Blueprint for Success

1. Blueprint for Success Effectively Negotiating Third Party Physician Payer Agreements Session 3 SWOT / Proposal Letter Preparation and Contract Negotiations

2. Objectives • By the end of Session 3 participants will be able to: • Perform a SWOT analysis of your practice to identify strengths, weaknesses, opportunities and threats to your practice in your market with each payer • Apply findings of SWOT and prepare persuasive payer proposal letterthat highlights their strengths and opportunities to bring added value to the payer network • Conduct contract negotiations • How to handle various payer responses • Learn how to handle payer objections and shut downs • Handle escalations and other options

3. AGENDA • Review Class 2 responses to quiz • Learn how to prepare a highly impactful proposal letter • Learn how to negotiate and handle payer objections, including shut downs during negotiations • Learn how to escalate and consider other options (If shut down)

4. Negotiations Process • Escalate to Sr. Level Manager • Consider Out of Network Option • Analyze Counter • Negotiate until agreement isreached • Data Analysis • Proposal Letter • Make Initial Contact with Payer • Negotiations • Completed • Monitor Claims • Renegotiate Phase 3: Escalate and consider options Phase 1: Preparation Phase 4: Monitor and Renegotiate Phase 2: Negotiate

5. S.W.O.T. – Identify Saleable Solutions and Potential Obstacles to Getting an Increase

6. Healthcents Quadrant Payer Analysis Pay High Conservative 15%-25% Ultra-Conservative 5%-15% Ultra Aggressive 35%-45%+ Aggressive 25%-35% Pay Low Not open to negotiate Open to Negotiate

7. Examples… • Payer A: We are negotiating with a very large commercial payer who is rarely agreeing to increases, very difficult to negotiation with. We want to stay in Network. The agreement is, overall, reimbursed “medium-high”, around 140% of Medicare in our locality • Payer B: This is a small payer, our reimbursement is very low, <100% of Medicare overall. We have assessed our out of network position using Healthcents’ RevolutionSoftware and we would need a 40% increase to break even in network based on our out of network modeling assumptions. This payer is often easy to negotiate with and, even if they aren’t we are comfortable going “out of network” if we don’t get an increase What do we ask for using the Healthcents’ Quadrant Analysis as a guide?

8. Healthcents Quadrant Payer Analysis Pay High Conservative 15%-25% Ultra-Conservative 5%-15% Payer A Ultra Aggressive 35%-45%+ Aggressive 25%-35% Payer B Pay Low Not open to negotiate Open to Negotiate

9. Proposal Letter “If you don’t know where you are going, any road will get you there”. – Lewis Carroll • A well prepared proposal letter sets the table for negotiations • Three Sections: • Letter Body – the narrative that makes the case for your practice’s value to the payer network. • Appendix A: Fee Schedule Proposal – the result of your analysis that details your requested reimbursement rates for your new fee schedule • Appendix B: List of Physicians and Specialties and Sub-specialties

10. Putting the Proposal Letter Together • State the purpose and rationale • Address Payer Concerns • Close the “sale” and get the payer on the hook • Package a fee schedule amendment to your letter • Deliver and evaluate

11. State the purpose and rationale • State the reason for contact and a clear rationale in the opening paragraph: I am contacting you on behalf of PRACTICE NAME to initiate a renegotiation of their current fee schedule. PRACTICE epitomizes “patient centered care” and has been doing so for the past XX years. In the past 12 months, their YY physicians provided care to ZZ PAYER covered lives, receiving $$$ for rendered services.

12. Address Payer Concerns • Network coverage, specialties, clinical efficiency = lower cost, administrative efficiency = lower cost PRACTICE is the largest, most comprehensive urological practice in the greater CITY/COUNTY area. They are the only practice that provides SPECIAL PROCEDURES. PRACTICE also provides extensive Female Urology services. Their professional specialties include LIST SUB OR SPECIFIC SPECIALTIES. They also provide the following in-office special procedures (LIST AVAILABLE OFFICE BASED PROCEDURES, avoiding ASC and hospital expenses to your members).

