EXECUTIVE SUMMARY

Payers have been fighting back against ASCs relying on out-of-network health plans.

  • Some payers institute daily maximums for out of-of-network surgery.
  • A few payers have sued ASCs over charging payers proportionately more for out-of-network surgeries than they require patients to pay.
  • Fewer health plans provide out-of-network benefits.

Out-of-network health plans are not what they used to be for surgery centers. Payers have been fighting back against centers charging them more and patients less. Sometimes, this fight has gone to court, and payers have won millions of dollars from ASCs.

The long-time trend of ASCs not working with health plans is eroding. Surgery centers need to prepare for change, says Andy Rosen, vice president of business development at Surgery Partners LLC in Carlsbad, CA.

“Traditionally, many centers didn’t participate in any health plans and were strictly out of network,” he explains. “They charged very high rates, maybe five or six times what contract rates were. Often, centers didn’t charge the patient the remaining amount, so they were making quite a bit of money by not contracting with payers.”

But payers began pushing back. Some payers instituted daily maximums — they will not pay more than a small amount for out-of-network surgery. Other payers have sued providers. “Networks are becoming narrow, and there are major changes from a payer perspective,” Rosen says. “[Fewer] plans have out-of-network benefits. In addition, payers are seemingly less willing to pay them.”

This trend accelerated in 2016 when a managed healthcare company won $37.5 million in a lawsuit against a San Francisco-based ASC company. The healthcare company claimed the ASC company’s physician investors were sending out-of-network patients to their San Francisco-area surgery centers to charge their payers more. But they were waiving the extra cost to patients, and a jury agreed that this was wrong, Rosen says.

ASCs that continue to rely on out-of-network income soon will find this is not a sustainable growth plan. Instead, Rosen suggests, ASC leaders should develop strategies to improve their contracts with payers.

Make the numbers work in-network. “Do the math and figure out how long you can really survive. Then, start doing the things you need to do to come in network,” Rosen offers. “You could increase volume, recruit more doctors, get paid less.”

ASCs could determine which cases their surgeons are handling at other centers because of the patients’ lack of out-of-network benefits. These are surgeries that potentially could be brought to the surgery center under in-network contracts.

“Then, they have to negotiate with payers and see what rates they can get,” Rosen says. “When the numbers make sense, it’s time to come in network with a payer.”

For example, in California, many surgery centers have moved in network with Blue Cross/Blue Shield because the insurer stopped paying for out-of-network services, Rosen notes.

“The vast majority of what we do is in network,” Rosen says. “In some places, we have some out-of-network payers, but the change to in network is a transition that’s happening now.”

Collect data when negotiating with payers. Look at current contracts and make sure they are updated, Rosen advises.

“It’s important to use real data. Payers are not going to give you money just because it’s a nice day,” he says. “You have to show a real benefit. Look at a case you can’t do because you’re not paid enough, and it’s being done in the hospital.”

Collect data on what the ASC would need to charge to do this surgery, what the hospital already charges, and show how the payer would save by undergoing the procedure in the ambulatory setting.

“The really expensive thing in surgery, especially orthopedic surgery, is implants ... sometimes, you are paid less than the implants cost,” Rosen says. “If you negotiate a contract and carve out the implant, it is critical.”

The key is to show payers that they will save money by paying the ASC more. Trying to negotiate without data is fruitless, Rosen cautions.

“A lot of time, payers don’t have the data and don’t understand what you’re saying, or you’re not reaching the right person in the organization,” he explains. “Bring data showing them all of the cases you could do in the ASC if you could afford to do them. Show them the benefit of giving you an increase.”

Consider alternative payment models. ASC leaders should study alternative payment models, such as bundled payments. They also should consider participating in narrow networks in which they are paid less, but are guaranteed a certain volume of patients, Rosen offers.

Some ASCs will work with hospitals and medical groups that have capitation risk for a population of patients. The health system might contract with an ASC to perform surgeries that would be too costly in the hospital’s operating room and tie up space the hospital needs for other surgeries, he explains.

“It might be cheaper for the hospital to contract out colonoscopies to the ASC. These are a terrible use of the hospital OR, but they can be another revenue source for ASCs,” Rosen says. ASCs also can explore technological advancements that make it more feasible to add surgeries in the areas of joint replacement, spine surgery, cardiology, urology, and maxillofacial surgery, Rosen adds.

Review all partnership agreements. “One of the issues you see with independent surgery centers is they have nonacting partners,” Rosen says. “They need to make sure they have appropriate non-compete clauses in operating agreements to prevent their surgeons from investing in other surgery centers.”

These agreements should be broad enough to protect the ASC, but not so broad that it is unenforceable, Rosen advises. “If you say the surgeon can’t own another ASC in the state of California, a court would say that is too broad and not enforceable.”

Also, if partnership agreements or an ASC’s requirements say one thing, it has to be enforced for all partners. “If you don’t enforce these for some people, it becomes legally impossible to enforce for anyone else,” Rosen says. “If you have a noncompete clause, don’t say, ‘I like this person, so I’ll ignore it,’ and then hold someone else accountable. The court will say you never enforced it before.”