Payer and Network Contracts

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It is time to listen up and notice!

By Rick Katz, PT, DPT, MA

I would assume that the vast majority of physical therapists in an outpatient environment have not really taken the time to read through many of their payment contracts with insurance companies. Why do I assume this? I was one of you until I got burned a number of years ago. There was a simple statement in a contract that provided me with a flat per visit rate. The rate was acceptable to me; however, that was not what I was paid. Elsewhere in the agreement there was a section that described the administrative fees. As it turned out, this contract was not with an insurance company at all; it was with a third party who administrated claims on behalf of many insurance companies. The net result was that I was now going to receive a discount from a multitude of payers from which I was already being paid a contract rate! I learned quickly that by just signing an agreement I would not get more business at a good rate but I would get the same business at a discounted rate. Thus my interest in payer contracts and contract negotiations began.

A physical therapist should be able to review a contract and get an overall sense if it offers beneficial terms. The contract goes beyond what you will be paid for your services. Recently many of us have been offered contracts that insert themselves between the provider and the payer as a third party administrator (TPA). The TPA may provide a service to the payer by managing their network, credentialing providers, and controlling utilization. Unlike the provider networks that represent therapists in negotiating contracts with payers, these networks work for the benefit of the payers and themselves. One would think that the payer would pay a nice sum to provide these services. In reality they often offer to provide these services to the payer and save them money. How do they accomplish this? They lower their payments to the providers and control the number of visits a patient might receive. In effect, when you participate with one of these entities you are agreeing to sign a secondary contract that reduces your payment and visits more than your primary agreement with a payer. You are agreeing to allow this TPA to insert themselves between you, the patient, and your referral source in the medical management of your patient. Why do we do this? One explanation is that we fear that by not signing the contract we will lose business. That might be true but if all of your payers adopt this new rate, would you survive? There are some simple things that you should do before signing such an agreement. I recommend that you have an attorney review the contract if the language is not clear to you.

Know Your Costs

If you do not know what it costs you to deliver care, then it will be virtually impossible to know if the terms being offered by the payer would be favorable for your practice. The easiest calculation of costs can be done on a per visit basis. In the private practice environment it is a simple calculation of your total annual costs divided by your annual visits. It is important to include the normalized compensation of the owner as part of your costs. Normalized compensation removes the added bonus or distributions that you pay yourself in addition to a salary. As an example, if your annual practice costs are $625,000 and you perform 9,300 visits per year, your cost per visit would be $67.20 per visit. That should give you an idea of where you should price your services when negotiating a contract with reimbursement based on a typical visit. If you are capable of providing more visits without increasing your costs, then you will see your cost per visit drop. The goal would be to build in a profit margin above and beyond your cost to derive a profit. Compare the initial proposed payment with your cost plus an expected profit margin. Note that some payment scenarios are complex and may not provide you with language that is clear enough to determine your exact payment. One way to approach this is to present a typical patient bill to the payer and ask them to price the payment.

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It is far more challenging to establish your cost per visit in an institutional setting. If your employer provides profit and loss statements by cost center, you have some ability to perform the calculations as you would in a private practice. If these numbers are not available, you may be able to request the allocation of indirect costs for your department. This along with an idea of staffing, benefit, and supply costs may provide enough information to make an estimate of your costs per visit. If you are reviewing an outpatient contract, then only include the space and overhead devoted to outpatient services.

Determine Market Penetration

Market penetration of the payer is important as often payers offer access to patients in exchange for a lower rate of payment. This is most likely true only if there is a significant concentration of enrollees in a 5-mile radius from your facility, and the area is underserved by physical therapists. I would suggest that you first check the website for the payer to see if they post a provider list. Check on the following:

  1. Referral sources that are currently sending you patients. Are you missing out on additional patients from this referral source because you do not have a contract?
  2. Who are the other physical therapists on the panel and do they currently compete with you?
  3. How many of your current referral sources are not listed? You may want to contact them to see if they plan to obtain a contract with the payer.
  4. How many potentially new referral sources are listed? Will signing the agreement allow you access to these patients?

In addition to this information you should ask the payer to provide you with enrollment data for zip codes in your market area. You should also ask which employers offer their insurance to their employees. You cannot rely solely on residents in your community as targeted patients. Often individuals seek care close to work even though they live outside of your market.