13. Close the “Sale” • Closing statement – restate the purpose of the letter Following a review of the existing fee schedule, PRACTICE has found that the reimbursement from your organization is not competitive and does not sufficiently reimburse the practice for the high-quality, coordinated care provided to your members. PRACTICE is committed to remaining in PAYER network and must do so at rates that make good business sense. To this end, PRACTICE has included, in Appendix A, a reasonable fee schedule proposal commensurate with the cost and value that PRACTICE provides to your members and to your network.

14. Close the “Sale” (continued) • Closing statement – call to action I look forward to reaching a mutually acceptable fee schedule agreement. Your written reply to this proposal is requested by no later than DATE (3 weeks from date of proposal). In the meantime, if you have any questions about the practice or the attached proposal, please do not hesitate to contact me. I will be in touch this week to be sure that you received this letter and to answer any questions that you may have • Note, In an appendix B (Appendix A is the fee schedule appendix), List all Physicians in the practices and their specialties / sub-specialties

15. “Across the board request” Appendix A Example

16. “Define your fee schedule” Appendix A example

17. Initiate Contact and Follow Up • Initiate Contact with the Payer • Identify individual at payer to communicate with (Must be in the contracting department) • If you are required to make contact through a general number/mailbox you will need to follow up weekly to get to an individual who you can work with to negotiate. • It is not uncommon for payers to take up to 12 weeks or more to reply to a proposal. During that time, it is important to follow up on a regular basis (weekly) to keep your proposal front in their mind.

18. Consider this… • What do physicians need and want from payers? • What do payers want from physicians and employers? • What do employers want from physicians and payers?

19. What’s important?, “The 3 legged stool”? • Physicians: practice the art of medicine and maximize reimbursement while doing so • Employers / Patients: value, control of costs, provision of wellness services, great medical outcomes • Payers: reduction in overall claims costs, reduction in medical costs, performance standards. Maximize profit and maximize profits on premium payments.

20. Finding Common Ground • Positive Outcomes • Metrics, Efficiency, Effectiveness, Quality of Care • Relationships • Respect (Don’t take it personally.)

21. Efficiency (2% if >70 points) Qualitative (2% if >70 points) Quantitative (1% if >70 points) Value Based Contracting Example, part of Finding Common Ground: Follows Best Practices Guidelines 50 pts In network referrals only >2.5: 75 pts 2.25 - 2.49: 60 pts 2.0 - 2.24: 45 pts Generic Drug Utilization >90%: 75 pts 88 - 89%: 60 pts 86 - 87%: 45 pts Active E-Prescriber: 25 pts Preferred Drug Utilization >90%: 25 pts. 88 - 89%: 20 pts 86 - 87%: 15 pts Patient Satisfaction 3 stars: 25 pts 2 stars: 20 pts

22. Case Study Your practice is a six physician urology specialty group, located in a suburb of a metropolitan city. Your group logs around 13,230 encounters a year from Payer 1, receiving around $1.62M per year. Payer 1 represents 30% of your total book of commercial business. Your current weighted average of reimbursement compared to 2012 Medicare is 106%. You did your home work and wrote a proposal requesting an across the board increase of 30% on all services (Payer is in the bottom right quadrant, low payment, hard to negotiate with)

23. Healthcents Quadrant Payer Analysis Pay High Conservative 15%-25% Ultra-Conservative 5%-15% This Payer Ultra Aggressive 35%-45%+ Aggressive 25%-35% Pay Low Not open to negotiate Open to Negotiate

24. Case Study 1 (continued) More information about your Fee Schedule: • Weighted Averages of 2012 CMS by service category * = Weighted Average, ** Average

25. Case Study (continued) You just received a response saying that the payer cannot accommodate your request. Dear Provider, Thank you for contacting us. In today’s economy, everyone is working to keep the cost of healthcare and health insurance down. We appreciate your participation in our network, but cannot accommodate a 30% increase in reimbursement to any provider. Our data indicates that our rates are competitive. We review available rate data on a regular basis and make adjustments when necessary to ensure fair payment to our providers. Thank you, again. We hope that you will continue to provide valued services to our members.

