By John Collier CEO IMCS (Innovative Managed Care Solutions)
PROVIDERS OUT THERE ARE STRUGGLING WITH RISING COSTS. Over the past two (2) years additional fuel has been added to this fire. From material increases and supply issues, to nursing staff shortages due to COVID retreats, costs continue to rise though daily hospital revenue continues to decline. Provider’s budgets, exasperated by the loss of performing electives during the Covid lock-downs, are further traumatized by traveling nurse’s ability to obtain $10,000 plus sign on bonuses, just to maintain the same level of care. This is just one of the many “new” costs that providers have had to add on top of their already stretched budgets.
To rub salt in the wound, the inflation numbers for the twelve months ending May were recently released. The overall number came in at 8.6%, even higher than the 8.5% for the twelve months ending March and the highest number we have seen for over 41 years. Many reading this may not even be old enough to recall inflation at such a level. In fact, over the nine (9) years between 2012 and 2020 inflation was never above 2.3%, in 2019, and was as low as 0.7% in 2015[1].
Because inflation has been so low for such an extended period of time, many providers have managed care contracts, with little to no annual increases for cost of living. It is not unusual to see these agreements with a 1% to 3% increase, or even some physician agreements with no annual increase at all. With inflation at such a low level, it was barely a consideration when negotiating payer contracts in the not-too-distant past, but today the economic landscape has changed significantly.
So how is this monumental increase in inflation affecting Payer reimbursements and more importantly, the provider’s profitability? The answer is it can have a dramatic effect. There are at least two (2) other factors associated with this sudden rise in inflation affecting providers.
First, Medicare, Medicaid and other governmental reimbursements typically make up 50% to 60%, and often an even greater percentage, of a provider’s total revenue. Unfortunately, even before inflation was a factor, at best, most providers saw the government programs as a break-even revenue source. This means that the remaining business, the non-governmental portion, must contribute 100% of the profit including compensating for increases in inflation.
Second, managed care agreements are typically for one to three years or more. This results in locking a provider in a losing scenario in which costs are outpacing the opportunity to increase revenue by huge margins.
The big question is what can be done to rectify this scenario and keep providers in business and profitable? The quick and simple, but often uneasy and difficult answer, is to renegotiate managed care agreements.
Going back to a payer to renegotiate a cost-of-living increase, outside of the normal cycle of contract negotiations, can be uncomfortable for many providers. Providers first need to realize that Payers are already acutely aware of how inflation is impacting their reimbursements, and opening discussions, because of the current economic climate, would not be totally unexpected… and maybe even anticipated. We are in difficult times after all, and often circumstances dictate how we must move forward. Still, the reality is, payers are not going to pursue adjustments to their agreements unless approached by a representative of the provider, which brings us to another important point.
Providers who have never considered working with an outside source may want to consider it when approaching a Payer with an “out of cycle” contract modification. If a Provider has any apprehension at all, it can negatively carry over into the negotiation itself. Working with an outside source, familiar with the market and the industry at large, and experienced in negotiating with even the most difficult of payers, can play a critical role in protecting your revenue sources. And seeking professional assistance can mean as little as just seeking council, to allowing the outside source to handle all negotiations and analysis.
For over twenty-five years Innovative Managed Care Solutions (IMCS), has successfully represented providers in protecting and optimizing critical revenue streams through professional Managed Care /Third Party management. The single greatest asset a provider can have is the flexibility of “taking immediate action.”
Because “inflation based” increases have been such a non-issue for so many years and an indirect impactor of reimbursement loss, its importance continues to fly beneath the radar of many providers. And the significant, but often unknown, drain on revenue that it represents is “bottom line profit” that is never realized until it’s too late, and once gone, can never be recovered. Having ready access to expertise beyond your walls and the industry at large, is to have the “Best Practices” measures in place to protect and ensure reimbursement integrity.
We often encourage providers to talk with us, even if only for future reference. If you have questions about this article or any other managed care issue, feel free to reach out to me. I look forward to hearing from you.
John Collier CEO
IMCS
615-306-0915
*[1] https://www.usinflationcalculator.com/inflation/current-inflation-rates/