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Bundled Payments, Narrow Networks & Acquisitions: 5 ASC Reimbursement Trends to Expect in 2013

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The landscape of the health insurance industry is changing, says Adriaan Epps, director of contracting services with abeo. In the last few years, payors have increased their focus on quality, efficiency, and outcomes, responding partly to the passage of the Patient Protection and Affordable Care Act and partly to the stresses of a recession. More payors are moving towards a system of bundled payments or global payments, under which providers receive a pre-determined amount for a clinically defined "episode of care" or period of time. Others are preparing for the implementation of health insurance exchanges in 2014, when states or the federal government will set up online marketplaces where consumers can comparison-shop for health insurance, thus increasing competition among payors for the lowest rates.  

Surgery centers are not always the first to experience changes in payor methodology, but as hospitals move towards bundled payments and tiered networks, ASCs will have to do the same, Mr. Epps believes. Here he discusses five trends affecting reimbursement for surgery centers and physician practices.

1. Bundled payments, global payments and case rates. "Many payors are implementing bundled and global payment systems as a method to improve quality, efficiency, and control costs while partnering with an ambulatory surgery center," Mr. Epps says. Bundled payments essentially create a model of 'shared risk' for the provider and the payor by incenting quality and efficiency rather than frequency of treatment. The payor and the provider negotiate for the rate the payor will reimburse for an entire episode of care, regardless of variable costs. The provider is then incentivized to keep costs down, or risk losing money. Mr. Epps says he is increasingly seeing bundled payments for total hip and knee replacements in surgery centers, as well as certain GI services.

Bundled payments have been touted by the Obama administration as an answer to dangerously high healthcare costs in the United States. But Mr. Epps says surgery centers should remain cautious when dealing with a payor who wants to negotiate a bundled payment or case rate. "A case rate can result in risk," he says. "What if the procedure lasts longer than it should due to a complication? The case rate must cover your costs, and it is imperative to know how efficient you are at providing clinical services." He says it's important for the ASC to go into the negotiation knowing exactly how much they're currently receiving for their cases. If the surgery center will receive more patients from the payor by negotiating a case rate, that volume could make up for any decline in individual case reimbursement.

Mr. Epps also cautions ASCs to make sure they have robust quality reporting systems in place before negotiating bundled payments. These new payment systems are intended to improve quality as well as reduce cost, and payors will want to see evidence that the ASC has achieved good outcomes. The ASC board should also communicate to the physicians that payments for the surgeries are now capped at a certain amount, meaning cost control is even more pressing. He says he has seen new payment systems result in greater profits for surgery centers, if the physicians, ASC and payor can truly partner to ensure quality outcomes and control costs.

2. Narrow and tiered networks. Starting in Jan. 2014, the federal government will mandate the implementation of "health insurance exchanges," or online marketplaces where consumers can comparison-shop for health insurance. Many states have already made moves to set up their own state-run exchanges; those that have not made progress by 2013 will have exchanges set up for them by the federal government. The exchanges are designed in part to increase competition among health insurers and prevent large payors from increasing rates without experiencing a drop in business. This means that as payors prepare for 2014, providers can expect to see their reimbursement rates drop, so that payors can offer discounts to patients and hold onto their market share.

Mr. Epps says many large insurance companies are creating 'narrow networks' that exclude certain providers. By creating narrow networks, the payors can ensure a steady stream of patients to their in-network providers and, in return, ask that those providers accept discounted rates for their procedures. The benefit is a smaller network of providers with reduced rates resulting in greater cost savings to the health plan and Employer groups.

He says another approach is to create "tiered networks," which include a variety of different plans with various discounts. "For example, there may be a PPO 1, 2 and 3, and those would correspond to a 10 percent, 15 percent and 40 percent discount," he says. This means that ASCs must be very careful when signing contracts with payors who are using tiered networks, since a 40 percent discount could cut into profits significantly. He says the upside of opting into every single plan/product with a payor — regardless of discount — is that you provide accessibility to as many members as possible which may lead to increased case volume. The concern is that a 10-40 percent discount — on top of the discount you're already offering the payor by joining the network — may not be financially sustainable for an ASC or physician practice. Mr. Epps says surgery centers need to be fully aware of their financials before signing this kind of contract.

3. Reimbursement changes through CMS.
Over the last 10 years, CMS has continued to re-evaluate the Medicare reimbursement it offers for various specialties, Mr. Epps says. This has spelled good news for some physician specialties and bad news for others.

He says as the population of senior citizens in the United States grows and continues to tap into Medicare benefits, the effort to cut costs will ramp up and may affect surgery centers. Though the average percentage of Medicare in an ASC totals only 25 percent (compared to 58 percent from commercial payors), surgery centers that perform high volumes of gastroenterology and ophthalmology procedures are affected significantly by changes in Medicare reimbursement due to the age of their patient population.

Mr. Epps says he sees many surgery centers billing with old CPT codes according to CMS updates. He says it's essential for ASC leaders to stay on top of coding changes through the federal government. "They should be asking, 'What is CMS up to? How do the new rulings that come out every year impact my business? What codes are new to the system, and are we billing the most current CPT codes?'" he says. Reimbursement changes through CMS can also inform surgery centers whether they need to negotiate more favorable rates from commercial payors, to make up for a loss in Medicare reimbursement.

4. Payor mergers and acquisitions. Mergers and acquisitions are commonplace in the healthcare industry today, and they affect everyone — hospitals, medical practices, surgery centers and payors. Earlier this week, insurance giant Aetna acquired Coventry Health Care for $5.7 billion, in an effort to strengthen Medicare and Medicaid business units and provide coverage once the federally funded programs are expanded.

If your insurer is acquired or merges with another insurer, Mr. Epps says there may be changes to your reimbursement methodology, membership volume, product mix, or patient benefits. You may be notified via a letter, and Mr. Epps says if you do, it's crucial to reach out to the payor to discuss any changes to your contract. "You really need to understand what this represents for your surgery center," he says. "Understand what they're outlining and any changes involved if they're asking you to sign a new contract or amendment. Will this affect your reimbursement?" He recommends communicating regularly with each of your payors to learn more about their long and short term goals which may help eliminate surprises if a merger or acquisition occurs.

5. Re-contracting projects. Mr. Epps says he has also seen payors implementing "re-contracting projects," in which the payor notifies in-network physicians that they want to reduce payments to physicians in an effort to cut costs and remain market competitive. "They may ask you to sign a new contract with a reduced compensation structure or new type of compensation methodology — maybe they're changing from grouper to APC methodology, for example," he says. "It's really important that physicians and ambulatory surgery centers ask questions about the re-contracting project to understand how it will impact their business."

Re-contracting projects may be a good opportunity for centers that haven't renegotiated their contracts in several years. "It's a great opportunity to look at your contract and understand your current compensation levels," Mr. Epps says. "Is this something you can really work with, or should you send a notice back to them saying, 'We need to renegotiate the terms of our agreement?'" As with all these points, the most important piece is information: If the surgery center knows its costs and its reimbursement levels per payor, physician and procedure, leadership should be able to negotiate favorable and financially sustainable contracts.

Learn more about abeo.

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