Managed care contracting between commercial payors and healthcare organizations is like a waltz — it's an art form, and it's not always done well.
In the push to integrate all silos of healthcare, from hospitals and health systems to imaging labs and ambulatory surgery centers, managed care contracting has become even fiercer, as the largest commercial payors look to hold onto to their profit margins. (In the second quarter of the 2012 fiscal year, the five largest commercial and investor-owned health insurers — UnitedHealth Group, WellPoint, Aetna, Cigna and Humana — posted a cumulative profit of $3.17 billion. That was down 5.4 percent compared with the second quarter of FY 2011.)
Naya Kehayes, managing principal and CEO of Eveia Health Consulting and Management, shares four trends she's seen in the managed care contracting industry, specifically among health systems, surgical hospitals and ASCs.
1. ASCs can help general acute-care hospitals and health systems win in a capitated arrangement. Many hospitals and health systems are developing accountable care organization structures, which will take on the full risk of a population's health.
Ms. Kehayes says ASCs can be an integral part to these new arrangements because they give hospitals an avenue to shift case volume that may be resulting in an operating loss in the hospital setting to a setting that affords opportunity. For example, hospitals will want to look at service lines (e.g., ophthalmology, gastroenterology, etc.) and cases with negative or less-than-desirable operating margins and move them into ASCs, where more cases can be done in less time and where costs are not as high.
"The ASC then becomes aligned with the health system because it adds value and provides an opportunity for [health systems] to demonstrate savings in a capitated type of arrangement," Ms. Kehayes says. "If health systems can effectively shift volume into that ASC setting, then they potentially can have a meaningful impact on their own operating margins, if they move cases out of the hospital that are not profitable." Ms. Kehayes adds that if the health system has ownership in the ASC, it can be very successful by motivating hospital-based physicians to move these cases and participate in the savings and opportunity for increased operating margins realized by the ASC.
In the end, moving some volume into the outpatient setting in preparation of ACO-like structures could save hospitals, payors and patients money. "Overall, the ASC is more cost-effective," Ms. Kehayes says. "Hospitals can increase their margin, decrease the cost to the payor and the potential co-insurance is less for patient. It's a win-win."
2. Medicare Advantage volumes can be maximized in an ASC. Hospital-owned and joint venture ASCs can help turn service lines around for hospitals and health systems, but Ms. Kehayes says Medicare Advantage products that are managed and offered by commercial insurance companies to Medicare beneficiaries present an even greater potential for savings.
Hospitals can demonstrate to their MA payors that moving cases out of the hospital and into the ASC could save money, which also presents an opportunity for enhanced revenue for ASCs. ASCs could also cover the cost of services that often result in losses due to inadequate ASC Medicare rates. For example, the national Medicare rate for ACL reconstruction in a hospital is roughly $6,200. The national Medicare rate for ACL reconstruction in an ASC is roughly $3,600, which is inclusive of high-cost implants. Ms. Kehayes says if MA payors agreed to pay $5,400 to the ASC, it would represent $800 in savings if the procedure is moved out of the hospital. With the additional compensation going to the ASC, this may enable the ASC to access reimbursement that is more reasonable for the service provided
"Medicare Advantage is technically negotiable," Ms. Kehayes says. "If executives can move this business out of their hospital and into their ASC, it represents significant cost savings."
She adds that this opportunity motivates ASCs to provide services that traditionally result in losses under the ASC Medicare reimbursement allowed amounts, especially if the reimbursement is increased high enough to cover the cost of an implant if required to do the case, she says. This could present savings to Medicare, and hospitals may be able to move certain cases into a more cost- and time-efficient environment. If the hospital needs capacity for other surgical services, this provides access, and if the hospital happens to be in a joint venture with the ASC, this can prove to be an increased opportunity for success to all parties: patient, payor and provider.
