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7 Considerations For An Out-of-Network Surgery Center Moving In-Network

As pressures by health insurers on out-of-network ASCs across the country continue to increase, many of these centers are beginning to examine whether moving in-network would benefit or harm their long-term financial success. Matt Kilton, MBA, MHA, COO of EVEIA Health Consulting & Management, shares seven considerations for out-of-network ASCs considering contracting with payors.

1. Compare OON vs. in-network rates. OON ASCs are generally reimbursed at higher rates than contracted centers, so ASCs should first begin by projecting the economic impact of signing a contract with a payor.

"If a center has been functioning OON with a payor and they are contemplating going in-network, the issues and consideration are very similar to a renegotiation," says Mr. Kilton.

Mr. Kilton says centers first need to determine total revenue and average reimbursement per case, by payor, under their existing OON strategy. To do this, the center must look at the annual number of cases with the payor, the case mix and the reimbursement on this case mix. Next, the center should analyze the projected total revenue and average reimbursement per case on a contracted basis. To do this, centers must look at contract rates, projected case mix and projected volume as an in-network center.

"Generally, reimbursements are less favorable when functioning in-network, but generally, functioning in-network will increase payor volumes, which can reduce cost per case as fixed costs are spread across additional cases, as well as drive incremental revenues into the center," says Mr. Kilton.

2. Project incremental volume increases from going in-network. To project volume, ASCs should meet with their physicians and their office scheduling staffs to examine how many surgeries that could have been scheduled at the center over the last 12 months were not due to the patient preferring an in-network facility. OON vs. in-network comparisons are typically done on a 12-month trailing basis, says Mr. Kilton.

"While patient acuity restricts 100 percent of a physician-owners ASC-eligible cases from being performed at the center, looking at the number of patients who were ASC eligible but went elsewhere will help forecast the incremental increase expected by going in-network," says Mr. Kilton.

If physicians and their scheduling staffs are unable to estimate these cases, a physician's office can pull a "procedures by provider" report, and then the ASC staff can count the number of times a procedure was performed by a physician in a given year compared to the number of procedures the ASC billed for that physician. This method, however, does not make adjusts for patient acuity, says Mr. Kilton.

Once a center has volume projections, it can determine a projected 12-month total revenue for the payor as well as a projected cost per case given the new volume estimates, case mix and reimbursements.

3. Estimate income as an OON vs. in-network provider. Next, centers should compare historical revenues as an OON center vs. projected revenues as an in-network center minus estimated variable costs incurred by adding incremental volume. The resulting income figures will provide centers with a clear estimate of how their profits may differ if they move in-network.

"What we generally find is the OON projection is greater than the contracted revenue given volume increases and lower variable costs," says Mr. Kilton. "At this point, it really becomes a question of economics for the center. We often find that centers have a threshold profit margin that they need to maintain and contracts falling below that threshold may not qualify for completion."

4. Understand payor methodology. As ASCs make revenue and income projections, it is very important they understand the specific methodology the payor is proposing. "No two payors follow the same methodology," says Mr. Kilton.

"Centers operating OON are commonly unaffected by payment policies and payor methodologies that reduce reimbursement. By shifting in-network and signing a contract, centers are exposed to a variety of reimbursement policies including payment reductions for multiple procedures, thresholds for implant reimbursement, restrictions on coverage for certain services, bundling of services and other factors that OON centers are not subject to," says Mr. Kilton. "ASCs need to account for these additional provisions into account when projecting case revenue as an in-network center."

5. Consider other benefits of in-network status. Even if projections suggest staying OON might provide greater income, evolution of the current payor environment has some centers considering other factors before ruling out a contract.

"We're continuing to see an emphasis by payors to frontload costs, especially for OON services, placing these responsibilities on the members. As insurance plan designs evolve and members become more accountable for OON payments, consumers will more closely evaluate whether or not the cost of going to an OON ASC is worth it to them, which could erode the OON strategy, says Mr. Kilton.

"While I don't think the OON model will completely evaporate, we are starting to see a more concentrated erosion, and an ASC may reach a point where it has lost access to meaningful volume. Furthermore, we are seeing providers struggling to capture more and more of their reimbursements from the patient, which has a negative impact on patient satisfaction and requires increased collection efforts," says Mr. Kilton. "ASCs will have to consider this when deciding their threshold for contract acceptance and how much revenue they can afford to forgo in return for shoring up volumes."

6. Start small. If an ASC is currently OON for a significant number of commercial payors, Mr. Kilton suggests the center move in-network for one of its smaller payors before trying the approach with a larger payor.

"It's risky to to suddenly change your entire business process and do so with your most meaningful payor," says Mr. Kilton. "We recommend starting with a smaller payor so in-network policies and processes can be fully vetted and understood. If the process proves less desirable than remaining OON, the ASC hasn't placed itself in a position where the impact will affect its most significant payor."

Mr. Kilton also recommends that ASCs be aware of the length of their initial contracts with a payor. "It would be advisable to secure a contract for a shorter term — 1-2 years, with one year generally preferred — if possible, which will allow for course corrections if the initial contract outcomes are not favorable," he says.

7. Don't assume a contract will improve in the next round of negotiations. Finally, Mr. Kilton suggests centers should not assume a weak contract can be improved upon in future rounds of negotiation. "One of the biggest mistakes ASCs make in their initial contracts is to assume a poor contract can be easily corrected. ASCs have the most leverage they will ever have during their initial contracting period. Once the bar is set in terms of rates, upward movement is very challenging," he says. "By accepting a contract and completing the cases under a contract's terms, the ASC is telling the payor the rates are reasonable enough to perform the services. An ASC must seriously consider the long-term impact of accepting a poor contract versus the benefit of walking away from a contract that does not meet its threshold for reimbursement."

Mr. Kilton also recommends, whether or not a center moves forward with a contract, it end negotiations on a professional and friendly note. "A center is likely to have to work with a payor again in the future, so it's important that even if they are unable to arrive at a final agreement, they end negotiations in a way that will enable the payor to consider them as having been reasonable," he says.

Learn more about EVEIA Health Consulting & Management.

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