Anesthesia Payer Contracting: A Challenging New Reality
Summary: Anesthesia is entering a transitory period where the reliance on negotiations with insurance companies as the sole path to profitability is no longer the sure strategy it once was. New realities have set in, and new solutions must be considered.
Imperiled Profitability
Historically, the ability to negotiate favorable contract rates has been a distinguishing feature of the most successful anesthesia practices. Increasingly, though, the ability to offset severely discounted public payer rates with favorable commercial rates is eroding. There are many factors that determine the actual net yield per billed ASA unit. Some affect certain practices more than others, payor mix for example. No anesthesia practice is totally immune from the inexorable erosion of the revenue potential of its anesthesia services. Most practices have experienced an increase in their Medicare population of about one percent per year as the American population ages.
As the cost of health insurance spirals out of control, increasing patient deductibles is the primary lever subscribers pull to manage their cost of insurance. As we have all learned, it is much easier to get paid by insurance than by the patient. But other factors play an important role as well. The migration of cases from inpatient to outpatient venues and especially the growth of anesthesia for endoscopic procedures has definitely impacted anesthesia profitability. Many practices are also seeing significant increases in their Medicaid and self pay populations but this is obviously a factor that affects some locations more than others. Inner city hospitals are proving to be the most imperiled.
State of Negotiations
So, what has become of anesthesia payer contract negotiations? Are they not an integral part of an effective management strategy? Can groups no longer negotiate annual rate increases that offset flat or declining public payer rates? These are the questions that are starting to frustrate anesthesia practice managers and that, in many cases, are leading practices to either sell out to larger national entities or to turn their practices over to the facilities where they work. Clearly the opportunity is increasingly limited. Many large plans such as Blue Cross of California have ceased considering any discussion of rate increases. Their published fee schedule is their only fee schedule. The No Surprises Act may encourage similar payor behavior in other markets, though its impact remains unclear as its regulations and enforcement continue to evolve.
No single factor has a more significant impact on the revenue potential of an anesthesia practice than payer mix. Ever since Excel taught us how to create pie charts showing what percentage of charges will get paid by each payer, anesthesia practice managers have been monitoring changes in payer mix with assiduity. What they have been specifically tracking is the erosion of commercial revenue potential in the face of increasing public payer population percentages. A practice which provides more than 50 percent of its services to Medicare, Medicaid, workers' compensation and Tricare patients has a very limited ability to effect a meaningful increase in its effective net yield per billed unit, irrespective of how successful they are in negotiating favorable rates.
A Fly in the Ointment
Let us also be clear about a fundamental economic reality. Negotiating a higher contract rate does not mean the practice will realize the same percentage increase in collections from the contracted plan. When payers agree to rate increases of, for example, three percent, which is considered a favorable increase in the current environment, they will be lucky to see a net increase in collections per ASA unit from that plan of one percent. Why is this? While the contract rate increase may result in a higher allowable payment per service performed, there is often an inability or unwillingness to pay the increased portion that is due from the patient. Too often, payer contracting is only focused on a gross rate increase instead of the more important net rate increase. In many cases, seemingly favorable contract rate increases only result in the same actual levels of collections.
The situation is further complicated by the nature of services provided. We have seen a dramatic increase in the use of nerve blocks and ultrasonic guidance (USG) for acute pain management. The problem is that a negotiated anesthesia rate increase often does not apply to what are referred to as flat fee services that are paid from a payer fee schedule. Invariably, these fee schedules are based on Medicare and not market-based commercial rates. The use of these services can also be subject to arcane documentation requirements that may limit the number and types of services actually paid.
Consider the Solutions
What is the new economic reality for anesthesia practices? They must continue to strive for more favorable commercial rates where possible, but the time has come to explore other revenue opportunities. Hospital subsidies have become the most common option and the same level of focus and discipline that has been devoted to payer contracting must now be applied to hospital contract negotiations. Market dynamics can have a dramatic impact. One cannot over-estimate the importance of a strong working partnership with the facilities served. Ultimately, this will also lead to an increased focus on the cost of anesthesia care and ways to reduce the need for additional revenue to maintain the financial viability of practices.
If you have questions about this topic, please contact your account executive, or you can reach out to us at info@anesthesiallc.com.