Welcome to the new Outpatient Surgery website! Check out our login FAQs.
Negotiating Carve Outs for Orthopedic Implants
Reimbursements for anchors, plates and screws can mean the difference between profit and loss.
Jenn Carbin
Publish Date: October 10, 2007   |  Tags:   Orthopedics

The anchor you used in the rotator cuff repair costs $900. Your third-party payer won't reimburse you for it. Not one dime. So that tiny piece of titanium metal with suture attached to it just drained all of the profit out of the case.

"Pretty soon you'll stop doing that procedure," says Cheryl Munsinger, RN, BSN, CNOR, the director of surgical services at Good Samaritan Hospital in Kearney, Neb. "Maybe you don't give raises the next year. Maybe you buy used instrumentation because you can't afford new."

One way to restore the profit to your orthopedic cases is to negotiate carve outs for such expensive implants as washers, screws, anchors and plates. Even though the trend among payers is to limit reimbursement by cutting additional payment for high-cost supplies and implants, the people we talked to say it doesn't have to be this way.

Tips you can use
Before Ms. Munsinger joined Good Samaritan Hospital in 2003, she was director of clinical services at an ASC for seven years. She's all too aware that orthopedics can be a loss leader for both hospitals and freestanding facilities. Hospitals who treat a lot of Medicare patients (two-thirds of Good Samaritan's patients are Medicare-covered) get only 80 percent of the Medicare-allowable amount. "For a total joint replacement, the DRG barely covers all of our expenses," she says. And payers routinely balk at reimbursing ASCs for implants. Here's her advice for circumventing these challenges:

  • Submit claims wisely. Basic, but key. Include the invoice for the implant(s) and code appropriately. That means, according to Ms. Munsinger, being relentlessly specific and precise, sending pertinent documentation and coding up versus coding down.
  • Support your claim. If you're unsure of what you're going to get reimbursed when submitting a claim, attach the invoice for the devices and implants to the claim. You can also fax it or include documentation in the operative summary to support your claim. Bottom line: Demonstrate what your costs are, says Ms. Munsinger. "When you use multiple $100 screws or $500 anchors on one patient, that's pretty pricey and you'll be eating that cost of a shoulder or knee," she says. Be persistent. While at her ASC, Ms. Munsinger says payers routinely denied to pay for implants, even after she'd submitted invoices.
  • Meet with your intermediary. Set up a face-to-face meeting with your third party to get a better understanding of what it needs to reimburse you for implants. The more you can show what your per-case cost is (implant plus all else that goes into preparing for that case), the better your reimbursement might be. For ASCs, ask for fair market value of whatever the payer reimburses a hospital. "You should get at least your cost," says Ms. Munsinger. "If you can negotiate a better reimbursement, that's something you need to try to do."
  • Lay out your cost per case. You might also demonstrate to your payer representative what your total overhead costs are. This is compelling on two fronts. First, you'll likely demonstrate that you can do the case for less than your competition. Second, you'll relay in no uncertain terms how much reimbursement you need per case to keep your doors open and maintain your high standards of care. This involves more than understanding variable versus fixed expenses. Determine and keep track of the most efficient procedure costs with a reliable, sophisticated software system and surgeon preference cards, and show that you save money where you can. In addition to knowing your center's fixed costs, variable costs and what the payer typically covers, show that the implants and devices you use are necessary for efficiency and quality care.
  • Sharpen your purchasing pencil. If two anchors perform the same function and the outcomes are the same, buy the less expensive one. Negotiate two- or three-year contracts with your implant vendors to lock your prices in. Join a GPO or hire a materials manager to keep your other supply costs down. Finally, keep your physicians informed about what your implants' costs are.

Inside the mind of a payer
As younger baby boomers look to orthopedic surgeons and new technology to help them remain active and youthful, concerns continue that payers will not come through with reimbursements, hindering that growth. You have some power to affect the climate, though.

Darryl Galman, regional director of managed care for United Surgical Partners International, worked as a contracting administrator with Cigna, Aetna and Blue Cross before joining USPI. "I was actually the person on the other side of the table who was saying no to providers when they were asking for carve outs," says Mr. Galman. "My job was to dole out as little money as possible."

Now that the tables are turned, his job is to negotiate the highest possible reimbursement for the surgery centers in his territory. Mr. Galman says that many go wrong when approaching payers in not "fully understanding their needs and their own business." Here are his suggestions to consider when preparing to make your case. All involve knowing your business.

  • Pick your battles wisely. Consider the number of cases and net revenue that a given payer provides when deciding if and how to approach negotiations with that party. How much market share does the payer have in the provider's area? What is the number of employers involved with the payer in the area? Mr. Galman says, "In Kansas I have eight or 10 payers; they're spread out pretty evenly, within five percent of each other. In Virginia, I have three payers. Forty percent of that is Blue Cross."
  • Understand a payer's rules, restrictions and parameters. As a result, you won't waste time trying to negotiate items that are unrealistic or not key to your business (see next item).
  • Negotiate for your key procedures. Why not negotiate with payers so that you receive a high reimbursement for the half-dozen procedures that comprise 70 percent of your cases, and accept a lower reimbursement for all other procedures? "People get hung up on high-cost implants that they don't do that often," says Mr. Galman.
  • Be flexible. If the payer can or will do carve outs, negotiate, says Mr. Galman. If not, proceed to negotiations for a higher group or category for a particular device. Or try to improve your grouper rates themselves. Negotiating for a better grouper rate is often more productive due to the way payers do business these days. And a small raise in reimbursements for an entire group can be more profitable than one big carve out. In addition, as Mr. Galman points out, payers want to process everything automatically, and groupers facilitate that.
  • Make friends. Don't go in viewing the payer representative as an adversary. If you have a thorny relationship with your representative already, work to improve it. Reps can help you understand trends. And you want to be at the front of the line when they're considering exclusive contracts and innovative strategies. "There's no conspiracy theory. Understand that no one's sitting there in a dark room thinking of ways to withhold payments," says Mr. Galman.

Building your case
"Payment for implants can be the deciding factor in whether a case is profitable," says the director of a surgery center who asked that we not use her name, fearful she'd jeopardize ongoing carve-out negotiations with a third-party payer.

Her surgery center does a high volume of orthopedics cases. As is typical, the payer has reimbursed the ASC similar to Medicare's, which means that much of the time it doesn't reimburse for orthopedic implants. At a recent meeting, the insurer asked the administrator to list her top three concerns. Nos. 1, 2 and 3 were identical: Getting reimbursed for expensive implants, namely the following:

  • anchors for shoulder repair, costing between $500 and $1,200 each;
  • plates and screws for small-bone fractures, with plates costing between $200 and $600 each and screws costing between $50 and $100 each; and
  • screws for ACL repairs costing between $1,200 and $1,400 each.

The administrator and her team brought the following documents to the meeting to demonstrate how the payer had come up short in the past and how, as a result, the center had lost money:

  • invoices for the costs of the more expensive orthopedic devices;
  • invoices showing other supply costs for the same cases; and
  • paperwork from the insurer showing reimbursements for those items.

She's optimistic about the results of the meeting. "They were very receptive to what we had to say. I feel the meeting was very positive."