26. Case Study (continued) Also Consider… This is a typical first response. The payer is counting on you giving up. Remain persistent. What is your plan for engaging the payer in an actual negotiation? What is your next step?

27. What Were the Payer’s Objections? • In current economy they cannot accommodate a 30% increase. • Working to keep cost of insurance down. • Payer 1 feels their rates are competitive.

28. S.W.O.T. – Identify Solutions to Payer’s Objections : Economy, Cost, Competitive Rates

29. Class Discussion

30. Case Study 1 (continued) More information about your Fee Schedule: • Weighted Averages of 2012 CMS by service category * = Weighted Average, ** Average

31. 1st Counter offer to Payer 1 Appendix A • Fee Schedule Proposal: • Office Based Surgical Procedures • 150% of 2012 CMS Medicare rates (vs. 116% Medicare current and 139% Regional, high revenue) • Facility Based Surgical Procedures • 150% of 2012 CMS Medicare rates (vs. 116% Medicare current and 139% Regional, high revenue) • Radiology • 110% of 2012 CMS Medicare rates (vs. 103% current and 120% Regional, high revenue) • Evaluation & Management • 120% of 2012 CMS Medicare rates (vs. 102% current and 110% Regional, high revenue) • Lab/Pathology • 100% of 2012 CMS Medicare rates • (vs. 56% current and 110% Regional, lower revenue by comparison) • Medicine / Other (Leave it out for now, very low revenue, $20,000 vs. over $1.5M total commercial revenue)

32. Outcome of Analysis of 1st Counter Offer to Payer 1

33. 1st Counter Offer to Payer 1 - Analysis • Analysis Summary: • By grouping our codes and focusing on a combination of codes that are low in reimbursement and high in revenue, we move up our revenue by over 20% by incrementally improving reimbursement on these codes • We leverage value to the payer and our practice by using an in office suite incentive • We hold back a suggestion for COLA increases and value based bonuses, can use these if we get stuck later or could have used if we thought this was our best play now

34. Our 1st Counter Proposal to Payer 1 Dear Payer 1, We received your response and are committed to continuing to work with Payer 1 to provide superlative care to your members. We share your desire to keep costs down and utilize administrative systems and clinical protocols designed to provide the most efficient care possible. As such, we are submitting the revised proposal for your consideration. We respectfully request your reply by October 5, 2013.

35. Payer’s 1st Counter Offer The payer provides the following reply to your counter offer, good news, maybe…: Dear Provider, We value your participation in our network and offer the following counter offer. If you agree, please so advise and I will send the contract for your signature.

36. Payer’s 1st Counter Offer • Payer’s Counter Offer to our offer: Increase of 2% over current for E&M Rates in each year of a 3 year term. Lab services are sole sourced through 3rd party (LabCorp), but some office based services are allowed. Rates will remain as-is. All other services remain as currently reimbursed.

37. Negotiations Process, we are “iterating” • Escalate to Sr. Level Manager • Consider Out of Network Option • Analyze Counter • Negotiate until agreement isreached • Data Analysis • Proposal Letter • Make Initial Contact with Payer • Negotiations • Completed • Monitor Claims • Renegotiate Phase 3: Escalate and consider options Phase 1: Preparation Phase 4: Monitor and Renegotiate Phase 2: Negotiate

38. Analysis of Payer’s 1st Counter Offer • Analysis reveals • Less than $10K of upside, since the only movement is E and M up 2% on a base revenue of $450K, no other change • This is not acceptable • This is a large payer agreement and they fit the profile of payer A in the following quadrant analysis • What do we do next?

