The secret to higher ED payments: Think the way payers do
Physician wield more negotiating clout than they assume. Think in large numbers
When bartering with an MCO over price, the concept that "size matters" doesn't only work in Hollywood movies. It plays equally well with the health insurer who is trying to get your ED's business, says John Cook, CPA, a manager in the health care division of McGladrey & Pullen, a management consulting firm in Madison, WI.
When dealing with MCOs, there are certain truths. One of them involves enrollment strength, says Cook. For providers, there's an inverse relationship between the health plan's enrollment size and the amount of risk inherent in signing with that insurer, he adds.
The smaller the health plan is in terms of enrollees, the greater the risk-factor or "predictable variability" there is in higher predictable patient utilization, Cook says. The percentage of sicker patients in that group is bound to hit your monthly capitation budget harder than if the population were twice the size. Of course, enrollment isn't the only factor inherent in risk, but financially it's a large one, says Cook. Here's why:
· Your risk exposure to utilization-swings increases because your total capitation budget is relatively small and can't easily sustain the hit of a sicker patient population, Cook says.
· The average cost of treating each higher-acuity patient is likely to be high as a proportion of your total income from that contract, and it squeezes your ability to maintain the contract, he adds.
· Eventually, you will feel the need to negotiate a higher per member per month (PM/PM) rate. But without a strong bargaining chip, renegotiating higher PM/PM rates will be next to impossible. This holds true even when trying to get a higher rate on only certain procedures, for example, such as those that may fall into a level three in the CPT-4 set of evaluation and management codes, Cook says.
Size matters when sizing up a payer
More traditional contracts based on a discounted fee schedule are similarly affected. But, in either case, once the contract is locked in, it stays. "Health plans understand the numbers, and on payment rates they can frequently tell providers 'take it or leave it,'" says John Stennes, MD, president of Associated Emergency Physicians Medical Group, a 25-member group practice in San Diego, CA.
However, the cards aren't stacked against you. Some health plans are quite small (under 10,000 enrollees), or they're stuck in emerging markets amid brisk competition. In those cases, providers have much more say, according to Cook. And in many surgical specialties, a bargaining chip in contract talks can be a world-class heart surgeon or center of excellence. The reason: If a hospital or physician practice is renowned, health plans are more likely to give way to pricing concessions on the condition that they can get your business.
But MCOs don't often view emergency physicians in that light. In the first place, health plans have traditionally misunderstood emergency providers, Cook says. They view the ED generally as an unmanageable cost center rather than a necessary service.
As a result, ED "providers need something else to negotiate under. But they first have to understand how payers think," Cook advises. "If you don't measure up, the contract is likely to go to the guy down the street. Payers know this, and so should physicians," he adds.
Why should emergency physicians care about such things? The strength-in-numbers approach is key to negotiating better payment rates, says Cook. Furthermore, the more providers know about the way payments work, the more influence they can wield in ensuring the financial viability of the practice and the hospital, says Stennes. At first, these considerations may not have any relevance to good patient care, but today they are interdependent-as much as physicians are to hospitals, managed care experts say.
Yet, emergency physicians are among the last hold-outs in the managed care contracting derby, Stennes notes. The acute, unpredictable nature of emergency medicine has blindsided many physicians into thinking that negotiating a fair reimbursement rate for them is either irrelevant or impossible, Stennes says.
But the payment landscape is tilting. Providers are finding ways to bring more clout to contract negotiations, and many emergency physicians are rallying to this new trend. The emergence of multi-hospital emergency group practices is the clearest example of this development, says Christopher Knuth, MD, vice president of finance at Infinity Healthcare in Milwaukee, WI. Knuth is also an emergency physician at St. Mary's Hospital-Ozaukee near Milwaukee.
Physicians are gaining contract clout
Payers and hospitals are finding that ED specialists are becoming a group to be reckoned with, says Knuth. "If you cancel a contract with an emergency group, you're likely to be canceling a deal with not just one hospital but several. Hospitals know this, too," Knuth says. Emergency physicians aren't quite there yet, Knuth adds, but negotiating clout is the single biggest reason for the growing trend in group practices and contract staffing firms.