Read the Fine Print

This is the area that creates the biggest challenge for the physical therapist. Here are some red flags that you should look for and understand:

  • Assignment of the Agreement: Can the contract and payment terms be applied to any other payer without your consent? If so, the discount that you just accepted can be applied to other payers who may currently be paying you at a higher rate. By signing you may have just discounted a majority of your business.
  • Provider Tiers: Does the contract allow for you to be placed in a tier level? If so, know your initial placement and the criteria used to gain a more or less favorable position. Tier levels are often determined solely on utilization. The tier may require you to submit paperwork after the initial evaluation to get approval for additional visits. It is rare to see a tier system that pays you more and allows for more visits based on your outcomes versus utilization.
  • Fee Schedule: Is the fee schedule an addendum or attachment to the contract or is it found in the body of the agreement? Many contracts allow the payer to modify an attachment without your approval. This would mean that the contract rates could be decreased without you having the ability to renegotiate. Understand your rights for renegotiating rates.
  • Definition of Covered Services: Are there exclusions for services that you provide? Most contracts require you to bill using current procedural terminology (CPT) codes. If specific codes are not covered, they can reduce a per visit or per diem rate accordingly.
  • Definition of Medical Necessity: Who establishes medical necessity and what type of professional (or nonprofessional) handles the appeal process?
  • Out of Network Benefits: Find out what the out of network benefits are. You might find that you are better served by seeing these patients and balance billing them.

Negotiate

Payers may not be easy to negotiate with, but you should always attempt to seek payment that is commensurate with the resources provided. This may require that you explain why your practice requires a higher rate. Highlight the unique skills of your staff, therapist-to-patient ratio, unique services and programs, and type of documentation. This may get you nowhere but do not be surprised if they come back with a higher rate. A couple dollars per visit may be a true victory with some payers. Contracts have a term duration. It is common for contracts to just roll over from year to year; however, it is at this rollover date that you usually have a window to renegotiate the contract or cancel it.

If it is bad for you, then it might be bad for all of us.

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Unless you are in a desperate situation where you need business at any price to survive, it is best to walk away from a proposal that does not meet your rate requirements or sends up red flags on other contract points. In effect, contracts and networks turn a discounted service fee (negotiated between an individual provider and a specific insurance company) into the usual and customary fee for the entire physical therapy industry. Every clinic owner is at risk of experiencing additional payment reductions, and this is largely because when many providers accept low rates the outcome is felt throughout the profession. A payer network must provide adequate coverage to the enrollees in order to fulfill its legal obligation in the State of California, for example. When insurance carriers cannot present a viable provider network, it presents the opportunity for individual practices to negotiate fair and appropriate payment for services with other nonpredatory networks. If you are unsure of how a contract will impact your practice, then seek advice. I have been told more than once that the terms of the contract are nonnegotiable. If you sign a bad contract, it could shut you down and impact the rest of us.

Resources are available within the American Physical Therapy Association (APTA), most state chapters, and the Private Practice Section (PPS) websites to assist you. A good contract may contribute to the success of your business. Pay attention to your contracts!

Rick Katz, PT, DPT, MA, is the president and chief executive officer of Adient Physical Therapy, which operates clinics in Alaska, Arizona, California, and Oregon. He serves as the chairperson for the California Physical Therapy Association’s Payment Policy Committee, is a member of the Finance Committee, and also serves on the Private Practice Section’s Payment Policy Committee.

How to Trap Your Way to Accountability

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By Tannus Quatre, PT, MBA

Ever set a commitment for yourself and fail to get it done? Sure you have—we all have.

It might be that 5 a.m. run we carefully planned the night before, or it could be to get through our unread emails by the end of the day.

Sometimes the stakes are even higher—like carving 5 percent from the expense budget or having a sit-down with an underperforming employee.

Despite our best intentions, being accountable only to ourselves for getting important things done is a system rife with flaws.

Now, of course we did not become physical therapists without a healthy dose of self-discipline and an unwavering drive. We all have that—but it is not always going to be enough. It is easy to let ourselves down from time to time because often there is little immediate consequence.

But letting others down is much harder.

The thought of looking in someone’s eyes and admitting to failure makes me quiver.

And this discomfort can be used as great leverage in our pursuit of execution.

By making ourselves accountable to others, we will get some really important stuff done. And it is easy to do.

When setting a commitment, start by defining it for yourself—clearly. Tell yourself exactly what you will do, and by when. If you need to be more disciplined with your spending, set a measurable and time-based target such as, “I’m going to commit to reducing my variable expenses next quarter by 5 percent.”

Once you have established your commitment, then you need to set what I call the “accountability trap” for yourself. The accountability trap ensures that you will not be able to slide by with anything less than a valiant effort toward your commitment. Set your trap by voicing your commitment to someone who will hold you accountable.

In your business, your accountability options are plenty, but I prefer confiding my commitments to someone who I can trust to actually keep me accountable—someone who I respect enough to care about what they think of me, and someone who respects me enough to hold me to task.

