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Session Reading

Advanced Achievement in Transplant Management

 

Transplant Contracting

 

 

This section of the AATMC addresses the most important aspects of transplant contract evaluation. Transplant contracting can be complex, and the untrained eye can place too much, or not enough, emphasis on any given provision.  A seasoned contractor understands that a good contract structure at one hospital may not be appropriate for another hospital, due to variances in charge masters, policies on organ acquisition  charges,  average  lengths  of  stay,  etc.    The  ultimate  goal  of  this  section  is  to  give  the participant  the  essential  tools  to  be  able  to  identify  important  contract  issues,  and  ask  appropriate questions when evaluating a transplant contract.

 

Section Objectives:

 

      •     To understand the important industry terms used in transplant contracting

      •     Be able to formulate appropriate questions after reviewing the terms of a contract

      •     Be able to calculate stop loss and lesser of provisions

      •     To understand the different components of common case rate packages

•     To understand the use of inlier and outlier days, and when they are, and are not, important

•     To understand emerging trends in organ acquisition costs and methods used to address these rising costs

 

Not all Case Rates are Created Equal!!!!

 

If I offered you a choice of two case rates for your patient, would you pick: A) a case rate of $100K, or B) a case rate of $80K?  If ALL other variables were the same, then of course we would choose the lower case rate of $80K; however, without knowing if all of the variables are the same, we cannot answer the question. Well, we could answer the question, but not intelligently.

 

The point is that a good contract analyst will begin asking questions to assess the adequacy or value of a particular contract.  Here are a few questions that should be entering your mind on every contract:

 

      1)   What is included in the case rate?  Hospital, Professional and Organ?

 

      2)   If it is a BMT, are there services that rendered prior to the case rate are included in the case rate?

Examples would be registry search fees, mobilization, harvesting, etc.

 

      3)   If it is a living donor case, how are living donor charges addressed?

 

4)   Is there a stop loss provision, and if so, how high will billed charges have to get before the stop loss provision is relevant?

 

5)   What do we know about the hospital where the transplant is supposed to occur? For example, do we know:

 

 

 

 

a.   What average billed charges are for this transplant program?

 

b.   How the hospital compares to others when it comes to marking organ charges up over the

OPO invoice?

 

c.   Is this a COE program, thus lowering the likelihood of a high dollar case?

 

      6)   Are there exclusions for high cost drugs?

 

7)   Is there a Ventricular Assist Device (VAD) provision if it is a heart case?  Does the contract cover destination VADs if the patient is deemed not to be a transplant candidate?

 

      8)   When will the contract start and end?

 

     9)   Is the case rate inlier period long enough considering the average length of stay for this program?

Is the case rate inlier period too long considering the average length of stay?

 

10) Are there per diems?  If not, is there a need for per diems?  For example, some case rate contracts last until discharge, making a per diem irrelevant.

 

I could go on and on, but hopefully you get the point. All of these questions and many more have an impact on the true “value” of a contract.

 

Inlier Days and Periods

 

When we contract for a fixed case rate, the providers will want to define how many days the case rate will last.  In other words, a provider wouldn’t agree to a case rate with unlimited risk, which would be the case if we had a case rate without an inlier period or stop loss.

 

For example, if the provider contracts for a $100K case rate with 10 inlier days, that means that the case rate will not cover any inpatient days after the expiration of 10 days from the start of the inlier period.

For a solid organ, the inlier period typically starts the day prior to the transplant surgery.  For a BMT, the inlier period typically starts at ablative therapy.

 

The number of inlier days is straightforward, but how we count those days will depend on how the inlier period is defined. There are two common ways of defining an inlier period:  1) a bank of days, and 2) a non-bank of days.

 

We will start with discussion of a non-bank of days because it is the easiest to understand. If our contracted 10 inlier days is structured as a non-bank of days, then the case rate will last until the earlier of the patient’s discharge or the expiration of 10 days. Thus, if the patient discharges on day 8, the case rate is finished, even though we had contracted for 10 days. If the patient discharges on day 12, the case rate ends on day 10 (there would likely be per diems that would apply in this scenario, but we will defer this discussion for now).

 

The other way we could define the inlier period is by using a bank of days methodology.  This concept is commonly confused by people when they first hear the term.   The common mistake is to think of a bank of days as allowing you to have your inlier days in the bank and unused days sit in the bank for future use. Note that we could design a contract to work this way, but this is not an industry standard.

