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Careful management of contracts saves $100K
Look at auto renew contracts
(Editor's note: This is the second of a two-part article that looks at key reasons for failure in outpatient surgery programs. Last month, we looked at human resource issues, and this month we examine key revenue areas that must be addressed to help a struggling program.)
Save $100,000 in one year? It takes time and effort, but the key to achieving this cost-saving milestone for Calumet Surgery Center in Munster, IN, was careful attention to contracts that automatically renewed themselves.
If you sign an automatic renewable contract, be sure to pay attention to the dates, warns Denise Cheek, RN, administrator. One of the first steps taken as her surgery center worked to pull itself out of financial trouble was to review managed care contracts carefully.
"Many of our contracts were signed a long time ago with minimum price adjustments identified and automatic renewals," she says. "When we compared the reimbursement to the actual costs of providing care to these patients, it was obvious that we would continue losing a lot of money if we continued the contracts."
It is not unusual for outpatient surgery programs to routinely lose money on managed care contracts, says Thomas Mallon, CEO of Regent Surgery Health, a Westchester, IL-based developer and manager of ambulatory surgery programs. Although it's easy to believe that the only way to succeed is to have contracts with managed care providers in your area, it is possible to find yourself stuck in a bad contract, he says. "The most common mistake a surgery center administrator makes is to sign a two- to three-year contract that offers no provision for early cancellation," he says. In these cases, the surgery center is stuck with the contract even if taking those patients means losing money on every case, he says.
Because she did not have a provision for early cancellation in most of the contracts, Cheek had to carefully identify all of the renewal dates along with the time period required for notice of cancellation. "You have to make sure you set up reminders and alerts for each contract because the terms of cancellation are different with each contract," she explains. Terms for notification of cancellation or for renegotiation are very specific and must be followed exactly to protect your program, Cheek adds.
The same care also must be taken with contracts for equipment leases, maintenance, or other professional services, suggests Cheek. "We also had a lot of long-term contracts with vendors that were automatically renewed each year, often with no review by anyone in our facility," she says.
Know your real costs and income
The best way to avoid bad contracts is to know your costs and your market, suggests Mallon. "Every market is different, so you must do your research to discover which managed care companies cover the most people in your area, and then you need to know what your true costs are before you begin negotiations," he says.
When reviewing contracts, be sure you have the best data possible, recommends Mallon. You might see a surgeon in your operating rooms every day, and you know that his patients fill large blocks of time; he may not necessarily be bringing in a lot of money for your program, he says.
"You cannot judge the revenue produced by a surgeon by looking at how much operating time he or she schedules," points out Mallon. "You may have a very busy orthopedic surgeon who uses costly implants for which you receive a low reimbursement."
Evaluate your surgeon's productivity by actual revenue rather than by number of cases, suggests Mallon. Your reports should show the type of cases performed and the revenue generated, he says. "Many times administrators are surprised to find that their largest producers are not their high-volume surgeons," he says.
If you do have a surgeon that routinely schedules high-cost, low-reimbursement procedures in your center, see if some of those procedures can be moved to the hospital setting, suggests Mallon. With different reimbursement rates for hospitals vs. ambulatory surgery centers, it may make more sense to perform the procedure in the hospital, he says. He adds, "The surgeon may be scheduling his or her procedures at your center for convenience or because it is easier to get operating room time without knowing the financial implications."