Many healthcare providers in the USA have been burned by poorly written, poorly negotiated managed care contracts, nonspecific case rates, inadequate training or experience, and a lack of information about costs and the clinical knowledge of the cases.

As a former surgical nurse and managed care contracting expert, I guess I've taken for granted the insight I have into just what goes on behind the mask and the swinging doors of the surgical suite, and how to turn threats into opportunities through good contracting technique and solid Exhibits.

photo of Dr. Maria Todd Medical Tourism Consultant

 

The key is to define the beginning and the ending of an episode of care.

I have successfully contracted for IPAs, PHOs, MSOs, ASCs, and hospitals for more than 30 years. I've also audited and performed revenue recoveries from the aftermath of bad case rate contracts that gave away free Factor VIII for hemophiliacs, free twins and triplets, free stents, free days in ICU, free high cost drugs, free MRIs, free ambulance transfers, and cases that dragged on and on for a non-union of a fracture, and so forth. Case rates need to be specific and defined by CPT or HCPCS code. The surgical approach is often indicated by the CPT code, but not always.

In order to quote a fully-inclusive case rate, you need to have input from someone who understands the case, has laid out the instrumentation, knows where the wastes are in every case: wastes of consumables, time, personnel, equipment that has to be repacked and sterilized, equipment that has to remain on the shelf (implants, hardware, and the surgeon preferences. You have to know the speed of the surgeon because that is going to be important on both OR and PACU throughput and how it affects anesthesia productivity. You have to know the methods and costs of drugs for pre-and post-anesthesia care, as well as the method of anesthesia during the case.

UNDERSTANDING THE MEDICAL PART

You also need to know how many hands need to be scrubbed in. One surgeon and one scrub tech? Or one surgeon and one assistant and one scrub tech? The last thing you want to do when calculating case rates is be a miser. If your surgeon wants an extra physician pair of hands in the case, budget for it. Don't ask him or her to "make do". If on occasion he/she decides they can do the case with just the scrub tech, bank the differential for a future case when you need it and didn't budget the extra help on another case. They do work out like that more often than you think.

Next, learn about surgeon preferences: Does one surgeon like two pairs of gloves? Another likes special gloves of a different material? Special mesh? Special instrumentation? special sutures and closure devices? Different consumables?

Review their preference cards and run an inventory and supply cost by case, by approach, by surgeon, straight from the charge description master (CDM). This revealing exercise will serve two purposes: it lets the surgeon know what things cost, and it opens dialogue to revise, reduce and reformat the preference card.

DRAW FROM EXPERIENCE

For example, one day I sat with the orthopedic surgeons after observing a surgery as we always do before we finalize a contract with a participating hospital. I asked why the surgeon had a major ortho tray and a major drape pack for a shoulder arthroscopy. The surgeon said "Heck if I know... All I need is a few Army-Navy retractors, and about three other instruments. All that other stuff is a pain because it has to be counted twice, washed, repacked and sterilized. My patient is under anesthesia longer while all that counting is going on, and I could have had another done with the time wasted each day. Also, there's too many kinds of sutures on the Mayo stand, I use Silk and Prolene, but they still have stuff on there from my cases ten years ago. And, those drapes, what a pain, I wish they would just use a medium pack. Also, if they could just have certain things in the room and available with the Circulating Nurse but don't open it unless I need it, that would cut down some of this waste too!" I grinned....just like the good ole days!

Right about then, another orthopedic surgeon came over and said, "I just heard Dr. J and if you're going to change that stuff for him, I want mine changed too! Only I like those new blue gloves and I want an extra Allis clamp in my tray." I wished the OR supervisor and the managed care contracting person and the CFO were present, but the latter two probably don't know where this room is.

If you are the typical managed care contracting specialist, you may not have any idea what the heck all that was about, or its impact on costs, time, throughput, patient safety, quality, efficiency, the Post Anesthesia Care Unit (PACU), supply chain, purchasing, scheduling, and surgeon loyalty, anesthesiologist revenue and facility satisfaction. If you bill for percent of charges, you may or may not be losing money on each case. If you bill on a case rate and miss the detail, you are going to lose money...and nobody did it to you.

