John G. Holstein
It is almost impossible to find a hospital in the United States that has not either built a new emergency department (ED) or considered an ED expansion or renovation plan. All EDs are challenged by increasing volume, with a corresponding increase in ED admission rates.
At a Glance
Ten contract issues that all hospital EDs should address in their pro-fee contracts are:
- A prudent layperson definition of an emergency
- Covered services/medical necessity
- Assignment of benefits
- Credentialing/enrollment
- Prompt payment for services
- CPT coding guidelines
- Claim submission parameters
- Contract assignment
- Payment rates
- Term and termination
In a June 2006 study, the U.S. Department of Health and Human Services reported an 18 percent increase in ED visits from 1994 to 2004, while the number of hospital EDs decreased 12.4 percent (McCraig, L. F., et al., “National Hospital Ambulatory Medical CARE Survey: 2004 Emergency Department Summary,” U.S. Department of Health and Human Services, Center for Disease Control and Prevention, National Center for Health Statistics, June 23, 2006). In 2007, one New York City hospital, Montefiore Hospital, experienced a staggering 30 percent increase in ED visits within a five-year period (Kershaw, S., “City Hospitals Reinvent Role of Emergency,” New York Times, Feb. 12, 2008).
Today, EDs are without question the front doors into our health systems. They can also be a solid revenue source when pro-fee payer contracts are addressed with scrutiny, specifically addressing key components pertinent to emergency medicine in general and the ED practice in particular.
10 Key Contract Issues for EDs
Following are 10 key pro-fee ED contract issues that all hospitals with EDs should address with payer representatives.
Prudent layperson definition of an emergency medical condition and service. The loss or absence of a prudent layperson’s definition of an emergency medical condition or service from ED contracts leaves open the possibility of claim payment problems, typically evidenced in delays, denials, or down-coded charges (see exhibit 1). As long as the ED represents the safety net of a healthcare system, it is imperative that this definition remain in ED pro-fee contracts. Conversely, the loss of or elimination of this definition from ED pro-fee contracts will likely set the claims adjudication process back.
Covered services and medical necessity. The ED is a unique setting within every hospital. Each day, patients can present with virtually any illness, injury, or malady. The presenting symptoms are the critical criteria for determining whether ED services are needed and which ED services to provide. Logically, it follows that emergency medicine should be the arbiter of medical necessity. However, virtually every pro-fee contract states that the payer’s medical director, after the fact, becomes the ultimate decision maker for medical necessity, and that this exchange of information, specifically regarding actual clinical scenarios, becomes a part of the negotiation process. This issue can be addressed by developing a relationship between the carrier medical directors, the ED medical director, and a finance department representative. Every ED practice should establish a rapport with the payer, inclusive of an exchange of clinical scenarios. It is important that both sides of the negotiation understand which claims will be paid under the contract, and under what circumstances services will be paid.
Assignment of benefits. The signing of an assignment of benefits statement by, or for, virtually every ED patient is the defining statement of the ED’s right to payment for services. Assignment of benefits for ED patients is a high-profile flashpoint issue today in the industry, particularly in regard to nonparticipating providers. Every patient or patient representative is asked to sign an assignment of benefits form, typically upon presentation in the ED. This form represents a contract between the patient and provider (i.e., the physician and the hospital). However, assignment of benefits should also be formally addressed within ED contracts to ensure payment to the provider. We live in a consumer-driven and focused society, where goods and services are reasonably paid for upon delivery of the item or service. Redirecting payments to patients places an undue cash flow hardship on the very individuals serving to preserve and/or restore patients’ health—the ED physicians.
Credentialing/enrollment. The credentialing/enrollment process for physicians can be a long and tedious process, sometimes taking months to complete. Some payers today have streamlined the process and will work with ED practices using a delegated credentialing process. In some instances, ED physicians are even considered exceptions to the typical process.
The fact is that every ED physician has been accepted and credentialed at his/her own hospital. Using a single physician list with the attendant supporting documents can be the de facto credentialing document used by payers for ED physicians. Delegated credentialing is a very reasonable protocol to administer and monitor. Conversely, the delays associated with prolonged credentialing processes typically cause charge backlogs and consequent cash flow problems. It simply does not have to be this way for ED physicians.
