Market Power—Increasing Your Leverage

San Diego, CA—Randy W. Cook, MPH, FACMPE, president and CEO of AmpliPHY Physician Services, Columbia, TN, offered some hope to listeners at the Medical Group Management Association’s annual conference. His message: “You have more leverage than any health plan will tell you about.”

He told a story about a 2-physician practice in rural Kentucky. The practice had begun as a regular family practice; however, several years ago, they classified themselves as a World Health Clinic. In doing so, the State of Kentucky and the Centers for Medicare & Medicaid Services were obliged to pay their costs; in fact, their average rate for Medicaid was 167% of Medicare. When Humana approached the 2 physicians and offered 105% of Medicare, they sagely declined. “The physicians focused their leverage. Leverage is about market power.”

Having market power means that you are getting something above and beyond what the rest of the marketplace is getting. “Any practice can increase leverage, even if it is a single-physician practice in rural America,” Mr Cook noted. He cautioned that although most practices might be inclined to shrug off his suggestions because of other issues (“my practice is too small,” “my concern is getting more patients”), it is important to “maximize what you already have.”

Research the Market
As practice managers and administrators, you should be basing all of your decisions on facts and data, including how many physicians are providing the same services in your market, how many physicians in the same specialty are in your territory, and how many physicians in your specialty your marketplace needs. Mr Cook suggested using Google and your community’s Chamber of Commerce to get a handle on these answers. First, determine the number of citizens and the per capita income and average age of the citizens in your geographic area. Use Google to identify 10 similar communities (rural, suburban, or city—whichever applies) around the nation that have populations with similar socioeconomic status, age range, and demographics. Then use Google to research the number of physicians in your specialty. If you are an ob/gyn, you will want to know the birth rate in your area. If you are in rheumatology, you will want to know how many citizens are on Medicare. For further pertinent local information, contact the hospital business office. Mr Cook further suggested profiling communities similar to your own around the nation to “see who is being treated, where they are being treated, who your local competitors are, and whether you are taking their business or they are taking yours. Then determine if there is a service issue, an access issue, or a geographic issue, and if you are over- or undersupplied.” Whatever you do, he cautioned not to make any decisions based on only 1 piece of data.

Do Patients Seek Your Practice by Name?
Conduct a SWOT analysis, which is a planning method that can be used to identify your practice’s strengths, weaknesses, opportunities, and threats. Doing this kind of analysis, Mr Cook noted, requires honesty and courage: You will need to admit your faults, including whether your practice is in the wrong place. Mr Cook related a story about an ob/gyn practice in Georgia that covered 50% of the market. They decided to build their own building, bought cheap property on the other side of town, and lost 30% of their business. The property they had purchased was “on the other side of the tracks” and patients whom they had seen for 30 years refused to go there. “The practice did not think carefully about their real strengths and weaknesses,” he observed.

Primary care orientation and geographic isolation work hand in hand to bring patients to your practice. Primary care orientation indicates the degree to which patients seek your practice by name; that is, the degree to which you care for the whole patient, including customer service and access. Health plans need members who insist on going to your practice. Geographic isolation is more than just being in a specific area; rather, it is about being the only type of practice that caters to a certain demographic in your market. If you are the only rheumatologist for miles, the health plans have no choice but to purchase your services, providing you with leverage. Mr Cook related another story to illustrate this point. It involved moving a practice, but this time, the move was well advised. A Korean physician originally set up his office in an affluent section of town, “where the good insurances were.” But, because his name was Korean, he had trouble filling his practice. He was finally persuaded to move his office to a Korean area of town where there were few other physicians, none of whom spoke Korean. In doing so, he created a mini-market. As the only doctor supplying that community, he increased his negotiation skills with the insurers. He was able to name his own price because he was the only practice in an underserved community.

Improving your geographic lo­cation can help you to increase de­­mand and leverage with insurers. “Bear in mind that you may have more leverage than you think and you probably also have more lev­erage than insurers are likely to admit,” Mr Cook said.

Capacity and Demand
If patients are waiting at your door and your practice is working at full capacity, the only opportunity you have to increase your profits is to either get paid more or lower your costs. Growth can be problematic if it outpaces demand, because it weakens your ability to insist on a price. Thus, capacity is a strategic issue.