 

A bank of days is commonly structured so that the case rate covers both inpatient and outpatient services and ends upon the expiration of the inlier days.  Note the important distinction between the bank of day  and the non-bank of days: a non-bank of days by definition does not cover outpatient treatment because it ends upon discharge.     

 

Consider the example we used in our non-bank of days discussion.  If we contracted for 10 inlier days, and the patient discharges on day 8, our case rate is good for 2 more days of inpatient or outpatient treatment.  However, if the patient discharges on day 12, both the bank of days and the non-bank if days methodology would end the case rate on day 10 (again, per diems would likely apply in this situation).

 

There is one other common way to structure an inlier period and that is to not have an inlier period.  For example, the provider could agree to a case rate until the patient discharges, whether that is 5 days, 50 days or 500 days.  Before you get too excited, understand that this type of contract structure will always

be accompanied by a stop loss provision to protect the provider.  Remember that a savvy provider is never going to assume unlimited risk.

 

Per Diems

 

In our prior examples we discussed the possibility that a patient could be inpatient for longer than the contracted number of inlier days.  We deal with this type of situation through the use of per diems.  A per diem is simply a flat daily rate that covers the hospital, professional, or both.  Some people think of it as a daily case rate.  Let’s revisit our example with 10 contracted inlier days and the patient is in the hospital for 12 days.  In this situation, the case rate ends on day 10, but if per diems are in the contract, then days

11 and 12 would accrue two additional per diem days.

 

Lesser of Language

 

Lesser of Language is a deceptively simple concept. I say deceptively simple because it is often misunderstood. What is it? A minimum guaranteed discount that will be important if a particular case accrues low billed charges due to, for example, a great medical outcome. The provision is typically structured in the following manner:  Payor will pay the lesser of the case rate or 80% of gross billed charges.  In other words, the payor will pay the case rate, unless the savings accrued does not generate at least a 20% discount, in which case the payor would be 80% of billed charges in lieu of the case rate.

 

People often think lesser of only applies when billed charges come in lower than the case rate.  While it is true that lesser of language applies in this situation, it is not the only time it applies, i.e., it could also

apply if billed charges are higher than the case rate.  Again, if you remember that it is simply a guaranteed minimum discount, you won’t go wrong.  Let’s consider and example where we have a case rate of $90K and gross billed charges of $100K.  If there is no lesser of language, then we would pay the case rate of

$90K and there would be a 10% savings.  However, if there was lesser of language that guaranteed a 20% discount, then we would pay 80% of 100K, or 80K (10K less than the case rate), thus accruing a 20% discount.

 

Stop Loss

 

A stop loss provision is essentially the opposite of the lesser of provision.  While the lesser of provision guarantees the payor a minimum discount, the stop loss guarantees the provider a minimum level of reimbursement.

A stop loss, to a certain extent, exists in every transplant contract.  No, there is not a typo in the last sentence … I really did just say that. To understand why I said that, we need to first evaluate what the term stop loss means.

 

To truly have a no stop loss contract, we would need to have a transplant case rate that would cover the patient’s inpatient stay regardless of length and amount of billed charges accrued. I have never seen such a contract, and I doubt I ever will. Why do I say this? While transplants are relatively predictable, there is still uncertainty.  We still occasionally see the multi-million dollar transplant cases, even from the highest quality programs.  Would you want to be the hospital negotiator that contracted for a $150K case rate on a patient that ended up inpatient for 3 months and accrued 2 million dollars in billed charges?

 

Let’s start from the beginning of time and speculate on how the early transplant negotiations went. I would guess that the first payor negotiator proposed a transplant case rate with no restrictions. The hospital probably came back and said that they need to define how long the case rate will last, because the providers can’t take unlimited risk.  Hence, the creation of the inlier period to limit the risk to the providers.  If you think about it, the inlier period is a form of a stop loss.  The payor’s response would be that they do not want an inpatient stay lasting beyond the inlier period to fall into the post-transplant phase discount. The two sides compromise and agree to per diems for days beyond the inlier period. The benefit to the payor is that the per diem methodology will provide more certainty than a percentage discount in the post provision, and the benefit to the provider is that additional revenue will be paid for patients in the hospital longer than expected. Again, notice how the per diem works to limit the risk, or stop the loss, of the provider.