39. Healthcents Quadrant Payer Analysis Pay High Conservative 15%-25% Ultra-Conservative 5%-15% Payer A (Reposition) Ultra Aggressive 35%-45%+ Aggressive 25%-35% Pay Low Not open to negotiate Open to Negotiate

40. Class Discussion What next, seem grim but…? • Payer has made an offer – door is open for further discussion • Lab and Pathology are off the table due to third party provider, but you still have some office based labs that you can do. Request a list of allowed lab procedures and rates. • What else can you do? • Fee for Service: OBPs is a most likely “win” because it saves them money when you keep their members out of the hospital/ASC. • Introduce COLA’s (Make this a 3 year deal and ask for 5% increases at the beginning of years 2 and 3) • Introduce a value based incentive proposal for each of the three years, each year should have a minimum payout of 5% of total revenue

41. 2nd Counter offer to Payer 1 Dear Payer 1, We have carefully reviewed and considered your counter offer. We appreciate that you value our network participation and have a few suggestions that are mutually beneficial so that we may conclude and accept a mutually agreeable fee schedule. 1. Our providers routinely perform several surgical procedures in the office setting rather than HOSPITAL or ASC, providing significant savings to you and your members. In order for us to continue this practice, we must be reimbursed an increased fee, including a facility fee, to compensate for the added cost to the group of providing these services. We have requested a $100 facility fee, which is reasonable and customary in our experience and will save you substantial hospital and other facility fees. 2. To lock in certainty for you, your members and our practice, we propose a 3 year term with 5% across the board increases for cost of living adjustments in year 2 and in year 3 of this agreement. 3. Attached is a performance value based metric proposal for your review. This approach insures high quality of care and a lowering of treatment costs based on the selected metrics. I look forward to your reply no later than 11/15/13. Thank You for your consideration of this proposal and for understanding the importance of keeping this key provider in your network.

42. Outcome of Analysis of 2st Counter Offer to Payer 1* * Assumes starting revenue of $1,620K

43. 1st Counter Offer to Payer 1 - Analysis • Analysis Summary: • By de-emphasizing Fee for Service increases and instead emphasizing a combination of OBP incentives, value based incentives and COLA (Cost of Living) increases, we end up with higher reimbursement by the end of Year 3 and quickly scale up revenue years 1 and 2 • We have picked areas of efficiency that usually motivate payers, i.e., office based procedures and Value Based Incentives. • We used the COLA play to lock certainty for both our practice and for the payer. Certainty = defined value • We leverage the compounding effect of the prior years’ increases (Years 2 and 3)

44. Payer’s Response to 2nd Counter Offer Payer responds to your counter offer as follows: Dear Provider, I have reviewed your counter offer with my manager and my offer of 2% increase in each year of a three year term is the best we can do. Our systems cannot accommodate payment of a facility fee for office based surgical procedures. We do not recognize differing sites of service . Payer 1 reviews utilization and applies a rate to both facility based and non-facility based services according to common utilization across the network. Further, we are not prepared at this time to administer value based incentives. We value your participation in our network and are working to keep cost to our members down. Please let me know if we can move forward based on my last offer.

45. Class Discussion What next? • Reject entirely and counter • Escalate • Look at out of network scenario

46. Process – Phase 3 You are here

47. Escalating Your Request • If possible, maintain first level negotiator as your advocate to Sr. Management. • Acknowledge efforts and express appreciation for work. • Request their help to set up conference with manager and decision maker • Set up teleconference with both first level and Sr. Manager • Look at out of network options (RevolutionSoftware Out of Network Modeler) • Work your way up the food chain, manager to regional director to Senior VP / President • Depending on outcome, you may have another counter from the payer or you may take a look at your options.

48. Completing Negotiations • Next Steps: • Get contract and check for potential issues in contract language that might effect reimbursement • This will be our first topic of session 4…

49. Process – Phase 4 Assume an agreement was reached and you received an increase. You are here

50. Summary We covered how evaluate strengths, weaknesses, opportunities and threats to your practice. We covered how to present your practice to the payer in a way that highlights value add and makes the case for increased reimbursement. We covered how to put together a complete and impactful proposal letter We covered how to negotiate and evaluate payer offers and how to handle payer objections We handled how to escalate, if necessary, and other options