Walking The Walk
And Talking The Talk
by Dr. Sheila Dunn
I and II of this series, we talked about why
in-house testing is valuable to your primary care accounts. Unfortunately,
many of them don't know it. Why? Because they lack basic business skills.
You, on the other hand, have business skills, right? This is why the present
market provides such an opportunity for distributors.
In this final part of the POL series, you will learn how
to change the shape of money, by translating it into value. This requires
a new way of looking at reimbursement and revenue generation. You will
learn how to help your accounts cope with changes and turn these changes
into opportunities for you.
TAKE A WALK IN YOUR CUSTOMER'S SHOES
Your primary care accounts
are confused and frustrated by the rapid changes in their market. In other
words, rump rockets are flying not from just payors, but from society as
a whole. No longer are doctors considered "Gods" whose medical
judgment is final. Managed care has turned the entire practice of medicine
upside down. (Figure 1)
Changes Affecting Your Physician Accounts
(Return to text)
Medicare reimbursement "has gone to hell in a handbasket,"
I overheard one physician lament at a recent seminar. He was referring
to the recent changes in physician reimbursement for all services from
all payors. The key to success for practices, then, is not to discontinue
providing services (i.e., close up shop and go sell sea shells by
the seashore), but to provide them more efficiently.
Even though reimbursements aren't what they used to be,
they're still quite lucrative (e.g., cost/test $3.50, reimbursement
$14.00). Depending on your locale - and no state currently has more than
41% overall managed care penetration- your accounts will vary from virtually
no managed care to almost all managed care.
Your strategy for selling to accounts that are primarily
unmanaged will be different than for those that are mostly managed. Use
a combination of the two selling strategies for lab products based on the
proportion of managed care. (Figure 2).
Figure 2. Lab Products Selling Strategies
| Type of Account
|| Selling Strategy -- Show Account How:|
| Pre-Managed Care
|| Lab testing generates excellent revenues|
| Mid-Managed Care
|| Lab generates good revenues for private pay/Medicare and
breaks even or generates only modest revenue for managed care patients.|
| Full Blown
| Lab will not generate incredible revenues, but will save
money in the long run, i.e., help retain more of the capitated payment.|
Unless your territory is in Mayberry, you must begin selling value. How?
By asking the right questions and learning to confidently overcome objections
voiced by some accounts ("I'd love to buy that analyzer, but managed
care won't pay for it").
Remember that only a small portion of managed health plans
either limit or forbid in-house testing. In some cases, MCO reimbursement
exceeds the usual and customary for an area. As you know, managed care
is physicians' favorite objection to purchasing lab equipment.
First, we need to learn what "value" means to
IN OFFICE TESTING:
| Managed Care Speak
- Increases Patient Satisfaction
- Patients are happy so they continue to see that doctor
and stay enrolled in that MCO, i.e., retaining patients saves money
- Decreases employee absenteeism
- Saves money for the MCO and the MCO's customer, the employer
- Increases practice efficiency + productivity
- Saves money for the doctor and the MCO
- Patients get better quicker which saves money for the
The bottom line is that near-patient testing makes patients
happier and better which saves money for the entire healthcare system.
And saving money is the reason managed care exists!
Good probing questions to ask accounts to demonstrate
the value of in-house testing are:
- Have any of your patients expressed dissatisfaction that
they now need to travel to XYZ hospital to get their blood drawn? Do you
think patient satisfaction is important to the MCO?
- Is the turnaround time for test results from XYZ lab
- Do you find it easier to diagnose some patients when
you have their test results when they are in for a visit? Which tests?
What type of patients?
- Do you have any capitated plans where each patient visit
actually costs money? Can in-house testing help avoid a second visit?
- How much time does it take your staff to choose the correct
blood tubes, log, package, store, and find the right metal box to send
tests out? How much do you think that costs the practice?
- Is it possible that a patient could get worse because
lab tests were delayed? What tests and which circumstances?
- How much would it cost you (under a capitated plan) or
the MCO (under a FFS plan) if the patient got worse and had to go to the
ER or the hospital?
- Could you treat a patient with a less expensive drug
if test results were available at the time of the patient visit?
- Who on your staff has to call every patient with their
lab results? Do they spend valuable time in telephone tag? How often does
the physician have to reschedule a patient or call a patient to change
their treatment plan or medication after learning of lab results days after
the patient visit?
Although your physician accounts don't know it, most managed
care contracts are very negotiable. Less than 20% of physicians are currently
negotiating ANY portions of their managed care contracts, yet those who
do get incredible concessions.