 

To simplify the administration of transplant contracts and provide even more risk mitigation to the providers, overall savings caps were implemented. These savings caps, or minimum payments, are typically what people think of when they refer to a stop loss provision. The form of these overall caps can take numerous forms.  A common form of an overall cap is to limit the overall savings the payor can achieve in the transplant phase, sometimes called a maximum achievable discount or minimum payment provision.  Another form is to set a stop loss threshold (i.e., dollar amount), with all billed charges in excess of the threshold being reimbursed at a predefined percentage of billed charges.  As with most provisions in contracts, the contracting parties can agree to structure the terms in any manner they wish, thus a stop loss provision can take numerous forms.

 

Problematic Stop Loss Provisions

 

As I asserted above, a contract without any form of hospital protection is unrealistic.  But a hospital can get so aggressive with their stop loss provisions that they defeat the entire purpose of a case rate. Typically, problems with stop loss provisions take two forms, or a combination of both.

 

First, we have the problem of a low stop loss threshold.  For example, if the contract sets the maximum savings at 20% then one has to begin wondering how often that stop loss threshold will be reached.  A stop loss provision, in my opinion, should be used to protect the hospital from outlier cases, or lightening strike cases.  If the stop loss is being triggered in 9 out of 10 cases, then there is clearly a problem with the contract that needs to be addressed.

 

The second type of problem that can be encountered is the situation where the stop loss threshold may be appropriate, but the gross billed charges are excessive, thus triggering the stop loss provision too frequently.  Most of the time, this situation is tied to how a hospital prices its organ acquisition charge.

 

 

 

 

An aggressive hospital could bill, for example, 200K for a kidney/pancreas.   If our case rate is 100K with a 50% maximum discount, then you can see that the organ charge alone as already triggered the stop loss provision, so all of the hospital and professional charges will be paid pursuant to the stop loss provision.

A 50% discount may or may not be a good discount at the hospital in question, but my point is that this scenario degrades the integrity of the case rate, i.e., it is really a percent discount disguised as a case rate contract.

 

Comparing Contracts: What is Important?

 

The biggest mistake contract evaluators make is they lose sight of what really matters:  how much is PAID! The “best” contract is the contract that will render the lowest payable.  It sounds so obvious, but people commonly get distracted by the following issues:

 

1)   Savings

 

2)   The existence of a stop loss provision

 

3)   The amount of the case rate

 

4)   The length of the inlier period

 

5)     The organ charge

 

I’m not saying that items one through five are not important, I’m simply stating that they should not drive your decision if you do not understand all of the variables.  Let’s go through each item to illustrate how focusing on that particular variable will lead to the wrong answer.

 

1)   Savings: Would you pick a contract at Hospital A that creates a payable of $400K with a

50% savings, or would you take a contract at Hospital B that only produces a 25% savings

and a payable of $200K? You would pick the lower savings because you will pay $200K less for the same procedure.

 

2)   Existence of a Stop Loss Provision:  Let’s assume that Hospital X has an average gross billed charge of $250K for a liver transplant.  You can pick contract A with a case rate of

$150K, and a maximum discount of 50%, or you can pick contract B with a case rate of

$225K and no stop loss provision?

 

Let’s do a little math.  In order for you to trigger the stop loss provision in Contract A, you need to generate 300K in gross billed charges (150K/300K = 50% savings).  Now the question is how much in billed charges will you need to accrue over 300K to generate an additional 75K in payable? Note that the reason you need to ask this is because the contract B has a case rate that is 75K higher than contract A, i.e., we want to figure out when both contracts will generate the same payable. The answer is an additional $150K in billed charges will generate an additional $75K in payable under the contract A.

 

Thus, gross billed charges would need to total $450K before contract A and contract B will produce the same payable. If billed charges come in lower than $450K, then contract A wins. If billed charges come in higher than $450K, then contract B wins.

 

 

 

 

 

 

Recall that in my hypothetical, the hospital’s average gross billed charges are $250K. This means that contract A will likely outperform contract B in most cases.  Yes, there will likely be an occasional case at Hospital X that produces gross billed charges over $450K, but it will be rare, and the prudent financial choice is contract A because the odds are far greater that you will pay less under contract A than you will under contract B.

 

 

 

3)   The amount of the Case Rate:  Contract A has a case rate of $75K with a maximum discount of 25%, and contract B has a case rate of $100K with a maximum discount of 50%.  Which contract would you choose if the average gross billed charge for this hospital’s program is

$200K?

