Practices often allow their payer contracts to renew automatically each year without re-examining the terms. However, the practice may have changed, added new providers, new services or a larger patient panel and perhaps gained an enhanced bargaining position. If so, you may want or need to make changes to the contract.

Review Terms and Documentation

First, you need to understand all of the practice’s contracts, individually and comparatively. Prepare a table or matrix displaying the payers, their contact information and key provisions such as:

• Termination requirements;
• Reimbursement history;
• Claims filing deadline; and
• Minimum response time to proposed amendments.

Look carefully at which contracts are better than others. The differences can point to opportunities for positive changes in the contracts that are not as good for your practice.

Get Out Your Calculator

There is a critical calculation to make before initiating negotiations with a payer. Start by ascertaining the practice’s fixed overhead costs. Then, convert the most common services into relative value units (RVUs) using the Medicare and Medicaid rates.

Next, divide the RVUs into the overhead costs. The result is the volume of service the practice must provide to cover its fixed overhead. Analyze each payer contract to see what reimbursement levels they pay and the volumes of service they generate for the practice. If the two in combination do not equal or exceed the overhead, renegotiate the contract.

Negotiate Methodically and Patiently

To begin negotiations, submit to the payer a detailed request for the desired changes. Do not treat the process casually; send it through the appropriate channels by a means that requires signatures and allows tracking.

In addition, be sure to have supporting documentation for any changes being sought. Demonstrate exactly how they will benefit patients, your practice and the payer itself. Wherever possible, offer performance data, financial projections, benchmark figures, patient surveys and comparisons with other practices and markets.

Keep in mind that it is easier to renegotiate a contract before you sign a new contract or renew an old one. You will be in a weaker position if you try to change a contract mid-term. Also, remember that the negotiation process will involve a certain amount of give and take. The process can be time-consuming. If your practice does not have the time or resources to engage in it, you may wish to bring in an outside consultant.

Manage for Optimum Effect

Payer contracts are one of a practice’s most important assets. Analyze these contracts carefully and manage them for optimum effect. In the event you cannot agree on financially practical terms with a payer, be prepared to drop it and find a better one.

For more information, contact Larry Sophian at 312.670.7444. Visit ORBA.com to learn more about our Health Care Group.