5 Points to Emphasize in Payor Contract Negotiations for Orthopedics

Laura Dyrda -   Print  |
Here are five things orthopedic and spine groups can emphasize during payor contract negotiations to optimize success.

1. Demonstrate that you're not trying to make money on implants. David Schlactus, CEO of Hope Orthopedics of Oregon and Willamette Surgery Center in Salem, says many surgery centers and other healthcare facilities try to make money on implants by jacking up the price by 40 or 50 percent. Instead, he tells insurance companies that the ASC will accept cost plus 10 percent — not enough to make a significant amount of money, but enough to cover the ASC's costs. "That shows them that we're not trying to make money on implants, we're just trying to cover our costs," he says. "That tactic has enabled us to get implants as part of our costing structure more often than not."

2. Note that payors will lose money by sending patients to the hospital. Mr. Schlactus says in this economy and healthcare climate, ASCs cannot afford to back down in payor negotiations. If a payor won't negotiate contracts that benefit the ASC, the surgery center must walk away from the contract and let the payor representatives weigh their options.

"Like most ASCs today, we've walked away from contracts, and then at the 11th hour, the payor comes back and asks for a compromise," Mr. Schlactus says. Make sure the insurance company knows that you understand the price difference between the hospital and the surgery center; if the payor thinks you are unaware of the potential cost savings in the ASC, you will probably receive a poorer contract than you deserve. The insurance company will benefit from sending cases to the ASC, so make sure to emphasize that fact when negotiating. "We win more often than not because their other option is to take patients to the hospital, and they know the hospital is significantly more expensive," Mr. Schlactus says.

3. Push for "percent of billed charges" contracts as often possible. Mary Ryan, administrator of Tri-State Surgery Center in Dubuque, Iowa, managed by Health Inventures, recommends surgery center leaders ask for "percent of billed charges" contracts rather than contracts based on a percentage of Medicare or contracts based on grouper rates, which can be complex and frustrating. She says payors may be more likely to offer this type of contract if they know that other heavy-hitting insurance companies do. "We do all percent of charge contracts with payors as much as possible," she says. "If that kind of contract is the norm in your geographic area, you can say, 'All our contracts with third-party payors are percent of charge.'"

Under a percent of billed charges contract, the payor agrees at the time of contracting to pay on the basis of a percentage of the surgery center's billed charges. This kind of reimbursement can be profitable for surgery centers because it allows ASCs to receive higher reimbursement for cases with higher costs.

4. Breakdown costs per case with the payor. While the payor may initially be interested in the cost of hardware or other material costs associated with a procedure, you can also share additional surgery center expenses to paint a broader picture of the financial situation. "Bring in the cost of compliance," says Jim Odom of The C/N Gruop. This tactic is especially important considering compliance can cost a center upwards of $20,000 per year. Supply costs and labor costs are also increasing, which places a burden on the company. "If the payor is the provider for the health insurance plan for your employees, remind them of their rate hikes," says Tom Faith, of The C/N Group.

5. Mention the 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," says Marty Winslow, director of reimbursement for Nueterra Healthcare in Leawood, Kan. "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.

Related Articles on Orthopedics:
5 Principles of Rothman Institute's Innovative Orthopedic Practice Business Model

10 Tips for Aspiring Orthopedic and Spine Group Leaders

15 Hospitals Expanding Orthopedic & Spine Services

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