Before telling an account that it's a snap to negotiate
managed care contracts, look realistically at an account's bargaining power
in your community. A practice that specializes in "hairology"
in the immediate vicinity of 10 other hairologists should do something
to differentiate himself from the competition, or accept whatever terms
managed care plans dole out. Ideas for differentiation could be:
- having a wellness center where patients are tested and
screened for illnesses
- forming a single or multi-specialty group
- demonstrating patient satisfaction (through patient surveys)
- having later office hours or Saturday hours
You get the picture. These are examples of some value-added
services that primary care accounts must consider in order to outdo their
To share some of your business knowledge with your accounts,
consider offering some of the following:
- helpful advice about contract negotiation
- suggest ways to negotiate rather than letting doctors
take their own course (picture a shouting match instead of a civilized
- relay success stories from other accounts
- sponsor local medical society meetings where physicians
discuss proactive strategies for dealing with managed care locally
- devise cost-saving programs
HOW YOUR ACCOUNTS CAN NEGOTIATE
Practices that approach MCOs
on behalf of better patient care for their patients and in a spirit of
cooperation will achieve concessions. Help your accounts to do this by
showing them the Ready, Aim, Fire approach (Table 1)
and the sample letter to negotiate reimbursement for in-office testing
With a little planning (READY), strategizing (AIM), and
sharpening communication skills (FIRE), POLs will achieve concessions (in
all aspects of contract negotiations, not just in-house testing).
The key to success is to convince MCOs that near-patient
testing achieves their objectives: high quality care (better patient outcomes
and great service) at the lowest possible price.
READY, AIM, FIRE Approach
to Managed Care Negotiations
(Return to text)
Identify MCOs that represent major portions of your business. Plan to concentrate
your efforts on them. Locate their contracts and identify any limitations
placed on POL testing.
Prepare a convincing argument to demonstrate the value of office-based
tests (See Table 1 from article
two in this series). Assemble a list of tests for which you wish to
negotiate payment. After justifying each test, assume that the MCO will
say "no" to your every request. Then, prepare an iron-clad argument
to overcome their objections. The most common objection you will encounter
is "we've negotiated a nationwide contract with ABC mega-lab that's
set in stone."
Negotiate payment in person or by letter (Figure 3).
It's possible to negotiate by writing a letter, but developing a personal
relationship with MCO officials is more effective. Arrange a face-to-face
business meeting on your turf. The home court advantage works as well in
negotiations as it does in sports!
If your accounts choose to negotiate via letter, be sure
they only include arguments that demonstrate how in-house testing reduces
the overall cost of care while enhancing the quality of care. Figure 3 provides a good outline of the major points to include.
Some tips for negotiating with MCOs
are in Table 2. Now this is where distributor sales
professionals can really be of assistance to accounts: Encourage your accounts
to be persistent with MCOs by reminding them of their power in the healthcare
Their professional negotiators and will often say "no"
to all attempts to change contract provisions, and do so in an intimidating
fashion. Often, MCO negotiators respond with the same blanket statement:
"our contracts aren't negotiable". Sound familiar?? Tell your
accounts what you learned years ago: say "If I can show you a way
to increase quality of care for our patients (your members) and reduce
the cost of care, would you consider changing the contract? Teach your
accounts how to "sell" their benefits and services and encourage
them to take a "business partner" approach when dealing with
TABLE 2. Tips For Face-to-Face Negotiations
(Return to text)
- Give MCO representatives a tour of your POL during which
you display its benefits and services.
- Exhibit a cooperative problem-solving attitude rather
than a competitive one.
- Never accept a new contract "as-is." There's
always room for negotiation.
- Go in with high expectations. It's been shown that aspiration
level is related to achievement.
- Start talks with easy-to-settle issues rather than highly
- Give concessions that give "nothing" away.
Get something for every concession given.
- Be patient. The person with a time deadline invariably
loses the negotiation.
- Change the shape of money. (e.g., reduce the pay
- Emphasize areas of agreement rather than differences.
Always stress the desirability of the overall agreement during negotiations.
- Question any non-negotiable demands of the MCO. By doing
this, the opponent becomes more likely to compromise somewhere else in
WHAT PAYMENTS TO EXPECT
Advise your accounts to ask for their usual and customary reimbursement
or the Medicare fee cap, depending on their bargaining power. Also, suggest
that they consider accepting a capitated payment for POL testing.
A worst-case scenario would be that
the MCO required a POL to meet the payment accepted by the mega-lab (often
less than $1.00 PMPM). Even at $0.75 PMPM, testing can be profitable. You
will need to walk your accounts through an example similar to the one in
Table 3 involving the particular tests you are demonstrating.
Also, point out that only a certain percentage of the
overall POL business may be "managed." Each account has a different
ratio of Medicare, managed care, and private pay receivable depending on
their location, specialty, and size.
Table 3. The Economics
(Return to text)
A POL is offered $0.75 PMPM to provide the lab services
listed below for 3,000 patients. This means that the POL receives $2,250/month
or $27,000 per year, regardless of the number of tests performed on plan
patients. The reason capitation is risky is that if only a few patients
need testing, the practice makes a huge profit, but if many patients come
in for testing, profits plummet. Patient health, i.e., whether they
seek medical attention, is the big variable in capitation. For this example,
the managed care company provided the utilization data below. If utilization
data is not provided by the plan, the account can estimate lab usage from
similar patient populations.
|| Est. Annual
| Lab's Cost
| Annual Cost |
|| 2 Chem. tests
|| Chem.12 Panel
|| Lipid Profile
|| Thyroid Panel
|| Strep Screen
| - - - - -
|| Miscellaneous Tests
Difference = $6,580 ($27,000 - $20,420)
This example is based on commonly-used POL instrumentation
and does not include fixed laboratory costs (e.g., personnel, overhead).
