15th Annual Spine, Orthopedic and Pain Management-Driven ASC Conference Total Joints and Opportunities in ASCs: Key FactorsThat Impact Payor Contract NegotiationsJune 22, 2017

Objectives

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Review of Current Environment

Migration of Total Joint (TJ) Surgery

Getting Prepared

Key Factors That Impact Strategy and Negotiations

Implications on Hospitals

Hospital ASC JV versus Physician-Owned JV

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Review of Current Environment

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Payor Environment

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Important Facts

The payor environment in the U.S. is changing and extremely complex.

Virtually no two payors pay providers equitably or use the exact payment system in any given market.

Providers that do not understand the cost of their business relative to a payor’s methodology can easily go out of business.

Inadequate reimbursement and payor dominance motivates consolidation among providers.

Changing payment methodologies enables payors to reduce reimbursement without negotiating a new contract.

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Payor Environment (continued)

Access to reimbursement is becoming limited without a payor contract due to benefit designs targeted at changing consumer behavior.

The growing Medicare population increases the need for enhanced reimbursement rates from commercial payors.

Understanding cost is critical to negotiating reasonable and adequate reimbursement.

Payors are working with employers to reduce premiums by limiting access to high-dollar, out-of-network providers and encouraging price sensitivity among employees.

Payor consolidation is continuing and diminishes provider ability to negotiate rates.

Traditional fee-for-service reimbursement is diminishing.

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Migration of TJ Surgery

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Inpatient HOPD ASC

Advancement of clinical technologies that allow smaller incisions and shorter stays, enabling higher-acuity cases to be performed safely in the ASC setting

Medicare and commercial payor cost pressures

Physician motivation—finances and efficiency

K e y D r i v e r s

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Extended Recovery Care Licensing

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Extended stay licenses enable the migration of hospital-based surgery to ASCs.

NOTE: Extended-stay license considered in 2015 legislative session: New Hampshire, Washington, and Wyoming.

Federal Medicare reimbursement is generally limited to stays of no more than 23.59 hours in ASCs.

Some states have a separate license for extended-stay recovery care centers that allow patients to stay longer than the ASC-allowed time of 23.59 hours.

Extended-stay recovery care centers are typically part of an ASC with a separate license and are often allowed to keep patients for 72 hours.

Arizona Colorado Illinois Nevada

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Getting Prepared

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Payor Due Diligence

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» Do your physician users have a contract with the payor?» How much eligible case volume does each payor represent?» Does the payor’s ASC methodology reimburse for TJs? » Are there any other payors that allow TJs that you are already

contracted with? » What information can you use from CMS or workers’ compensation

to present as examples to the commercial payor?

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Medicare TJ Rate Review

TJ Rates in ASCs and Trends2017 Changes

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2016 CPT Code

2017 CPT Code 2017 Description

2016 Medicare ASC Rate

2017 Medicare ASC Rate

Difference (dollars)

Difference(percentage)

24361 24361 Reconstruct elbow joint $7,886.65 $12,514.27 $4,627.62 58.7%25446 25446 Wrist replacement $7,886.65 $12,312.74 $4,426.09 56.1%24363 24363 Replace elbow joint $7,886.65 $12,122.48 $4,235.83 53.7%25442 25442 Reconstruct wrist joint $7,886.65 $12,106.58 $4,219.93 53.5%24371 24371 Revise reconst elbow joint $7,886.65 $11,683.64 $3,796.99 48.1%23616 23616 Treat humerus fracture $7,886.65 $11,357.49 $3,470.84 44.0%27443 27443 Revision of knee joint $3,532.70 $4,981.42 $1,448.72 41.0%25443 25443 Reconstruct wrist joint $2,486.22 $3,817.22 $1,331.00 53.5%26531 26531 Revise knuckle with implant $2,486.22 $3,683.89 $1,197.67 48.2%25445 25445 Reconstruct wrist joint $2,486.22 $3,609.13 $1,122.91 45.2%25449 25449 Remove wrist joint implant $2,486.22 $2,651.09 $164.87 6.6%26536 26536 Revise/Implant finger joint $2,486.22 $2,651.09 $164.87 6.6%25332 25332 Revise wrist joint $1,339.58 $1,219.54 $(120.04) -9.0%25447 25447 Repair wrist joints $1,339.58 $1,219.54 $(120.04) -9.0%25441 25441 Reconstruct wrist joint $7,886.65 $7,721.01 $(165.64) -2.1%25444 25444 Reconstruct wrist joint $7,886.65 $7,575.44 $(311.21) -3.9%24366 24366 Reconstruct head of radius $7,886.65 $7,464.57 $(422.08) -5.4%24587 24587 Treat elbow fracture $7,886.65 $7,159.04 $(727.61) -9.2%27446 27446 Revision of knee joint $7,886.65 $7,156.50 $(730.15) -9.3%24362 24362 Reconstruct elbow joint $7,886.65 $7,138.73 $(747.92) -9.5%27442 27442 Revision of knee joint $7,886.65 $7,117.15 $(769.50) -9.8%24370 24370 Revise reconst elbow joint $7,886.65 $6,887.37 $(999.28) -12.7%27441 27441 Revision of knee joint $7,886.65 $4,981.42 $(2,905.23) -36.8%

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Assess ASC Value in the Market

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» How many hospitals are there in the market?» What value does the surgery center provide to the payor’s network?» How many other ASCs are there in the market, and are any others

performing TJs? » What makes your surgery center different?

