Understanding the Impact of Individual Exchange Plans on Anesthesia Practices
Jody Locke, MA
Vice President of Anesthesia and Pain Management Services, ABC
If you have not spent much time thinking about the impact of the Exchange plans now being offered under Obamacare, you are not alone. For many anesthesia providers and their administrative staff, the specific implications of the Patient Protection and Affordable Care Act (ACA) passed in March 2010 are more or less a black box. As is true of so many issues in healthcare, the devil is in the details; unfortunately this is just one more complicated issue that merits special management focus.
So what are Exchange plans and how do they work? It is important to understand that Exchange plan options are offered in every state. These insurance options are available through the Health Insurance Marketplace at Healthcare.gov. Essentially this provides options for those who are not covered through their employer. In each state where they are offered, private, commercial insurers have contracted to provide coverage at discounted rates. For example, Blue Cross of California continues to offer its traditional PPO coverage, as does Blue Shield, but both now offer an Individual Exchange option.
As of January 1, 2014 all eligible Americans must be covered by insurance for their medical care. They will either be covered by their employer or through an Exchange plan. While many patients have signed up, thus far there is a very real concern that these numbers will increase as we move into 2015 as more Americans look to avoid the penalty associated with being uninsured. Depending upon the state where the person lives they will either choose their coverage through a state Health Insurance Exchange or through the Federal Exchange. The ACA introduced some very significant features that had not previously existed: the mandate that every American have health insurance coverage, the fact that patients cannot be denied coverage for pre-existing conditions and subsidies for those that cannot afford to pay their premiums. The law identifies four levels of coverage that must be offered.
- Bronze—has the lowest monthly premium and the highest out of pocket cost and a $5,000 deductible where the maximum out-of-pocket per individual is $6,350
- Silver—has the second lowest premium with a deductible of $2,000 where the maximum out-of-pocket per individual is $6,350 •• Gold—has the second highest premium but no deductible
- Platinum—provides the best benefits for the highest premium with no deductible and a maximum out-of-pocket expense of $4,000
The principal vehicle for communicating the details of plan options is www.healthcare.gov, which is where people are expected to review the details of each plan and make an application for coverage. In addition to the federal Exchange, quite a number of states like California and Oregon offer their own Exchange options. For practice managers interested in the plans offered in a given location there is a wealth of specific market data available on line. Figure 1 is an example of the coverage patterns for Los Angeles.
Ultimately, the questions every practice must answer are whether to contract with the Healthcare Exchange plans and what rate to accept and that’s if they can even participate in the given insurance Exchange Networks. Some insurance plans have closed networks, meaning they will not take new providers. For example, Blue Cross of California will not readily contract with a group at a Tier 2 hospital.
When the Exchange plans were first being rolled out, many of the major insurers were offering significantly discounted rates for Exchange plans. Most practices declined these offers, preferring to wait to see how significant the impact would be. Not surprisingly, as the number of patients covered through Exchange options has increased, the major plans are now more eager to contract with providers, and the terms they are offering are improving dramatically. In many cases it is now possible to get the same rate for an exchange plan as for the corresponding PPO plan.
Every practice situation is different, though, and contracting decisions should be made based on solid analysis of reliable data. There are a number of aspects of this Exchange issue that merit close review but three are essential:
- The number and percentage of patients covered by each Exchange plan,
- The effective yield per unit, and
- The impact of deductibles and co-payments
Any analysis of the impact of a new payer option must begin with a careful assessment of the number of patients covered. Plans with a nominal impact on the practice’s cash flow may not merit the same level of aggressive contracting as smaller plans. You may also not have the leverage to significantly affect contract rates. Traditionally, practice managers assess the impact in two ways: by tracking the number of patients treated each month and by calculating their percentage. Two examples are shown in the tables on the next page. Note that the impact of Blue Shield patients was far more significant than the impact of Blue Cross’s option in Table 1. (In the state of California Blue Shield and Blue Cross are competitors, both selling coverage for physician services.) Of particular significance to the practice in issue is the fact that the increase in Blue Shield Exchange patients actually represented a net increase in overall practice volume.
