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Tight budgets push centers to consider managed care contracts

February 25, 2015
by Donna Marbury
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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.

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