› Doctors› Special equipment› Multispecialty versus single specialty

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What Information Do You Need?

» Hospital volume that is ASC eligible?» Physician information?» Hospital(s) where cases will migrate to or from?» CPT code evaluation: what codes are on the approved payor list

versus Medicare? » What is the overall average cost per case of providing TJ surgery,

including direct, fixed, and capital costs?» Are there any notable cost variations amongst physicians: implants,

disposable supplies, etc.?» Capital cost requirements? » Outcomes data from other payor experience?» What other information about TJs in the ASC setting may help a

payor approve new codes?

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Clinical Factors Enabling TJs in an ASC:Information for Medical Directors

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Advances in Anesthesia» Decreased postoperative recovery time

› N&V modalities/multimodal approach » Pain management modalities: a multimodal approach

› Regional blocks› Perioperative medication regimen

› Preoperative holding: Preemptive analgesia administered (i.e., 1,000 mg acetaminophen IV)

› Intraoperative: Local anesthetic ± steroid type medication injection at surgical site

› Post-anesthesia recovery: › Variety of agents with different mechanisms of action to

provide both local and systemic pain relief (i.e., acetaminophen, steroids, ketorolac: oral agents after patient awakens to minimize or avoid parenteral opioids)

› Pain pumps (elastomeric versus electronic)

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Clinical Evolution of TJs: Information for Medical Directors

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Advances in Technologies/TechniquesAnterior Approach Total Hip Replacement» Tissue sparing means less pain, faster recovery, and improved mobility

(approach between the muscles and tissues without detaching them from the hip or thigh bones, sparing the tissue from trauma).

» Keeping muscles intact may also help prevent dislocations.» The approach causes fewer restrictions during recovery—patients can more

freely bend their hip and bear full weight immediately or soon after surgery.

Robotic Technology: Total Hip and Total Knee Replacement» Precision in image guidance and robotic-assisted surgical systems verifies

anatomy and guides instruments.» Accurate implant alignment allows more natural feeling in the joint and

reduction of possible early dislocation.» Some case studies have shown decreased operating times of 15 to 20

minutes in unicompartmental knee replacements with robotics.» Robotic technology allows arthroplasty outcomes to be highly reliable.

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Key Factors That Impact Strategy and Negotiations

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Payor Trends

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» The opportunity to collaborate with payors may be higher in less saturated markets.

» Payor market share is an important consideration.

Market Share

Market trends: West Coast is more progressive than East Coast regarding approval and migration of surgery to ASCs.» Managed care, IPAs, and HMOs » Kaiser Permanente and Group Health

Market Trends

» Text

Geographic Variations

National versus regional payors:» National payors may still have regional market differences.

The West Coast is more progressive than the East Coast.

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Develop a Strategy and Demonstrate Value

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Determine the ASC volume that can shift from the hospital.Present concerns with facts relative to reimbursement.Collect EOBs to demonstrate the cost in the hospital setting versus ASC proposed rates.Quantify the value to the payor.

Build a Business Case and a Relationship

Address Existing Business Concerns

If you are subsidizing the payor, stop!Do not do TJ cases without negotiating rates.Educate the payor about the implications of payment methods and prove your case for alternatives.Identify physician champions to communicate payor medical directors.

Develop a Strategy and Demonstrate Value(continued)

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First contracts are the most important.Actions speak louder than words.Do not subsidize the insurance company.

Only so many losses will be made up on volume.Provide hospital volume by surgeon that will move to the center.Provide the total projected savings to the payor, as well as the benefit of the contract.

Do Not Do Cases That You Will Lose Money on Until Contract Rates are Negotiated and in Place

Provide Data Carefully

Use cost data when needed to communicate rate needs to the payor.Provide proof of inadequate reimbursement.Demonstrate savings to the payor in total dollars.Demonstrate the opportunity to grow business with new contract rates.

HOPD Comparison to ASC TJ Reimbursement

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CPT/HCPCS Code Description2017 Q1 Area-Adjusted Rate