 

Let’s do some math.  First, figure out the amount of billed charges that will produce the same payable under both contracts.   We know that the stop loss will be triggered under Contract A at $100K in billed charges (75K/100K = 25% savings). Because Contract B has a case rate of

$25K more than Contract A, we need to determine how much in billed charges will have to accrue over contract A’s threshold to generate an additional payable of $25K. If we take 25K divided by 75% (because we have to pay 75% of billed charges over the threshold), we get a gross billed charge of $33,333.

 

When gross billed charges equal $133K, then Contract A and Contract B will produce the same payable.  If billed charges are less than $133K then Contract A wins, and if billed charges are more than $133K, then Contract B wins.

 

In the hypothetical we said that the average gross billed charges are $200K, which means that odds are Contract B will produce a lower payable on the most cases, despite the $25K higher case rate.

 

4)   The Length of the Inlier Period:  All things being equal, you would pick the contract with the longest inlier period, correct? Yes, however, all things are NOT equal! Everything comes at a cost in contract negotiations, so if you want a little longer inlier period, you will pay for that somewhere else in the contract, e.g., a higher case rate, a less attractive stop loss provision, higher per diems, etc.

 

If I told you that Hospital Y’s average length of stay for a liver patient is 10 days, and you have the choice between Contract A with an inlier period of 20 days, or contract B with an inlier period of 30 days, which will you pick?  If all other things were equal, you would clearly pick contract B with the longer inlier period.   But we know all other things are not equal.  If you assume that the hospital negotiator is competent, then contract B will pay for the extended inlier period somewhere else in the contract. With this in mind, I would choose Contract A, because its inlier period is sufficient to cover the majority of the patients at this hospital with a 10 day average length of stay.  Furthermore, if there is a stop loss provision in this contract and a patient goes over a 20 day inpatient stay, you will likely have a case that will hit the stop loss, thereby making the inlier length irrelevant.

 

5)   The Organ Charge:  You can go to Hospital X that bills $150K for its cadaveric liver acquisition charge, or you can go to Hospital Z that bills $50K for its cadaveric liver acquisition charge.  Which hospital do you pick?  Your answer should be that you can’t

answer the question without more information!

 

What if I told you that Hospital X’s contract has no stop loss protection in the inlier period, but Hospital Z does? This wouldn’t necessarily mean that Hospital X’s contract is better, but it WOULD tell you that the amount they charge for the organ is completely irrelevant.

Which contract is actually better would require many more facts.

 

What if I told you that the organ charge at Hospital X is carved out of the case rate and reimbursed at OPO cost.  Again, in this situation, Hospital X’s gross billed charge acquisition

fee is irrelevant because we get the organ at OPO cost.

 

Conclusion

 

The point here is not to make you a contract expert in 7 or 8 pages of text, or a one hour webinar on contracts. The hope is to start to build a foundation for you to be able to ask the right questions, and not fall into the common traps. Contracting and contract analysis can be very complicated, so I encourage you to keep educating yourself, don’t be afraid to question your network, and keep  your eyes out for future AATMC advanced contracting classes!!

 

                                                                                                                               

 

 

 

 

 

 

 

Glossary of Contracting Terms

  • ALOS:                  Average Length of Stay for the transplant admission.  See www.srtr.org

 

  • Billed Charge:     The gross billed amount from the provider prior to applying any contractual discounts

 

  • Case Rate:           Fixed fee payment that covers the transplant event and a certain period of time following  the transplant

 

  • Inlier Days:          The number of contracted days within the Inlier Period

 

  • Inlier Period:       The period of time that defines the scope of the Case Rate, i.e., how long the case rate lasts

 

  • Floor:                   A term used to describe a Stop Loss provision

 

  • Lesser of:             Guaranteed minimum discount to the payor

 

  • MAD:                   Maximum Achievable Discount. A term used to describe a Stop Loss provision

 

  • OAC:                    Organ Acquisition Charge.  The Billed Charge provided from the hospital, which includes the OPO charges, and may also contain direct and indirect charges of the hospital

 

  • OPO:                    Organ Procurement Organization.  The entity responsible for overseeing the distribution of organs

 

  • Per Diems:           Daily fixed rate amounts applicable if a patient’s stay exceeds the Inlier Days

 

  • SAC:                    Standard Acquisition Charge. A Medicare term sometimes used to describe the OAC

 

  • Second Dollar:     A term used to describe a certain type of Stop Loss

 

  • Stop Loss:            A provision that caps payor savings under fixed fees, or limits the loss to the hospital