1. 20 th Annual Ambulatory Surgery Centers Conference Managed Care Contracting- 10 Key Steps I. Naya Kehayes, MPH, Managing Principal & CEO Amy Coletti, MHA, Manager September 4, 2014

2. 2 Key Steps 1-5: Getting Started

3. 3 Before Getting Started… Important Information: Please be mindful that payor contract terms and rates are confidential. As such, we appreciate your discretion and effort to refrain from asking Payor-specific questions related to contract terms and payment rates. This session will focus on general information related to payors.

4. 4 Step 1 – Assess Payor Value Do your referring surgeons maintain professional contracts with the Payor? Will alignment with Payors enhance access? Will alignment with IPAs enhance access? Does a contract represent an amount of revenue that is economically feasible to provide services; revenue per case?

5. 5 Step 1 – Assess Payor Value How much volume does each Payor or IPA represent? What is the overall average cost per case of providing surgery? What is the average net rev /case represented by the contract? Does the value of the contract represent a loss? How does the Payor or IPA compare against other Payors you are doing business with in the market?

6. 6 Step 2 - Evaluate Payor Mix Ranking amongst Payors – What percentage of business does each Payor or IPA represent? Volume Charges Receipts How does one Payor compare to others?

7. 7 Step 2 – Evaluate Payor Mix What product lines are you contracted for with the Payor? – All Products – Commercial Only – Medicare Advantage – Medicaid Advantage – Workers Comp & Auto – Exchange Products Tracking Payor mix at the product line level? – HMO – PPO – IPAs – Medicare / Medi-Cal – Exchange – review membership with payor

8. 8 Step 2 – Evaluate Payor Mix Focus on the largest Payors & tracking product mix – Does your largest Payor have different reimbursement by product? – If applicable, are there variances to in state plans vs. out of state plans ? Are you tracking lost cases if you are not participating in all products?

9. 9 Step 2 – Evaluate Payor Mix Existing volume vs. New volume? Why? Can you access new surgeons if you are aligned with a Payor’s contracts and products? How do the local IPA referrals and contracts impact volume? Are you losing “to-follow” cases if you do not participate in all products? How will new volume impact cost and revenues?

10. 10 Step 2 – Evaluate Payor Mix How do local IPAs impact your case mix? Do you have access to local surgeon referrals? Do you know when the IPA contract vs. the Payor contract applies? Do you have access to members without an IPA contract? How do health systems impact your contracting?

11. 11 Step 3 – Assess ASC Potential Value in the Market How many other ASCs in the market? How many hospitals in the market? What makes your surgery center different? – Surgeons – Special Equipment or capabilities – Multi-specialty vs. Single Specialty What value does your Surgery Center provide to the Payor’s network?

12. 12 Step 3 Assess ASC Potential Value in Market California marketplace considerations that impact ASC value: – Geographic consideration – Health system mergers and acquisitions – Abundance of IPAs

13. 13 Step 4 – Evaluate Case Mix What is your case mix? – by specialty – further categorization within subspecialty; i.e. orthopedic hand vs. knee vs. foot & ankle – cases vs. procedure counts – Medicare mix vs. Commercial mix

14. 14 Step 4 – Evaluate Case Mix Does your center perform cases with extraordinary cost that need to be addressed in negotiations? Has your center avoided performing cases with extraordinary cost due to limitations in contract reimbursement? What is your current and potential high cost case mix High cost case examples: - Orthopedics: ACLs, Shoulders, Total Joints, Open Reductions - Spine: Laminectomy & Laminotomy as well as Cervical and Lumbar Fusions - ENT: Balloon sinuplasty, BAHAs, Cochlear

15. 15 Step 4 – Evaluate Case Mix High cost case examples: Orthopedics: ACLs, Shoulders, Total Joints, Open Reductions Spine: Laminectomy & Laminotomy as well as Cervical and Lumbar Fusions ENT: Balloon sinuplasty, BAHAs & Cochlear Implants Pain: Neuro and spinal stimulators GYN: Hysterectomies & Ablations General: Lap Hernias, Lap Choles, Breast Reconstruction Ophthalmology: Retina, Corneal Transplants

16. 16 Step 5 – Assess Payment Methodologies What questions should you ask the Payor about payment methodologies? -Current Medicare APC vs. former Medicare groupers? -What Year APCs or Groupers? -Area Adjusted vs. National? -Date of Publication -Multiple Procedure Logic vs. Additional Levels? -Implants? -High Cost Supplies -Flexibility with payment method? -Carve-outs?