HOPD 2017 Area-Adjusted Payment Rate

ASC Medicare Rate Percentage Difference to HOPD Rate

23616 Treat humerus fracture $11,357.49 $14,704.13 29%24361 Reconstruct elbow joint $12,514.27 $14,704.13 17%24362 Reconstruct elbow joint $7,138.73 $9,561.23 34%24363 Replace elbow joint $12,122.48 $14,704.13 21%24366 Reconstruct head of radius $7,464.57 $9,561.23 28%24370 Revise reconst elbow joint $6,887.37 $9,561.23 39%24371 Revise reconst elbow joint $11,683.64 $14,704.13 26%24587 Treat elbow fracture $7,159.04 $9,561.23 34%25332 Revise wrist joint $1,219.54 $2,438.34 100%25441 Reconstruct wrist joint $7,721.01 $9,561.23 24%25442 Reconstruct wrist joint $12,106.58 $14,704.13 21%25443 Reconstruct wrist joint $3,817.22 $5,221.57 37%25444 Reconstruct wrist joint $7,575.44 $9,561.23 26%25445 Reconstruct wrist joint $3,609.13 $5,221.57 45%25446 Wrist replacement $12,312.74 $14,704.13 19%25447 Repair wrist joints $1,219.54 $2,438.34 100%25449 Remove wrist joint implant $2,651.09 $5,221.57 97%26531 Revise knuckle with implant $3,683.89 $5,221.57 42%26536 Revise/implant finger joint $2,651.09 $5,221.57 97%27441 Revision of knee joint $4,981.42 $9,561.23 92%27442 Revision of knee joint $7,117.15 $9,561.23 34%27443 Revision of knee joint $4,981.42 $9,561.23 92%27446 Revision of knee joint $7,156.50 $9,561.23 34%

Medicare 2017 ASC List: Posted December 31, 2016

Wage Area for 2017: Nationwide (Unadjusted)

Wage Index: 1.0000

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New Hospital Priorities

What factors have been motivating hospitals to partner with ASCs?» Site-of-service rate differentials are closing.» Physician alignment is increasing.» ASCs are capturing high-dollar business from hospitals due to material changes in

approved ASC codes and increases in payment rates on high-valued services.» The loss of TJs, as well as fear of the day when Medicare approves them is driving

hospitals to entertain new relationships and enter into ASC JVs with physician partners.

How do hospital JVs with ASCs impact negotiations with payors? » Hospitals present significant voice at the negotiating table.» Hospital control of contracts is about the “sweet spot” to support migration.» There are opportunities to enhance the value of bundled payments and shared

savings.

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Health systems are focused on incorporating ASCs into their networks.

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Why are TJs Impacting Motivation for Hospital ASC JVs?

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Value

Hospital Reimbursement

$30,000–$60,000+

ASCVolume

Eligibility

ASC CostASC

Reimbursement$15,000–$30,000

» ASC access to Medicare TJs is limited but expected to grow.

» Commercial payors are increasing approvals for TJs.

» Extended stay recovery centers enable growth.

» ASCs are partnering with payors to seek opportunities to move volume.

» ASCs present significant value opportunity for payors and employers.

» ASCs want to be sure patients have positive experience and favorable outcomes.

» Value proposition to payors is critical to ASC success.

» Hospitals have increased pressure from payors and employers to demonstrate cost savings.

» Migration of high-revenue TJ cases poses significant threat to hospitals.

» ASCs must be part of a health system’s long-term strategy.

» ASCs understand their cost.» Value proposition is critical to

the success of an ASC.» Hospitals cannot compete with

ASCs on cost and the increased long-term threat of migration.

» ASCs present an opportunity for participation in bundled payments and an increased value to the health system.

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ASC JV Structures Payor Negotiation Implications

» Physician JV must collect data to demonstrate value compared to hospital.

» ASC will likely be compared to other ASCs in the market, regardless of case mix.

» Negotiations may be more limited if other ASCs have already signed contracts.

» Business case will be most successful if supported by EOBs.

» EOBs may be difficult to capture.

Physician JV

» Ownership structure can have a material impact on payor contracting control.

» Larger equity to hospital partner may present physician partners with greater opportunities in total value of contracts.

» Health system/hospital can provide factual information on savings and provide payor with rate comparisons when in majority position.

Hospital Physician JVs

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Demonstrating Value for an Effective Negotiation

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Scenario One: ASC Physician JV Partnership

Scenario Two: ASC Hospital ASC JV Partnership

Hospital Contract DRG Rate$40,000

$16 millionHospital Total Cost to Payor

Hospital Volume That Can Move to ASC400 cases per year

ASC Negotiated Rate$20,000

ASC TJ Projected Cost to Payor$8 million

ASC TJ Savings to Payor$8 million

Hospital Contract DRG Rate$40,000

$16 millionHospital Total Cost to Payor

Hospital Volume That Can Move to ASC400 cases per year

Hospital JV ASC Savings Rate at 25%$30,000

Hospital ASC JV Total Cost to Payor$12 million

Hospital ASC JV TJ Savings to Payor$4 million

Payor Relationships and Communication

» Focus on and maintain a positive relationship with the payor.» Understand the payor’s limitations.» Communicate the payor’s limitations to the provider.» Present opportunities and the business case to the payor.» Identify alternative payment methods and logic that can be administered by the

payor while addressing the provider’s needs.» Follow the chain of command in the negotiation process.» Provide data that supports the need for rates and or payment methods.» The payor is your customer.» Always ask for more; you won’t get more unless you ask!

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Questions&Discussion

Naya Kehayesnkehayes@ecgmc.com

206-689-2200

Matt Kiltonmkilton@ecgmc.com

206-689-2200

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