3. Surgical hospitals must demonstrate they are not an ASC. When it comes to specialty surgical hospitals, managed care contracting remains difficult because payors often want to put them on some derivation of an ASC provision with reimbursement.
Surgical hospitals are having a challenging time demonstrating to payors that they are not the same as ASCs — instead, they need to market themselves to payors as the middle ground between an ASC and an acute-care facility so they can attain the higher-level hospital reimbursements that are necessary for hospital-based services. "If surgical hospitals are reimbursed based upon an ASC payment system logic, they typically will not be able to capture revenue necessary for covering the cost of services that they are providing in a surgical hospital setting," Ms. Kehayes says. "This is very frustrating and difficult when a payor insists on using an ASC-based structured contract to compensate for hospital-based services that are provided by a surgical hospital because it creates inadequacies in reimbursement for services provided that are often not covered or payable under an ASC payment system."
4. Inpatient diagnosis-related groups may be more beneficial for surgical hospitals than per diem contracts. Ms. Kehayes says from a methodology standpoint on the inpatient side, surgical hospitals should pursue the option of DRG-based reimbursement with payors, which can be more beneficial than per diem-based methodology for inpatient services.
Surgical hospitals tend to have reduced average lengths of stay than general acute-care hospitals, so per diem rates will often be insufficient because the ALOS is shorter. If the surgical hospital is on a per diem based reimbursement, they will typically need an increased per diem rate and additional compensation for add-ons, Ms. Kehayes says. Otherwise, negotiating a reasonable conversion factor for DRG-based payment typically provides a greater opportunity for the surgical hospital to have a reasonable contract for inpatient services.
Managed care directors should compare and contract payment methodologies and consider alternatives from standard methodologies to ensure reimbursement is appropriate for the services provided. For example, for implant-intensive cases such as major spine or total joint cases, if the DRG is inclusive of the implant, carve-outs should be pursued.
"If the DRG methodology is available to surgical hospitals, this is probably something they want to explore a little harder," Ms. Kehayes says. "If it's a per diem-based reimbursement structure, then that per diem rate should be negotiated with add-ons."
In the push to integrate all silos of healthcare, from hospitals and health systems to imaging labs and ambulatory surgery centers, managed care contracting has become even fiercer, as the largest commercial payors look to hold onto to their profit margins. (In the second quarter of the 2012 fiscal year, the five largest commercial and investor-owned health insurers — UnitedHealth Group, WellPoint, Aetna, Cigna and Humana — posted a cumulative profit of $3.17 billion. That was down 5.4 percent compared with the second quarter of FY 2011.)
Naya Kehayes, managing principal and CEO of Eveia Health Consulting and Management, shares four trends she's seen in the managed care contracting industry, specifically among health systems, surgical hospitals and ASCs.
1. ASCs can help general acute-care hospitals and health systems win in a capitated arrangement. Many hospitals and health systems are developing accountable care organization structures, which will take on the full risk of a population's health.
Ms. Kehayes says ASCs can be an integral part to these new arrangements because they give hospitals an avenue to shift case volume that may be resulting in an operating loss in the hospital setting to a setting that affords opportunity. For example, hospitals will want to look at service lines (e.g., ophthalmology, gastroenterology, etc.) and cases with negative or less-than-desirable operating margins and move them into ASCs, where more cases can be done in less time and where costs are not as high.
"The ASC then becomes aligned with the health system because it adds value and provides an opportunity for [health systems] to demonstrate savings in a capitated type of arrangement," Ms. Kehayes says. "If health systems can effectively shift volume into that ASC setting, then they potentially can have a meaningful impact on their own operating margins, if they move cases out of the hospital that are not profitable." Ms. Kehayes adds that if the health system has ownership in the ASC, it can be very successful by motivating hospital-based physicians to move these cases and participate in the savings and opportunity for increased operating margins realized by the ASC.
