Management of Pathology Practices

July 2006

A Case Study in Increasing Practice Revenue

through Managed Care Negotiations

By Mick Raich

The group: A six person pathology practice providing services in a hospital based environment. Last year we were contacted by this pathology practice, and their main issue was a slowly decreasing revenue stream and increased expenses. They assumed there were some changes in their managed care profiles.

We provided an audit and did an extensive review of the practice and found one of their larger payers was paying at a rate that was less than Medicare. The actual rate paid was $35.00 on an 88305-26. As one of our tasks we decided that we would try to increase this compensation.

Step One: We met with the hospital administration as this was a hospital based practice. We asked administration for their support as we moved through this process and they agreed to help.

Step Two: We entered into discussions with the payer and tried to increase our rate through negotiations. We tried all of the formal channels of communication and provided documentation of our efforts. The practice and the plan were not able to agree on a reasonable rate of reimbursement, applicable filings etc.

Step Three: After much discussion and several attempts to reconcile, the group terminated its contract with the payer and began to monitor its payments.

Step Four: During our monthly reviews we noticed that the terminated payer had started to route the claims through a third party network that the group was participating with and the reimbursement on the 88305-26 had increased to $60.20, which was an increase of 172%. This still did not meet our expectations for this product and CPT code. Simply put, instead of paying the claims as non-participating, the plan in question shifted the administration of these claims to another network in the area that the plan was participating with.

Step Five: After discussions and consultations, we decided to terminate the network that the claims had been forwarded too. Again we continued our pursuit of higher reimbursement and decided that canceling this plan was needed.

Step Six: We again started to monitor the reimbursement for the original plan and now noticed that the payer has found yet another third party administrator (TPA) to route its claims through, but this time the reimbursement increased to $152.25 on an 88305-26, which was an increase of 435% over the initial rate. At this point we decided that this payment was adequate for services provided.

Step Seven: Now that we have reached an adequate reimbursement, it will be necessary to monitor payments for all the payers to ensure that the plan does not find another place to administer these claims at a lower rate.

Conclusion: Many groups have numerous contracts with direct insurance plans and with various local and regional networks. Insurance companies have learned to move claims to the lowest payer and only hard work, steady negotiations and diligence will prevent this from decreasing your practices income.

This simple case review took about 18 months worth of time and effort, and the changes made must be continually audited to make sure the money is not again shifted to another payer or network or TPA.

This close attention to detail paid off with higher revenue for the same amount of work. Look at the facts:

Initial payment 88305-26 = $35.00

First network payment 88305-26 = $60.20

Final TPA payment 88305-26 = $152.25

After our work was completed the group gained approximately $35,000.00 per month in additional revenue.

Mick Raich is the President of Vachette Pathology, a national pathology practice management firm. He can be reached at 866-407-0763 or via e-mail at mraich@vachettepathology.com