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Three Major Challenges Facing POLs -- Two Down, One To Go
(Part 2 of a 2-part series)

by Dr. Sheila Dunn

Reprinted with Permission from Washington G-2 Reports, Physician Office Testing, January 1997

Last month, in Part 1, we looked at three big issues confronting physician office laboratories (POLs): CLIA compliance, stricter medical necessity requirements for automated test profiles and managed care. POLs have fared relatively well in handling the first two, but the third--managed care contracting--remains a formidable hurdle, but one you must surmount to stay competitive in today's volatile healthcare environment.

In Part 1, we set forth arguments POLs can use to persuade managed care officials of the worth of near-patient testing, including clinical, psychosocial and economic benefits. We also showed that physicians need not accept without question managed care contract terms that limit the types of testing POLs may perform. Don't be intimidated--these limits can be negotiated!

In this article, we'll examine how to negotiate effectively with managed care plans for your POL's interests.

Business Focus A Must!
To succeed in an increasingly managed healthcare marketplace, POL managers must devote more resources to the business aspects of their labs. This means either learning (or enhancing) skills in contract negotiations and other business essentials or hiring a professional manager to negotiate managed care contracts and conduct financial analyses of your lab operation.

Very few medical practice managers negotiate managed care contracts; those who do often neglect the lab portion. Too often, office-based lab personnel find out about contract provisions that restrict POL testing when they begin to notice a distinct decline in test volume.

One thing is certain: if you don't negotiate now for POL test reimbursement, your office lab volume may dwindle to a few simple stat tests. And along with this revenue drop, your physicians will be deprived of a necessary diagnostic tool.

From my experience in working with POLs, I know you can gain concessions if you approach managed care organizations (MCOs) in a spirit of cooperation and convince them that in-office testing provides both low cost and high quality.

I also know that in-office laboratorians possess the requisite talents to do this--namely, attention to detail and persistence. Table 1 shows the steps POL managers must take to gain their goals: it takes a little planning (READY), strategizing (AIM) and sharpening communications skills (FIRE).

Get Ready
The first step in the Ready, Aim, Fire Approach is to ask your physicians or your practice manager which MCOs contract with the practice. Identify those which represent the major portion of your business. Concentrate your efforts on them.

Study the contracts to find out which limitations are placed on your POL's testing. You'll likely find one of the following:

  • All tests must be referred to an outside lab with which the MCO has negotiated rock-bottom prices.
  • A few tests may be performed in-house (such as urinalysis and fingerstick glucose) and are reimbursed on a reduced fee-for-service basis.
  • A few tests may be performed in-house, but payment for these tests is included in the overall capitated payment for medical services.
  • A menu of, say, up to 30 tests may be performed in-house, but some tests on which your practice relies are missing or payment for tests is too low for your lab to realistically consider.

After discovering the limits on your POL's testing and compiling a list of tests which you want the MCO to let you perform and be reimbursed for, get the name of the person at the MCO who can effect contract changes. Often, this individual is the director of provider relations. Contact him or her to verify that he or she will be your contact at the MCO (that is, that he or she is authorized to make lab-related changes to the contract).

Take Aim
Line up your reasons to justify the tests that you want the MCO to allow you to perform under contract (POT, Dec. 1996, p. 3). Emphasize the tests that demonstrate lower cost to the healthcare system or higher quality of care, as evidenced by improved patient outcomes or more satisfied customers (Table 2). Consider surveying your patients to document that they are dissatisfied with MCO limits on your POL's testing.

Tests that are not usually ordered on a stat basis may nevertheless be candidates for near-patient testing. Even if delays in test results do not directly contribute to patient morbidity, other equally important circumstances must be considered: among them, patient satisfaction, adherence to a treatment plan and lower cost to your practice, as evidenced by improved staff and physician efficiency.

Compile the list of tests for which you wish to negotiate coverage and payment under the MCO contract. After lining up your rationale for each test on the list, assume that the MCO will say "no" to your every request and marshal your arguments to overcome anticipated objections. The most common objection you'll hear is: "We've negotiated a nationwide contract with ABC Mega-Lab that's set in stone." Don't assume the door is closed.

Since payments for lab tests are a minuscule portion of MCO payments to providers, there are other factors unrelated to testing that can enhance your leverage at the bargaining table. Among these are: a desirable practice location and size (large multispecialty practice or a large single specialty one), ability of the physicians to meet MCO utilization targets, a good practice reputation, little or no competition, a loyal patient base (satisfied customers, as documented by patient surveys) and cost-effective treatment (documented outcomes).

