RELIANCE CONSULTING GROUP

The Tennessee Orthopaedic Society proudly presents:

2-15-12

PAYER CONTRACTING:

TAKING CONTROL, GETTING IT DONE, & MAXIMIZING RETURNS Presented by :

John P. Schmitt, Ph.D. - RCG Managing Director & Robert W. Keen, Esq. - Legal Counsel

AGENDA

Part I: The Need for Payer Contracting

– Orthopaedic Practices: Survival & Satisfaction – Payer Contracting: Example Solution & Savings

Part II: The Process of Payer Contracting

– Taking Control: Strategies & Pitfalls – Getting It Done: Strategies & Pitfalls – Maximizing Returns: Strategies & Pitfalls

Part III: The Future of Payer Contracting

– What is coming next? What to do about it – How should you resource payer contracting?

2

PART I:

THE NEED FOR PAYER CONTRACTING

3

MEDICAL PRACTICES

• • • “Doctors in America are harboring an embarrassing secret: Many of them are going broke” (CNN Money, 1/5/12) Hospitals’ physician employment jumped 32% from 2000-2010. (AHA Hospital Statistics, 2012) Small Business Administration (SBA) loans issued to physicians rose from $60 million in 2000 to $675 million in 2011 (CNN, 1/30/12) 4

ORTHOPAEDIC PRACTICES

• • • Between 2010-2011 Orthopaedic practice revenues declined by nearly 10% Orthopaedic physicians’ average income dropped from $350K in 2010 to $315K in 2011 Only 51% of orthopaedic physicians report being satisfied with their profession, and only 46% would choose medicine again as a career Source: Medscape Physician Compensation Report: 2012 Results 5

MEDICAL PRACTICES

Who’s up, Who’s Down Since 2010?

Source: Medscape Physician Compensation Report: 2012 Results 6

MEDICAL PRACTICES

Physician Compensation In 2011

Source: Medscape Physician Compensation Report: 2012 Results 7

MEDICAL PRACTICES

Satisfaction by Specialty

Source: Medscape Physician Compensation Report: 2012 Results 8

PAYER CONTRACTING: EXAMPLE PORTFOLIO

ACME Payer Portfolio ACME Commercial Payers: Accounts for 55% of overall practice revenue

Other 18% Blue Circle 15% Medicare / Medicaid 27% Comm. Other 22%

Overall Revenue $8,800,000/yr

Trident 8% Sigma 7% Coastal 3% Comm. Other 40% Blue Circle 28% Trident 14% Coastal 5% Sigma 13%

Commercial Revenue $4,840,000/yr

9

PAYER CONTRACTING: EXAMPLE ROI

• Example Contracting Costs: $38,000 (estimate) • Pre-negotiation analytics & research • Negotiation meetings & evaluations • Payer relations & product participation •

Return on Investment (ROI):

• Commercial payer revenue: $4,840,000 • Contracts determined for negotiation (60% commercial revenue) $2,904,000 • Conservative adjustment (15% reduction): $436,000 • Negotiated returns: ($2,904K-$436K) x 5% estimated adjustment= $123,000

Year 1: $123,000 (- $38,000) Accumulated earnings: $85,000

= 2.24 ROI

Year 2: $123,000

Accumulated earnings: $208,000

Year 3: $123,000 Accumulated earnings: $331,000

= 5.47 ROI = 8.71 ROI 10

PART II:

THE PROCESS OF PAYER CONTRACTING

11

PAYER CONTRACTING

Strategies & Pitfalls

• Taking Control • Getting It Done • Maximizing Returns 12

TAKING CONTROL:

STRATEGY # 1

Develop compelling analytics!!

“As you negotiate contracts and terms, data can add a powerful punch.” -

Susan Turney, MD, President MGMA-ACMPE, Coaches Corner, MGMA Connexion, April 2012)

Data Examples:

• • • • • Practice costs relative value units (RVU) CPT-specific fee schedule analytics Practice quality and cost metrics Payer mix and market analyses Payer network analyses 13

TAKING CONTROL:

STRATEGY # 1 (continued)

Develop compelling analytics!!

