8 Trends in ASC Payor Rates & Contract Negotiations

Dan Connolly of Pinnacle IIIHere are eight trends in ambulatory surgery center third party payor contract negotiations and reimbursement rates from Dan Connolly, vice president of payor contracting for Pinnacle III.

1. Length of time to complete the process is increasing.
Contract negotiations are taking longer today than they have in the past. The credentialing and renegotiation processes are also extended, which means ASC leaders must start the process earlier.

"The amount of time it takes to negotiate with the payor and agree upon a new contract is increasing to several months, and that's not a good thing for ASCs," states Mr. Connolly. "This is an industry where we want to get the contracts up and going as quickly as possible, while maximizing reimbursement." Mr. Connolly recommends the surgery center assemble its negotiation plan and start the negotiation process no later than 120 days prior to when credentialing is expected to be completed, or in the case of renewal, the soonest new rates can take effect.

2. More data is necessary for better rates.
Data collection is crucial for ASCs to succeed in negotiating higher rates for procedures. Prepare and present data about clinical quality, cost control and cost comparisons to prove your center needs the rate increase to continue providing high quality treatment in a low cost setting.

"Start the process early and have all your ducks in a row in terms of data collection," says Mr. Connolly. "Everyone is asking for more money and payors are quick to shut that down, but if you show them the evidence and where they are at for market parity, they are more likely to work with you."

In many cases, Mr. Connolly has assembled a formal presentation to demonstrate to the payor that they were significantly below market competitors for commercial rates. Even before the negotiation process officially began, he showed insurance company representatives how payment deficiency impacted the center.

"The data reflected a discrepancy and communicated that a significant increase was necessary," says Mr. Connolly. "The data and discrepancy were our leverage points."

3. Contract terminations may be necessary.
If insurance companies can't meet a reasonable rate increase, sometimes the ASC must consider terminating a contract for leverage purposes. Be prepared for long negotiations and set a strict date for completion; if a deal isn't reached within a reasonable amount of time, consider terminating the contract.

"Have that discussion up front to avoid pot holes and agree to move quickly," suggests Mr. Connolly. "If you can't make ends meet, then look at terminating the contract. Put a stop-loss measure into the timeline for negotiations because discussing termination will be taken seriously. However, use caution when playing this card, as it's a real slippery slope."

Some ASCs decide to terminate automatically if the terms aren't met while others may have additional conditions they consider. "Don't take termination lightly," asserts Mr. Connolly. "The goal is to get the job done and maximize your reimbursement within a set period of time. Keep your eye on the ball and remember the payors are negotiating with other groups over the same period of time, so set yourself as a priority."

4. Rate increases are becoming more common.
While they aren't the standard, rate increases from third-party payors are becoming more common than they were over the past few years. For combined new and renegotiated contracts, Mr. Connolly has seen anywhere from 5 percent to 88 percent increases over the previous rate this year.

"There is a broad range for reimbursement" notes Mr. Connolly. "If it's gastroenterology in a multispecialty setting, we have seen decent rate increases. I attribute the moderate increase to the leverage of the other specialties. Even in the single specialties, I'm seeing moderate gains that we weren't seeing a few years ago because of fall-out from CMS. "

Mr. Connolly has also seen gains in ophthalmology and orthopedics.

5. Orthopedics and spine contracts are now more favorable.
As more high acuity orthopedics and spine cases move from the inpatient hospital to the outpatient surgery center, insurance companies are more willing to negotiate better rates for the ASC — which is still lower than the hospital.

"I'm astonished at what we're seeing for orthopedics because we're seeing some turnaround," says Mr. Connolly. "We have increased reimbursement on many existing contracts and secured carve outs for implants on some contracts where we were not historically  able to do that."

6. Accounts receivable days are becoming more important.
In addition to collecting clinical and operational data on the ASC, track financial data including accounts receivable days and use that knowledge to improve the process. Reducing the number of A/R days can have a big impact on the surgery center's bottom line.

"ASC administrators must get feedback from the business office about the A/R days and which payors are the most difficult from a collections standpoint," says Mr. Connolly. "Look at data from every aspect of the business before going into contract negotiations. You might have a commercial payor that is your highest payor, which is great, but they are only your best payor if their average A/R days are similar to the rest of the market."

If the payor is slow, regardless of their rates, the additional premium of the payment erodes quickly by virtue of the amount of resources it takes to manage that relationship.

7. ASCs must now pay attention to how their numbers stack up.
Figure out where your rates fall in the marketplace and, if you are below average, use that knowledge to your advantage.

"Give the payor what they need, but show them the data which reflects how your new rate request fits with market parity," says Mr. Connolly. "Payors are quick to remind us that we are asking for something outside the norm. That might vary across the region, but if you can demonstrate to the payor that they are paying the competition better, show them how much more expensive it is to perform it elsewhere."

If the payor doesn't increase rates to an appropriate amount for the ASC, invite them to take those cases back to the hospital where they will be paying more. "It all goes back to what you can leverage," says Mr. Connolly.

8. More opportunity for risk.
There is more opportunity in today's market for ASCs to take on more risk associated with healthcare costs, which is what payors are looking for. Demonstrate to payors you are able to manage costs and take risks along with other providers and patients in the future.

"If we don't demonstrate to the payors that we can manage our costs and take on risk, they will ask someone else to do it," Mr. Connolly says. "If we allow a third party administrator to get involved and the TPA doesn't demonstrate value that comes off the backs of the surgery providers. The system can't afford the costs we've had historically and we must all be part of the solution."

More Articles on Surgery Centers:

4 Ways for ASCs to Save Real Dollars on Human Resources

Outlook for ASC Development & Transactions: 8 Key Trends

10 Statistics on Orthopedic-Driven Surgery Center Operating Expenses

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