Leveraging Data to Guide Discussions on Provider-Payer Contracts

As healthcare providers engage in payer contract negotiations, understanding their contractual reimbursement rates compared to the market has never been more crucial. In this episode of Value-Based Care Insights, we sit down with Damon Morse, an expert in payer rate analyses, to discuss the challenges healthcare providers face with payer contract negotiations, and the strategies required to level discussions. Gain insights into how thorough analysis and strategic positioning can ensure fair reimbursement for provider organizations and support organizational growth.

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Transcript:

Daniel Marino:

 Welcome to value-based care insights. I'm your host, Daniel Marino. Many hospitals and health systems over the last. Oh, gosh! I want to say! Year and a half 2 years have been negotiating with their payers. And, interestingly enough, there's been tremendous amount of press over this time period on how the contract negotiations have really been quite the challenge. I think the challenge more so from the healthcare providers than maybe it is from the from the payers. I've been doing contract negotiations for 20-25 years, and I have to say I haven't. I can't remember a time, that it's been more of a of a tumultuous, challenging situation than it has over this last year and a half to 2 years. Seems like, certainly, even after Covid, it's gotten much, much more challenging. And as we start to see these contract negotiations, we find through a lot of the conversations we're having with our providers, that they're really at a disadvantage. They feel like it's very difficult for them to kind of build a level playing field, to have a conversation with the payers in such a way that it creates a win-win in their strategy. And a lot of times. What we see is the challenge comes in in that these payers, or the providers rather may not necessarily have a strategy on how to frame their negotiations. And it really comes down to 3 things. It comes down to understanding how the organization's fee schedules, or reimbursement is measured against the market? Are you getting reimbursed fairly compared to the market? I think. Second to that is your reimbursement is your contracting, supporting the growth of your organization. So as you're expanding into new clinical service lines as you're expanding into new surgical services, as you're expanding into an ASC. Does your contract and your reimbursement support that growth strategy? And then, third, A, again, there's been a lot of, especially in the last couple of years. A lot of challenges with higher denials around pre certifications, pre authorizations, changes of the rules that are unexpected from the payers, a lot of down coding that's occurring, and changes in reimbursement associated with that. So again, understanding that is really important as you begin to incorporate that into your negotiations. But again, as you're thinking through that the advice that we often give to providers and managed care folks is, you need to start with understanding where your reimbursement is in accordance with the market. 

Well, I'm really pleased today to have a great colleague, somebody I've worked together with for a long time. Damon Morris. He's a principal of lumina health partners. Extremely knowledgeable and market rate analysis, and has helped numerous organizations begin to answer that question on where they fall in comparison to their market. And then what do they need to, how do they need to begin to position themselves through their negotiations. Damon. Welcome to the program. 

 

Damon Morse:

Well, thank you for having me, Dan. Pleasure to be a part of the show. 

 

Daniel Marino:

So, Damon, let's jump right into that. What are you seeing as some of the biggest challenge, I guess, as some of these hospitals, health systems, medical groups are starting to gauge and engage in in pay or contract negotiations. 

 

Damon Morse:

I think one of the first challenges that I've seen in my experience is that a lot of these small to mid-size organizations, hospital systems or the provider groups that they they're not sure where to even start. I think you hit the nail on the head at the beginning. How do we compare to the market as it relates to our current rates and our current contracted fee schedules? A lot of groups that I work with just don't even know where to start. So taking a look at current contracts and what that reimbursement looks like on paper compared to what they're actually getting is maybe a good place to start. 

 

Daniel Marino:

I would agree with you. Because I'll tell you every contract negotiation that I've been a part of, and I've had the opportunity of doing this. Well. We both have for numerous organizations across the country. The one response that you can almost 100% bet on is the payer is going to come back and say you're the highest. You're the highest price provider in the market. 

 

Damon Morse:

That's exactly right. 

 

Daniel Marino:

Hands down. That's always the case. So it is really important for the for the provider to kind of get an idea of where they stack up right where their ENMs come in compared to the market. Where do their surgical codes? Where the radiology services? Where does it come in in the market. So how do you position it around that so they can understand, you know, and answer that question? 