•

Example: Fee Triangulation CPT Codes & Fees CPT: 99213 DESC: ESTABLISHED PATIENT-LOW CMS: $66.09

Commercial Minimum RVU Analyses

99213 = $84.60

Market-Based (37415) Payer Analysis

99213 = $90.55

Payer-Specific Negotiation Strategy & Recommendations

14

Know your competition- and compete!!

• • • • • Determine payer service area (zip codes) Determine payer panel count (attribution) Apply AAOS population statistics to payer information (next slide) Research payer network’s orthopaedic membership in the service area Prepare payer-specific presentation to include subspecialists, quality data/metrics, unique delivery capabilities (payer will do cost/variance analyses using claim histories) 15

MEDICAL PRACTICES

(continued) Nationally, the 2010 density of orthopaedic surgeons is 5.67 for every 100,000 people in the US. In Tennessee, the density ranges between 6.0-6.6 per 100,000 people.

Source: AAOS Department of Research: April 2010 16

TAKING CONTROL:

PITFALL # 1

Being reactive rather than proactive!!

“ O verall the (surveyed) practice executives realized that they are more reactive than proactive with their business and strategic planning processes. They stated there are numerous external and internal variables beyond their control, such as physician retirement, insurance fee schedules, and regulator changes that constrain their ability to plan for their practices’ future growth.”

-Practice Excellence-Success Stories for Outstanding Orthopedic Practices, MGMA, J. A. Harvey, 2007 17

TAKING CONTROL:

PITFALL # 2

Accepting payer contract offers as non-negotiable!!

• • • You don't ask you don't receive- everything is negotiable The real issue is not discounting but reducing cost variance:

http://www.changehealthcare.com

Patients with high deductibles are researching and negotiating provider prices; providers should research and negotiate payer reimbursements:

http://www.healthcarebluebook.com

18

TAKING CONTROL:

PITFALL # 2 (continued)

Accepting payer contract offers as non-negotiable!!

Example: Chattanooga, TN

19

GETTING IT DONE:

STRATEGY # 1

Get your message to the decision-making level!!

• • • Payer reps are messengers Prepare a message around CMS’s "Triple Aim" – Lower per-capita cost – Clinical excellence and accountability – Improved population health Deliver the message to decision-makers found in the clinical, business development, and economic areas-Chief Medical Officer, V. P. Networks, Medical Actuary 20

GETTING IT DONE:

STRATEGY # 2

Build high trust payer relationships!!

• • • Payer Contracting is two-fold: 1) Tactical- contract/fee adjustments; 2) Strategic- payer relationship building Low trust causes friction and slows negotiations e.g. hidden agendas, win-lose thinking, defensive communication.

High trust produces speed- e.g. transparent data, kept commitments, win-win-win solutions.

Trust = Speed Cost Trust = Speed Source: The Speed of Trust, Stephen R. Covey Cost 21

GETTING IT DONE:

PITFALL # 1

Assuming all payers are the same!!

ACME Orthopedics-Analytic Results Business Case Analysis

150,00 145,00 140,00 135,00 130,00 Sigma Zygomed 125,00 120,00 ThorGroup 115,00 110,00 105,00 100,00 0 Fortress Pillar Health 5000 HealthStream Coastal Blue Circle 10000 commercial minimum cost 15000

RVU's

Trident 20000 25000 30000 22

Overlooking legal safeguards!!

Contract terms impact all aspects of your practice!

• Practice Development • Internal Operations • Risk Exposure 23

Overlooking legal safeguards!!

• • • • •

Practice Development

Exclusivity Affiliate Assignment (Silent PPOs) Favored Nation Marketing Limitations 24

Overlooking legal safeguards!!

• • • • •

Internal Operations

Eligibility Confirmation Claims Submission Payment Timeframes Dispute Resolution Inclusion of External Documents 25

Overlooking legal safeguards!!

• • • • •

Risk Exposure

Termination Standard of Care Third Party Beneficiaries Medicare Rates Class Action Waivers 26

MAXIMIZING RETURNS:

STRATEGY # 1

Know where payment reform is headed!!

Where do you fit in? Are you prepared?