This could be a business partner, a member of your management team, or a mentor. The possibilities are endless as long as you share your commitment with someone who will actually keep you accountable.

Not only is this exercise as easy as it is powerful, but it also serves the benefit of modeling a culture of accountability within your organization. By demonstrating the importance of accountability for your own behaviors, those you entrust to hold you to task are also learning an important lesson in accountability for themselves as well.

Performed strategically, you might be surprised at the difference this technique can have on a bottom line.

tannus_quatre Tannus Quatre, PT, MBA, lives at the intersection of physical therapy and entrepreneurship, spending his time helping physical therapists build and operate successful practices through his company, Vantage Clinical Solutions. He specializes in marketing, finance, and business planning, and authors and speaks regularly for the APTA and PPS. He can be reached at tannus@vantageclinicalsolutions.com.

Leadership

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When was the last time you asked, “Why are we doing it this way?”

By Hal Gregersen | Reviewed by Jean Darling, PT, LAT

As I researched good articles to read on leadership, this one caught my eye. I think all of us in physical therapy who practice within an organization larger than a one-stop shop can ask ourselves this question. Perhaps even if you are a solo practitioner, you may ask yourself this question, but phrase it as, “Why am I doing it this way?” When an organization or an individual experiences success in any manner, it may be difficult to alter the path we have been following. Brian Cornell, CEO of Target, inherited a struggling company a few years ago, stating they were sticking too close to their core and not taking enough risks. He took time to ask questions, seek to understand what was going on, and contemplate his approach. Based on the article, this appears to be the philosophy other leaders utilize when striking off down a new and unchartered path. The three main concepts I garnered from the article were:

  • Create a questioning ecosystem through diverse teams.
  • Stay curious.
  • Challenge the status quo and, when needed, start from scratch.

I believe every one of us would be lying to ourselves if we thought we knew all the answers; a strong point is made to surround yourself with diversity of perspectives. Successful leadership is not just about the leader; it is about the team. Leaders must constantly find new solutions to problems.

Curiosity should not end when you find one solution to the problem. “Why are we doing it that way?” was the guiding question that fueled Guy Wollaert’s curiosity when he first joined the Coca-Cola Company and was designing new factories. “I found those questions were not always as basic as I thought. If you want to design a good factory you have to know what happens before and you have to know what happens after. You put it into the bigger context.”

Organizations can be very good at the “improvement process” with consistent process upgrades. But leaders should not be afraid to erase the chalkboard sometimes and start from scratch, as the end result may be a 180-degree turn from the current process.

In our physical therapy business there may be times we need to throw out the old and bring in a new billing or EMR system, or begin an entirely new “branding” for our current company. In order to avoid complacency, use Gregersen’s 3 concepts and keep refreshing your leadership style.

The article can be found at https://hbr.org/2016/04/when-was-the-last-time-you-asked-why-are-we-doing-it-this-way.

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Jean Darling, PT, LAT, is an Impact editorial board member and co-owner and vice president of Advanced Physical Therapy & Sports Medicine, Shawano with six locations in Wisconsin. She can be reached at jean@advancedptsm.com.

Education Committee Report

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By Jason Sanders, PT, DPT, OCS, GCS

When Private Practice Section (PPS) members are surveyed, the number one reason for membership is their desire for education. This desire covers a broad range of arenas within our profession, including public relations and marketing, finance, government affairs, technology, and payment policy just to name a few. It is with this in mind that the PPS Board develops its strategic plan and tasks its volunteer-based committees with meeting the needs of the organization and its membership. The portions of the strategic plan tasked to the Education Committee span several realms important to the PPS membership. As we strive to develop content that will meet the needs of our membership, it requires development of independent projects within our committee as well as collaboration across multiple other committees.

This year the committee continues to develop and manage our ongoing initiatives to provide and promote educational opportunities that advance business aptitude for the physical therapist–owned business. In this realm we continue to coordinate the “Essentials to Starting a Private Practice” and the “Taking Your Practice to the Next Level” courses being offered as a pre-conference course at the Combined Sections Meeting (CSM). Additionally, in conjunction with PPS staff, we continue to offer monthly webinars on hot topics pertinent to the private practitioner. Perhaps our most important ongoing initiative is working with PPS staff to develop and launch the new learning platform. It is nearly up and ready to go. However, a couple of technical challenges are still being addressed.

The new initiatives in the past year are what excite our committee the most. In the past year, we have developed a series of entry level and beyond videos across a broad range of content areas that will be shared with PPS membership via the new learning platform. The first set of videos on public relations and marketing featuring Scott Wick and Lynn Steffes has been completed and is being prepared for release. The second series of videos, on the topic of finance, is scheduled for recording in August and features Chuck Felder and Jeff Ostrowski. The final installment in the 2016 series is to focus on Key Performance Indicators (KPIs) for your practice and will feature Eric Sacia and Mike Osler.

