by Steve Hendrick
Your healthcare organization’s revenue from private insurance payors depends on the contracted rates that your group negotiates with each insurer. With no standardized rate from payor to payor that extends to all providers, the rates you manage to win for your group depend mainly on your negotiating skills and the value you can demonstrate that you deliver to these payors.
One result of this patchwork system is the same absence of price transparency affecting the patients who use your healthcare services. You have no visibility into the rates your competitors receive from the same insurers with whom you have negotiated contractual reimbursement rates. And that lack of visibility, of course, can put you at a competitive disadvantage.
Here’s a real-world example involving two large specialty groups with multiple locations across a Metropolitan Statistical Area (MSA) of roughly 900,000 people. Of eight providers in the area, these two dominated the market for office visits and ambulatory surgical procedures. Regarding the number of physicians and E/M visits, Provider A was roughly one-third larger than Provider B. Both groups had track records of delivering high-quality care.
Both groups had negotiated contractual reimbursement rates with two large commercial insurers. Unbeknownst to Provider B, however, the rates received were 20% to 100% lower than the rates the two insurers were obligated to pay Provider A for the same services. The differential in contracted rates amounted to millions of dollars in revenue that Provider B could have earned on a more level playing field.
This phenomenon impacts providers in every market across the country, creating financial challenges above and beyond those that healthcare organizations already confront in today’s healthcare environment.
How can they level the reimbursement field? The first step is improving transparency into the varying rates that insurers have negotiated with different providers.
These rates are supposed to be transparent already, as mandated by Congress. But when the Transparency in Coverage (TiC) rules took effect in 2022, there was a loophole. While Congress required that health insurers and group health plans publicly post pricing information for all covered rates and services, including negotiated rates and historical net prices, it did not specify the format for publishing this information. Insurers quickly discovered the loophole. As a result, physician groups can obtain information on negotiated contract rates only by searching databases one patient at a time and one CPT code at a time—a herculean task they lack the bandwidth to perform.
A cottage industry has arisen involving high-tech companies, such as Trilliant, that pull together thousands of rows of patient data so providers can gain the pricing transparency they seek. But the high cost of purchasing this data from such companies makes it generally unaffordable except for large hospitals—leaving most individual provider groups still in the dark about the rates their competitors have negotiated with insurers.
However, increasingly sophisticated technology solutions, such as Arrowlytics, incorporate data on contracted reimbursement rates into their systems, offering transparency and information that enables groups such as Provider B to address the imbalance between its contracted rate and Provider A.
That brings us back to the second component of negotiating favorable reimbursement rates—demonstrated value delivery—I mentioned above. It’s not enough to point out to a large commercial insurer that you’re receiving less from them for the same service as your competitor. You must document for them how you deliver equal or greater value than those competitors who are receiving higher rates.
With data from Arrowlytics, for example, Provider B could demonstrate that 69% of the surgeries it performed occurred in the lower-cost setting of an ASC, compared to only 46% for the more highly compensated Provider A. Moreover, the 46% figure was significantly below the market average of 54%. Meanwhile, Provider A performed 36% of its surgeries in an outpatient hospital setting and another 21% inpatient, compared to 16% and 15%, respectively, for the more cost-effective Provider B.
Provider B could demonstrate concrete savings opportunities to the insurance payer based on each provider’s surgical volume. If the insurer shifted just 25% of its surgical cases from Provider A to Provider B, it would save $1.1 million annually. The data also equipped Provider B with strategic opportunities to approach the insurance payor with concrete proposals to increase referrals and/or provide reimbursement increases via bundles or shared savings.
In ways such as this (and there are many more examples), arming your organization with already available data offers new opportunities to gain or increase your advantage in an increasingly competitive marketplace characterized by tightening financial margins.
Steve Hendrick is CEO of Arrowlytics, a Montecito Medical company.
