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Published: June 20, 2023

How to Save on Outsourced Therapy: Reviewing Payor Types

The relationships that long-term care residents form with their therapists play significantly into their quality of life. To the resident (and often to your staff), whether the therapist is an employee or an outsourced contractor is irrelevant. The emotional bond is there. Which means that reviewing therapy contracts in an unbiased way can feel nearly impossible.

At the same time, therapy contracts are one of the largest and most complicated operating expenses for a long-term care community. From the exact payor type mix at your organization to the various ways fees are calculated, you may find yourself trying to compare contracts that don’t look or sound anything alike.

Add up all of these considerations and too many facilities simply choose to stay in contracts that aren’t optimized because the mental cost of switching feels too high. Or they make a switch thinking it is a better deal, only to find out there was a component of it they missed or miscalculated.

At HMS, we are passionate about improving margin for long-term care organizations. This means our focus is on ensuring exceptional therapy services while optimizing pricing for our clients.

In this blog post, we will delve into the different payor types that communities should consider when outsourcing therapy services. Understanding the intricacies of these payor types is crucial for negotiating the best pricing structure and ensuring excellent service from therapy providers. Let's explore each payor type and its impact on reimbursement and cost.

Medicare Part A

In 2019, Medicare Part A underwent a major change in the way CMS reimburses for therapy. They moved away from the Resource Utilization Group model (RUG-IV) that had been around for years and implemented the Patient-Driven Payment Model (PDPM). This change was designed to reward therapy outcomes, not just the amount of therapy delivered.

PDPM consists of five case-mix adjusted components:

  • Physical Therapy (PT)
  • Occupational Therapy (OT)
  • Speech Language Pathology (SLP)
  • Nursing
  • Non-Therapy Ancillary (NTA)

While it’s not the same across the board, most therapy providers we work with are paid based on a percentage of the three therapy components (PT, OT, and SLP). An important thing to note is that the percentages have gone down since PDPM first started in October 2019.

Now that they have historical data, providers are able to set their pricing to be more competitive, knowing they will still be compensated fairly. This means that unless your contract was set up in the last year or two, it’s worth revisiting.

While it’s not the same across the board, most therapy providers we work with are paid based on a percentage of the three therapy components (PT, OT, and SLP). An important thing to note is that the percentages have gone down since PDPM first started in October 2019.

Now that they have historical data, providers are able to set their pricing to be more competitive, knowing they will still be compensated fairly. This means that unless your contract was set up in the last year or two, it’s worth revisiting.

Key Takeaway:

If it’s been a while since PDPM pricing was established, it should be reviewed and possibly renegotiated with your therapy provider.

Medicare Part B

Under Medicare Part B, therapy providers are usually paid a percentage of the amount provided in the Medicare Physician Fee Schedule (MPFS) for different CPT codes. However, several factors can complicate reimbursement, such as Multiple Procedure Payment Reduction (MPPR) and changes in how reimbursements are treated for physical therapy assistants (PTA) and occupational therapy assistants (OTA).

MPPR was introduced in 2011 and expanded in 2013, as a cost-savings measure by CMS. The bottom line is that it reduces the reimbursement amount for multiple procedures provided to a patient on the same day, resulting in approximately a 10% overall reduction in Part B reimbursement based on our client data.

Some therapy providers are working around this by spreading out their services over multiple days, instead of doing it all at once to lessen the financial consequences of MPPR.

As of January 2022, a 15% reimbursement reduction applies if therapy is performed by a physical therapy assistant (PTA) or occupational therapy assistant (OTA). It’s sometimes called the “CQ/CO” reduction. The CQ and CO modifiers are applied to the CPT code if services are furnished in whole or in part by a PTA or OTA respectively*.

*There is a precise methodology to determining the CQ/CO modifier, which is detailed here on the CMS website.

Key Takeaway:

Review who absorbs the cost of MPPR and CQ/CO reductions – is it the therapy company, the long-term care organization, or a combination? This can be a key item in your contract.

Other Payor Types

Apart from Medicare Part A and Part B, communities must also consider other payor types, including private insurances, Managed Care B, HMO, and Medicaid. Reimbursement for these payor types may align with the Part B structure, involving a percentage reduction of the MPFS, or they may be completely different.

It's worth exploring alternative payment structures, such as per-minute rates, which can significantly reduce costs. We have seen clients pay as much as 50% less when paying based on a good per-minute rate instead of the MPFS.

Key Takeaway:

While Parts A and B can make up about 65% of costs for many organizations, the remaining 35% or so can vary dramatically. Conducting a comprehensive financial analysis is vital, considering the complexities involved.

Conclusion

By understanding the nuances of various payer types, communities can optimize pricing and service quality when outsourcing therapy services. Careful consideration of reimbursement structures is essential, and exploring alternative payment methods for other payor types can result in significant cost savings. 

At HMS, we do all the analysis for you.

We can offer an unbiased point of view to help you understand the different payment types and the financial implications, allowing you to compare the specific contracts that are in front of you.

We go deep into the details with our clients to help set up the best possible contracts to optimize margins, without losing sight of the quality of care and relationships formed. We’d love to help your community experience that relief.

Ready to move forward? Schedule a call with our team or email us at getstarted@hmspecialists.com.

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