 

The next step is to determine who will participate in the case rate program. It is not appropriate for every surgeon, every specialty, or every case.  Outpatient case rates are the easiest to start with.

First

Select the surgeons who will participate. Find the ones who are motivated to schedule more cases at your facility because they a) are employed by the hospital or facility, b) want to do more cases, have an office in the adjacent medical office building and like to start at one hospital and follow with additional cases without having to drive somewhere else. From this pool, identify which surgeons have an ilk of efficiency, rapid throughput and get along with the anesthesia team and the nurses. From this pool, winnow down the list to those whose cases lend themselves well to bundled case rates, such as:

  • Arthroscopies
  • Bariatrics
  • Cardiac catheterization
  • Hernia repairs
  • Prostatectomies
  • Endoscopies
  • Most plastic surgery cases
  • Biopsies
  • Eye cases
  • Ear cases
  • Hand cases
  • Podiatric cases
  • Wellness and check up packages
  • Sports medicine performance clinics

Second

De-select the cases and candidates that can appropriately access these bundled rates. Stick to reasons of medical appropriateness and safety ... there are many! As a beginner, avoid particularly bloody cases. Avoid multi-operating site/-prep/-drape cases. Avoid cases with immunosuppressed and immunocompromised patients, hemophiliac patients, multiple trauma cases, burn cases, rib spreader cases, asthmatic patients, the frail elderly, brittle diabetics, CHF patients, and patients on blood thinners. You'll come back to some of those cases later on as you progress in your experience and predictability of costs, efficiency, revenue and margin satisfaction, and case volumes. Don't sweat developing a case rate for a case that is done infrequently.

Stick to cases that present opportunities for several factors, including: high-frequency, high-performance, high-margin, high-safety, quick throughput, and relatively low-complexity. If you want to step it up a notch, refine your list to cases that patients can easily travel to your facility if you offer a transparent, fully-inclusive, predictable and competitive case rate.

Third

discuss with the team that will be involved in each case, your intentions, goals and objectives. Review the cases with them. Get their input. Then go through the case preference cards, refine the "picking list" and instrumentation. Can you make changes that result in faster throughput, cost reduction, variance reduction, implant inventory reduction, and fewer wasted supplies, consumables, and less instrumentation on the operating field? Managed care contractors have no reason to know that there are three counts of every instrument, suture, tapes, and sponges during each case. They don't know about packs and drapes, and extra instrument trays, and extra backup trocars and light sources, and other things you have to have on hand ... just in case something fails in the middle of a procedure. When you have all that refined, start structuring the case proposal.

In order to build your individual case rates, start with the surgeons, the assistant surgeons, the anesthesiologist, OR supervisor, scrub tech, circulating nurse and a certified procedure coder. Choose the first case to assemble. For my example below, I've selected a knee arthroscopy procedure: arthroscopic debridement/shaving of articular cartilage (29877). This procedure is often done in combination with arthroscopic meniscectomy (29880, 29881) performed at the same session, where the procedures are performed in separate compartments of the knee. There are three compartments of the knee commonly visualized during arthroscopic surgery: medial, lateral, and patellofemoral. When reporting meniscectomy and shaving of articular cartilage performed in separate compartments of the knee at the same session, appending the -59 modifier to the second procedure will communicate that the procedures were performed in separate compartments of the knee. Sometimes depending on the payer and locality, the Correct Coding Initiative (CCI) edits call for bundling 29880/29881 into 29877.

Some payers, including Medicare in the USA recognize still another code (G0289) in lieu of 29877 with debridement in a separate compartment. The rule for billing the 29877 or the Medicare G code is that the chondroplasty has to be performed in a separate compartment for 15 minutes of debridement, which has to be clearly dictated by the physician in order to get reimbursement from the carrier. You need a coder who understands and can guide you through that level of granularity if you are to gain the most benefit from the subtleties of the different procedures and their time frames and instrumentation, which all trickles down to anesthesia time, case cost and margins. The manage care contracting person is often not the person who can serve in this role, as they are often not the one dealing with coding and billing.

