Tools to Prepare for Payer Negotiations

By Maureen Waddle, BSM Consulting

Note: This article is part two of a three-part series. Part one discussed how to perform a financial analysis of the ASC for the purpose of evaluating acceptable reimbursement rates. Part 2 (below) focuses on payer negotiations.

Efficiency is defined by more than just timeliness of room turnover or number of surgical procedures completed in a day. Ultimately, efficiency is the ability to turn revenue (net collections) into profit. Therefore, it's essential to establish an aggressive revenue-monitoring system that includes the evaluation of current payer contracts. Continuously monitoring payer reimbursement is routine for successful ophthalmic ASCs. This article outlines the steps and tools required to gain the information necessary to evaluate existing contracts, and identify and prioritize the payer contracts that need attention.

Collecting and Assessing Data

The first step toward maximizing collections is a thorough evaluation of all payer contracts, beginning with the collection of quantitative and qualitative data.

Quantitative assessment. In order to determine which payers are most deserving of attention, it's best to understand what percentage of total revenue is attributed to that payer. A payer-mix report (see Table 1) is the most common tool used for this purpose and is available through most electronic management programs. This reports breaks out each payer by the amount of charges and collections, so that a manager/owner can identify the amount of revenue attributed to a particular payer. However, the amount alone doesn't always paint a complete picture of the situation. For example, if the percentage of collections for a payer is significantly lower than the percentage of charges for the same payer, this could be caused by several different scenarios: 1) the payer has low allowable amounts; 2) the payer has high denial rates; or 3) the payer doesn't pay claims in a timely fashion. Such differences indicate the need for further evaluation.

Table 1. This is a sample payer-mix report. Most electronic management programs will generate a similar report to help you understand which payers should take priority.

Table 2. An example of a payer contract analyzer: fee comparison report.

To perform a more detailed evaluation of specific services by payer, a manager has to do a bit more research. Whereas a payer-mix report is easily generated, a breakout of reimbursement rates isn't readily available. Furthermore, most centers don't input individual fee schedules and allowed amounts for each payer into the management software. So, even if the report were available, the data wouldn't be. Luckily, creating and generating a report that provides an overview of top payers and their reimbursement rates is fairly simple.

The steps for completing the reimbursement assessment are as follows:

Gather Data. Gathering necessary data requires that you:

• Send a letter to the payer requesting reimbursement rates for the center's 10 most commonly performed procedures
• Pull payers' explanations of benefits (EOB) to find reimbursement rates for the ASC's 10 most commonly performed procedures

Note: It's best to get results from both a and b to see if the payer is actually paying the reimbursement rate provided in response to the request for fees.

Create a spreadsheet. Set up your spreadsheet with the CPT codes and service descriptions down the left side (Table 2.) Enter Medicare reimbursement in the first column. (For most ophthalmic ASCs, the largest payer is often Medicare, making up 40-70% of an ophthalmic ASC's collections. For this reason, most other payers are measured against Medicare's performance.) In the second column, enter reimbursement rates from the next most frequent payer, and so forth.

Evaluate the results. Payer 4 has the lowest average percentage of reimbursement compared to Medicare (see Table 3). While this might be an indicator that Payer 4 would be a high priority for renegotiating an agreement, there's more information to gather before making that decision. Go back to the payer mix and examine the percentage of charges attributed to this payer. In this example, Payer 4 still seems like a top-priority selection. However, one items jumps out in the table: even though the sum of all reimbursement for Payer 4 is a lower percentage, a manager may be wise to focus on Payer 3 where the most frequently performed procedure (cataract surgery) is reimbursed below Medicare rates. Quantity of services. The quantity of services by payer is also valuable information. This will help answer the question: “Are this payer's members the types of patients we specialize in?”

Because Medicare is the most common payer, many contracts are negotiated as a percentage of Medicare fees. Therefore, it's a good idea to set up a summary that shows reimbursement as a percentage of Medicare. Table 3 provides a graph to compare the payers as a percentage of Medicare's allowable.

The data helps the manager prioritize, but may also be valuable if presented appropriately to certain payers during the negotiation process.

Qualitative assessment. Making a qualitative assessment of your contracts requires gathering more subjective data on payer performance and asking strategic questions to understand the impact of changing agreement terms. In combination with your quantitative assessment results, this information is extremely useful in preparing for payer negotiation.

Some strategic questions to consider include:
1. How many covered lives does the insurer have?
2. What are the medical group or hospital affiliations of this payer, and do we want to be aligned with them?
3. Who are the major employers offering this payer's plans?
4. Is this payer marketed in a manner that is consistent with the image we want for our facility?

To gain more subjective data, enlist the feedback of your staff to rate the payers' performance. Figure 1 (see page 26) is a sample questionnaire to be completed by various staff members who most commonly deal with the payers. Understanding the payer's performance prepares a manager for payer negotiations. For example, if a payer is unwilling to compromise on reimbursement rates, that payer may be able to simplify processes or improvement timely payment in order to make the lower rates more palatable.

Figure 1. Sample questionnaire for evaluating payer performance.

Data Prepares for the Next Step: Negotiating Terms

Gathering qualitative and quantitative data is an essential step in an ASCs ongoing efforts to maximize reimbursement and operate efficiently. The suggestions and tools in this article provides managers and owners with a simple roadmap for gathering key information to assist them in prioritizing efforts and further identifying key negotiating points in preparation for payer meetings. ◊