According to reimbursement experts, physicians can leverage their strength-in-numbers in two key negotiation areas. Their efforts in these areas can directly affect their reimbursements, say Cook and Stennes. They are: 1) the base Medicare rate, and 2) the floating capitation rate. However, both are dependent on factors such as the size of the local emergency medicine market, the number of health plans competing for providers, and the number of hospitals serving the community. So physicians' ability to forge decent rates will vary widely depending on these market variables, Cook says.
The base Medicare rate. Despite the enormous growth of capitation in markets such as California and Florida, most EDs are still working on the basis of a discounted fee schedule, reimbursement experts say. And, in most cases, health plans are using the rates that Medicare typically pays within a geographic region as the basis for setting physician payment thresholds.
The Health Care Financing Administration (HCFA) uses a complex formula that employs area-wide wage and economic factors to determine physician payments. In part, the formula uses an index called the Average Adjusted Per Capita Cost to set payment rates nationwide.
Since the early 1990s, the agency has implemented a controversial system of relative values termed the resource-based relative value scale (RBRVS) for setting payment rates on physician office-based expenses that are directly linked to patient care.
Historically, physicians have complained that the Medicare rates have been too low and unrealistic. In tight managed care markets, the rates have fallen to 80% of the Medicare rate, Stennes says. Regardless, MCOs have used the Medicare rates as a benchmark for setting their own payment rates and continue to negotiate either a percentage above or below those rates even as Medicare payments have fallen sharply in areas such as California, Stennes says.
Use the Medicare data in estimating payment rates
Research firms nationwide collect and sell Medicare data to insurers and providers. Physicians are wise to obtain the information, Cook says. After studying the figures, the data can reveal what commercial plans are paying competing physicians in a region. The data can also provide a benchmark for adjusting a hospital or physician's costs per case and setting efficient utilization targets under capitation budgets. (For examples of these data vendors, see the editor's note at the end of this article.)
Floating capitation rate. This is a variant of the "risk corridor," a tool surgeons and other specialists have used to reduce their incurred risk and insure themselves against unanticipated adverse selection (sicker patients). In a risk corridor, the provider sets a number of patient visits based on calculating the average cost of each visit against the group's total monthly capitation budget. If, for some reason, utilization increases beyond the expected level, the health plan agrees to pay a separate fee for each additional patient.
In the ED, the PM/PM rate is fixed at a certain number of visits, Stennes says. The number can be obtained from the hospital or group's historical data, based on average monthly visits by patients according to their payer (e.g., Medicare, Medicaid, or commercial MCO) or clinical procedure. This figure is then stated as a number per thousand patient visits.
If the ratio exceeds the anticipated volume of visits, the provider can take the documented evidence to the plan and appeal for a higher pm/pm rate, Stennes says. What matters most in these cases is that physicians obtain positive proof that factors within the covered patient population are adversely affecting the medical group's capitation budget, Cook observes.
But don't expect payers to raise your reimbursement rates without a fight. That is highly unlikely, Stennes says. If anything, MCOs will find ways to lower their pricing levels. However, the condition cuts both ways. Unless, the contract calls for it, changes called by payers usually don't occur until the contract period expires.
When it comes to protecting their turf, emergency physicians have until recently been the last in the pecking order, says Knuth of St. Mary's. Normally, they end up accepting what is negotiated for them by an independent practice association (IPA) or a physician-hospital association (PHO). But while IPAs have maximized reimbursements for the network as a whole, they haven't always looked out for the specific interests of emergency providers. "It's up to physicians themselves to negotiate what's acceptable to them," Stennes says.
[Editor's note: Two examples of vendors that market Medicare pricing data are: Medirisk, 3565 Piedmont Rd., Bldg. 5, Suite 400, Atlanta, GA 30305. Telephone: (404) 364-6700 and Medicode, PO Box 27358, Salt Lake City, UT 84127-0358. Telephone: (800) 765-6088]
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