 

Damon Morse:

Yeah, a. A lot of groups use Medicare as a benchmark, right to start some of those conversations and discussions at a and then an executive level that's historically been a starting place. There are other sets and groups of data that are out there in the market that can help organizations take a look at where they fall relative to a market within a specific geographic area, and that's a place where I would start to take a look at is how the analytics are around their existing contracts relative to a market rate. 

 

Daniel Marino:

Right. And I think for our audience, we've got to be clear on what on what we're talking about here. So we're really we're really saying or discussing how the average allowables, and you can look at it per particular plan for that, for that provider, really compare compares to the commercial plans within that market. Right? So we you really don't see Aetna compared to Aetna or united compared to United. I think we also have to be very careful that we're not talking about collusion. But there are available data. There is available data that is out there that really provide some strong insights. So you know, Damon, in your experience, what is? How? How are these structured? What does this data set look like? 

 

Damon Morse:

It's really code by code, CPT code by CPT code. What is a build amount based on some specific volume? What's an allowed amount or a reimbursement amount based on specific volumes in A, in a very specific geographic location. If you look at different areas of the country, you and I were here in Illinois. So you look at Cook County or Chicago market. How does a Chicago based physician group stack up in the Chicagoland marketplace relative to I don't want to say their peers, but other groups of similar size in that same Chicago based market basket of healthcare payers. It's not just Medicare. It's not just Aetna or Cigna. It's a basket of data that's pulled from multiple sources that allows provider groups and hospital systems to rank themselves relative to a market and it's broken down into, if we all remember statistics right? Like the old bell curve. Where you are in the tenth percentile 20 fifth 50, a 70, fifth, and the ninetieth. Where does your fee schedule rank in relation to a market in the Chicagoland area, or anywhere across the country? 

 

 

Daniel Marino:

And this is different than transparency data correct? 

 

Damon Morse:

That that's exactly right. Transparency data is self reported right by a hospital system or provider group. I think hospital systems have done a good a fair job. I don't know if I would say good, but they've done a fair job. 

 

Daniel Marino:

Right. 

 

Damon Morse:

Required to report the data in being transparent with what the cost structure looks like from a hospital system, but from a provider standpoint I think there's not a lot of, I have not seen in my experience good data sets that have some relatively good transparency around geographics or specific to a marketplace, and it usually would be that maybe one large player in the market is driving the market. If there's transparency data that's available. 

 

Daniel Marino:

Yeah, I would agree with you. I think the Transparency date has been a little bit limited. You know, I think it is another data point. But what we're talking about is really the claims data that would occur. That that would be aggregated for the commercial plans in the particular market. So when a hospital or a medical group, or you know, an organization is thinking about moving forward with this, what's some of the objectives of going through this market analysis. Why would they want to do it? 

 

Damon Morse:

But it it's initially, from an understanding point of view, depending on who they're reporting up to and where the where the questions are coming from, and an executive level groups would want to report to a board of directors how they stack up against other organizations in the marketplace. Right? So it's educating the audience who's asking the question. It may be from physicians if they're employed, or if they're independent within a specific organization, the physicians may be asking, you know, and are we reimbursed appropriately or adequately? So it starts the discussion internally among executives and educating the team or the players? Where do we fall right. It starts the conversation around. And it's initially about educating. You know the audience out there. 

 

Daniel Marino:

Well, and I can remember going back a few years. You and I worked on a great engagement, and there was a large faculty plan. That had a number of employed physicians. And that's exactly the question that they want to have answered right? So the faculty and the department chairs were coming up to the health system leaders and saying, Okay, how does our reimbursement through the practice plan compared to the market? And you know, how would it look if we were on our own? So that analysis, I think, is great to be able to provide that insight. 

