Marty Winslow, director of reimbursement for Nueterra Healthcare in Leawood, Kan., provides 12 ways for ambulatory surgery centers to improve contracting with payors.
1. Don't just accept the first offer. "The cardinal sin is simply accepting the first offer or accepting an unacceptable offer, which is basically the same thing," Mr. Winslow says. Almost invariably, the payor's first offer tends to be a bad offer, with low reimbursement rates and many stipulations that are harmful to ASCs. When negotiating with a big player that can bring in a lot of volume, the center may feel under pressure to get the deal done, but generally it's better to wait. With time, the plan will usually come up with a better deal.
2. Get a cost of living increase. Payors are now more likely to balk at putting automatic cost of living increases into contracts. "They are being very conservative right now because they aren't really sure what healthcare is going to look like in five years so," Mr. Winslow says. "They are pushing back, using healthcare reform as the excuse." When no COLA is allowed, the ASC should remind the payor that the center gives cost of living increases to its employees. The center should also remind the payor that if negotiations fell through, the payor would end up using higher-paid hospitals. "You have to ask them, 'What is your alternative?'" Mr. Winslow says.
3. Don't cut off all talks. Sometimes negotiations will peter out and the ASC is left wondering what to do next. "Our philosophy is that we don't close off negotiations," Mr. Winslow says. "We leave it open so we can pick up on it later." The ASC may become more valuable if the payor's circumstances change. "Initially, the payor may take a very rigid stance," he says. "Then, a year down the road, somebody [at the payor] is saying, 'This hospital is killing us. Why don't we have a contract with that ASC?' " Mr. Winslow finds that it's better to sit and wait for the insurer to make a move than to reach out. "Wait until they want to come back to you," he says. "Just be patient."
4. Reach out to employers. Employers are the payor's customers, so any time an ASC can forge an agreement with an employer, it will be easier to get it approved by the payor. The bigger companies tend to be self-insured, which means they actually cover their own insurance risk and use the payor as an administrator. "A lot of our volume comes from self-insured employers," Mr. Winslow says. "We've had communications with them but they were initiated by the employer." If the payor refuses to make a change in the contract, the employer may adopt the change for its own employee group.
5. Understand the effect of more volume. If the payor insists on low payments, the ASC might accept the change in hopes that higher volume from the deal will make up for the lower payments. But these hopes should have more substance than just a wing and a prayer. To see if the arrangement can work, generate an estimate of the extra volume that is as exact as possible. "You have to do your homework," Mr. Winslow says. This involves verifying data from each physician showing how many cases he or she could bring to the ASC for that particular payor.
6. Be aware of ASC costs. Centers also need to understand their costs when contracting with a payor. "A lot of independent ASCs are small businesses where the physicians do not pay much attention to costs," Mr. Winslow says. "To understand costs, you have to measure revenues and expenses and compare costs to benchmarks, which is what management companies do all the time but it's less common in some independent centers."
7. Know the effect of multiple procedures. Payors have different policies on reimbursing for multiple procedures in one visit. Some payors cover the second and third procedures at lower rates and some don't cover them at all. If they don't cover them at all, it's important for the ASC to understand the impact before signing a contract. The ASC may end up getting a lot less money than expected. "Many major plans tend to limit payment for multiple procedures," Mr. Winslow says.
8. Keep the term short. Most contracts last from one to three years. The ASC might prefer a longer term for its own convenience. A one-year contract, for example, requires new negotiations to start six months in. But Mr. Winslow prefers a one-year term because it allows more occasions to add beneficial provisions such as a cost-of-living increase. "If you get a three-year deal, it's very hard to change anything for three years," Mr. Winslow says. Moreover, if the ASC doesn't meet the renewal deadline, it will typically stay in effect for another year.
9. Make it easy to terminate. "The easier it is to terminate your contract, the more leverage you have," Mr. Winslow says. Sometimes the only way to negotiate a deal is to terminate the contact. "I've seen payors who would not budge an inch come back to the table when a termination notice was sent in," he says. Keep in mind, however, that the center may have to follow through on its threat to terminate. "If you are going to terminate the contract, you better mean it," he says. "They could call your bluff."
10. Beware of assignment. Payor contracts often have clauses stipulating that if the insurer is bought by another payor, the purchasing party can adopt the insurer's rates for all of its other contracts with the ASC. If the ASC has allowed low rates for a small plan with little volume, those low rates are now available to the purchasing plan. When the purchasing plan is a large insurer with lots of business with the ASC, this could have a devastating effect.
11. Resist a unilateral amendment clause. An amendment clause in the contract may often give the payor the right to amend the contract unilaterally, as long as the payor provides notice with sufficient time to respond. Typically, if the center does not respond within 30 days, the change goes into effect. The notice may arrive at the center, not be recognized for what it is and get filed away without a thorough reading.
12. Make sure notices get read. Make sure that important payor notices don't come in under the radar and get filed away unread. Stipulate in the contract who at the center needs to receive the notice and also require that a copy must be sent to the center's management company. "That would make it less likely that the notice gets lost in the shuffle," Mr. Winslow says.
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