C O L L A B O R A T I V E C A S E M A N A G E M E N T
Negotiating Lower Rate Reimbursement
By Cynthia Beemsterboer, RN, BSN
This article explores lower rate (skilled facility rate) reimbursement, which is sometimes negotiated when a patient does not meet acute medical
necessity criteria, yet for some reason is not ready for discharge. Negotiation for these rates may be defined in managed care contracts, and is
used to prevent outright denial of care and lost revenue. Case management departments find that these negotiations can be a double-edged
sword, with both rewards and pitfalls. All pros and cons need to be carefully examined before making a decision.
Lower rate reimbursement for hospital care can be an effective
strategy for healthcare providers and also for insurance plans. This
approach is attractive to both hospitals and insurance plans, for
different reasons. From a hospital’s standpoint, negotiating for or
accepting a lower rate reimbursement must be considered carefully,
used judiciously and monitored periodically. Effective use of this
strategy is a product of good understanding of all its aspects and
cautious consideration.
Insurance plans that offer a lower rate reimbursement rather than
denial do so as allowed in contractual arrangements with hospitals.
Sometimes there is no specific contract language providing for negotiation
of lower rate reimbursement. In these cases, the negotiation is derived
from the insurance plan’s utilization management protocols and the
hospital’s willingness to participate. A
plan may routinely use this tactic as part
of its utilization management program.
Contract language indicating that the
hospital will abide by the plan’s
utilization management program makes
this a possibility.
In other cases, specific language
may be included in the contract,
whereby the plan and the hospital agree
to the use of lower rate reimbursement
negotiation. Whether or not the
contract includes such language, an
agreed-upon dollar amount may be
established in the contract. When no such rate agreement exists, the
hospital’s managed care contracting department makes this
determination on a case-by-case basis. Ideally, contracting departments
will strive to negotiate for reimbursement to cover hospital cost.
COLLABORATION IS ESSENTIAL
The hospital’s case management and managed care contracting
staff members should work together when lower rate negotiations are
necessary. Case managers are experts in determining whether the
hospital day meets inpatient medical necessity criteria and whether all
denial prevention strategies have been exhausted. The expertise of
managed care contracting personnel lies in negotiating appropriate
rates and interpreting relevant contract language.
Collaboration of these professionals is essential to ensure that the
appropriate decision is made in each case. Once the case managers
determine that lower rate reimbursement negotiation is appropriate
from a utilization management perspective, the managed care
contracting staff researches the contractual agreement and negotiates
3
the rate (if not already specified in the contract). In many instances,
related contractual arrangements such as stop-loss agreements rule out
the use of lower rate reimbursement negotiation.
Understanding why an insurance plan uses a lower rate
reimbursement strategy is important. Why would a plan provide a lower
rate reimbursement, rather than denying the hospital day? Insurance
plans that tightly manage patient days per thousand may offer a skilled
facility rate to easily reduce acute hospital days. The number of patient
days per thousand is an important benchmark in the insurance
industry, and a measure of the efficient and effective use of plan
resources. The insurance company’s utilization management and/or
case management departments commonly work toward a goal of a set
number of patient days per thousand. Converting acute hospital days to
skilled patient days helps to keep
patient days per thousand lower.
From the insurance company’s
standpoint, offering a lower rate
reimbursement also reduces the cost of
managing provider appeals. Case
review and management of appeals are
costly and labor-intensive. Patients
become distressed when insurance
plans deny payment for care, especially
if the hospital bills the patient for these
non-covered services. Offering a lower
rate reimbursement, rather than
denying hospital days, reduces patient
dissatisfaction and employer complaints.
From the hospital’s perspective, accepting a lower rate reimbursement
is a successful way of preventing losses when all other options have been
exhausted. Nevertheless, careful consideration should be given to whether
continued stay in the acute inpatient level of care is medically necessary, or
transfer to the lesser level of care can be accomplished. Resource utilization
and cost of caring for patients remaining in the hospital do not decrease
when a lower rate of reimbursement is accepted. Nurse-to-patient ratios
remain unchanged, diagnostic testing continues, medical supplies are
needed and the bed remains occupied.
NEGOTIATING CRITERIA
For these reasons, before accepting or requesting lower rate
reimbursement, it is important to consider three things:
1. What is the likelihood of overturning the denial in appeal?
2. Have all denial-prevention options been utilized?
3. Is an expeditious discharge to a lower setting of care feasible?
(continued on page 7)
 w w w . a c m a w e b . o r g
approved activities require the employee to invest personal time. Case
managers may choose to opt out of the progression program for various
reasons. Personal obligations related to family, continued education or
side interests may take priority over clinical advancement. To ensure
success of the program, the employee should feel no obligation to
participate and have no fear of penalization for exemption.