Our largest and most exciting initiative for 2015–2106 is the development of the Peer Advisory Groups. These groups are similar to Mastermind groups, which are present across our country and serve a broad range of professions. These groups of similar businesses from noncompeting markets will meet twice a year to discuss hot topics and share expertise, analyze operations, build lifelong friendships and work toward helping each other improve their bottom line. The beta test groups have already met and given rave reviews. The first group of open enrollment practices (nearly 40 practices) had their first meetings in April.

I would like to thank the outgoing chair Zoher Kapasi, outgoing board liaison Jeff Ostrowski, and incoming board liaison Mike Horsfield for their leadership and guidance. I would also like to recognize our ongoing committee members Rob Worth and Amy Gulledge, and would like to welcome new members Yogi Matharu, Tim Vidale, and Thomas Carlton. We look forward to working together both within our committee and in collaboration with other committees and individuals in an effort to continue to provide and promote educational opportunities that advance the business aptitude for physical therapist–owned business.

Aboveboard

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Recent compliance enforcement actions provide good learning opportunity for practices.

By Paul J. Welk, PT, JD
June 2016

The last few months of 2015 and early 2016 were not an ideal time for the coverage of physical therapy compliance issues in the media. During an approximately four-month period, a number of enforcement examples were widely publicized, and the Department of Health and Human Services Office of the Inspector General (OIG) issued a report that detailed concerning tendencies in physical therapy billing in skilled nursing facilities (SNFs). This article will briefly summarize the OIG report and three key enforcement examples during this time period. The purpose of these summaries is not to set forth a detailed description of the alleged mistakes of others, but rather to provide an opportunity for readers to consider actions to be taken in their practices to avoid similar regulatory scrutiny.

In a September 2015 report entitled “The Medicare Payment System for Skilled Nursing Facilities Needs to be Reevaluated,” the OIG “found that Medicare payments for therapy greatly exceeded SNFs’ costs for therapy. [The OIG] also found that under the current payment system, SNFs increasingly billed for the highest level of therapy even though key beneficiary characteristics remained largely the same. Increases in SNF billing—particularly for the highest level of therapy—resulted in $1.1 billion in Medicare payments in (fiscal years) 2012 and 2013.” Based on these findings, the OIG recommended that the Centers for Medicare & Medicaid Services (CMS): (1) evaluate the extent to which Medicare payment rates for therapy should be reduced; (2) change the method for paying for therapy; (3) adjust Medicare payments to eliminate increases that are unrelated to beneficiary characteristics; and (4) strengthen overall oversight of SNF billing.1

Within a few months of the publication of the OIG’s report, two enforcement actions related to therapy services in SNFs received significant media attention. First, on December 18, 2015, the US Attorney’s Office, Eastern District of Louisiana, announced a $10.3 million settlement against a splint supplier and its founder to resolve allegations that they violated the False Claims Act by improperly billing Medicare for splints provided to patients in skilled nursing facilities.2 The allegations centered on misrepresentations that patients were in their homes or other places that were not skilled nursing facilities in an effort to circumvent applicable bundled payment rules. This particular case initiated with a whistleblower, a former sales executive, who is set to receive at least $1.89 million of the recovery amount in connection with the settlement.

On January 12, 2016, the US Department of Justice (DOJ) announced a $125 million settlement to resolve a lawsuit alleging that a contract therapy provider violated the False Claims Act by knowingly causing skilled nursing facilities to submit false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary, and skilled, or that never occurred.3 The government alleged that the contract provider’s policies and procedures, including setting unrealistic financial goals and scheduling therapy to achieve the highest reimbursement levels, resulted in unreasonable, unnecessary services and artificially and improperly inflated bills. The government further alleged that the contract therapy provider’s initiatives presumably placed patients in the highest therapy reimbursement level, rather than considering the specific patient evaluation to determine the level of care; boosted the amount of therapy reported during reference periods; scheduled and reported therapy services despite the treating therapist’s recommendation for discharge; and reported estimated or rounded minutes instead of actual minutes for therapy provided. In addition to announcing the DOJ’s settlement with the contract rehab provider, on the same day the DOJ also announced settlements with four SNFs for their role in submitting false claims to Medicare based on the services provided by the contract provider. This settlement related to facilities in Massachusetts, New York, Pennsylvania, Texas, and Maryland. Of particular interest to members of the private practice community, this settlement stresses the compliance obligations placed on contract therapy providers, as illustrated by a comment in the DOJ’s press release which noted that “[all] providers, whether contractors or direct billers of taxpayer-funded federal healthcare programs will be held accountable when their actions cause false claims for unnecessary services.” It is also important to note that this settlement resulted in a payment of nearly $24 million to the whistleblowers, a physical therapist and occupational therapist who formerly worked for the contract therapy provider.4

