Payors: Show them Your ..........S
Costs.
In the last several posts, we have taken on the discussion of insulated idealists vs. practicing practitioners, the defending of PTA’s, and now payors.
I am suggesting that private practices take on an unholy alliance with payors. The reason is simple, they NEED us but they don’t have to have us.
Let’s imagine that all private practices are eliminated tomorrow (ok, I know, most of the population doesn’t know that we exist anyhow). Who will provide PT and at what will it cost payors?
Yes, it will predominately be hospitals who enjoy “most favored nations” status due to their strong negotiating leverage. The conversation typically goes something like this:
Hospital CFO: “I am the only center that can provide TURP procedures, therefore you have to give 90% on my grossly inflated charges for outpatient ancillaries”
Payor Exec: “Call it 85% and you have a deal” (never mind that this ends up being 2–3x what an outpatient private practice fee schedule looks like)
Hospital CFO: “87% or you get no TURP jobs”
Payor Exec: “Deal”.
Yes, folks, we are often referred to during these negotiations as outpatient “ancillaries”.
Before I get hate mail from hospital PT’s, please know that I have no inherent disrespect at all for hospital based PT. In fact, in 23+ years of being in this business I have worked in them, have had multiple contracts with many hospitals and joint ventures of all types and flavors. In fact, I think the best alliance is with private practices and hospitals.
Back to them NEEDING us.
If we are out of existence, their outpatient costs go up significantly and patient access is severely impeded (typically doesn’t matter to a payor I realize but in consumerism lingo does carry some weight).
Why do they pay us so much less? Because we don’t have leverage in negotiations and we don’t do TURPS or have inpatient facilities that payors have to have for their beneficiaries. We readily accept their fee schedules-even the absurd below the cost one’s. It is referred as “Limbo Negotiation” (how low will you go) and PT’s will go to unprecedented low levels to assure that they can see patients and under some false pretenses that they are being more “competitive” in the marketplace and doing “good for mankind”.
Ahh, but we do have leverage. Our existence! Payors will have much less margin if all of their patients go to hospital or provider based centers (those reimbursed like a hospital). We can leave “quality” out of this equation because this is never a concern to a payor. From their perspective, “quality” is like “common sense”-everybody says they have it but nobody can define it or prove it and even if they could it is an assumption that they already had it. Besides, PT is deservedly viewed as a “commodity”-undifferentiated in the marketplace (I would have said “widget’ but the analogy doesn’t hold up because widgets have consistency and less variation, something PT doesn’t).
In most supply chain management interactions between buyers and sellers, competition has forced a closeness to the point that the suppliers share their financials to the buyer. In my opinion that is how we need to think. We have to make sure that transparency exists so that buyers can keep us in business.
Some examples (just examples folks, not product or retail recommendations) from typical supply chain management:
Major auto manufacturers want to make sure that the amount they are paying their suppliers assures some margin. They argue of course over that margin but an auto company needs sustainable suppliers so they can complete assembly of vehicles to market demands. The Japanese in fact create incredibly close “family” relationships to their suppliers.
Walmart has to make sure that P&G makes a profit on Tide so that they can continue to sell it at a low price to consumers because consumers want Tide.
How does this fit into private practice?
Show them your costs-primarily labor (typically 70% of overall cost). PT’s are a well educated bunch and coupled with a supply demand curve just this side of the Wii, prices are up without concomitant rise in reimbursement. The same for operating costs and facility leasing (roughly 20% of revenue costs). All in all, costs in most locations throughout the US are going to be $65–80 per visit. If you want to get real specific, get a cost accountant but you probably don’t need to go to that level.
You can also point out the over regulated part of our industry driving costs up as well as the excessive amount of time spent in documentation and non-billeable services.
Costs of private practices are much less than our institutional counter parts-they almost always will be.
Will it work? Probably not but it is much better than accepting contracts below your costs-something that is very contagious in the PT world.
But, it worth a chance and if it doesn’t we might all just might be working for the Turp factories.
Thoughts?
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