Business Solutions

Private Payor Private Party

Radical swings in private insurance have left providers wondering what it takes to get on the guest list.

• By David Kopf
• Sep 01, 2011

What’s the secret handshake for private payor funding? That might sound like a strange question at first, but not after reviewing recent trends in the private insurance market place. Originally sought as a possible life line from Medicare funding troubles, the private payor market is beginning to look more like a private club, with admittance available open to a select few.

Over the past two years or so, many providers have experienced a radical overhaul of their revenue structure. Where most providers once relied predominantly on funding from Medicare, funding cuts have forced them to seek alternative revenue streams. Whether it’s the oxygen rental cap, the removal of the first month purchase option for standard power mobility, competitive bidding, or even CMS’s ramped up pre- and post-payment audit programs, steady streams of Medicare funding have been choked to a trickle.

So providers have pursued other ways to not only reinforce their cash flow, but perhaps increase their revenues overall. A good example of this would be providers’ explorations of retails sales. Another would be private payor insurance. While some providers were already practiced hands in this space, others have just recently started exploring it.

Regardless of how a provider has come to the private payor space, the reality is simple: it is changing in radical ways, and not necessarily for the better, at least where HMEs and their patients are concerned. The two main changes in private insurance are rapid consolidation among health insurance companies, and single-supplier deals in which a private insurance company contracts with a sole national or regional HME provider for its DME/HME and related service.

Single Provider Deals

Perhaps the biggest bombshell in recent news has been private insurer Humana Inc.’s decision to tap Apria Healthcare as its sole HME provider. At least, that’s the way it looks. Humana has provided little detail publicly (Humana did not respond to a request to participate in this story), leaving its base of previously contracted HME providers to piece together the arrangement.

Starting in late July, Humana began sending letters to providers in various states announcing that their contracts had been terminated (usually citing a section of those’ providers contract with Humana); that Apria would be the contract holder; and that Apria had been designated at the “patient transition manager.” Providers were told that their patients can still use them as an out of network provider if they like, but at a 50 percent co-pay.

The letters direct the terminated providers to contact Apria to start facilitating the transition, and, to add insult to injury, demand that the ousted HMEs supply Apria with a large volume of patient personal data, details on the equipment patients are using, and information on referring physicians and healthcare professionals involved in the patients’ care — all within 15 days (which would be considered a somewhat tight timetable by more than a few providers).

Initially, the news came out of Kentucky, but then, on HME-Business.com, providers because adding their states to the list. First Louisiana. Then Ohio. Next Wisconsin, Virginia and Tennessee. Eventually, it because clear that Humana was apparently rolling out what looked to be a national deal with little warning to its original HME/DME providers.

“These single-supplier deals aren’t anything new, but Apria-Humana really came out of the blue,” says Joey Graham, director of operations and administration for Pensacola, Fla. Provider Gulf Medical Services Inc., a traditional DME provider with a specialty in respiratory with eight offices across the Florida panhandle and southern Alabama. “We got a contract termination letter with no warning. We were surprised they did this. Really the patients are the ones that are going to lose out.”

Humana, and insurers like it, are an important customer for Snore No More CPAP Store in Glendale, Wis., which serves patients on the north side of Milwaukee. Obviously in the CPAP game, many of the patients are still of working age and have insurance through their employers, so private payor is critical to Snore No More, and with that location, the provider well positioned geographically to support an under-served market.

“The reason we picked this location was because of convenience,” says Jeanne Zurawski, RRT, respiratory manager of Snore No More, who notes that no other larger companies had locations in her area. “There was no one that could do CPAPs locally. Humana loved the fact that we were here.”

Naturally, receiving Humana’s letter was a bombshell to Zurawski. “It was worse that the competitive bidding process,” she says. “We didn’t even get to say anything. The patients didn’t have any say, either.”

Zurawski says she worries that other large private payors could follow in Humana’s footsteps. “If the Anthems or any of others do that, then I’m going to be the little guy, just like in competitive bidding, and I won’t be here any longer,” she says.

The question is, can Apria handle this newly acquired volume of business, asks Dave Kazynski, president of Homelink division of VGM Group.

