Reed Tinsley, CPA

THE IMPORTANCE AND ECONOMICS OF UTILIZATION AND OUTCOMES

In order to compete in a market that is moving towards ACOs, value-based purchasing, cost efficiency, and cost containment, doctors must change old clinical habits. In other words, today and future mature markets will reward doctors based upon cost effectiveness, rather than utilization under the old fee for service system. Doctors not considered cost effective risk a continued reduction in third party reimbursement and also risk participation in provider networks. For example, I know of an ENT physician who was recently deselected from a provider network simply because the plan felt he performed too many surgeries on new patients in comparison to the other ENT doctors in the network. A predicted challenge for many medical practices in the future will be to gather the information necessary to prove to a third party payer the practice is indeed cost effective. A practice must somehow gather utilization and outcomes data, usually by clinical episode or diagnosis code. This type of information will be critical when competing for contracts and can also be extremely valuable in the negotiation and renegotiation of managed care rates. Let us look at a simple example.

An Ob/Gyn group wants to negotiate rates with third party payer. It arms itself with the following limited practice data: (1) C-section rates, (2) VBAC rates, (3) Average length of stay in the hospital, (4) Rate of surgical complications, and (5) Length of stay and complication rates for laparoscopic hysterectomies. At the same time, the group was able to obtain national utilization data for its specialty. It beat the national average in every category named above. Obviously this is an enviable situation for a medical practice since it can demonstrate with actual statistics that it is a cost effective provider. In this situation, the third party payer will probably at least listen to proposed changes to its reimbursement schedule for this particular group. Also, this data puts this group in a good position to deal with emerging affiliation models such as ACOs and the like.

The point should be clear: Medical practices must start addressing utilization and outcomes issues now or risk losing out in the future. Managed care rates can be negotiated or renegotiated with supportable utilization and outcomes information. To engage in and with future provider network models resulting from healthcare reform and the continued shifts in the commercial markets towards value-based purchasing, physician practices must pay strict attention to utilization and outcomes data. It cannot nor should not be ignored.

Read your ACO provider agreement very closely

My friend Mark Weiss at the Advisory Law Group (http://advisorylawgroup.com/home.html) posted a great blog article on the possible impact of ACO's on physician medical practices. It's a perfect follow up to my blog post last week about ACO's continuing to contract with commercial payers. With permission, here is Mark's post:

Lost In Translation: Why Sell The Cow When You Can Give Away The Milk?

Chances are you're familiar with the expression, "why buy the cow when you can get the milk for free?"

Unfortunately, for many physicians and medical groups, it's as if something were lost in translation, as if the aphorism were instead, "why sell the cow when you can give away the milk?"

Consider, for example, a medical group whose physicians practice exclusively at one hospital, let's call it Community Memorial St. Mark's Hospital. Up until now, they've been billing and collecting, and contracting with third-party payers, completely separately from the hospital.

Now, along comes Community Memorial which induces the group to participate in its Accountable Care Organization. Although initially focused on Medicare payments, the provisions of the ACO documents are broad enough to enable the ACO to serve as the funnel through which all types of third-party payer reimbursement will eventually flow. Those in control of the ACO, that is, Community Memorial, now have discretion as to amount of dollars that will flow back to our prototypical medical group.

Taking into account the fact that not too many patients actually come into the office with open check books or sacks of cash, the medical group has effectively transferred the destiny of its cash flow to the hospital controlled ACO. What value, then, is left in its practice?

If you owned Community Memorial wouldn't you like to get the medical group's cash flow without having to purchase the medical group's practice: why buy the cow when you can get the milk for free?

As if to add insult to injury, the owners of the cow no longer have the milk but they still have the obligation to feed the cow: they are stuck with the overhead of running their group.

Although similar situations arise in the context of other physician transactions, from exclusive contracts to employment agreements, the ACO situation threatens to become the most egregious example of this milking.

The situation will only increase in scope and intensity, as pressure from hospitals to align physicians through ACO structures will grow as Obamacare clicks completely into gear.

Physicians still have time to exert some level of control over how ACOs will function. Even if you believe your facility is years away from considering an ACO, it's time now to begin working to protect your interests.

And, once ACO formation is a certainty for your group, you need to approach contracting with your eyes wide open to its economic realities.

Consider that for some groups, the fear of being left out in the cold - not included in an ACO's network - may be overblown when the alternative is the loss of the financial engine which is your practice's business, all the while being left with the obligations of your practice's overhead.

ACO's continue to contract with commercial payers

Here are two new examples of ACO's contracting with commercial payers. This is a trend that is definitely going to continue. However, I haven't seen hardly any impact yet on physician finances but this is something we all will need to keep an eye on. If you have seen or heard of direct impact of ACO commercial contracting on physician reimbursement and/or finances, please drop me a line and let me know.

