Managing the Thicket of Payor Contracts

docatdeskMost physician practices know the plans in which they participate.  They know they have a contract in place that covers payment terms and rates.  They just don't know where that contract is or what it includes.  They vaguely remember signing something a long time ago and have left it at that.  They may get addendums or updates every once in a while - those updates are rarely comprehensive and may include only individual clauses.  It is common practice when a new payer contract or an amendment to an existing contract shows up that the manager takes the document to the physician or owner for signature. Often, this happens without reading the contract and understanding its terms and your obligations to the contract.  Healthcare is the only industry we can think of where contracts between business entities are so one-sided.  There is no question that it is difficult for an individual practice to negotiate unique terms or rates with an insurance company but to have any chance at all, a practice needs to start by understanding the terms and conditions in their current contracts and assessing their needs.

It is critical to your revenue cycle - and your practice's success - to take the time to understand the contracts you have in place with third-party payors.  Contracts lay out the rules of engagement of medical billing.

What is a payer contract and why does it matter?
In simple terms, it is an agreement that lays out the terms and conditions under which a payor promises to the pay the practice or specific provider for “medically necessary” services it provides to the health plan members. It also will include the responsibilities of the practice to follow certain rules in seeking reimbursement.

What will a contract likely include?

  • Reimbursement rates - You need to know how much the health plan going to pay you for your services. Never sign a contract that does not have a complete fee schedule attached.  Beware of payors who only offer a “sample” fee schedule list that only includes a limited number of CPT codes and price. Physicians are entitled to and encouraged to request a complete list of reimbursement rates for each and every service that they may be contractually obligated to provide.
  • Filing deadlines - This is the amount of time you have after you have seen the patient to file the medical bill.
  • Payment deadlines - What is the amount of time the health plan has to pay you after receiving a “clean claim”. That is a claim that has been submitted accurately without any coding or demographic errors.
  • Dispute resolution procedures - These are the contractual procedures on how either party will work towards a resolution of a disputed claim.
  • Notice to renegotiate - Most contracts spell out the notice period you have to provide them, in writing, of your intent to renegotiate the terms of your contract.
  • Notice to terminate the contract - This lays out the terms of how either party may terminate the contract either for cause or not for cause.
  • Term - Most payers use Medicare fee schedules, which change frequently. For this reason, some experts advise that your contract be no longer than a year so you don’t get stuck with an unfavorable schedule for multiple years. But, since negotiations can sometimes take up to six months, others suggest that a three-year contract with a payer who has had favorable rates and has been easy to work with in the past might be worth it. Review your past experiences with a payer to see which term makes sense.   Please note, many contracts are “evergreen,” meaning they automatically renew on the contract anniversary date each year unless either party terminates the contract.   Physicians should note in their calendars a date significantly in advance of the renewal date in order to renegotiate terms prior to the time that the contract rolls over to the next contract year.
  • Nature and scope of services covered - Confirm that the services that you are obligated to provide through this agreement are services that your practice provides. If you provide services that do not typically fall within your specialty, you will want to make sure these services are included in your contract and that the reimbursement for these services is specified. Similarly, you do not want to obligate yourself to provide services you do not feel qualified to provide.

The devil is in the details.  You should have access to all of your contracts and have read them carefully to understand all the terms and conditions - it is often in the fine print where problems can start.  These are business contracts that dictate the terms and obligations of the business relationship between the insurance companies and your practice.

  • What physician fee schedule is being used and how is it calculated? How often can it be updated?  How are updates to be communicated?
  • Are amendments unilateral or bilateral and how must notification take place if unilateral? (some sneak it in an electronic newsletter that is easily overlooked)
  • Is there reciprocity in the agreement or does the plan put all the responsibility on the provider?
  • Are you being charged for referring patients out of network?
  • Is there a fine if you terminate your contract early? (some payers can charge back 2% of all payments paid the practice for the previous 24 months)
  • What are the compliance obligations and do you have the internal resources to implement and manage them?
  • How are take backs handled. Occasionally payers have the right to reclaim money they have already paid you. The reasons could be anything from having paid a claim twice to paying for a member who was no longer a policy holder at the time you provided service. If they don’t tell you what has happened (because nothing in your contract says they have to) the payer could act like the IRS and simply take the money from future claims on any patient without providing much if any back up information.

And don't forget the provider manual.  This will generally be referred to in the contract along with the stipulation that the provider abide by all the revenue cycle policies, procedures, quality assurance, and quality management, prior authorization and referral programs delineated in the provider manual.

It is important that you read, understand the terms and can abide by “all” the contractual terms before you sign the contract. The contract legally binds you to the terms of the contract and by signing it you are agreeing to perform and abide by the terms spelled out.

Tips to Negotiate Contracts

First of all, start with a clear understanding of how valuable that payor is to you.  By going into negotiations armed with specific data, you drastically improve your leverage and, if all goes well, increase your bottom line. The process is pretty simple:

  1. What is your cost? Rent, salaries (and associated taxes, workers comp, etc), medical, lab and office supplies, business taxes, licensure fees, capital equipment, malpractice and business insurance are generally the big categories in a practice.
  2. Convert your services into RVUs (Relative Value Units) using the Medicare and Medicaid rates.
  3. Divide your cost by RVUs. This number will let you know how much service you need to provide to cover your costs.
  4. Plot out all the payers you contract with and compare where they are in terms of reimbursement and volume.

Once you see which payors are actually providing volume and reimbursement (and which ones aren’t), you know where you stand.  If they don’t bring the volume, you shouldn't allow the discount.  It is only after you know if a payor is even worth keeping and have digested the terms of the contract; that you can then decide what terms you would like to change.

It is easier to negotiate contractual terms and reimbursement rates before you sign a contract. Renegotiating terms of an existing contract can be very challenging - especially if you are locked in by long notice periods.  Payer contracts are an important part of a practice's assets and should be managed carefully.  The better the contracts, the more valuable the practice. Do your homework before negotiating a contract for the first time or entering a renegotiation.  Prepare a formal request to the health plan detailing what you would like to change in the contract and make sure you have supporting documentation to support any claim that you are making in the request. Never be afraid to ask for what you want and be prepared to say NO if the contract does not make financial sense for your practice.

Remember, reviewing, renewing and renegotiating contracts is something you need to do every year as a part of effective revenue cycle management. Also, be sure to update your practice and other fee schedules in your practice management system so you can monitor whether the payor is living up to their end of the bargain.

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