Managed Care Contracts and ASCs in 2016

Installment planAll healthcare businesses that provide care to patients require the use and renewal of contracts between payors and their business.  Ambulatory Surgery Centers are no exception to the rule, and recent managed care contracts have shown some interesting changes over the years.  The Ambulatory M&A Advisor  explores the choices that providers have when choosing a managed care contract, negotiation tips, and areas they should avoid when shopping for contracts.

Steve Selbst, CEO of HealthCents Inc. says that as far as rates and changes in 2016 for managed care contracts, the best way to calibrate that overall would be to look at the rates that CMS Medicare publishes year on year, and detect any patterns of overall movement.

“The reason that I point to CMS Medicare rates is that pretty much the entire marketplace of commercial payors and government programs tend to benchmark and use that as major input and guidance to determining inflation factors and wage indexing, cost of living changes, and things of that nature.  Much like our overall economy, I would say that generally speaking, rates have been for the most part relatively flat, and there may be slight increases or decreases in certain areas.   However, it’s very comparable to inflation rates,” Selbst says.

According to Selbst, when looking at overall scenarios, the changes in contracts tend to be pretty flat however, there are a lot of variants.

“Really, the devil is in the details.  You have to get into what kind of a provider are you talking about; the unique characteristics of that provider, services that they may provide, if they have some sort of geographic advantage or differentiation in the market.  Maybe, for example, they are the only specialist of their type in a rural area,” Selbst says.

“That is going to bring on likely a higher level of reimbursement than a scenario where there are competing similar practice types inside of an urban area.  There are many factors related to price differentiation, but in broad terms, you look at the movement of Medicare rates. Then, for specific practices, any unique services, geographic differentiation or customer service and efficiency in business processes.”

According to Selbst, negotiating contracts in order to get an optimal reimbursement rate is the single most important factor to pay attention to when drafting agreements.

“I think many providers are under the misinformed understanding that they are just going to be presented with a standard fee schedule as they enter into a new payor contract and, therefore, have to accept it.  In fact, almost all agreements are negotiable, and, therefore, it becomes imperative to understand exactly what you are being offered,” Selbst says, alluding to the available rates in the Medicare tables that enable providers to do a quick benchmarking of what is being offered.

“It is important to look at not only the overall fee schedule, but it is important to look at what the reimbursement looks like for surgical codes,  laboratory, pathology codes, office visits, radiology and so-forth.  Break it into the practices and services that your office is involved in.”

Gil Weber, owner of Gil Weber MBA says the first thing that concerns him when looking at a facility contract is regarding if the payment is done by groupers, or done by the current CMS methodology of payment by CPT.

“If their contract is going to be tied to the old grouper system, which was discarded by CMS in 2008, they are going to find that they will be paid either acceptably or very poorly, depending upon what they do that falls within each grouper,” Weber says.

“For example, a contract may say that for grouper three, we are going to pay you 1,000 dollars regardless of what is in that grouper.  When you look at all of the various services that an ASC might provide in grouper three, the CMS Medicare allowable might run anywhere from 400 dollars to 1,500 dollars.  If that ASC does a lot of services that pay from  Medicare 400-600 dollars, but the grouper pays 1,000 dollars, they are going to do pretty well.”

On the other hand, Weber says if most of the services they provide pay Medicare allowable more than 1,000 dollars, and the grouper only pays 1,000 dollars, it’s not such a good deal.

Weber says this is because the health plans who use groupers self define what goes into each grouper, resulting in a spread can be ridiculous.

“I encourage facilities to avoid the grouper system whenever they can and to try for payments by CPT.  This isn’t perfect, but it’s a lot better than the grouper system which can really leave a facility underpaid if they do a lot of services that don’t pay well in a particular grouper,” Weber says.

“It’s a hard battle to fight with a lot of payors because the grouper system is so self serving for them.  They can manipulate things such that a preponderance of services in a grouper could be paying less than they could pay, if the facility was getting just a minimal benchmark of Medicare allowable, which in and of itself is a low rate to begin with.”

Selbst says that although major revisions to managed care contract rates through CMS occur typically once a year, there are minor revisions that could occur three to four times.  He advises that ASC operators remain on top of recent changes by checking the published changes on the CMS site.

“They actually have the fee schedule publicly available that any individual can download themselves.  They label them in sequence of the different versions of the given year.  The major refresh is typically a once a year event and it will usually happen at year end.  Some years it gets affected by legislation, and actual exciting congressional votes,” Selbst says citing the “doc fix” bills.

According to James Jones, Contract Manager with ABEO, an Anesthesia and ASC billing and practice managing company as far as how health plans pay ASCs, that hasn’t changed.  As far as the type of procedures that are covered in ASCs, each health plan is different, but primarily, a health plan does not limit what can be done at an ASC as long as the physician or surgeon can do it safely.

“There are two primary payment methodologies.  There is a proprietary grouper; meaning the payor will take all of the CPT codes and group them, then the higher the acuity, the higher the grouper.  A pain management procedure might be a grouper one, or some sort of neurosurgery would be a grouper nine or ten,” Jones says.

“Then there is CMS methodology.  They no longer use groupers;  they have an ASC fee schedule and they group their procedures by certain categories.  That hasn’t changed.  However, if you go back five or ten years, there were health plans that paid percentage of bill charged.  That you hardly see anymore.”

Jones explains that when considering renewals, most plans are two to three year contracts and then are renegotiated based on what the provider wants to do.  Some agreements are evergreen, meaning they are enforced as long as the provider and health plan want them to be enforced.

“There is protection for the provider in these agreements.  There is usually a term without cause for each agreement that will state that after the initial term of one to three years, the payor or provider can give a notice that is usually 90 to 120 days.  This says the plan is not working for them and they plan to term without cause,” Jones says.

“Those that are evergreen usually don’t have a term.  Term without cause generally is with them immediately, or the agreement may say term without cause after 90 days.  There are other specific ways to cancel the agreement such as breach, where  one of the parties does something that is a violation of the contract and the non offending party has the right to term the contract.”

As far as the term without cause, Jones says that generally, if a provider decides they don’t want to be in the network anymore after the initial term, they just send a letter and after a certain date is no longer part of the network.


If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or

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