Here in my backyard, Houston's largest health care provider, Memorial Hermann Health System, has partnered with Aetna to form an accountable care organization. Click here for the full article:

http://www.bizjournals.com/houston/news/2013/01/28/memorial-hermann-partners-with-aetna.html?ana=e_du_pub&s=article_du&ed=2013-01-28

Also in Texas, Texas Health Resources located in the Dallas-Ft. Worth Texas area, has also partnered with Aetna to form a new ACO:

http://bizbeatblog.dallasnews.com/2013/01/texas-health-resources-establishes-another-accountable-care-organization-with-private-insurer.html/

How-to Manual on Emerging Physician Payment Models

The American Medical Association (AMA) has released a new how-to manual to help physicians evaluate, negotiate, and manage budget-based payment systems that are becoming alternatives to the predominant fee-for-service model for reimbursing physicians. Typical budget-based payment systems include payment bundling, pay-for-performance, withholds and risk pools, capitation and shared savings.
 
Evaluating and Negotiating Emerging Payment Options comprehensively analyzes budget-based payment systems and provides essential information and practical tools that can help physicians:

- Understand the differences between fee-for-service and the budget-based payment systems;

- Master concepts associated with budget-based systems, including actuarial soundness, risk adjustment and risk mitigation;

- Estimate, monitor and manage the financial risks and rewards of a budget-based payment system.

http://www.ama-assn.org/ama/pub/physician-resources/practice-management-center/claims-revenue-cycle/managed-care-contracting/evaluating-payment-options.page?WT.mc_id=ENEPOPR201202&WT.mc_ev=Click

Ethical and economic failures of fee for service

I think most of us realize there is change afoot. While I think traditional fee-for-service billing will remain with us in to the future, there will be new reimbursement models. Is capitation goint to rear its ugly head again? Who knows. What we do know is that there are problems with the fee-for-service model that need to be fixed. Here are a few of the problems with it:

- Rewards overutilization
- Undervalues quality
- Ignores care coordination
- Creates an unsustainable trend

As I see it, instead of payers forcing new reimbursement models down the collective throats of physicians, there must be collaboration between payers and providers. We must make the future of healthcare reimbursement a win-win for all parties concerned, ultimately with outcomes that manages future healthcare costs and produces quality care.

What are your thoughts?

Negotiation tip - Try to find out what the payer is interested in

The best negotiation is a win-win scenario for both of the parties to the negotiation, one where each party walks away from the negotiation table knowing something was won. To bring this off, find out what issues the payer is most interested in from a contracting point of view. Your goal is to deliver these issues to the payer in exchange for what you want to achieve as part of the negotiation process. In other words, try to create a “you scratch my back and I’ll scratch yours” situation. This is one way to you find your leverage.

Most payers are primarily concerned about what they pay out for medical costs. So, as an example, think about the cost drivers for your own medical specialty. Put yourself in the payer’s shoes and ask: How can all related costs be reduced for this medical specialty? The following are a few examples:

1. The cardiology group that worked with and taught the emergency room physicians how to properly diagnose real situations of cardiac arrest. This reduced the number of unnecessary treatment costs and admissions.

2. The primary care physician who, in conjunction with medical specialists, developed treatment protocols for specific clinical situations. This reduced the number of unnecessary referrals for specialty care. This, in turn, might reduce related costs for surgical and inpatient care.

3. The specialists above who participated in the development of the clinical protocols. The payer should reward these physicians in exchange for their decreased volume as a result of the protocols but, more important, for the protocols’ ability to reduce many other health care costs.

4. The radiology group that worked with the payer to identify situations where ordered radiological exams were unnecessary.

Of course there are many, more examples of these types of situations. The negotiation strategy here is clear: You will be much more successful if you make the negotiation a two-way street rather than making it a one-way, my way or no way, situation.

Leverage - The main key to physician contracting success

Leverage is a major pathway to successful negotiation of a managed care contract.  The ability to negotiate or renegotiate a managed care contract is often determined by the amount of leverage a particular practice or provider has in the marketplace. Consider the following scenario: A major managed care payer you contract with has decided to reduce the amount it will reimburse physicians for their services.  (Sound familiar?) Now answer this question: If you were to approach the payer in an attempt to renegotiate their proposed rate change, how do you think the payer would react to you? Would they listen to what you have to say or, as in most cases, would the payer simply tell you this is their policy-- take it or leave it? If the payer or payers in your service area adopt a take it or leave it stance in respect to your practice, the result may very well be future reduced physician compensation. 