CMS Payment Reform Timeline 2010 2011 2012 2013 2015+

27

MAXIMIZING RETURNS:

STRATEGY # 2

Prepare for accountable care!!

New delivery models:

– ACOs (2011) • 32 Medicare Pioneer Programs (mostly hospital-centric) • 27 Shared Savings Programs (mostly physician-centric) – Patient Centered Medical Home (PCMH 2008) – Narrow Networks (2012)

New Payer Relationships:

– Episode-based bundled payments (2013) – Value-based payment modifiers (2015+) – Partial capitation arrangements ( ? ) 28

MAXIMIZING RETURNS:

STRATEGY # 2 (continued)

Prepare for accountable care!!

Source: Physician Compensation Shifting Incentives, HealthLeaders Media Intelligence, October 2011 29

MAXIMIZING RETURNS:

STRATEGY # 2 (continued)

Prepare for accountable care!!

Participation in Various Payment Models

Source: Medscape Physician Compensation Report: 2012 Results 30

MAXIMIZING RETURNS:

STRATEGY # 2 (continued)

Prepare for accountable care!!

How Will ACOs Affect Your Income?

Source: Medscape Physician Compensation Report: 2012 Results 31

MAXIMIZING RETURNS:

PITFALL # 1

Being combative versus collaborative!!

New payment models are more partnerships than contracts e.g. three year ACO pilots

"It is time to stop shifting costs and instead align payers and providers around their common goals… Payers and providers must collaborate in a meaningful way to truly manage the care and costs of our patients. And it all comes down to the need for alignment in three basic areas: clinical, economic and administrative."

-The New Era of Healthcare: Practical Strategies for Providers and Payers, Emad Rizk, MD, HCPro, 2009 32

MAXIMIZING RETURNS:

PITFALL # 2

Failing to prioritize payers!!

ACME Orthopedics-Analytic Results Business Case Analysis

150,00 145,00 140,00 135,00 130,00 Sigma Zygomed 125,00 120,00 ThorGroup 115,00 110,00 105,00 100,00 0 Fortress Pillar Health 5000 HealthStream Coastal 10000 commercial minimum cost 15000

RVU's

Trident 20000 25000 Blue Circle 30000 33

MAXIMIZING RETURNS:

PITFALL # 2 (continued)

Failing to prioritize payers!!

High I

• • • •

Sigma HealthStream ThorGroup Zygomed II

•

Blue Circle III

• •

Pillar Health Fortress

(Highest priority)

IV

• •

Coastal Trident Low

(Lowest priority)

Revenue Potential High

34

PART III:

THE FUTURE OF PAYER CONTRACTING

35

THE ROAD AHEAD

36

THE ROAD AHEAD

Commercial Payer Changes

• Cigna has launched 3 collaborative accountable care initiatives located in Tennessee (Memphis, Holston, & Jackson) • UHC is changing contracts to include value-based incentives which will affect 70% of its members by 2015 • Aetna launched its first orthopaedic bundled payment pilot in California • The Blues are launching ACO type pilots in various states 37

• Healthcare delivery and payment is changing dramatically- from volume (FFS) to value (risk and incentives) •

There will be winners and losers over the next few years-

primary care will be a winner, competition will increase among specialists, hospitals, and ancillary providers based on cost, utilization & quality • New delivery models will trigger new types of payer relationships • Payer contracting is the tactical pathway to strategic positioning payers will reward providers that are: • • • • Proactive Collaborative Innovative Accountable 38

• • Determine internal capabilities & resources • Time commitment • • Internal expertise Data resources What can be outsourced?

• Pre-negotiation analytics (e.g. Fee Triangulation, RVU) • Payer negotiations • Payer relationship management 39

RELIANCE CONSULTING GROUP Reliance offers Free Payer Contracting webinars: – – – Limited to 30 minutes plus Q&A Tailored around practice-provided data Scheduled at practice’s convenience

Visit our website:

www.RelianceCG.com

Click on the

Webinar Request Form

tab 40

RELIANCE CONSULTING GROUP

Q

&

A

For more information about Reliance Consulting Group, visit:

www.RelianceCG.com

Or

Contact John Schmitt directly: [email protected] 41