For the employer, the main disadvantages appear to be time and
cost. The primary expense of implementing clinical ladders is generated
in the process of developing and maintaining the program. Whether
overseen by a human resource department or case management
personnel, administrators are required to spend time promoting the
program, meeting with employees, reviewing the applications and
portfolios and completing the processes for awarding the incentive pay.
The added expense of the incentive awards may stretch already strained
fiscal budgets. However, this expense should be viewed in the context of
the revenue preserved by case managers who diligently and effectively
ensure the appropriate patient services are delivered in timely and cost
effective manners.
SUMMARY
Clinical ladders have been used successfully in nursing for decades.
This process can easily be modified for nurse and social worker case
Negotiating Lower Rate Reimbursement (continued from page 3)
The hospital’s criteria for medical necessity and the physician
advisor’s determination are important in making this decision. If it is
determined that continued hospitalization is justified, the case
management department should use all denial prevention strategies,
such as expedited appeal, while the patient is still in the hospital.
For example, some hospitals have experienced denials or offers of
skilled facility rates for patients on IV heparin drips, yet this service is not
available in any facility within the plan’s network, nor is it considered a safe
practice in the region. In such a case, opting to appeal a denial rather than
accepting a lower rate reimbursement is a better strategy, because denial
appeal has a high likelihood of success. On the other hand, a hospital might
opt for lower reimbursement if, because of delays in discharge planning, a
nursing home bed is not available for the patient when hospitalization at
the acute level of care is no longer medically necessary.
MONITORING FOR PERFORMANCE IMPROVEMENT OPPORTUNITIES
Monitoring the reasons for accepting lower rate reimbursement is
critical. Monitoring can reveal trends or patterns of inefficient
utilization management and discharge within a facility. It can also reveal
under-utilization or unavailability of lesser levels of care, such as skilled
nursing units. Case management departments are advised to provide
regular reports of analyzed data to their chief allies, as a good approach
to problem solving. The utilization management committee, managed
care contracting department and administration will consider this
valuable information. It is helpful for determining strategic goals,
developing hospital-wide utilization management protocols, and
establishing agreements with external facilities.
managers. Participants advance their careers by expanding their
influence and showcasing their special skills and talents while receiving
incentive compensation. Clinical ladders prove to be beneficial
influences in retention and recruitment. Productivity increases when
case managers develop vested interests in system-wide issues and
projects. In the end, a successful clinical ladder program will benefit the
case manager, the employer and the patients.
ABOUT THE AUTHOR
Vicki West RN, BSN, CCM is the Trauma Case Manager at WakeMed
Health and Hospitals, Raleigh, North Carolina. She received an Associates
Degree in Nursing from Palm Beach Community College and a Bachelors
of Science in Nursing from the University of North Carolina. She received
her case management certification in 2002.
1. Zimmer M. Rationale for a ladder for clinical advancement.
J Nurs Adm. 19722; (6):18-24.
2. Benner P. From Novice to Expert: Excellence and Power in Clinical Nursing Practice.
Menlo Park, Calif: Addison-Wesley; 1984.
3. Carper BA. Fundamental patterns of knowing in nursing [dissertation].
New York, NY: Teachers College, Columbia University; 1975.
4. Haas SA, Hackbarth DP. Dimensions of the Staff Nurse Role in Ambulatory Care:
Part IV- Developing Nursing Intensity Measures, Standards, Clinical Ladders,
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For instance, a high number of negotiations completed due to late
discharge planning may call for changes in the case management
department’s method of identifying high-risk patients. Negotiations
necessitated by a lack of appropriate beds may call for priority agreements
between the hospital and local skilled nursing facilities. The managed care
contracting department may want information about lower rate
reimbursement when negotiating a new contract or reimbursement rates
with a payer. A high number of patient days paid at a lower rate
reimbursement may prompt an insurance plan to request deeper
discounts, as it may be viewed as ineffective utilization management.
TERMINOLOGY CAN BE CRITICAL
Finally, a note of caution: the use of the phrase “lower rate
reimbursement” is an important point. For hospitals not licensed to
provide the skilled nursing level of care, “lower rate reimbursement” is
most appropriate. Hospitals may want to avoid the use of “skilled rate
reimbursement” or similar terms in contract language or staff
discussions with insurance plans, to prevent misunderstanding,
conflict, and potential licensing issues.
ABOUT THE AUTHOR
Cynthia Beemsterboer, RN, BSN, ACM is Manager of Case Management at
Northwestern Memorial Hospital in Chicago. Her experience in case
management and utilization management spans more than 20 years. She
is a frequent speaker and trainer at case management and denial
management conferences. Ms. Beemsterboer earned her BSN degree at
Valparaiso (Ind.) University.