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Tight budgets push centers to consider managed care contracts

February 25, 2015

Treatment facilities continue to feel the pressure of high patient demand while reimbursements and government incentives remain low. Many facilities are exploring the potential of private payers, although that process can have costs of its own.

In order to stay competitive, programs must devise new ways to keep cost per patient in check without sacrificing quality. Especially in residential programs, where operating a facility 24/7 can create ever-rising administrative expenses.

Knowing the true per patient cost is the only way for a program to evaluate whether it has adequate reimbursement coming in and whether it’s able to deliver a return on the payer’s investment.

Less than a latté

Jonathan Scott, president and CEO of Victory Programs, operates 19 not-for-profit health and housing programs that serve more than 2,600 homeless people with substance abuse issues in Boston. He says the programs are burdened with unfunded mandates.

“We haven’t seen an increase in reimbursement in years,” says Scott.

The facility receives $75 per patient, per day to care for an adult.

“Of that, $4.75 per day is mandated for three nutritious, wholesome meals,” he says. “Most people couldn’t get a latté at Starbucks for that price. Needless to say, we have a very tight budget.”

He says that the referral stream to the inpatient program is bottlenecking, and at the same time, Victory would like to start admitting patients with opiate addictions. However, the center cannot secure the funding to expand.

Some analysts predict that the cost to operate community-based facilities will begin to come under more scrutiny, as private payers start covering more substance abuse treatment, says Gary Humble, executive director of Pinnacle Partners, a not-for-profit behavioral health shared services organization in Cleveland, Ohio.

“Treatment centers are going to be working with managed care on the clinical side and the administrative side to measure their effectiveness,” Humble says. “The problem with smaller facilities is that they are living hand-to-mouth. They are focused on now, and not looking three to four years into the future.”

He believes that more centers will look to managed care as a possible revenue stream to offset low reimbursement from publicly funded programs.

“Many community-based residential programs haven’t explored private pay options because they think they can’t compete with larger facilities,” Humble says.

However, increased numbers of patients with commercial high-deductible coverage plans will also drive the administrative burden for those that choose to accept managed care.

“Tightening up the revenue cycle, diversifying payer mix and even asking for copays are things we may have never thought of. We may not have even asked patients about insurance before,” Humble says. “There is going to be a tremendous cost shift to patients soon, so payment policies and procedures will have to be on the horizon.”

Calculating cost per patient

The actual dollar cost per patient for substance abuse treatment can vary depending on several factors, Humble says. It’s worthwhile to evaluate key variables that can add costs:

  • Amenities provided;
  • Length of program;
  • Location; and
  • Type of treatment.

But Humble says, as a percentage, administrative costs typically constitute 10 percent to 15 percent of the total costs per patient, per day universally. For a residential facility, direct care can make up about 40 percent to 50 percent of the costs, and the balance would be allocated to room and board, which can be between 30 percent to 40 percent of the costs per patient, per day.

Residential treatment is often essential to long term recovery, yet reimbursement for such treatment is typically what’s missing in the funding stream, he says.

 “Housing is an issue. The physical places where patients are staying are often difficult to manage,” Humble says.

On the treatment campus, facility costs can increase over time if there are separate buildings for men and women, for example, or onsite staff to maintain the buildings inside and out. Additional administrative costs also include transporting patients, utilities and other expenses that are hard to quantify, says Barbara Leadholm, MS, MBA, principal at Health Management Associates, Inc., in New York City.

 “A bad winter can affect occupancy rates over time because staff can’t get to work, for example,” Leadholm says.

Accreditation costs

If a treatment center looks to commercial insurance for reimbursement, there are other tangible costs to consider. For example, most insurers expect a facility to have certain accreditations that might be new to the organization. The various accreditation processes and renewals incur ongoing costs, Leadholm says.

“Lack of consistent credentialing and programmatic standards means residential facilities need to address the costs associated with meeting multiple requirements,” she says. “Many facilities must develop utilization review procedures associated with each different payer, and reporting requirements can vary. This creates a need for programming to be flexible.”

But gaining accreditation is the often the first step in accepting reimbursement from commercial health plans, according to Humble.

“The most successful facilities have accreditation and are offering higher levels of care,” Humble says. “But it costs and takes time to implement the process of agencies and payers working together because the rules for behavioral health are different.”

Technology costs

In order to comply with accreditation standards, and in some cases, government mandates, many facilities have had to invest in electronic health records (EHRs). Additionally, many are considering adding new technology services, including telehealth and mobile health in order to assist patients with long-term treatment, all of which call for upfront investments.

“Technology will contribute to more cost effective services in theory,” Leadholm says. “The difficulty for providers now is the investment in the actual systems and training of staff. Consistency in use of the technology is a heavy lift.”

She says when it comes to new technology advances, smaller programs may sit it out for now and wait to implement the tools more slowly.

Currently, EHRs aren’t mandated for behavioral health organizations, but it is becoming nearly impossible to operate without them, Scott says. His facility invested $250,000 over two years in implementing an EHR system, including staff training.

“We received no reimbursement for our investment in our EHR system, but we had to have it to remain relevant and manage the extraordinary data we have to report for the state,” says Scott.

The hope is that such IT investment will produce care improvements, and many intuitively believe that it does. However, in general, providers don’t see EHRs as tools for reducing their operating or clinical costs.

Connections to other providers

According to the SAMHSA 2014 Behavioral Health Barometer, 1.23 million people were enrolled in substance abuse treatment in 2013—up from 1.18 million people in 2009.  And today’s growth in service utilization has stakeholders scrambling for new ways to deliver treatment, such as through accountable care organizations or with the management of a primary care provider.

As behavioral health services are becoming more integrated into physical healthcare, many smaller facilities will face challenges when it comes to managing the broader scope of care coordination, collaborating on improved outcomes and working with other entities, Humble says.

For example, some payers will cover treatment, but not room and board. Therefore, in order to maximize treatment, some centers might appeal to nonprofit groups to cover a patient’s room and board separately. Scott says Victory has a public and private payer mix that doesn’t pay equally.

“We have a treatment contract with the Massachusetts Department of Public Health’s  Bureau of Substance Abuse Services,” Scott says. “We are reimbursed $75 per bed day per client admission. No private insurance covers our bed day rate.”

Leadholm and Humble agree that for the future, facilities will have to focus more on improving outcomes and prove their value to public and private payers.

“It will be important to demonstrate that services avoid future costs, for example, earlier intervention potentially avoids more expensive services. If the client is engaged and is able to adhere to a program, demonstrating good outcomes is worth the investment, even if it is more costly,” Leadholm says.

Donna Marbury is a freelance writer based in Columbus, Ohio.
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