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
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 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).
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
- 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
- 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