Direct Provider Contracting Pays Off

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“The opportunity is that an employer group who is self-insured has the ability to create a flexible plan best suited for its employees,” Bud Brooks, President at Brooks Healthcare Solutions, says. 

Brooks says that it all boils down to avoiding the use of big, broad-based PPOs.

SELF-INSURED PLANS AND THIRD PARTY ADMINISTRATORS

Written by Brittany Belli | Jun 3, 2015 | 0 Comments

Physicians at ambulatory surgery centers have started contracting directly with self-insured plans and third party administrators (TPAs). Since this arrangement involves transparent pricing and direct/cash pay, it can be a mutually beneficial relationship for all parties involved.

“The opportunity is that an employer group who is self-insured has the ability to create a flexible plan best suited for its employees,” Bud Brooks, President at Brooks Healthcare Solutions, says. “It allows these TPAs and the employers in the groups to establish narrow networks, or direct contracts.”

Brooks says that it all boils down to avoiding the use of big, broad-based PPOs.

“A group may use a big broad-based PPO that has everyone and their brother listed as ‘in-network,’” Brooks says. “But in this case, with a narrower network, you are essentially agreeing to work with just a limited number of providers who are willing to provide a bundled, transparent price upfront.”

“You have an employer basically paying their own claims through a TPA, and then the TPA can negotiate what’s called a transparent bundled arrangement,” Colin McNeese, EVP at McQueary Henry Bowles Troy L.L.P., says. “You know exactly what the fees are for the services, or the employer/plan sponsor can contract and instruct the TPA to adjudicate a claim according to that contract.”

Transparent pricing is one of the biggest advantages of physicians contracting with self-insured plans, rather than traditional insurance. Jay Kempton, President, CEO and Owner of The Kempton Group, says that the Surgery Center of Oklahoma was one of the first ASCs to incorporate a transparent pricing method on their website.

“They took every medical procedure that they offer, bundled all of the prices together and posted it online,” Kempton says. “It took the charge to use the facility, the cost of the anesthesia, the fee for the surgeon and anything else that surrounded the procedure, combined it together and came up with one cost.”

Kempton says that the cost displayed on the ASC’s website was the best price the center could come up with, under two conditions: payments had to be in cash, and they had to be made quickly.

“The good thing about cash pay is that it doesn’t matter if your patients are insured or not; the ASC is getting paid regardless,” Kempton says.

In addition, Kempton says that self-insured employees/employers can take advantage of the low, transparent prices since they are actually cash-paying customers.

“A self-insured employee will have a medical plan that tells them what is covered/not covered, which providers are considered in-network, and they will have a co-pay,” Kempton says. “However, when a claim comes in to a TPA or the employer, and a check is written back to the place of service, the check comes from the employer’s bank account, not an insurance company. That’s how it’s considered cash pay.”

Patients and employers that choose to pay cash either out of pocket or though self-insurance are also able to take advantage of transparent pricing.

“One of the biggest frustrations with surgery is that you really don’t know what the total cost will be until six to eight months after the procedure,” McNeese says. “You could get 12 different bills over the course of six months, and some might not even be priced in network.”

McNeese says that can be a huge hassle, and a nightmare.

“Knowing prices ahead of time on a transparent basis, and knowing that you’re not going to get a surprise bill later on, is so important,” McNeese says. “A lot of these costs come out of people’s pockets anyways due to high deductibles, so to know exactly what the costs are going to be has a tremendous value. In addition, patients can also shop around for the best prices.”

“With transparent pricing, there’s no cloak between the buyer (self-insured employee) and the seller (ASC),” Kempton says. “I want ASCs to know that the employer is the one footing the bill; ASCs should give self-insured employers a good deal because they will pay quickly, and in cash, but in return, the employers want the best price possible.”

McNeese says that transparent pricing will also lead to more competitive pricing in the ASC market.

“If more self-insured employers adopt these surgery centers as a preferred vendor, it will incentivize the employees/patients to use them instead of a hospital and save them money,” McNeese says. “It also benefits the physicians and surgeons to adopt the transparent bundled pricing approach because it helps patients and employers identity the best competitive rates. In addition, they’re getting paid the same amount of money – if anything, they’re getting paid more because of the increased volume.”

In order for employers and ASCs to come together, avid marketing efforts from both sides are necessary.

“Providers at ASCs need to start meeting and greeting with self-insured employers, and they can do that by going to conferences and tradeshows, and marketing to employee groups in the neighborhood where the facility is located,” Brooks says. “Knock on doors, and invite local employers to come over and see how you operate.”

Brooks says the biggest difference is that the ASC isn’t marketing to other providers, it’s marketing to self-insured employers.

“The ASC is working with those who are paying the claims, and it’s not the patients or a doctor,” Brooks says. “It’s the plan sponsor (the employer) and the TPA. You have to follow the money.”

Traditionally, Brooks says that surgery centers marketed and catered to the doctors that brought cases to the ASC. It’s important to note that when a self-insured employer brings a case to an ambulatory surgery center, the case belongs to the center, not an individual provider that operates within the center.

“You want to refer the case to the center so that the doctor cannot move the case to a hospital or a competing surgery center down the street,” Brooks says. “The surgery center owns the case, because they went through all of efforts to get the case. But everyone still wins, because the facility gets to do the procedures, and the doctors are grateful to get a case that they may not have had.”

McNeese says that ASCs contracting with self-insured employers is becoming quite popular, even though it’s not mainstream yet.

“It’s definitely growing, because it’s the best-in-class surgeons doing this,” McNeese says. “You have to have a lot of confidence in your work, organization and outcomes, and have financial control of your center to know what your costs are, manage them and post the prices online. If physicians would take this step, I think they’ll see a lot of increased volume, they’ll get paid more quickly and they’ll have happier patients.”

Brooks says he also thinks that it’s very valuable for surgery centers to go through these kinds of initiatives.

“If an ASC can demonstrate that they’re a lower cost point and better quality of care than a hospital, then they’ll win cases more often than before – that’s every reason to want to know who the major self-insured employers are in the marketplace, and develop a good relationship with them,” Brooks says. “It’s a symbiotic relationship that’s good for everyone: employers get a good price, employees/patients receive good quality care and it helps to keep cases in your center, instead of physicians taking them to the hospital.”

“Price transparency is counter-intuitive, but it’s a win-win for everyone involved, except for the hospitals; they’re already losing market shares from this pricing strategy,” McNeese says. “But many patients, employees, employers and TPAs are unaware of this, and it can be hard to fully identity all of these opportunities.”

“ASCs have to come up with a fair and reasonable market price and bundled rates, make it transparent and promote it like crazy to the TPAs and employers in the marketplace,” Brooks says. “Without making it a two-way street for the referrals, ASCs will struggle to keep cases there.”

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 orBlayne@AmbulatoryAlliances.com

 

 

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