Fourth

Pull a sampling of twenty of these cases that have previously been billed and paid, from a variety of surgeons, (preferably any who will be participating in this particular case rate). and determine the following:

  • Surgeon
  • Was an assistant surgeon used?
  • Anesthesia start and finish time
  • Surgery start and finish time
  • Implants/hardware used requiring pass-through reimbursement (plus markup and handling)
  • Codes billed and any historic payment anomalies, appeals, denials, or other codes billed in conjunction with these cases
  • Any perioperative lab tests ordered immediately before doing the case (e.g., finger-stick glucometry, HCG pregnancy test, if indicated, Spin Hematocrit, Urinalysis, EKG, PT, PTT, and a D-Dimer or INR for health travel patients)
  • Any pathology charges both for labs and review of any specimens obtained during the case.
  • Any intra-operative x-rays, fluoroscopy, etc, and the incremental cost for radiologist interpretation and technology use, if any

Fifth

Ask those surgeons to pull their case notes for those particular cases to determine how many post-operative visits occurred within the 90-day global period that was associated with the surgical reimbursement. This is important for both local cases and cases that will be done on health travelers. Also note if there were any supplies dispensed (braces, crutches, casts, etc. either with the case or in the post operative period, as well as any x-rays or other imaging studies taken and their billed and paid values). You'll need to reconcile those prices and costs in your case rate if it is to be "fully-inclusive". Don't forget things like CPM rental fees if indicated for your orthopedic cases such as this one.

Now you are ready to assemble all raw data. Create a worksheet for each case that includes the following details:

 

CPT CODE: 29877 (Description: Knee Surgery-Arthroscopy)

RATE INCLUDES:

  • Surgeon's History and Physical Surgeon's virtual consult [if health travel case]
  • Surgery 90 days follow-up care - limited to evaluation and management services [or the carve-out portion of it by the surgeon if a health travel case]
  • Surgical assistant, if requested
  • Anesthesiologist
  • Radiologist for intraoperative x-ray and fluoroscopy, if required
  • Pathologist gross and anatomical review and report, as required; interpretation of pre-op lab values
  • Pre-operative testing limited to: finger-stick glucometry, HCG pregnancy test, if indicated, Spin Hematocrit, Urinalysis, EKG, Pt, PTT [D-dimer].
  • NOTE: All other lab testing and pathology at default rate of X% discount from billed charges
  • Facility charges & anesthesia meds for routine procedure
  • Recovery Room charges for up to (x) hours
  • *[Pre-discharge case management conference, as applicable]
  • Repricing from individual surgical team bills to case rate
  • Medical records copy fees, if requested
  • Disbursement to individual providers from a single bundled payment

*[denotes special considerations and pricing variations on cases for health travel patients]

Excludes:

  • Any hardware or implants (Invoice cost + % handling fee + markup)
  • Fee: Facility overnight
  • Fee: Any lab tests or follow-up x-ray or pathology services not included above
  • Default rate of % of charges Emergency transfer fees by ambulance, as required
  • Pass through cost Physical therapy and DME fees, if any
  • Pass through cost Transition to inpatient status for any reason shall exclude this case from eligibility under this case rate program and revert the case back to default scheduled rates and reimbursement conditions.
  • Default rate of % of charges Price Additional when billed with 29880 or 29881 (per unit)

 

Once you have assembled the data in your worksheet, refine your price quote for further exclusions. From step two, determine who should not be eligible to use the case rate, taking into consideration outliers that can add significant extra costs, time or materials to the case or threaten outcomes or add significant medical complexity to the case. This step is extremely important because it mitigates financial risk exposure and transforms the case from specific unchecked financial risk as in most capitation agreements, and takes you "out" of the appearance of taking insurance risk without a license.