“I used to tell people, ‘You can tell who was making a decision at the payor source simply by how they set rates,’” he says. “If it was an account type making the decision, then the rates were lousy. If it was a clinical type person who understood the service component that goes along with DME and nursing and IV therapy and those sorts of things, then you usually got fairly reasonable rates. The problem with [aggressive rate cuts] is that it doesn’t last forever. … It’s short term. If they can go on and find someone else to take the rates then they’ll do it.

“These rates — particularly the ones that we’re fairly certain are in the Humana-Apria deal — aren’t sustainable by anyone,” he adds. “But it remains to be seen how that goes.”

Another big issue is coverage. While Apria is a national provider, its footprint does not cover all the areas Humana’s original HME provider suppliers did. As a result, frustrating stories similar to those coming out of competitive bidding Round One are starting to rack up. For example, Kazynski recalls an incident in which a rehab mobility patient who was recently advised to drive three and half hours to have his chair worked on. Also, it was reported that in Kentucky, where the letters first hit, the nearest Apria facility is more than 75 miles away from Humana enrollees.

Zurawski has her own anecdote: “I called Humana on a patient’s behalf,” she recalls. “He wanted to make his CPAP a purchase before October, because he didn’t like Apria. And the woman on the other end said that he get to do that. It’s not up to him; it’s up to Humana if they’re going to make it a purchase, and she said that, ‘if you send me the purchase claim, we’ll look at it.’

“I said, ‘I need your name and number so that I can call you when I’m told this claim is denied; who do I call?’ And she hung up on me!” she says. “And that’s just one patient of many that they’ll be dealing with over the next months.”

This leads to wondering whether being contracted as an outsourcer to Apria might be viable. For instance, if Apria isn’t equipped to handle complex rehab in a certain location, for example, then it might have to find a partner. The question is, will anyone want the business. As we’ve already seen with Round One of competitive bidding, subcontracting doesn’t exactly work over the long term (and in some cases, not even over the short term).

“I’m sure that, at least in some areas of the country, [Apria] is going to have to outsource the rehab portion of this particular contract,” Kazynski says. “And in doing so at the rates that they’re talking about, I don’t know how anybody is going to make any money. Or, they’re going to lose money on one product line to get the sale. “If you’re losing money on a certain segment, it’s tough to make it up with another if your rates are low,” he adds.

Difficult Math

Consolidation among the private payors is another top concern for providers. Increasingly the larger private insurance companies are doing everything they can to edge out their competition, and that ultimately translates to lower funding rates, Kazynski says.

“Part of it is because of the consolidation on the private payor side,” Kazynski says. “You see a United Healthcare buying up all these smaller insurance companies, or pricing their products so that they are taking business away from the PPOs that smaller employers have worked with over the years.”

Essentially, the “big five” insurance companies — Aetna, CIGNA Health Insurance Company, Humana, United Healthcare and WellPoint Inc. — are looking at limiting their provide panels, according to Kazynski. Moreover, in deals such as the Apria-Humana arrangement are happening at “extremely aggressive” rates, he says.

“Pursuing the bigger payors is frustrating at best, and in some cases downright disheartening,” Kazynski adds. “Because they either don’t want to add companies to their panels, or if they do, then they don’t want to pay you the acquisition cost of your product. There’s no point in doing business if you’re going to lose money on every referral.”

Naturally, this difficult math is explained away by the insurance companies with the argument that the provider will see increased volume, but that doesn’t necessarily happen.

“They [private payors] are just paying lower rates for the same number of people,” Kazynski says, who recalls an instance in which an insurer made similar promises of increased volume but with lower rates to dozens of providers without any of the providers experiencing volume increases. “They lowered the cost on their entire book of business.”

Kazyski advises the key when dealing with any price changes from private payors is to work through the numbers. “I know dealers want the business, but they have to take a close look similar to how people are doing Medicare competitive bids,” he explains. “They have to look at their cost structure and decide if they want that business at all, and then look to see if there are other opportunities for them.”

Speaking of Medicare, another influence on declining reimbursement in the private payor sector are the cuts CMS has been making to Medicare funding. The private payor industry monitors Medicare reimbursement and often follows suit. And like competitive bidding, there are providers that are pursing contracts at inadvisable rates, but like there are providers that have made (or will make) bids at inadvisable rates.