In the end, moving some volume into the outpatient setting in preparation of ACO-like structures could save hospitals, payors and patients money. "Overall, the ASC is more cost-effective," Ms. Kehayes says. "Hospitals can increase their margin, decrease the cost to the payor and the potential co-insurance is less for patient. It's a win-win."
2. Medicare Advantage volumes can be maximized in an ASC. Hospital-owned and joint venture ASCs can help turn service lines around for hospitals and health systems, but Ms. Kehayes says Medicare Advantage products that are managed and offered by commercial insurance companies to Medicare beneficiaries present an even greater potential for savings.
Hospitals can demonstrate to their MA payors that moving cases out of the hospital and into the ASC could save money, which also presents an opportunity for enhanced revenue for ASCs. ASCs could also cover the cost of services that often result in losses due to inadequate ASC Medicare rates. For example, the national Medicare rate for ACL reconstruction in a hospital is roughly $6,200. The national Medicare rate for ACL reconstruction in an ASC is roughly $3,600, which is inclusive of high-cost implants. Ms. Kehayes says if MA payors agreed to pay $5,400 to the ASC, it would represent $800 in savings if the procedure is moved out of the hospital. With the additional compensation going to the ASC, this may enable the ASC to access reimbursement that is more reasonable for the service provided
"Medicare Advantage is technically negotiable," Ms. Kehayes says. "If executives can move this business out of their hospital and into their ASC, it represents significant cost savings."
She adds that this opportunity motivates ASCs to provide services that traditionally result in losses under the ASC Medicare reimbursement allowed amounts, especially if the reimbursement is increased high enough to cover the cost of an implant if required to do the case, she says. This could present savings to Medicare, and hospitals may be able to move certain cases into a more cost- and time-efficient environment. If the hospital needs capacity for other surgical services, this provides access, and if the hospital happens to be in a joint venture with the ASC, this can prove to be an increased opportunity for success to all parties: patient, payor and provider.
3. Surgical hospitals must demonstrate they are not an ASC. When it comes to specialty surgical hospitals, managed care contracting remains difficult because payors often want to put them on some derivation of an ASC provision with reimbursement.
Surgical hospitals are having a challenging time demonstrating to payors that they are not the same as ASCs — instead, they need to market themselves to payors as the middle ground between an ASC and an acute-care facility so they can attain the higher-level hospital reimbursements that are necessary for hospital-based services. "If surgical hospitals are reimbursed based upon an ASC payment system logic, they typically will not be able to capture revenue necessary for covering the cost of services that they are providing in a surgical hospital setting," Ms. Kehayes says. "This is very frustrating and difficult when a payor insists on using an ASC-based structured contract to compensate for hospital-based services that are provided by a surgical hospital because it creates inadequacies in reimbursement for services provided that are often not covered or payable under an ASC payment system."
4. Inpatient diagnosis-related groups may be more beneficial for surgical hospitals than per diem contracts. Ms. Kehayes says from a methodology standpoint on the inpatient side, surgical hospitals should pursue the option of DRG-based reimbursement with payors, which can be more beneficial than per diem-based methodology for inpatient services.
Surgical hospitals tend to have reduced average lengths of stay than general acute-care hospitals, so per diem rates will often be insufficient because the ALOS is shorter. If the surgical hospital is on a per diem based reimbursement, they will typically need an increased per diem rate and additional compensation for add-ons, Ms. Kehayes says. Otherwise, negotiating a reasonable conversion factor for DRG-based payment typically provides a greater opportunity for the surgical hospital to have a reasonable contract for inpatient services.
Managed care directors should compare and contract payment methodologies and consider alternatives from standard methodologies to ensure reimbursement is appropriate for the services provided. For example, for implant-intensive cases such as major spine or total joint cases, if the DRG is inclusive of the implant, carve-outs should be pursued.
"If the DRG methodology is available to surgical hospitals, this is probably something they want to explore a little harder," Ms. Kehayes says. "If it's a per diem-based reimbursement structure, then that per diem rate should be negotiated with add-ons."
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