Armed with your test list and related arguments for each one on the list, arrange a face-to-face business meeting on your turf with your MCO contact. The "home court advantage" works as well in negotiations as it does in sports! The meeting agenda should be specific:

  • Discuss current contractual limits on POL tests
  • Identify the tests you need to perform to assure the highest quality care for your patients (who are, it should be emphasized, the MCO's members)
  • Present your justification for the tests you identify
  • Discuss the type of payment expected
  • Set a deadline for the issue to be resolved

It's possible to negotiate via correspondence, but developing a personal relationship with MCO representatives is more effective. If you choose to write a letter, be sure all the physicians in your practice sign it; attach evidence to support your arguments. Also, send a copy to the MCO's medical director and to your medical society.

Some tips to help you achieve your objectives are presented in Table 3. Be persistent. MCO representatives often are professional negotiators and may say "no" to many of your requests. Frequently, they begin with a blanket statement: "Our contracts aren't negotiable." A good response is: "If I can show you a way to increase the quality of care for your members (our patients) and also reduce the cost of care, would you change the contract?"

What Payments To Expect
Ask for either your usual and customary fees or the Medicare maximum allowable, depending on your bargaining power. Also, consider accepting a capitated payment for your POL's testing. If the MCO wants you to meet the payment accepted by the mega-lab (often less than $1 per member per month), you can:

  • Bargain for a higher price based on the fact that your POL produces stat results, or
  • Accept the capitated rate, but reduce the number of tests your POL will provide under contract. Omit expensive tests in order to at least break even.

Challenges For Laboratorians
Managers of POLs and other decentralized testing sites should be confident that near-patient testing will eventually prevail because of its indisputable value to the healthcare system. But this value often is not yet recognized by many managed care payers. Can this be turned around? Yes, but only if POLs continually challenge MCO restrictions on near-patient testing. Remember, near-patient testing clearly meets both public and private sector healthcare goals: the highest quality of care and the best service at the lowest cost.

Below are key survival strategies for your POL in the expanding managed care world:

  • Keep informed about local MCOs. Develop personal relationships with representatives from the MCOs with which your practice contracts.
  • Invest in information systems that meet the data requirements of MCOs.
  • Reduce your costs by managing physician utilization of expensive or unnecessary tests, consolidating your POL supply vendors, streamlining workflow and analyzing your personnel mix.
  • Seek to increase your POL's profitability by undertaking a CPT audit, collecting all receivables and negotiating higher lab payments from MCOs.
  • Increase your POL's efficiency by accepting referral work from nearby physicians (for example, stat CBCs, etc.) Check with your state health department to see if this would subject your POL to more stringent rules, and obtain legal advice about billing policies.

>> Go to Part 1: Three Major Challenges Facing POLs -- Two Down, One To Go

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Table 1: The Ready, Aim, Fire Approach
(Return to text.)

 READY Define contract provisions for POL testing
  AIM Prepare convincing arguments to demonstrate the clinical, psychosocial and economic value of office-based tests
 FIRE Negotiate coverage and payment

Table 2: Your POL's Testing Advantages
(Return to text.)

  • More accurate results due to fresher specimens
  • Rapid results facilitate prompt treatment
  • Rapid results yield better outcomes (correct treatments, proper drug dosages)
  • Rapid results avoid expensive outcomes (costly treatments, hospital admissions or emergency room visits)
  • Enhance patient satisfaction with the plan/provider
  • Minimize patient (employee) absenteeism from work

Table 3: Tips For Face-To-Face Negotiations
(Return to text.)

  • Give the MCO representatives a tour of your POL, during which you display its benefits and services.
  • Start talks with high expectations. It's been shown that aspiration level is related to achievement.
  • Exhibit a cooperative problem-solving attitude vs. a combative, competitive one.
  • Begin talks with easy-to-settle issues, not highly controversial ones.
  • Keep a tally of concessions and remind the MCO representatives of them as the negotiations proceed. Get something for every concession given.
  • Remember, you can bargain with items unrelated to your in-office testing. One POL I know of negotiated payments by agreeing to accept another 500 patients in the practice's overall capitated agreement.
  • Be a good listener. Find out what the MCO wants from its providers. Put yourself in the MCO's shoes. Know what you want, ascertain why the MCO won't give it, then determine how to make it easier for the MCO to say "yes."
  • Stress areas of agreement, rather than differences. Always emphasize the desirability of the overall agreement during your negotiations.

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