“Most of them have tied their reimbursement to Medicare reimbursement anyway,” Graham says. “Ever time Medicare cuts payments, so does everybody else. There are so many contracts we have that are tied to Medicare. For example, when the 9.5 percent cut [MIPPA] happened Jan. 1, 2009, all of our major private insurance contracts got cut by 9.5 percent, because they were all just a percent of Medicare.”

Party Crashing

So how do providers contend with single supplier deals such as the Apria-Humana agreement? It’s a question of how much they can do. For starters, sole supplier arrangements bring with them the diminished access to quality care arguments that competitive bidding does. Forcing patients to deal with only one HME provider clearly has limitations. On simple observation. Apria does not have locations everywhere the former Humana providers do, and not all of its locations provide all the same services.

“I don’t know that there’s a lot many local dealers can do,” Kazynski says. “I know some of them are working on the physicians in their areas to contact Humana or someone to say, ‘One provider and lack of service isn’t going to help patients.’”

Zurawski says Snore No More started a petition stating that patients have no choice. “We have a page of signatures that have come in,” she says “And we sent out letters to out CPAP patients to inform them, and they’re all trying to come in and get one last service from us.”

“One thing we’re trying to do to combat this — and I know there are several other providers that are trying to do this as well — we’re going to encourage [Humana] patients in a Medicare Advantage plan to switch to a different Medicare Advantage plan or go back to regular Medicare,” Gulf Medical’s Graham says. “We’ll obviously let them know that they have patient choice and help them get over to Apria, but if they want to continue with quality service, then they have options.”

Other Options

And certainly, the private payor funding landscape isn’t entirely inhospitable. There are oases in the desert that can help providers try to protect their funding levels. Two are the Blue Cross/Blue Shields and local and hospital-based PPO. Homelink’s Kazynski says the rates paid by the Blues are still reasonable, and their rates paid by local PPOs still tend to be more dealer friendly.

“My advice to providers is to get on those preferred provider panels and then go out and talk to the doctors about how they are now in the network with this particular PPO and go after the business,” he says, adding that for the most part the Blues are relatively easily to deal with.

Also, providers must emphasize the collection of patient co-pays. Providers have ignored these to their detriment over the years and that needs to change. Those co-pays can amount to a significant sum. So providers need to either beef up their internal accounts receivable efforts and staff, or contract with a service that can collect co-pays for it.

“Those are going to be many providers’ source of profit,” Kazinksy says. “My personal preference is to outsource the patient collections portion. The reason for that is that … it takes a special talent to do it and resources that most small dealers don’t have the time, energy or money to invest in. Outsourcing for 10 or 15 percent of what the [collections company] brings in is very worth while.

Another option is benefits management companies, Graham suggests. Essentially, a benefits management company that contracts with private payor insurance to manage their HME or home health or other related services. Then the benefits manager leverages its relationships in those industries begins establishing contracts with the various providers of these services. Industry news watchers might recently recall this happened in Florida earlier this year when Blue Cross and Blue Shield of Florida (BCBSF) formed a relationship with home health benefits management provider CareCentrix Inc. that made the company exclusive provider of home health services for BCBSF’s nearly 4 million members.

“Over 2010 and 2011 all of a sudden we’ve seen all these benefits management companies pop up all over the place,” Graham says. “We’ve contracted with five of them in the past six months. This is very new for us.”

Graham says that working with the benefits managers is a mixed bag. “What we’re seeing is that rates are dropping considerably with these benefits management companies,” he says. “But at the same time at least [insurers] are going with that instead of an exclusive contract with somebody like Apria.”

Also providers need to consider looking at contracts that are related to what they do, but not standard DME. For instance, wound care, sleep programs or specialized bariatric care. Or another way to drive is through replenishable items, such as CPAP masks. “Most insurance companies will pay for interfaces at least every six months,” he says. “I can’t tell you how many dealers don’t get involved in that segment of the market, and it’s very good business when they do.”

Another different type of private payor funding worth pursuing is worker’s comp insurance, Kazinksy says. “Worker’s comp insurance is still not include in these program and pays at 100 percent,” he says. “You just have to make some effort to get into that marketplace.”

Managed care can also be an option if providers can find the right level of funding. That is a segment of private insurance Zurawski says Snore No More is pursuing.

“Managed care contracts would be good if I can corner someone that way,” she says. “I’m not looking to do what Apria did. I just would like to be involved in being one of the choices.”

This article originally appeared in the September 2011 issue of HME Business.