Three Major Challenges Facing POLs -- Two Down, One
(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).
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
- A few tests may be performed in-house, but payment
for these tests is included in the overall capitated payment for medical
- 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).
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
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
- 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