Op-Ed

Cause and Effect: CMS Provides an Example for Simplified Payment to Improve Provider Relations

by Todd Bibb, Senior Implementation Consultant

Integrated delivery systems (IDSs)—and among them, accountable care organizations (ACOs) in particular—increasingly are taking on financial risk for patient care. This risk entails accepting global, prospective payments for care from insurers and then distributing those funds according to contractual agreements to the individual providers and institutions that delivered the direct patient care. As a result, these IDSs now are contending with the same challenges that healthcare payers historically have faced in building, maintaining, and managing complex provider networks.

Complexities often arise from inefficient and ambiguous contracting processes, where payment terms for specific services are negotiated separately. It can be challenging to obtain economic data to inform current and future contract negotiations. Moreover, configuring operational systems to manage a host of unique payment terms and keeping these payment terms updated over time are complex processes that increase the likelihood of errors resulting in inaccurate or late payments to contracted provider partners—and, ultimately, a potential breakdown in the relationships between the IDS collecting the global payments and its provider partners.

Better Payment Processing

All of these payment processes—from contract negotiations through distribution of global payments—can be greatly simplified by adopting the payment methodologies established by the Centers for Medicare & Medicaid Services (CMS). Simply put, CMS’s payment methodologies provide a unique industry benchmark that can help simplify payment processes and improve relationships.

A risk-bearing entity’s decision to adopt a Medicare-like payment model is a logical consequence of a decision-making process that asks three fundamental questions:

  • Should we develop our provider contracts, or replace existing contracts, using an established standard?
  • How should these contracts be constructed with regard to rates and policies?
  • What would be the benefits to the at-risk entity and to our individual provider partners of adopting an existing framework?

Although it may seem arduous to craft new or replacement contracts based on CMS rates, policies, and rules, the benefits warrant consideration: simplified payment that produces long-term cost savings, improved processes, and improved provider relationships.

For network providers receiving payments for services rendered, simplified payment offers a consistent revenue stream with payment rates based on well-understood and well-accepted industry standards that are adjusted across individual markets. It also results in less time spent managing claims and resolving payment issues.

The benefits from adopting CMS payment methodologies also are well worth the effort required to make the shift to these methodologies. The complexities of this effort, however, should not be understated—and the process required to gather and assimilate the data that will provide a basis for this approach requires a significant dedication of time and resources.

CMS has issued a great number of rates and policies, and the details of all CMS rate and policy rules are contained within a complex array of publications and bulletins. As a preliminary step, therefore, compiling a payment system based on CMS-like methodology requires an exhaustive data-mining process. Moreover, the rates and policies are updated frequently, requiring any entity that wishes to replicate CMS’s methodologies to maintain a process of diligently monitoring CMS’s activity and incorporating changes and updates.

The good news is that the data (including changes) are publicly available for all care settings, regions, and provider types. Another positive point is that CMS conducts all the research needed to make periodic rate and policy changes, based on changes in technology, wage and price indices, practice standards, and many other factors. And a tremendous advantage is that CMS methodologies are universally accepted.

Developing Contracts

To model provider contracts using a simplified CMS model, organizations should consider the following guidelines.

Insist on clear descriptions. Be clear and thoughtful in how services are described in contracts. Leaving areas open for interpretation increases the likelihood of confusion and errors. Clear description of services makes it easier to make payments for services rendered quickly and correctly the first time. This eliminates many common contractual challenges and increases savings.

Choose either a percentage or flat rate. Pay services at either a percent of Medicare or a flat rate. For commercial business that includes services not valued by Medicare, pay at a flat rate based on the value in the market where the services are performed. The flat rate can be negotiated based on the CMS standards for a particular region or facility. Some vendors also market “gap fills” that value non-Medicare services using a similar methodology and scale. But no matter what, keep the terms simple.

Avoid “carve outs.” In an effort to grow its network, an entity may be tempted to offer special, nonstandard terms to certain providers for “carved out” groups of services. However, they often later discover that paying the “exceptions” correctly is time consuming, error-ridden, and costly, and also generates friction with providers.

Think beyond rates. CMS provides policy guidelines for all care settings that provide bonus payments or discounts based on quality and efficiency of care. The Hospital-Acquired Condition Reduction Program, the Readmissions Reduction Program, and the Hospital Value-Based Purchasing Program are examples of such quality-based incentives that can affect reimbursement.

Benefits of a CMS-Based Payment Methodology

Organizations that use CMS standards as a payment baseline typically find that network contracting becomes a more manageable goal. These organizations also can expect provider relations to improve in three key areas.

Trust. Providers are more apt to agree to fees based on a known and well-accepted standard, such as Medicare.

Defensibility. CMS standards provide research-based evidence to support and defend payments or denials. Payments, edits, fee reductions, and negative adjustments are supported by documented policies and coding standards, which more effectively resolves disputes.

Efficiency. Renegotiations are quicker because CMS continually updates its payment rates and policies over time, region, type, and demographics. Rather than having to review a lengthy list of services and associated payments, often the only number that is negotiated is the percentage of Medicare to be employed.

Providers should benefit from a payment scheme based on a straightforward CMS standard that is fair and reduces complexity. Fewer claim disputes and quicker turnaround in receiving payment are advantageous to both payer and payee.

Adopting a CMS-like payment methodology will deliver cost savings, processing efficiencies, and improved workflow. Employing public, standard pricing data simplifies reimbursement with the potential to increase first-pass accuracy, potentially saving the large cost associated with disputes and rework. CMS standards establish trust between parties, boost the defensibility of payments and denials, and expedite the renegotiation process, enabling more efficient administrative processes for everyone.

Originally published on HFMA: https://www.hfma.org/Content.aspx?id=46336