Advanced Methods of Contracting for ASC Services
By Robert Zasa, MSHHA, FACMPE and Randy Todorovich, BSRN, CASC
Lower operating costs, higher quality of care and increased patient satisfaction have fostered the creation of ambulatory surgery centers (ASCs) in almost every area of the nation. Over 5,000 ASCs operate in the US today. Most major cities have multiple ASCs. And most hospitals or physician groups either sponsor or participate in a center. While a few markets still have out-of-network ASCs (not contracted with major or multiple insurers or other payers), this contracting approach is diminishing as hospitals, physicians and insurance companies form their own provider networks.
ASCs have saved Medicare and payers millions of dollars, and saved patients millions out-of-pocket through reduced deductibles, co-payment and coinsurance. Despite this success and because ASCs are so ubiquitous in many markets, payers of all types use their leverage to continue downward pressure on pricing. This has dramatically increased reductions in reimbursement for ASCs over the last 5 years, even though ASC operating costs have naturally risen. Contracting with payers has become very competitive among existing ASCs and potentially challenging for new ASCs due to pricing driven by dominant payers or provider panels in their market.
Thus, ASCs have been forced to seek new avenues of reimbursement and ways of differentiating in their market. This has been aided by many new surgical procedures clinically accepted into outpatient delivery over the last 5 years. Advances in anesthesia agents, technology for minimally invasive surgery, and innovative surgical techniques and instrumentation are enabling many procedures to be safely and more cost effectively delivered in the outpatient setting. ASCs are seizing the opportunity by becoming specialized surgery centers (such as spine, total or partial joint, or retina surgery) or by adding new specialty services lines (such as cardiology) into their mix.
To be more attractive to payers and Worker’s Comp carriers, and differentiate from other outpatient providers, ASCs are offering bundled pricing for the pre-operative medical exam, surgery and anesthesia, as well as the surgeon’s pre- and post-operative treatment and physical therapy. We have experienced bundling of anesthesia, surgeon and facility fees more commonly requested in mature managed care markets by third party administrators (TPAs) representing large or local self-insured employers.
For bundled pricing, fees must first be negotiated with the surgeon, anesthesiologist and surgery center. Then the bundled fee is negotiated with the TPA or medical management firm. Typically these arrangements are being developed as a narrow network with the surgeons, anesthesiologists and surgery center as the preferred or only provider of specific services for a designated geographic area.
Bundled pricing eliminates several cost layers in medical management and in the payment model. The pricing is competitive and profitable for the providers, but gives the TPA and employer a predictable lower cost for an episode of care. This type of contracting is labor intensive on the front end as it involves physician fees and education as well as facility or technical fees.
TPAs are selective in the markets where they do business depending on state laws, rules and regulations. To gain market share and profit for our ASCs, our firm is working with TPAs and, where possible, their local employer clients to provide bundled services on an exclusive basis. We have negotiated bundled contracts with three national TPA and medical management companies. The majority of this business has been with self-funded employers, but it may expand eventually to Worker’s Comp business.
Many issues in health care are cyclical in nature. Direct contracting with employers, popular in the 80s (and which our firm executed with hospitals and surgery centers), is returning with some variations. ASCs are finding more self-insured companies and Worker’s Comp carriers amenable to cost effective direct contracting for services, especially the high volume orthopedic, pain and spine procedures. Some of these arrangements are made directly with national Worker’s Comp carriers; others with TPAs and/or medical management companies. These companies contract with employers and/or payers to manage certain types of procedures that can be commonly done on an outpatient basis.
Direct contracting removes the pricey administrative fees charged by market dominant payers as well as moving them out of expensive hospital-based, outpatient surgery departments. Our firm contacts these companies on behalf of our surgeons and anesthesiologists, and then negotiates a bundled fee that is acceptable to all parties including the medical management company and the employer or payer.
The medical management company is involved with pre-surgical protocols and directs the patients to our surgeon for their assessment and, if applicable, to our ASC for the outpatient surgical part of the treatment. If an orthopedic group associated with our ASC provides physical therapy, occupational therapy, CT and/or MRI, we encourage the medical management firm to contract with our orthopedic group for all those services as well. This enables case managers to coordinate with a single provider group, and enhances accountability for a better and timelier patient outcome.
In the last several years, a contentious issue in managed care contracting has been implants and carve-outs for costly procedures. These are two different topics, both relative to payer negotiations. “Carve-outs” are defined as procedures categorized in one payment level by Medicare and/or a payer level of reimbursement, but due to cost concern, a provider wishes to carve out that procedure and increase its reimbursement. This is commonly done in an ASC specialized with well-known physicians in a market where the inflated procedure costs at local hospitals greatly increases “the spend” by payers or employers. Many payers will negotiate these carve-outs on a limited basis.
Implant reimbursement has become sensitive in contract negotiations because implants are an unpredictable cost to the payer. Frequently used in orthopedic, neurosurgery and hand surgery, implant costs will continue to increase until some implants come off trademark. Generic or off-trademark companies have made inroads competing with well-known manufacturers, reducing the cost of certain implants. But implants are expensive, and managing their costs is now a major concern for ASC administrators and managers.
On the reimbursement side, payers are using third parties with consolidated purchasing power so they can make a profit by buying implants in bulk and receive reimbursement by insurance companies. Many national payers are now contracting with these firms as it makes the implant cost more predictable for their budgets.
From a payer contracting perspective, it is now common for payers to negotiate a minimum threshold based on the implant cost. For ASCs, this threshold can range from $250-$5,000. Once the cost threshold is achieved, the payer will reimburse the cost of the implant based on the invoice. The provider absorbs some of the implant cost.
Continuing Change Ahead
As the Affordable Care Act matures and most likely becomes modified by Congress (as was Medicare when it first was established), there will be continued modifications to ambulatory care and surgery reimbursement. Ambulatory surgery management companies, physician executives and administrators will have to pay constant attention to proposed changes in reimbursement from both the government and commercial payers. Frequent reimbursement changes and potential reductions require ASC managers to be resourceful and creative in an effort to maintain fair reimbursement for their ASC.
ASCs continue to be the most cost-effective, high quality outpatient delivery system. Patients, employers and payers have come to appreciate the ASC contribution to a healthcare system that is, and will continue to be, under considerable strain.
Robert J. Zasa, MSHHA, FACMPE is a Co-founder and Managing Partner of ASD Management.
Randy Todorovich, BSRN, CASC is Senior Vice President Managed Care of ASD Management.
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