Success in changing the terms of a managed care contract usually varies from locale to locale. However, success can be achieved only if the practice has the LEVERAGE to negotiate or renegotiate favorable contract rates and terms. This is the same type of negotiation that occurs when professional athletes negotiate their own contracts or in any other type of negotiation scenario. The party with the “upper hand,” whether perceived or real, will usually be the party who gets the most out of the negotiation. If a practice does not have leverage, it likely will have to accept whatever is offered by the managed care plan. More often than not, this offer will negatively impact the finances of the practice.

Define your leverage

Most physicians come to the negotiation table without a defined contract strategy.  This strategy must be developed before the negotiation process even begins. The core of the strategy is to define up front what leverage your practice or your delivery system. The failure to define leverage before negotiating has soured many physicians on the contracting process. Often this is because leverage did not exist in the first place, and the physician or physicians wasted time and resources trying to negotiate a contract they had no chance of winning. In other cases, they had leverage but nobody recognized it, resulting in a failed or unfavorable negotiation. Payers certainly are not going to bring up missed points of leverage with you.

Are you finding those payer underpayments?

Did you know that payment accuracy rates among insurance companies have dipped as low as 77 percent according to the American Medical Association's Health Insurance Report Card, a survey published annually by the AMA. The results are, arguably, alarming. It's simply not healthy for your practice's bottom line if nearly one in four insurance payments – or even one in ten – is wrong. Spending a little time now to improve tracking and management of payments pays off down the line.

So do you know what you should get paid? It’s impossible to identify underpayments if you don’t know what you deserve to be paid. Ask all insurance companies with which you participate to provide a current fee schedule. They may balk or delay in providing you with their rates for all 7,000-plus CPT codes, but that’s ok. All you really need is a list of your top 25 CPT codes (including modifiers). Compile the list and request that the payer lists its fees for each one.
 
However, some payers may ignore your request or drag their feet when asked about payment allowables. The good news is that Medicare reimbursements are publically available; the Centers for Medicare and Medicaid Services (CMS) offer a fast and easy online look-up tool for Medicare. So if your contact is based on a percentage of Medicare, use this site to get an idea of what you should be getting paid.

http://www.cms.gov/apps/physician-fee-schedule/overview.aspx

Should you terminate your physician provider managed care relationship?

A medical practice should determine whether it makes sense for the practice to continue its participation in the plan by answering the following questions; this should be done on an annual basis:

• Is the volume of patients higher than expected? If yes, evaluate the potential effects on other aspects of the practice. Determine if the practice’s payer mix is shifting dramatically to managed care.
• Is the volume of patients too small to warrant continued participation in the plan?
  Review the payor’s reimbursements and assess the level of fee discounts. Are such discounts acceptable to the practice?
• If applicable, is the withhold reasonable? If not, and the practice has not received any reimbursement of the withhold, take this into account when evaluating the fee discounts.
• Assess any administrative burdens placed on the practice by the plan. Do these burdens interrupt the efficiency of the practice?
• Is the plan adding competing physicians in the area of the practice’s medical specialty? If so, assess the potential impact on the practice’s future revenue.
• Evaluate the profit or loss on capitated contracts, if applicable.
• Evaluate how quickly the plan pays the claims submitted by the practice.

Now is also a good time to assess each major managed care payor of your physician practice and determine if it makes sense to either (1) Continue participation in the plan or (2) Renegotiate the contract. Now is also the time to develop a managed care strategy for your practice. As managed care grows in a particular area, exactly how does the practice intend to deal with it? Those that are prepared and proactive are usually the ones who are successful dealing with managed care.

Where are your physician's managed care provider agreements?

After a managed care contract is signed, it is important to make sure the office handles these payors correctly, handles their patients correctly, and makes sure the office continues to operate efficiently. As managed care continues to dominate a physician’s revenue stream, many practices find their offices become inefficient due mainly to all of the administrative burdens placed on it by managed care and lose revenues as a result of these inefficiencies. After signing managed care agreements, it is important to monitor practice compliance with them. First, the office should place all of their managed care information in to notebooks for easy access so that the office can effectively monitor these relationships.

For each managed care payor, the notebook should contain:

• A copy of the executed managed care contract;
• Reimbursement schedule for the practice’s most commonly utilized services;
• Any of the payor’s specialized forms, such as provider referral forms, and patient authorization forms.

Always remember that you should compare its managed care reimbursements to the agreed upon reimbursement schedule included in the managed care notebook for each payor. Payors do make mistakes reimbursing providers, often many more times than doctors realize.

Many practices find that in certain instances, what was approved for payment is different than the reimbursement schedule. This is why it is so important to monitor managed care reimbursements.  Therefore, each week take a sample of managed care EOBs (Explanation of Benefits) and compare the reimbursement to the amount shown on the reimbursement sheet in the managed care notebook. Differences should be appealed immediately. Of course many practice management systems today can be set up to monitor incorrectly payor reimbursement.