 

Damon Morse:

Yeah, exactly. And I think some of those physicians that may sit in those leadership positions. If they're still practicing clinicians, they may be reimbursed at some level of productivity, right? So they may be asking from 2 perspectives, one is the organization being reimbursed appropriately, but 2 as a physician employed within this practice in this model, am I compensated at a market level? Am I being paid individually or within a specific specialty for a practice plan? Am I? Am I reimbursed individually within the range, and I think both of those things are important. When you take a look at some of this market analysis. 

 

Daniel Marino:

Well, that's an important point, because a lot of the academics are moving to an a revenue allocation of net revenue per RVU fee to be able to fund some of the departments. But how about for organizations who are starting to move into their contract negotiations? How would they use this intelligence, this insights coming out of this analysis to support their negotiations. 

 

Damon Morse:

And it's payer by payer specific. I think most of your audience may be familiar with the larger players and the smaller players from a healthcare, you know, health plan, perspective, but taking and putting together a methodology around or an approach behind, how you're approaching that new negotiation that's coming up right. So if you want to take a look at and interpret for one specific payer how you're how you're stacked and ranked. But putting together a strategy really behind that one specific payer. Or it may be that they have. these upcoming discussions at a board level on an annual basis or a biannual basis. But if they don't have those things in place, I think putting together a plan or a strategy to talk about, first, to educate an executive team on what's happening and how they rank but once that's done, Taking a look at and determining how frequently should we look at this information. Is this a. Is this a once a year? Look, is it a couple of times every few years? But I think it's really looking at a strategy or an approach behind a specific payer. If you've recognized that you're below a market percentage within one of your health plans, you need to come up with a strategy, you should develop a strategy around. How do we bring that up? What do we need to do? Is it? Is it within certain departments that we're short or in other areas that we're strong and coming up with a strategy as an organization around that conversation with a payer. 

 

Daniel Marino:

If you're just tuning in, I'm Daniel Marino, and you're listening to value based care insights. I'm here today talking with Damon Morse, and we're having a great discuss discussion around market rate analysis as a vehicle to support contract negotiations. So, Damon, just kind of building off of off of that. It really does help you level the playing field to a certain extent, especially if you identify that a particular either plan or some lo! Some elements within the reimbursement say surgeries or radiology, if you will, if it's way below the market, you kind of understand what you're asking for right, and then I would think on top of that, begin to understand what levers you can push or pull to get to where you need to come in as an organization in the compared to the market. 

 

Damon Morse:

And I think back to a point that you made earlier. A lot of players may not know where they fall relative to a health plan. Are they above or below? A help plan always is. Gonna say, you're the highest paid right? This data and the analysis can help with that leverage to show. Look, we're not the highest paid. We might be the lowest or the second lowest, or we're, you know, if you have provider groups that are in the 70, fifth and the ninetieth percentile of reimbursements. And our group falls in the 20 fifth to the thirtieth. We know we're well below the market. Right? So I think it helps in a from a leverage standpoint in some of those contract negotiations where you can produce data and outcomes and results that have real information behind them on. And it. It's not just pie in the sky, but it allows you to give some good leverage behind what's happening in the Marketplace. 

 

Daniel Marino:

Well and I and that's so important, because you certainly don't want to be the. You don't want to be the highest paid provider in the market right? Because at the end of the day the payers are contracting with the employers, and the employers are really going to pay for this right? So if you're making a push, and you're fortunate to get, say, the rates at the ninetieth or 90 fifth percentile of the market. that potentially is going to make your employers and the employees pretty upset right? Because that means the overall cost of care is going to go up. So I think it's important to understand what the right ask is, where you should come in at the market. And then, in particular, how does that support the economics of you know your cost models of the organization, and frankly, your margin of where you want to come in. When you've done this in the past. how are some, what are some key things that that you look at related to? Let's say surgeries, or the medical versus the surgical specialties, or even Ems. Does everything need to be paid at the same rate? Or do you often see that you have, you have different levels or different reimbursement structures given where you are in the market, and maybe even your volume. 

