5 Strategies to Negotiate Strong Orthopedic Payor Contracts

David Schlactus, CEO of Hope Orthopedics of Oregon and Willamette Surgery Center in Salem, shares five strategies he uses to negotiate strong payor contracts for his orthopedic-driven ambulatory surgery center.

1. Demonstrate that you're not trying to make money on implants. Mr. Schlactus says many surgery centers and other healthcare facilities try to make money on implants by jacking up the price by 40 or 50 percent. Instead, he tells insurance companies that the ASC will accept cost plus 10 percent — not enough to make a significant amount of money, but enough to cover the ASC's costs. "That shows them that we're not trying to make money on implants, we're just trying to cover our costs," he says. "That tactic has enabled us to get implants as part of our costing structure more often than not."

2. Emphasize that payors will lose money by sending patients to the hospital. Mr. Schlactus says in this economy and healthcare climate, ASCs cannot afford to back down in payor negotiations. If a payor won't negotiate contracts that benefit the ASC, the surgery center must walk away from the contract and let the payor representatives weigh their options.

"Like most ASCs today, we've walked away from contracts, and then at the 11th hour, the payor comes back and asks for a compromise," Mr. Schlactus says. Make sure the insurance company knows that you understand the price difference between the hospital and the surgery center; if the payor thinks you are unaware of the potential cost savings in the ASC, you will probably receive a poorer contract than you deserve. The insurance company will benefit from sending cases to the ASC, so make sure to emphasize that fact when negotiating. "We win more often than not because their other option is to take patients to the hospital, and they know the hospital is significantly more expensive," Mr. Schlactus says.

3. Tie contracting to your physician practice if possible. Though not every surgery center is in this situation, Mr. Schlactus says he has been able to negotiate contracts by tying ASC contracting to his physician practice. "Seventy percent of our ASC is owned by a local orthopedic group — they're 70 percent of our stockholders and our volume," Mr. Schlactus says. "I happen to run both the orthopedic group and the ASC, and I tie contracting together." He says he contracts for both products at the same time to let insurance companies know that if they're not fair to the ASC side, the physician practice may cancel its contract with the payor.

4. Take advantage of commercial payors with Medicare/Medicaid companion plans. Mr. Schlactus says in Oregon, many commercial insurance companies have Medicaid or Medicare companion plans. He knows that the insurance companies would prefer to send those Medicare or Medicaid patients to the surgery center because of the lower cost, but some surgery centers do not accept Medicare and Medicaid patients because they suffer a loss due to low reimbursements.

If your surgery center can accept Medicare and Medicaid patients without significantly hurting profitability, negotiate with insurance companies that benefit from your Medicaid/Medicare business. "We're up front with our payors," Mr. Schlactus says. "It's not our fault that Medicare pays cost and Medicaid pays less than cost, so our commercial payors have to pay us more [on commercial cases] so we can keep doing those patients." He tells the payors that if they want to send their Medicare patients to the ASC, they have to pay fairly on the commercial side.

5. Cancel contracts that won't carve out implants. Mr. Schlactus says his ASC will cancel contracts with payors that refuse to negotiate carve-outs for implants. "We are 70 percent orthopedic, so we are heavily implant driven," he says. "We can't accept those contracts. We will lose our shirts if we do." For example, he says the ASC's total implant cost for a neurosurgery case could equal $8,000; total knee implants can total $6,000. "I can't back down, and the insurance company has got to know that they're going to pay a markup on that implant at the hospital," he says.

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