In today’s challenging health care climate, as payor reimbursement rates for providers become increasingly restrictive, it’s more important than ever for ambulatory surgery centers to be thoroughly prepared when the time comes to negotiate new payor contracts.
In order to achieve best results from payor contract negotiations, ASCs must be sure that they fully understand their business and the true costs of the services they provide. Without adequate preparation, an ASC may not feel confident enough to walk away from contracts that could harm volume, and the center will end up losing money because the contract does not completely cover the cost of services.
To help ASCs handle the difficult and delicate process of payor contract negotiations, here are some important “do’s and don’ts” that all centers should be sure to keep in mind.
DON’T begin negotiations without a plan.
Before launching the negotiation process, an ASC should carefully review all current contracts, other relevant documents, and supporting information, and use these materials to develop a “road map” to the desired outcomes of the negotiation. ASC negotiators must have a thorough knowledge of the center’s operational and financial situation, including volume, costs, and specialty needs, and should be prepared to focus on those specialties that have the greatest impact on the business.
Other helpful resources to have ready for the negotiations include a list of the ASC’s physicians and their affiliated facilities in order to demonstrate alternate locations for cases that are unsustainable at the ASC; information on any patients or cases that were recently refused by the ASC because reimbursement rates were too low for those procedures; hospital reimbursement rates to demonstrate comparative value; and data on the payor’s primary competition rates.
DO take your time.
The negotiation process is not something that happens quickly, so ASCs should allow ample time for the negotiations to unfold in order to avoid feeling rushed or pressured into accepting poor terms. Payors typically take a month to load a contract, so ASCs should notify payors of their intent to renegotiate terms at least three months in advance of a contract’s renewal date. In some cases, the entire negotiation process can take up to a year.
DON’T assume the difference between actual cost and contracted pricing is easily covered.
A common negotiation mistake among inadequately prepared ASC administrators is to agree to a contract with inadequate terms, based on the assumption that the center will be able to cover the difference through a simple volume increase. While it’s certainly true that ASCs can reduce fixed costs by accepting more cases, the salary and supply costs are not reduced to the same degree, and so ASCs can easily wind up falling short when it comes to covering costs.
When an ASC comes to the table in a contract negotiation, it must therefore be clear about exactly what reimbursement rates or carve-outs are needed in order to ensure that each procedure can cover its costs and provide an adequate per-case margin of profit.
DO ensure that contract language is highly specific.
Many payors rely on generic, boilerplate contracts, but ASCs should be wary of accepting any kind of vague language. When applied to payment methodologies and timeframes, terms such as “lesser of” or “reasonable” will almost inevitably lead to disagreements down the road. Instead, specific and clearly outlined definitions should be used at all times, particularly for complex issues like clean claims and timeframes for submission.
ASCs should also be sure to eliminate any language from the contract that could potentially limit the ability to change between chargemasters. A legal review of the contract during the negotiation process can help administrators avoid language pitfalls and understand exactly what they are agreeing to.
DON’T allow contracts to roll over.
It’s important for ASCs to steer clear of “evergreen” contracts, or contracts that continue from year to year without renegotiation opportunities or a termination date. Under such a contract, ASCs have no chance to renegotiate terms if Medicare reimbursement rates change between contract years, and they therefore will not receive the corresponding rate increases. Given that more and more new procedures and technologies are being approved, it’s important for ASCs to be able to regularly negotiate or renegotiate pricing as these new elements are added to their operations.
DO build a relationship with your payors.
Like so many other transactions, payor contract negotiations are ultimately all about relationships, and the more that an ASC can establish a real rapport with a payor, the more successful the negotiation process is likely to be for both parties. ASCs can help payors help them by knowing their high-revenue groupers, clearly proving their value, being ready with counteroffers, and entering the negotiation process with patience and a give-and-take approach. This kind of relationship building is particularly useful in setting a strong foundation for future negotiations. Payors will be more willing to accommodate an ASC’s terms in the future if that ASC has already laid the groundwork for a strong and long-term association.