For practices operating at maximum capacity, providing more services will increase costs, not revenues. Thus, it is important to assess demand; that is, the ratio of new patient visits to all patient visits over a certain period of time. Furthermore, it is impor­tant to know what the marketplace demand is apropos to your capacity. An increasing Medicaid patient list is a leading indicator that you have excess capacity. Be aware that patients who request their medical records might be preparing to leave the practice. Thus, it is important to survey these patients. If a patient is moving to another practice because there is a problem, you need to find out what that problem is and tend to it.

Use Data to Your Advantage
Show health plans your data. “This is your big hammer,” Mr Cook noted. “Your practice is the source of this data, giving you an advantage.” Healthcare data are generated every time you post a charge, every time you post something on someone’s electronic medical record, every time you post a payment, and every time you post a deposit. Mr Cook outlined a plan for the audience: “Use it to know what to ask for. Know what to ask for and who to ask in your practice system. Know your costs. Know your volume. Know your competitors. Do a reimbursement analysis and you will know immediately what kind of payment rate you should ask health plans for. If a health plan sends you 2 patients a year, you would not accept the same rate for them as you would for a plan that sends 40% of your business.”

He noted that data should tell you what to ask for. “Use it to increase confidence in your practice; build internal support so that you have something to back into in the heat of battle. Test and measure any challenges to your plan. Make compelling arguments and take control over the discussion. But let the facts, the data, speak for you.  Let the data take the conversation to the conclusions you have already reached,” Mr Cook counseled.

He offered 2 possible scenarios for negotiating rate increases:

  1. Seek a meeting with your lowest-paying health plan and ask for a rate increase. Tell the plan’s representatives honestly that they are your lowest payer and that unless they give you a specified increase (based on the chart you show them), you will terminate your relationship with them. If they come back with an inadequate rate increase, refuse it on the basis that it will not cover your costs.
  2. Schedule a meeting with your health plan’s representatives and explain that you have completed an analysis that you are eager to share. Make clear that you expect the increase you noted on your chart. Furthermore, explain that you will terminate if you do not get the rate you are seeking.

Then show them the data to illustrate your point; for example, you bought $7000 in services last year for which you paid an average of 103%, totaling $270,000 and costing you 113%. Explain that your average rate from all other plans, not including theirs, is 127%, noting, “That’s how far apart from the rest of the marketplace you are.” The plan will complain that their contracted rate is actually much better than 103%. In fact, it’s 120%. You then explain, “I know, but your policies reduce reimbursement to 103%. And I don’t have to take 103%. Here’s the math. Here are the figures.”

In both scenarios, you took control of the conversation with your data. “If a plan says they cannot afford to pay any more than what they are currently paying,” be aware that this translates as “we cannot earn what we want to earn if we pay you this much money,” Mr Cook explained. A practice can always terminate a plan. “When the termination letter arrives, the plan will almost always reach back out to a practice,” he said.

Whatever you do, he cautioned, “establish your strategy and base your decision on facts and figures. Don’t just terminate all plans that are below cost at once.” Before you meet with a plan, have all of the physicians in the practice agree to your decision to terminate a recalcitrant plan. They need to give practice managers the authority to negotiate.

To increase your leverage to the maximum, you must manage your capacity to less than demand. Do everything you can to improve your market position, then dive into the data. Learn Excel if you do not already know it, and get information on the resource-based relative value scale. Get off-the-shelf help from WinZip for Windows, Adobe Acrobat, and Monarch. In short, gather data and conduct your analysis, then schedule a meeting with your health plan.

Use the information you have gathered as leverage. “Don’t back them into a corner. Don’t insult them. Plan your strategies carefully using your data as a guide,” said Mr Cook. “And if your data have not provided sufficient answers, keep digging.”

The Semantics of Managing Payers
In answer to a question about being legally allowed to restrict scheduling based on insurance, Mr Cook related this story:

“I called Medicare twice. The first time, I asked if I could discriminate which patients I see based on whether they had Medicare or not? The answer was a resounding ‘No.’

Ten minutes later, I called back and asked, ‘May I manage how many Medicare patients I see, so that I have only a certain percentage of Medicare
patients in my practice?’ The answer was ‘Yes.’ Medicare cannot control how many Medicare patients you see. They also cannot prohibit you from managing your payers.”

Referrals
Most practices are not as dependent on referrals as they think. Group A includes your loyal customers who will continue to send you referrals for everything. Group B sends you some of their business, but not all of it. Group C only sends you 3-headed, 2-toed patients with Medicare. The group you need to focus on is Group B. You need to figure out why they send you only some patients. You need to tell them why they are important and treat them accordingly. Tell them why you are leaving a plan or how you would treat their patients without letting money get in the way.

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