weeks, escalate it to the regional vice president and tell them you're seriously reconsidering your relationship with the health plan."

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