Each practice must assess the financial, strategic and political implications of these trends but clearly the impact is significant. A meaningful discount in either case could have a material impact on the practice’s collections and cash flow. This is why the next analysis is so important: identifying the actual average impact as measured in terms of effective yield per ASA unit billed (Table 2). Because of the idiosyncrasies of anesthesia billing most practices will find it more useful to isolate time-based units billed and the collected payments specifically applied to these units; in other words, charges and payments for flat fee services (invasive monitoring, nerve blocks, intubations, etc.) should be excluded. Many also prefer to use a calculation methodology that only includes cases that have been paid in full.
A quick review of the data presented in these tables reveals a curious inconsistency. Why is there such a discrepancy between the Blue Cross PPO rate and the Blue Cross Exchange rate? The answer is simple. The practice decided to wait and see what the impact of the Exchange would be on Blue Cross. The result soon became obvious: out-of-network providers are paid at a much lower rate, the checks go to the patients and then the provider must attempt to collect their usual and customary charge, all of which can not only result in lower yields but bad publicity. In the case of the practice shown here, upon review of the impact of these factors management recently changed its approach and decided to enter into a contractual relationship. Blue Cross has now agreed to a rate that matches the PPO rate, which will change the effective yield shown in Table 2 over time.
The other issue highlighted by this data is the distinction between the contracted rate and the actual yield posted. One of the distinct challenges of medical billing is the mechanics of payment. Historically, most PPO plans have followed the Medicare model and pay the provider 80 percent of the allowable minus the balance due for the deductible and/or copayment. Any billing person will be happy to confirm that it is much easier to get money from the insurance than the patient. This is a particular challenge for Exchange plans where patients may have a significant responsibility based of the level of the plan they selected. It should also be noted that the out-of-network benefits are drastically less for these Exchange plans, sometimes non-existent, and as such the patient ends up having to pay a larger portion of the bill, often times 100 percent of the charge.
Ideally, the payment posting process captures not only the amount of the actual payment but the allowable, deductible and co-insurance amounts. This data allows for the following calculations which involve dividing both the deductible amount and the co-insurance responsibility by the allowed. While we tend to assume that deductibles are a much bigger issue early in the year, as Table 3 indicates, the impact of deductible and co-insurance can vary significantly from patient to patient and month to month.
Why does this information matter? It affects both contracting strategy and accounts receivable management. A very significant patient responsibility may result in consistently lower yields per unit even with similar contract rates. Whether this information can be used to advantage in payer negotiations is not always clear, but it should always be considered.
Higher patient responsibility and the challenge of collecting money from patients after the service has been provided may lead to a discussion of pre-payments or other strategies designed to create a higher sense of responsibility on the part of patients. Some practices are now starting to experiment with pre-payment programs, especially in ambulatory settings.
It is also worth noting that greater patient responsibility will inevitably have an impact on accounts receivable metrics such as days in accounts receivable, the percentage of the total accounts receivable over 120 days and bad debt write-off percentages. Those who manage and monitor their billing staff based on such performance metrics may need to reset expectations if the impact of these plans is significant. There could also be potential implications in cases of exclusive service agreements that involve financial support based on a disparity between the cost of providing the care and actual collections.
So based on what we know so far what can we conclude about the impact of healthcare Exchange plans? It is probably not as significant as some providers might have feared, but it is still significant. The point is, though, you won’t know the impact unless you examine it, carefully monitor the impact of these individual Exchange plans and monitor the data on a regular basis. Like so many aspects of anesthesia practice management, the more you know, the more leverage and options you have.
There are a variety of methods that may be employed in the calculation of a yield per case. One method divides date of entry collections for a given period of time by the Date of service units billed. The problem with this approach is that there is no correlation between the payments and the units. Another approach relies on a date of service approach, in which payments are applied back to the date of service they are intended to pay. This approach can yield useful results but must be viewed with a lag of at least three to four months. A third approach uses date of service data filtered for only paid cases. This approach is not a perfect solution but can be used to obtain more current metrics because it compensates for the lag.
Jody Locke, MA serves as Vice President of Pain and Anesthesia Management for ABC. Mr. Locke is responsible for the scope and focus of services provided to ABC’s largest clients. He is also responsible for oversight and management of the company’s pain management billing team. He will be a key executive contact for the group should it enter into a contract for services with ABC. He can be reached at Jody.Locke@AnesthesiaLLC.com.