A new managed care strategy for pathologists

August 10, 2021

By: Mick Raich, President of RCM Consulting, Lighthouse Lab Services, and AJ Lech, Client Administrator, Lighthouse Lab Services.

The new Medicare fee schedule is yet another blow to the revenue stream for pathologists. Medicare has constantly cut the fees for the professional component of pathology services over the past 10 years.  More and more, these fees are being slashed (and were even cut during the pandemic). The time has come for a new mindset. No longer should pathology contracts be tied to a draconian Medicare fee schedule hurtling towards the lowest payment possible. 

One of the main factors driving this current trend is that managed care plans tie their rates to the Medicare fee schedule (some Medicaid plans also do this). So, every time Medicare slides down, all the payers follow suit. Does this make sense? Just because Medicare is trying to work within a tough budget structure does not mean private payers who have ballooning profits should also get this bonus. 

With another proposed 5% current cut for 88305-26 means, added to the rising cost of inflation, many pathology practices are looking at hard times. Well, perhaps it is time for a change. Perhaps it is time to look at things differently. 

Here is a step-by-step process to look at your leverage as a pathology practice and to aggressively renegotiate these plans to prevent further decrease of pathology revenue. 

  • Assess your risk: Can you assume the risk termination for your managed care contracts?  Many groups have Part A contracts which force them to sign whatever plans the health system sign. Can you open these contracts for negotiation?

  • Assess the players involved: Do you know all the players involved? Do you need to get the Director of Managed Care Contracting for your health system involved? Is there a PHO manager you need to contact? Involve all those affected by this negotiation: hospital CEOs and Manage Care Directors and PHO Directors.

  • Know your numbers: What percentage of your revenue does this contract include? Is it big enough to worry about? Look at EOBs to determine what the plan currently paying you. What percentage of your AR is held up by this plan? What is the impact of the negotiations and new proposed rates?  Conduct impact analysis reports on how the new proposed rates will impact your group to assess your risk.

  • Tie in your Part A contract and a floor to accept managed care rates: We won’t sign anything less than our set rate for these CPT codes. Do not tie this to Medicare. Have a list of your CPTs and accepted rates.

  • Think outside the box: When you begin the process, look at other options such as direct contracting, employment contracting, out of network options, or combined billing options. Don’t just take the status quo as reality. For example, direct contracting with the biggest employers in your area may make the most sense. Make the insurance plan carve out the services from their agreement with the employer. 

  • Enroll in quality assurance, quality improvement and utilization review programs: Get involved and get your name and the group’s name out there in these programs. And always be mindful of the long play. Many of these insurers have incentive-based programs that allow groups to potentially earn more by hitting certain quality measures set by the program.

  • Use your value in the patient care continuum to leverage better rates: Pathology provides up to 65% of influenced medical decisions.

  • Rates: Build a rate based on reality, not Medicare. Do not accept an accumulated rate for a contract.  These are contracts that pay 145% of Medicare, but your main codes are paid at a rate of 34%. Each CPT code should have a profitable rate and fit your business model. Carve out your top five reimbursed CPT codes for the best rates. (Know your numbers).

  • Have the right terms in the contract: Build and push for 3- to 5-year contracts. Request an uplift/escalation in reimbursement every year. Add a cost-of-living adjustment (COLA) into the contract.

  • Audit the results: Just because you get a good rate doesn’t mean you will actually get paid the new rate. You have to actually audit the EOBs to ensure you are getting paid your new negotiated rates. 

Pathologists cannot continue to take pay cuts going forward. There are new technologies which must be developed and used. For an example, just look at what AI can bring to the table going forward. How can pathology remain relevant without an adequate revenue stream? Take charge and get busy changing your revenue model. Call us, we will be glad to help.

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