17. 17 Step 5 – Assess Payment Methodologies Why is this critical to your success? -Empowers you to collect the data and structure a proposal for the services provided -Reduces timeline for negotiation -Asking Payors for a method or logic they cannot administer is typically a waste of time

18. 18 Step 5 – Assess Payment Methodologies Review the contract language to confirm rates and clarify payment methodology Common Pitfalls: 1)Payor provides fee schedule sample 2)Multiple procedure logic is not defined in the contract terms 3)Groupers are missing 4)APC year and weights are not defined 5)Implants paid according to payor payment policy What should you do when a Payor contract does not provide clarity on reimbursement terms and payment provisions? Negotiate the language to ensure clarity; otherwise you may not get paid what you “think” you negotiated

19. 19 Why does negotiation take so long?

20. 20 Source: Scott Adams. Dilbert.com. September 16, 2007.

21. 21 Key Steps 6-10: Adding New Services

22. 22 Step 6 – Consider Managed Care Impact Early Are you adding new specialties? Are there any other ASCs in the market performing the surgical cases you are trying to add? Do you have a good relationship with the Payors? When was the last time you negotiated with the Payor? Are the cases you are adding approved for the ASC setting by the Payor? What are your surgeons expectations?

23. 23 “Great news, John, I just spoke with 2 spine surgeons who can start bringing cases here next week. Can you check our contracts and let me know how the reimbursement looks?"

24. 24 Step 7 – Adding New Service Lines Are you targeting new services that will move out of a Hospital or out of another ASC? What Payors can you immediately start working with to gain experience with the new cases? What new services / specialties work well with existing contracts? Potential for lost cases from current surgeons? Are you currently out-of-network with any Payors?

25. 25 Step 8 – Payor Due Diligence Objectives: – Does the payor have interest in expanding the relationship? – Will the payor contract with you if you are out of network? – Will the payor open a contract in the middle of a term? – Will the payor restructure the contract to enable the ASC to expand business? – Does the new service line really “save” the payor money when you move it out the hospital? – What do you mean, spine won’t save us money in the ASC?

26. 26 Step 9 – Building a Business Case Develop a Business Case: – Volume How much can move to the ASC? Will you really capture all of the physicians volume? Break even volume? How long will it take to move volume? ASC O.R. Capacity – Identify physicians – Where are the cases moving from? HOPD Inpatient Other ASCs – Verify CPT Codes and Code Combinations

27. 27 Step 9 – Building a Business Case Develop a Business Case: – ASC Cost Capital expenditures Staffing Implant cost – Preference cards – Vendor quotes – Implant discounts Total operating expenses attributed to new services – Protocols Patient Selection Recovery Care Extended Recovery Discharge Criteria

28. 28 Step 9 – Building a Business Case Develop a Business Case: – You may need to talk to the Medical Director – Do you have experience with other Payors where you can show outcomes? – How will you track outcomes of new services that move from hospital setting to ASC setting?

29. 29 Step 9-Building a Business Case What considerations will the Payor review? – Will adding the new service require the Payor to change their medical policy? – What is the impact on the market ? – Does your ASC really represent a savings to the Payor?

30. 30 Step 9 – Building a Business Case What are the Objectives of the Business Case? Demonstrate that the service can be provided with high quality outcomes Prove cost effectiveness Demonstrate significant savings to the Payor

31. 31 Step 10 – Other Considerations due to Current Environment How does the Environment Impact your Success with the Payor? Mergers & Acquisitions growing Hospital / Health system consolidation Out of Network – Diminishing life cycle

32. 32 Step 10 – Considerations due to Payor Environment ASCs are being pressured to become part of a health system What should you think about? Do you need to be a part of a health system? Are your surgeons becoming employed by the Health system? How does this impact your ASC? Opportunity to participate in ACO’s?

33. 33 Step 10 – Other Considerations due to Current Environment Is the Payor interested in ASCs maintaining independence? Demonstrate to the Payor you can maintain stability as an independent ASC for an extended period of time What’s preventing you from being the best alternative for outpatient surgery? What is your opportunity with ACOs?

34. 34 Step 10 – Other Considerations due to Current Environment Out of network access to reimbursement is extremely limited and its life cycle is diminishing – High Deductibles – High Co-Pays – ASCs are being audited by Payors – Employers have identified that out of network benefits may be the cause for their increased healthcare cost – Payors have progressed as to what they will allow an ASC to do in network

35. 35 Step 10 – Other Considerations due to Current Environment Payors are progressive in California Explore opportunities with the Payors How do you get the Payors attention? – Present your Business Case! – Review with Senior Management – Physician meetings with Medical Director – Demonstrate value to the Payor’s network Developing a partnership with the Payor will position your ASC for success!

36. 36 QUESTIONS?

37. 37 Naya Kehayes – nayak@eveia.comnayak@eveia.com Amy Coletti– amyc@eveia.comamyc@eveia.com Eveia Health Consulting & Management 295 NE Gilman Blvd, Suite 201 Issaquah, WA 98027 (425) 657-0494 www.eveia.com