 

Damon Morse:

I think that's a great question. I think some of that depends on how your contracts are structured. Some contracts may be a flat percentage across the board for the whole contract. And in that case, different categories of CPT code surgical codes agree ENM codes path lab radiology. They're not all going to be the same right? I think the group on the phone or your audience is probably aware of the Medicare adjustment to the fee schedules a few years ago. So if everybody's contracts are based off of medicare fee schedule, your em codes might be low where your surgical codes might be high, right? So I think, in our history or experience, we've seen some of that. But that then helps with the strategy around, or the discussions about what do we do with our with that contract? If one area is low and once heavy, that then could be part of the strategy around a negotiation. 

 

Daniel Marino:

Yeah, I agree with you. The other thing it allows you do to do, too, is to make sure that you're getting reimbursed appropriately. Because you're asking for the allowable amount. And then, you know, we always ask for the payment amount. And although this isn't a revenue cycle assessment, it is important to kind of evaluate how well you're getting reimbursed against the allowable amount. And I'll tell you this is where denials are coming into place over the last couple of years we have. We do a lot of revenue cycle work. As our audience knows. We've definitely have seen denials go up mostly because of preauthorization for down coding, for all sorts of related issues. And this is where you identify it. You build that right into your contract negotiations. 

 

Damon Morse:

That's exactly right. It's a. It's an easy way to look at denials and authorizations. And what's really happening with the claims that are going out the door, and what you expect to come back. and the reality of what's actually coming back right from a payment standpoint or a denial standpoint. 

 

Daniel Marino:

Yeah, how do we take into consideration shifts inside of service? So you know, there's been a lot of some services which are more hospital based, and that now have shifted to ambulatory based. When you've looked at this rate analysis before, I'm assuming you look at the professional side as well as the facility side. How does the shifts inside of service come into play? 

 

Damon Morse:

It depends on the organization, and if they have different locations or sites of service where they can provide the services. we look at both sides the professional side and the facility side, and, as you just mentioned. the payers are pushing more towards an outpatient or an ASC type model, because the fee schedules are typically lower. And you take a look at from a strategy standpoint potentially one of your clients to figure out where is it best that we perform certain services. They may be performing them in a hospital setting today on an outpatient basis. But if they move those services to an ASC. Or even to A to a standing clinic? Will they be reimbursed at a higher level, or can they negotiate or leverage those contracts in those locations to benefit them as an organization moving it into different locations. So we definitely take a look at site, a service that has a huge impact. 

 

Daniel Marino:

Well, it has a huge impact. And I'm so glad that you brought that up. You know. It reminds me of a conversation and some work that we had done couple of years back with an organization, and they were doing their planning for their ASC. And it was a joint It was a joint venture. The cost structure obviously was much lower than it was in the hospital. But they, although they had some general ideas and what they thought they were going to get reimbursed when they actually started the a lot of the work in the ASC. It actually came in about 30% below what they thought they were, going to get reimbursed and going back to their contracts. Their contract didn't reflect as appropriately as it should, that transition from the inpatient to the outpatient, and the payer just set them up on a general fee schedule. So really, being able to kind of understand how your reimbursement and the negotiations need to support your strategy. Almost thinking in advance, like 2 to 3 to 5 years, becomes really key. And then through this you can model it. 

 

Damon Morse:

That's exactly right thinking through where we are today. And where do we want to go tomorrow? And some of these discussions with the large health plans. If you have a large, large client and a large academic medical center, a large medical center to one of these larger geographic areas. Those conversations and those negotiations. They do take years right, and to get your payer reimbursement your provider reimbursement back to where you want it to be. It could take 2, 3 years of an negotiation just to get an organization there. But in that discussion, taking a look at where you provide services today versus, where is the most advantageous going to be in that 3 to 5 year period. It's really important to have it an executive level, especially if you're building out new lines of business and new service lines within your organization. 

 

Daniel Marino:

Well, and it, you know, if you haven't. If a per, if a hospital or medical group hasn't negotiated the rates, and you know  5, 6, 10 years, and believe me, there's a number of them out there that have it. 

 

Damon Morse:

You've seen that recently, right. 

 

Daniel Marino:

And we've seen that recently. 

 

Damon Morse:

If you open the books and you look at the fee schedule, it's a derivative of something from, you know, 2018, or 2020. 

