Payor contract negotiation needs preparation
One of the ways to increase the financial performance of a practice/ healthcare organization is payor contract negotiation. However, payor contracts can be complicated and difficult to interpret even with an attorney or consultant by the side of a physician. Hence a lot of preparation has to be done before going to the negotiating table.
A well-thought-out strategy needs to be planned and negotiating points to be kept in mind during discussions with payors over contract language/terms, inclusions, exclusions and coverages. Persistence in this process and successful contract negotiation pay off in the long run. This is especially so in the post-COVID era with the unprecedented financial challenges faced by providers and payors.
Optimizing payor contracts is essential for providers to ensure constant cash flow. Physicians need to be involved in the process from start to finish. Start the preparations for negotiation about 120 days before the contract is to be renewed/renegotiated.
The following questions will help assess healthcare plans and whether you wish to continue a contract or better the terms of a contract.
(a) Are the fees paid covering the total cost of the services rendered?
(b) Understand how the fees are calculated. Is it a percentage of billed charges/fee schedule or a percentage of Medicare? In the case of Medicare, how quickly is the plan’s fee schedule updated after a Medicare update?
(c) Is the health plan bringing in patients?
(d) Are the health plan’s other terms of contract reasonable to the practice?
(e) Is the health plan crucial to the practice’s payor mix?
Best practices for your preparation
Adhering to best practices while reviewing current contracts, identifying potential opportunities and renegotiating with payors will assist in maximizing revenue.
1. Compile essential data
Have a system wherein all documents relating to payor contracts are available in a centralized location. Important information for analysis includes each payor’s reimbursement requirements, fee schedule, requirements for timely reimbursement, notice period or renegotiation and termination. This data can help identify the contracts which represent the most significant percentage of revenue.
A practice must be able to quantify the percentage of revenue coming from Medicare/Medicaid and commercial payors. By loading payor fee schedules into the practice management system, you can monitor whether payment is made according to the fee schedule. On average, roughly 80% of commercial revenue may come from four or fewer health plans, and approximately 70% of it may be from just six E & M (Evaluation & Management) codes. Payors must be notified of underpayments and errors. Repeated errors can be used while negotiating terms with payors.
2. Assess the situation and create a value proposition
Every practice has something to leverage. Physicians should study the local markets and recognize their strengths. Competition must be evaluated, market saturation for the specialty must be determined, and the practice’s uniqueness must be identified. Has the practice opened an additional office and seen more patients as a result? By using more technology in the practice, is that ultimately benefiting the payor? Has the volume of patients increased over time? Have extended hours/weekend clinics reduced costly emergency room visits? The information so gleaned must enable the physician to leverage better terms while negotiating.
3. Read all terms and conditions carefully.
The contract must be read very carefully. Especially clauses such as amendment provisions, the definition of medical necessity, rate changes, and termination. Insist that all terms that are discussed be put in writing. It avoids later unpleasantness.
Check out the period/term of the contract. In long-term contracts, are there clauses that mention increases in fees to keep up with inflation?
Study the rates/ fee schedule carefully. Ask yourself the questions (a) to (e) mentioned earlier. If the rates even after negotiation will not bring in the revenue needed to continue the practice, a letter stating the intention to discontinue the contract should be sent. Payors may reconsider their position.
Be clear on what the contract does not cover. Having data showing how these excluded services contribute to effective healthcare and improved outcomes strengthens your negotiating position.
Bristol Healthcare can help you
Is contract negotiation not your cup of tea? Bristol Healthcare Services is here to assist you. With our two-decade experience, our team will help you with data collection and analysis. We will be your partner at the negotiating table and ensure a successful payor negotiation.
Allow us to assist you in taking your practice to the next level!
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