Prompt payment. In the name of consumer satisfaction, ED physicians are pressured to deliver faster service. Is it not reasonable to expect the same of payers? Today, virtually every state has prompt-pay legislation in place because of the history of delayed processing and payment of claims. It is correspondingly reasonable, then, for payers to demand prompt payment of claims (45 days is a reasonable time frame). Assuming the ED has a reputable billing service, there should not be a reason for slow, pending, or denied claims. Even if prompt-pay legislation is in place, the criteria for prompt payment should be restated and defined in ED contracts, clearly setting the expectations regarding payments.
CPT coding guidelines. Open-ended language or references to a payer using their “coding guidelines” to adjudicate claims is not acceptable. Pro-fee contracts should include references to payers using Current Procedural Terminology (CPT) coding guidelines for claims processing. CPT represents a published standard for coding guidelines and should be the benchmark for contracts.
Claim submission parameters. The ED is a unique setting for the delivery of healthcare services. Because the ED is a setting of episodic care, it is not uncommon for patients to present without their insurance information. Without an established relationship between the patient and ED physician, some patients will ignore several bills; some actually will not respond to requests for payment until their credit is threatened. For these reasons, a claim submission window of 365 days is not unreasonable, but this window should never be less than 180 days for ED pro-fee contracts due to the unique circumstances that are specific to EDs.
Contract assignment. As the insurance industry continues to expand and grow, the actual number of payers is getting smaller as mergers and alliances across geographic areas become the solution for insurance carriers to cover more lives. The expansion of rates across an increasingly larger group of patients can affect the financial stability of the ED practice and occur as a result of silent PPOs or through assignment clauses within the contract.
Silent PPOs can involve the “selling” of a practice’s rates to one or more additional payer plans. If this occurs, patient accounts may be paid at rates that are inaccurate, incorrect, and lower than they should be; additionally, balance billing these additional patients is typically prohibited on remittance advices. Silent PPOs are extremely hard to find, and their presence is extremely difficult to definitively prove. However, they remain one of the primary outside forces that can define the shape of an ED practice. Every ED contract should clearly delineate which plans the agreement covers, and the associated payment rates.
Assignment clauses in payer contracts define the path that allows for plans to expand. These clauses are clearly identifiable in the contracts and are typically unilateral, allowing for the payer’s growth through expansion and/or acquisition. Some of these clauses even specifically reference the assignment of “future” plans as yet undefined in type or volume at the point of contract signage.
Many factors can influence the assignment of an ED payer contract. These reasons are usually tied to whether the ED practice itself is a private practice or hospital owned. Whatever the circumstance, contracts should not be assigned without sufficient time for a practice to review the potential financial impact of a planned expansion. This review should typically involve at least a 60-day review period of all of the facts, namely additional planned covered lives, plan type(s), and associated payment rates. It is critically important that a practice have time to evaluate whether the planned expansion is acceptable. Assignment should be mutually agreed upon in writing.
Payment rates. Ultimately, the payment rates for ED services become a critical key issue in every contract. These payment rates define the shape and, sometimes, the very viability of the ED practice. Consider the sample contract language used in some contracts:
- “Reimbursement for the HMO and PPO plans will be at ABC Company’s standard HMO and PPO rates.”
- “Reimbursement for the POS and commercial plans will be at ABC Company’s standard POS and commercial rates.”
- “Reimbursement for services shall be at ABC Company’s market fee schedule.”
These are vague and ill-defined payment clauses.
No one could reasonably ascertain anything about expected payments from the type of contract language presented above. It is important to realize the ED can be a viable cost center within the hospital—with reasonable payment rates—and that the ED provides a critical service to the insurance industry. Much of the publicity today is centered on an ever-increasing number of hospital admissions coming through the ED. In some circumstances, the ED represents the setting of actual cost savings for insurance plans by enabling patients to avoid an inpatient stay.