 

Daniel Marino:

Or 2015 for that matter. 

 

Damon Morse:

It's time to time to look at a strategy. 

 

Daniel Marino:

Yeah. And you know, and you can't ask for you can't ask for that. 20 or 25% jump in year one, you're not going to get it right. The payers, going to you know, just sit back and laugh at you. But so through this, I guess it, it does help you understand? What is the appropriate ask, and what's the appropriate escalation, Right? As you enter into the first year, and hopefully, you're negotiating a 3 year contract, because you certainly don't want to go through this year in and year out, but it helps you to understand what you're asking for in year 2 and year 3 and beyond. 

 

Damon Morse:

And it's interesting. You say it that way, because if I think from an employee standpoint right? We we've all been employees of organizations. If you go into your employer and you think that you're woefully underpaid and you ask for a 20% pay increase to come up to market rates. They're going to laugh at you right? But if you can, but if you can come in at 3 to 5% a year over the next handful of years, so that then you can become, you know, in the ballpark that it it's this exact same concept plans right? Because they also on the other side have to fix their reimbursements and their methodology that they're having with their employer groups who are funding all of this so. 

 

Daniel Marino:

Yeah, no, that's absolutely true. So for our listeners, if they're interested in doing so, you know, doing a market rate analysis or learning a little bit more. You know. What's some of the pieces of advice you might offer some of our listeners on where to start? 

 

Damon Morse:

Starting points would really be to sit with the group who is doing at an executive level some of the reporting around or the discussions around their contracts, and have them take a look at, and maybe to what we just said, blow the dust off of some of their groups contracts to see what? What years are those agreements in? Are they old? Are they new? Are they recent? But that would that would really be a starting point to see how old some of their agreements are that they have in place, and are they just evergreen? Have they been rolling for the last handful of years, and nobody's really taking a look at them. That that would be a good starting point. 

 

Daniel Marino:

Yeah, I would agree. I think the other piece, too, is, it is an investment, right? So organizations have to be prepared to make. The investment wouldn't say it's a it's a whole bunch. It's not a large investment. It's not a whole bunch of money to do this, but it is something that I think certainly has a clear ROI. But you have to be prepared to make the investment and really use this as a tool as you're beginning to think about your negotiations, and your financial modeling as well. 

 

Damon Morse:

That's right, I think. to your point.  A small upfront investment can reap the rewards of a 5, 6, 7% increase, and depending on the volume and the contracts that you have, it will pay for itself, you know, hands down in the first month of the updated new Billings that you're going to get out of an organization. It the investment is well worth what you're going to get out of out of the data. Even if you just start at a board level and an executive level from a conversation standpoint. Educating the group. We'll pay dividends as well, so that your team is much more educated about what you're doing. But absolutely, it's an investment financially, but it pays dividends. 

 

Daniel Marino:

Well, I tell you this is something that I, I believe, is really valuable. We've done this numerous times with other organizations as we've supported their payer strategy and their negotiations. And like we talked about, if anything, it does help to create a level playing field, and in this day and age it's hard to create that or to have that as you start to negotiate with your payers. Well, Damon, I want to thank you for coming on today. This is a great discussion. I'm sure we'll talk about it a little bit more, but really appreciate your time, and sharing your insights. 

 

Damon Morse:

Oh, thank you for having me glad to be a part of the conversation. If there's any additional questions that you could have with me, Dan. Just let me know. Happy to help. 

 

Daniel Marino:

Yeah, we'll do, and we'll put your information out there. So some of our listeners. It's with you directly and for more information in on this topic, and others please visit Luminahp.com. And I want to thank everyone for listening today until our next insight. I'm Daniel Marino bringing you 30 min of value to your day. Take care. 

About Value-Based Care Insights Podcast

Value-Based Care Insights is a podcast that explores how to optimize the performance of programs to meet the demands of an increasingly value-based care payment environment. Hosted by Daniel J. Marino, the VBCI podcast highlights recognized experts in the field and within Lumina Health Partners