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Payer Contracting


Tackling the Task and Staying the Course
from the November/December issue of HBMA Billing

With skyrocketing costs and declining payer reimbursements, practices are struggling to find ways to increase – or just maintain – the bottom line. Practices can improve their revenues through an aggressive payer contracting strategy. How?

Negotiating new contracts with payers can seem daunting, causing many practices to sign every contract without determining the impact to the bottom line or administrative responsibilities. By following a few simple steps, practices can confidently sit down at the negotiation table with payers. Before the negotiating process begins, assemble the following information:

  1. Inventory all current agreements
  2. Create a spreadsheet identifying key information from each contract, including:
    a. Payer / network name
    b. Anniversary
    c. Term and termination
    d. Reimbursement
    e. Notice period to renegotiate
    f.  Automatic renewal
    g. Contact information for the payer / network representative
    h. Additional factors

Create a timeline (see illustration below) for each contract to delineate the numerous steps necessary for successful, timely negotiations.



Size does matter. Larger groups often have greater leverage in negotiating higher rates and contract provisions, but even a solo practice should attempt to negotiate with payers. It is important to identify a negotiation strategy that is unique to your practice and market. Factors in your strategy might include the number of members, clinical / service outcomes, the influence of employers, specialty shortages, multi-specialty group clout, payer-requested referral patterns, or particularly poor past contracts. Think like a payer when figuring out your leverage: consider what is important to them, their employer clients, and their members. What is most important to the payer is reducing costs. If, for example, you have extended hours that keep members out of the expensive emergency room, taking credit for that savings and rationalizing that sharing in the savings by increasing your reimbursement is only fair. If you offer a service not commonly available by other specialists, like a dermatology practice performing Mohs surgery, point that out. Ask the payer or network if there are performance bonuses or referral patterns that would make your practice more valuable to them. Finally, remember that the real trump card in any negotiation strategy is the ability to "walk." Ask yourself if you are willing to put that card on the table. Rarely is any other factor more powerful than the fear of losing your practice in the network; keep in mind, however, that some specialties are not as highly sought after as others.

Rate Analysis

With your preparatory steps done, start the analysis. Pull a 12-month utilization report from the practice management system that snapshots all (not just the top 10 or 20) procedure codes, including modifiers and place of service. Include the number of units, charges, payments, current contract reimbursement rates, and costs to perform. Use this data to predict for each payer what would happen if you swap your old rates for new ones at the same 12-month utilization.

Medicare's Resource Based Relative Value Scale (RBRVS) and Relative Value Unit (RVU) have become the benchmarks for many payer contracts. Having a well-defined, industry-accepted, publically available baseline has great advantages. But, consider the following…

  • Know the practice's best Medicare year and compare it to the year of Medicare the payer proposes.
  • Medicare rates are very low and so the rates should be factored at a percentage considerably greater than 100%.
  • A default calculation is necessary for anesthesia, J Codes, and procedures for which Medicare does not assign a value.
  • In Medicare's quest to remain budget neutral, modifiers, such as the Budget Neutrality Adjuster and Geographic Price Cost Indices (GPCI), have often adjusted rates downward in recent years.
  • Congress gave practices relief from the proposed cuts in Medicare rates in the past few years, but there are projected decreases in those rates over the next decade, including a proposed 27.4% decrease in 2012. Therefore, multi-year or auto-renewing contracts with rates based on "prevailing Medicare year" are not advised. If you must sign an agreement with rates based on "current year Medicare" make sure you have a short termination clause (say 60 or 90 days) that can be used anytime, with or without cause, and that is not tied to the next anniversary. This will reduce your exposure encompassing only the term notice period, plus any continuity of care period, if Medicare rates do plummet.

Reimbursement analysis requires careful attention to modifiers, place of service, and other factors. Determine the likely loss or gain, by procedure and in aggregate, while calculating the cost to perform each procedure. If, for example, new offer rates based on 145% of a certain year of Medicare RBRVS (or given conversion factor, if based on RVU) are acceptable in aggregate, but some procedures would be performed at a loss or too little margin, ask for "carve-out" rates for those few outliers to bring them into line with financial goals. Alternately, perhaps the payer will agree to a "band," a category of codes, like Evaluation and Management or specialty surgical procedures, which may possibly be paid at a higher percentage than the rest of the codes. Some payers and networks are amenable to using carve-outs and some are not. Before you counter, don't be afraid to ask the payer or network what methodology or year of Medicare they are most likely able to support.

Finalizing the Deal

Once desirable rates have been agreed upon, read the ominous 15–30 page agreement before putting your pen to the signature line. Know the laws of your state that affect provisions related to "insured" plans, recognizing that the "self-insured" plans accessing the agreement will not likely be subject to those laws. Spell out acceptable timely payment and filing requirements, define "assignment," require all policies and procedures to be on the payer web site, define medical necessity without plan variation, require prior written consent for any non-regulatory amendments, and more. Expect to hear "we don't negotiate." Don't accept this response. Ask for the representative's manager, know the practice's deal-breakers going in, and stay the course despite these obstacles.

Penny Noyes has more than 35 years of healthcare related experience with 18 years on the payer/network side of the industry and seven years on the practice management side. In 1999, she founded Health Business Navigators (HBN), a firm dedicated to assisting practices with payer contracting and credentialing.

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