Also, it is best that you include these disclaimers up front rather than chance appearing discriminatory on a single case. Always reserve the right to decline a case for any reason in your contract, but be prepared to defend the reason as almost all contracts in all countries require some form of anti-discrimination pledge. The basis should be centered around what is medically appropriate for the patient in order to "do no harm".

For your contract with payers and consumers, the published version of each individual worksheet will serve as the Exhibit to accompany each case rate contracted by CPT (or other) code. While I have used a U.S example of Current Procedural Terminology (CPT) published by the American Medical Association, I am aware that there are various other coding sets available, but the same principles apply.

Avoid analysis paralysis and negotiate effective contracts

  • Don't try to code your entire surgical catalog all at once. Get started on your program with no more than 10 cases. Add another increment of 4-6 cases to your catalog as time goes on, and reserve the right to add cases to your initial case quotes upon notice to the payer.
  • Don't try to account for each tape and sponge in your pricing model, it's okay to make some assumptions for each case
  • Throw a small risk factor buffer into the price to cover life's little variances
  • Don't try to quote prices for services out of your direct control
  • Carve out pieces of the global case rate if the patient is going to leave the area for follow-up aftercare
  • Reserve the right to provide notice of price increases with 30-60 days' advance notice whenever necessary.
  • Contract for a look-back and adjustment period after a certain number of cases have been done to test the validity and accuracy of your price quote.
  • Don't quote case rates on cases performed only on rare occasions - grab low-hanging fruit whenever possible.

What about inpatient cases?

While the focus of this tip sheet was on creating case rates for outpatient surgeries, the same steps can be applied for inpatient case rates. You'll simply need to analyze the room and board charges and quote the case with a specific number of days included in the rate. Keep in mind that if the patient is ready for discharge in fewer days, so be it. The rate doesn't change. It is quoted as an "up to" number of days with an additional quote for additional days if needed or desired.

Expanding the case rate quotations to inpatient cases adds more acute and more complex cases to the mix, not just additional nights in a bed.

  • Special considerations for health travel cases
  • Throughout the article, I have noted some of the more obvious (to me) considerations, but you'll need to give thought to:
  • Companion traveler meals, accommodations, and limits (# of companions), if provided
  • Where to store luggage, laptops, iPads, and e-Book readers, if they bring them
  • Cost of interpreters, if required
  • Communications costs for telehealth, if required
  • Meet and greet and transportation costs to and from the airport, if included
  • Any other concierge amenities you'll include in your offer.

Conclusion

Preparation for fully-inclusive, bundled case rate pricing offer many opportunities for:

  • process improvement
  • a chance to review activity-based cost and activity-based management assumptions
  • improvement of price transparency and can reduce cost-to-collect because it facilitates pre-payment of the case, (take a credit card authorization hold for any scheduled exclusions and settle up at discharge)
  • examination and refinement of operating and contribution margins
  • elimination of coding and billing hassles for coding variations by payers
  • gain sharing with your physicians, if appropriate
  • "wholesale" rates for block times to surgeons who wish to market their own case rate package prices and pay the ASC for the time and materials used, and
  • improved patient throughput and time under anesthesia which improves patient safety and reduces potential complications (and costs)

This preparation and service line product development will increase in importance as consumers in consumer directed health plans (CDHPs) and account-based health plans (ABHPs) shop for competitive rates and are willing to travel to stretch benefit dollars in these programs. The transparency detail when supplied to define the case rate, affords the ability for the payer, employer-sponsored health plan, or consumer to evaluate the value for the price paid, and enables them to comparison shop and determine whether they want to travel to save a significant sum on their surgery.


I hope this tip sheet has helped you to understand the importance of properly structuring a case rate for outpatient surgery to the extent necessary to do it properly. One final thought: Don't just structure the facility fee and then expect the payer, employer or consumer to "bolt on all the professional fees". That's not fully-inclusive, it is not a case rate, and you may as well be quoting raw goods and services.

If you need assistance to go through the exercises or want a project coordinator or mentor for the first few, Mercury Healthcare's Advisory Group consultants will be happy to assist you...and yes, we will quote our fees for professional services and travel on a fully-inclusive case rate basis!