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Finally, on December 23, 2015, the US Attorney’s Office, District of Delaware, announced a $710,000 settlement to resolve allegations of health care fraud under the False Claims Act by a three-clinic outpatient physical therapy practice.5 The settlement alleges that the private practice submitted claims to Medicare for physical therapy services performed by physical therapists and physical therapy assistants without the adequate supervision of a Medicare-enrolled physical therapist. In connection with the settlement, the practice and its parent company entered into a corporate integrity agreement6 with the Department of Health and Human Services Office of Inspector General.

Although these cases illustrate generally unwanted publicity for the physical therapy profession, the fact patterns and outcomes illumine a number of important issues for practices to consider on the compliance front. The compliance issues highlighted in these four documents include: (1) the fact that physical therapy services are clearly an area of concern for government regulators; (2) the importance of understanding payment rules and regulations, including those related to bundled payments, a payment methodology that will certainly become more prevalent on a going-forward basis; (3) the need to adequately address billing and compliance issues raised by employees and others in light of the potential financial benefits available to whistleblowers; (4) the need to adequately document the medical necessity of the services provided; (5) the fact that it is not only the billing provider that is subject to liability for compliance issues, but also the contracted service provider; (6) the importance of understanding conditions of payment; and (7) the importance that regulatory agencies place on a physical therapy provider having a compliance officer, compliance committee, written policies and procedures, adequate employee training programs, and other similar compliance best practices, as set forth in detail in the referenced Corporate Integrity Agreements. By considering these enforcement examples and identified issues, physical therapy private practices can better identify areas of compliance risk and take adequate steps to promote practice compliance. For those readers seeking further compliance guidance on these issues, in addition to the materials set forth in the footnotes, the Department of Health and Human Services, Office of Inspector General, publication entitled “OIG Compliance Program for Individual and Small Group Physician Practices”7 is an excellent resource.

Please note that this article is not intended to, and does not, serve as legal advice to the reader but is for general information purposes only.

REFERENCES

1. The Medicare Payment System for Skilled Nursing Facilities Needs to be Reevaluated. The Department of Health and Human Services, Office of Inspector General (September 2015). Available at www.oig.hhs.gov/oei/reports/oei-02-13-00610.pdf. Accessed March 2, 2016.

2. Splint Supplier and Its President to Pay Over $10 Million to Resolve False Claims Act Allegations (December 18, 2015). Available at www.justice.gov/usao-edla/pr/splint-supplier-and-its-president-pay-over-10-million-resolve-false-claims-act. Accessed March 2, 2016.

3. The United States Department of Justice, Office of Public Affairs, Press Release (January 12, 2016). Available at https://www.justice.gov/opa/pr/nation-s-largest-nursing-home-therapy-provider-kindredrehabcare-pay-125-million-resolve-false. Accessed March 2, 2016.

4. Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Rehab Care Group, Inc. and Kindred Health Care, Inc. (January 11, 2016). Available at http://oig.hhs.gov/fraud/cia/agreements/RehabCare_Group_Inc_and_Kindred_Healthcare_Inc_01112016.pdf. Accessed March 2, 2016.

5. Outpatient Physical Therapy Practice, Old Towne Physical Therapy, to pay $710,000 to Resolve False Claims Act Allegations, Press Release of the United States Attorney’s Office, District of Delaware (December 23, 2015). Available at https://www.justice.gov/usao-de/pr/outpatient-physical-therapy-practice-old-towne-physical-therapy-pay-710000-resolve-false. Accessed March 2, 2016.

6. Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and U.S. Physical Therapy, Inc. and Old Towne Physical Therapy Limited Partnership (December 21, 2015). Available at http://oig.hhs.gov/fraud/cia/agreements/Old_Towne_Physical_Therapy_Limited_Partnership_12212015.pdf. Accessed March 2, 2016.

7. OIG Compliance Program for Individual and Small Physician Practices (October 5, 2000). Available at http://oig.hhs.gov/authorities/docs/physician.pdf. Accessed March 2, 2016.

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Paul J. Welk, PT, JD, is a Private Practice Section member and an attorney with Tucker Arensberg where he frequently advises physical therapy private practices in the areas of corporate and health care law. He can be reached at pwelk@tuckerlaw.com.

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