It is for these reasons that ED services merit reasonable and equitable payment. How can reasonable and equitable payment be defined? In point of fact, the actual “market rate” for an ED is the rates paid by noncontracted, nongovernmental payers. This is the true benchmark for evaluating rates. For an increasing number of payers, however, reasonable and equitable payment is defined by the Medicare fee schedule, or some derivative of the same. For emergency medicine, use of Medicare rates to set ED payment levels is a very slippery slope and should not be pursued without a clear strategy.
In 2007, emergency medicine as a specialty did well in terms of the Medicare fee schedule. That being said, the reality is that virtually every fall, a scare ripples through the medical world as precipitous decreases in Medicare rates are forecast. At some point, these decreases in payment will likely occur, unless some strikingly new reimbursement program is introduced. Therein lays the potentially disastrous result of tying a practice’s fee schedule to Medicare rates. As payer fee schedules are increasingly tied to Medicare rates, payment for ED services is increasingly defined by the insurance industry. More specifically, the entire financial future and even existence of many ED practices will increasingly be controlled by the payer industry unless a strategy is developed for dealing with this payment methodology issue.
The preferred counter strategy is to refuse to accept the Medicare fee schedule at all as the benchmark for payment. In this strategy, the alternatives usually become either the noncontracted payer rates, as noted above; the practice’s own fee schedule; or some relative value unit-based derivative.
Expected rates should also be defined in terms of at least the most common CPT codes. The most common codes are 99281 through 99291, but all other codes performed by the practice at an incidence of 5 percent and higher should be included in the rate negotiation. High-volume, high-charge value procedures and any special procedures performed in the ED should never be missed. The expectation of payment rates must be established by clearly defining the services using the defined list of CPT codes.
If a practice chooses to use the Medicare fee schedule in the negotiations, two points become important. First, the negotiation should start at some multiple above that schedule. The Medicare fee schedule itself is increasingly paying for fewer and fewer services, vis-à-vis charges. Second, the 2007 Medicare fee schedule should be used as the base rate. It is critical not to include any reference to the “current” Medicare fee schedule in the negotiation. If “current” is used and future Medicare rates decline, the practice could succumb to a precipitous decline in rates of potentially several payers.
A final point on payment rates: Assuming the contract is a multiyear deal, the rates should increase on every anniversary date. Here it is useful to keep in mind the words of Pat Croce, former NBA executive, “If you never ask, the answer is always ‘No’” (Croce, P., I Feel Great and You Will Too!, Philadelphia: Running Press, 2000).
Term and termination. How long are you willing to accept the terms of this contract? This is a strategic decision, and the clause itself should be scrutinized. First, there should never be a window of time any longer than 90 days for a practice to notify a payer of nonrenewal. The issue of payer notification to members is not applicable to the ED setting. Contracts with notification periods of 120 to 180 days can result in binding a practice to payment rates or other issues that are already presumably unacceptable. Some contracts even require 120- to 180-day notices ahead of the anniversary date, which is definitely unacceptable. Second, there should always be a clause allowing for termination without cause in addition to the assumed one of termination with cause. Third, particularly with the constantly shifting landscape of health care today, consider contracting with payers for terms no longer than three years.
Ensuring ED Profitability
Addressing these 10 core issues in ED pro-fee contracts will lay the groundwork for not only viable and equitable contracts, but also revenue-generating ones.
It is important to address these issues with payer representatives. It is not unusual for some of these issues to be overlooked in negotiations; some contracts are completely silent on some of these issues. In the spirit of achieving fair and equitable contracts, it is prudent for the ED director or hospital administrator to assume the role of educator in these negotiations. Many pro-fee contracts contain language, clauses, and/or phrases more applicable to private office practices, not ED practices. It is important at the outset of negotiations that payer representatives realize there are core ED issues that will be addressed and resolved in the negotiation. The goal is to achieve an agreement that is fair and equitable to all parties and also preserves cornerstone ED practice issues.
EDs are the doorways into our healthcare systems, and do not have to be loss leaders. Focusing on core ED issues and developing sound, equitable pro-fee contracts can be a step toward profitability.
John G. Holstein is director, Medical Management Professionals, Bala Cynwyd, Pa. ( jholstein@hbr-inc.com).