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WHILE IT MAY SEEM that every medical provider in the United States participates in multiple managed care networks, health care payers collectively pay tens of billions of dollars in retail -- non-discounted -- claims each year.

For decades, payers have saved millions of dollars through preferred provider networks and usual and customary charge limitations. But faced with increased consumer sensitivity to cost-containment programs and growing regulatory oversight, health care payers are searching for savings solutions acceptable to all stakeholders in the current health care environment.

For years, "prompt-pay services" have sought minor discounts from medical providers in the interest of an expedited payment. This yielded low financial value and prompted payers to experiment with other options, primarily "passive networks" or "silent PPOs." In these "networks," providers are paid a "discounted" rate by the payer, with no negotiation occurring. Such practices have, understandably, been met with hostility from the medical provider community.

One cost containment solution that meets the need of payers, consumers and providers alike is the professional fee negotiation service. Fee negotiation lets payers save costs without polarizing the medical provider community. And, often, the health care consumers benefit because their out-of-pocket expenses are reduced.

Medical providers are supportive because, by definition, a negotiation is a mutually agreed upon reimbursement.

Health care payers obtain meaningful savings in a fee negotiation process if they are able to:

* Identify negotiable claims.

* Transmit claims to a professional negotiation vendor prior to payment.

* Process payments in a timely and accurate fashion after the negotiation process.

The results can make the required operational investments pay off handsomely. Fee negotiation firms are able to obtain typical discounts of 10% to 20% on facility bills and up to 20% to 30% on physician and ancillary bills.

Success rates will vary according to bill type, size and geographic location, but a rule of thumb success rate may be estimated at 50% of all bills submitted for negotiation. And payers could realize an overall average savings rate as high as 10% to 15%. How do these reductions compare with other cost-containment solutions?

The accompanying chart indicates the typical savings range of various cost-containment alternatives.

Negotiation of acute inpatient bills is a service more commonly sought by payers over the past decade. This is particularly true for large single-confinement bills with total charges exceeding $10,000. But these large bills represent only a small portion of those claims that are eligible for savings opportunities. Fee negotiators have equal success with smaller inpatient facility bills -- as low as $4,000 -- and even smaller physician and ancillary bills of as little as $2,000.

Because the use of a usual and customary or allowable fee schedule has proved successful in mitigating the expense of physician bills, payers often have overlooked the potential of additional savings available through negotiation. Every day, medical providers are agreeing to accept, as payment in full, reimbursement significantly below allowable maximum fee schedules while writing off the subsequent reductions from the patient's account.

Some payers understand the impact of out-of-network expense and attempt to harness the savings potential internally. Most struggle with the challenge of merging the requisite databases, supporting the labor-intensive nature of a claim-by-claim settlement process, and then measuring their success. Others find capturing the required online data and managing extensive documentation to be a formidable task.

Effective fee negotiation services are supported by data warehousing, online historical notes, statistics and negotiation process mapping. Negotiation settlement information is recorded, documented and stored in flexible information systems, which are regularly probed by analysts for useful information.

Can a third party handle the idiosyncrasies of every payer's operations? This is a question that must be answered prior to employing an outsourced fee negotiation service. The prudent payer must use great care in selecting a vendor with the flexibility and depth to meet the special requirements unique to each payer organization. While the start-up costs of implementing an outside fee negotiation service are relatively small, the long-term expense of mismatched organizations is potentially expensive.

Small payers almost always will find outsourcing fee negotiations to be the most cost-effective option. Start-up costs should be negligible, and because most fee negotiation vendors charge a contingency fee, there is virtually no financial risk for the payer. Typically, fees are payable only when a negotiation results in savings.

Payers must be diligent in selecting a fee negotiation service. Selection is as important as qualifying a PPO network or a utilization management vendor. It is important to establish that each negotiation will be conducted individually and directly with the medical provider involved. A fee negotiation vendor that simply reprices claims based on agreements with passive provider networks should be avoided. Such arrangements may put the payer at risk.

A cautious and prudent payer should conduct a site visit of the prospective fee negotiation vendor's operations. Further, many vendors will arrange to demonstrate their capabilities on a test batch of claims at no charge if the payer demonstrates a potential for significant future claims volume. Preliminary research will produce the best returns and avoid costly mistakes.

Here are questions to ask a prospective fee negotiation vendor:

* Can you handle prospective, concurrent and retrospective cases?

* What are your success rates and your average savings?

* What are the qualifications of your negotiation staff?

* In what format can you provide savings performance information?

* What are your turnaround time averages?

* How do you comply with individual state regulatory requirements for claims adjusters or third-party administrators?

* What methods of claims transmittal are available?

* How long has your company been negotiating claims?

* What are the limitations on the size of the claim? Is that different for each type of medical provider?

* What is your typical volume? How many claims do you handle monthly? How many annually?

* Are all bill negotiations individually settled or are passive networks -- blind PPOs -- used?

* What type of liability coverage do you have in force?

* Are negotiations confirmed in writing with the medical provider?

* How do you prevent or handle "balance billing" of the patient?

* What percentage of successfully negotiated settlements does the medical provider cancel?

* Do you have any clients who will provide a personal reference?

* Can you demonstrate financial stability?

Whether a health care payer chooses to create its own internal negotiation unit or to use an outside fee negotiation firm, fee negotiation is a clear opportunity to reduce claims expense with minimal investment, while protecting relationships with employees and medical providers alike.

Ron Gray is vp and general manager of Advantage Fee Negotiations, a division of Santa Ana, Calif.-based ADMAR Corp. and a subsidiary of Principal Financial Group.