A table such as this could be constructed to cost-justify any testing done
under a capitated agreement. Generally, new managed care contracts with
lab provisions will increase the volume of the office lab significantly
and enable it to achieve further economies of scale. Practices with office
labs who participate in capitated agreements should focus on reducing utilization
of unnecessary tests as well as gaining efficiencies that reduce the cost
to perform each test. As a sales consultant, remember that this capitated
payment may account for only a small percentage of the total POL revenues.
Approximately 90% of physicians who negotiate get concessions. Moreover,
in some areas, physicians staged aggressive letter-writing campaigns and
persuaded a major MCO to change their ways regarding in-house lab testing.
Last year, CIGNA Health Care of Texas wrote to their doctors and reversed
their requirement to send all patient lab tests to SmithKline Beecham Clinical
Laboratories. CIGNA noted:
"We have received numerous requests
from physicians to permit exceptions to this national agreement in order
to enhance medical care to your patients, our members. As a result, we
will allow participating providers to perform the following 25 tests in
your offices, and reimbursements for these procedures will be paid according
to CIGNA's maximum fee schedule in effect at the time of service."
Managed Care Payments for Certain Lab Tests
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| CPT Code
|| Lab Test
|| Medicare Fee Cap
|| CIGNA Payment|
|| chem 19
|| chem 7
|| thyroid panel
|| no cap
|| rapid strep
SALES TOOLS AND PROOF SOURCES
The pendulum is definitely swinging back in the direction of office-based
testing. I am not making this up. Some physicians who enjoy office labs
are proactively approaching MCOs and offering to do all the testing for
doctors in their vicinity. In essence, they're becoming mini-referral labs!
Show skeptical accounts the Ready, Aim, Fire Table, the
sample form letter to negotiate in-house reimbursement, and the Tips for
Face to Face Negotiations table. As proof sources, you can also show accounts
the three articles below:
- American Society of Internal Medicine, September 1996.
Part of the Reinventing Managed Care Series: Assuring Appropriate Access
to Laboratory Testing for Patients in Managed Health Care Plans.
- Family Practice Management, January, 1996. How to
Convince a Managed Care Plan to Reimburse In-Office Testing. by Sheila
- Medical Economics, January 13, 1997 Are You Missing
Out on a Valuable Profit Center? by Michael Jahn.
The availability of test results during patients' office
visits is a tremendous improvement in healthcare. Healthcare is a service
industry, and as such, it must meet customer's (patient's) needs. Managed
care organizations who do not yet recognize the value of near-patient testing
will soon see that it does indeed pay off by providing higher quality care
and better service at a lower cost. Hopefully, within the next few years,
MCO's will require testing at the point of care!
Sample Letter to Negotiate In-House Lab Reimbursement
(Return to text)
Our contract with your organization
currently states that laboratory tests must be referred to a commercial
laboratory. This requirement not only inconveniences our patients but reduces
the quality of care that we can provide to your members. We therefore request
that this contract provision be amended as soon as possible.
The vast majority of patients surveyed indicate that traveling
to a remote site for phlebotomy and waiting two to five days for test results
is a considerable inconvenience. Most patients are accustomed to immediate
test results and a diagnosis or treatment during the office visit. Delays
for test results often require patients to make an extra trip into our
office or to a pharmacy. This unnecessary travel is difficult, especially
for sick patients.
This requirement also reduces productivity and increases
costs for your employer clients, who are faced with increased employee
absenteeism due to delays in diagnosis and treatment.
More importantly, during the time between the first patient
visit and receipt of test results, a patient's condition may worsen or
change. Simply stated, it has been proven repeatedly that physicians can
provide higher quality medical treatment when "real time" test
results are available at the point of care. (Give examples:_____________________)
Studies have also shown that laboratory tests performed
on-site are actually much less expensive than those performed at remote
sites. Although the actual cost per test at the point of care is higher
than a reference laboratory, consider the expense of only one patient per
month that requires extra treatment, a referral, or even a hospital admission
because of a delay in test results! (Give examples: ____________________________________________)
For these reasons, we request compensation for performing
the following tests in our office:
| TEST (CPT)
|| TEST (CPT)
Performing the above tests in our office laboratory will
not only increase the quality of care, but decrease the overall cost of
care. You must agree that this fulfills the primary mission of our association.
We will contact you during the week of __________________ to discuss this
further. Please don't hesitate to contact us with your questions or concerns.
Thank you for your prompt attention to this matter.
About the Author:
Dr. Sheila Dunn heads Quality America, Inc., an Asheville, NC-based company
that assists medical manufacturers and distributors as well as healthcare
professionals to survive and prosper in this rapidly evolving industry.
Quality America's publications include "Managed Care: Strategies for
Success", "Lab Testing: Get Your Fair Share From Managed Care",
and "Satisfaction Guaranteed1", a patient satisfaction primer.
For information about Quality America's products or services, call 828-645-3661.
(Go to detailed Dunn biography)
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