WhyYour Ambulatory Practice Should Prioritize Achieving Favorable Contract Terms
Inefficient RCM processes cost the healthcare industry billions each year. One process that is notoriously cumbersome? Payer contract review and negotiation. Streamlining the payer contract review and negotiation process can help curb administrative costs and increase revenue (to the tune of 2-3% annually).
Given its value, most practices already prioritize payer contract review. According to the MGMA , 75% of healthcare practices review payer contracts at least once a year. The question is, how many practices make a positive impact on their contracts through this process?
There is a difference between going through the motions of doing payer contract reviews and taking a more strategic approach towards establishing ideal contract terms. The latter will benefit your practice, patients, and payer relationships. However, the process can be intimidating, given the intricacies of each unique payer. This is also true given the fact that payers—especially large insurance companies—have more bargaining power than individual practices. But it is both possible and worthwhile to prepare your team to speak confidently with payers and negotiate better terms. This post outlines best practices that ambulatory providers can use to successfully review and negotiate payer contracts.
Tips for Successful Payer Contract Review and Negotiation
No practice wants to disrupt revenue flow by jeopardizing a payer relationship. However, when healthcare practices don’t systematically review their contracts, they risk losing out on revenue. From navigating power imbalances between payers and practices, to understanding the complexity of contract terms, and shouldering the overall administrative burden—payer contract reviews and negotiations can be daunting. Given everything in play, it can be difficult to know where to start. Below are our top tips to consider throughout the process.
Before You Start
Organize all Contracts: A strong place to begin is taking stock of your existing contracts. Start with a spreadsheet to track all your executed agreements. This can include details such as the last date of negotiation and when your next contract renewal date will be. Ideally, you want to be able to easily reference existing terms and conditions. This spreadsheet will also help you organize basic details about each agreement and flag which contracts are most ripe for renegotiation. (Note: you should inform payers that you want to negotiate in advance of the contract renewal date.)
Analyze Your Practice’s Position in the Local Market: Take time to understand your practice’s position in the local competitive landscape. Knowing your payer mix will help you identify which payers contribute most to your practice’s revenue. This will help you prioritize negotiating with the payers that will have the highest impact.
Know Your Top CPT Codes: Make a list of the codes that drive most of your practice revenue. Knowing which codes contribute the most to your practice’s financial health will help you focus your negotiation efforts. Secure favorable rates for your most common services rather than services you rarely provide.
Define Your Negotiation Strategy: Set your practice up for success by identifying your negotiation objectives (e.g. higher reimbursement rates, reduced administrative burden, or specific terms you want to revise). Understanding your goals will help you determine which data is needed to build your case during the negotiation process.
Enlist Outside Expertise: Because many practices are strapped for administrative resources, dedicating themselves to completing a thorough payer contract review simply isn’t realistic. In addition, many practices don’t have the internal expertise to complete an effective review of notoriously time-consuming requirements and tricky contract terms. Given the value of favorable payment terms, it is worthwhile to enlist payer contract experts to help lead and execute the negotiation and review process. It is also advisable to include a legal expert when preparing negotiation terms.
As You Review Each Contract
Know Your Current Contract Terms: Now that you have a spreadsheet detailing all your contracts, it’s time to dig deeper. Look into each set of terms, conditions, and reimbursement rates. As you review each contract in depth, note any clauses that have previously caused issues. Look out for overly complex billing rules that contribute to administrative burden and introduce error potential.
We suggest prioritizing the following during your review of each payer contract:
- Review Charges and Gross Collections by Payer: Utilize one year of data to calculate percentage of charges by payer relative to total charges and gross collections. In other words, look at payments by payer, divided by charges. This analysis provides a clear picture of each payer’s contribution to your revenue and aids in identifying discrepancies or opportunities for improvement in reimbursement rates. It can also identify underpayment issues to flag during negotiation.
- View Key Performance Metrics: In addition to reviewing the percentage of your total charges and gross collections by payer, look at RCM performance metrics by payer as well. A few key metrics to evaluate for each contract include claim denial rates and patient volumes by payer. Understanding these metrics can help you identify areas where better terms can be negotiated. You can also identify any revenue cycle issues to bring up during the negotiation process.
- Note the Fee Schedule: Ask for CPT-code-level fee schedules from each payer or see if they are available to download. Since you know your practice’s top codes, you can examine each payer’s reimbursement rates for those services. (Beware of payers that offer you an impressive-sounding average reimbursement percentage across a fee schedule of hundreds of codes, because these may include many codes you rarely or never use.) Focus on reviewing and negotiating favorable reimbursement rates for your most common CPT codes.
- Determine Reimbursement per Visit/Procedure: Based on your review of reimbursement by CPT code, calculate your reimbursement per visit or procedure by payer. This will equip you with the data you need to negotiate fair compensation for the services you provide.
When You Prepare to Negotiate
Prepare Your Top Negotiation Priorities: As you review your list of payer contracts and all the data related to how much they contribute to your practice’s revenue, identify your top three payers. List your rate increase request for each. Prepare a well-supported change request proposal letter.
Define Your Lowest Acceptable Rate: A critical aspect of effective negotiation is knowing your terms. If you follow the review and preparation tips we’ve already suggested, you will have a lot of information to help you get to the negotiation table armed with compelling data. From here, you’ll be able to make your case and ask for fair reimbursement for services rendered. Defining your preferred terms takes your negotiation prep one step further. We suggest internally noting your lowest acceptable rate or term. Additionally, define your “must-have” changes in addition to your “nice-to-haves” so you know what to double-down on at the negotiation table— and what you can concede.
Articulate Your Practice’s Value: Payer negotiation success requires telling a compelling story about the value of your practice to the payer network. Prepare a captivating written narrative and/or a visually engaging pitch that highlights your practice’s care quality metrics, patient satisfaction rates, and any other differentiators that local peers don’t provide. (For example, your offerings could include specialist care or high quality/sought-after providers, convenient hours, an easy digital payment experience, and the like.)
Be Prepared to Justify and Compromise: Negotiations always involve give and take. To prevent a compromise that cuts into your revenue, substantiate your “must-haves” by preparing a thorough rationale for each request.
Consider incorporating these points in your reasoning:
- The time that’s passed since you last raised reimbursement rates. (Note: rates should rise 3-5% every three years.)
- Your best payer reimbursement rates, to highlight how you are being reimbursed by other payers.
- Minimum viable rates—what you must collect to stay in business and continue delivering the vital services. (You can calculate and reference rising labor, operating, and supply costs to make your case.)
Initiate Negotiations with Confidence: When you complete a thorough analysis of your top payers’ contracts and have detailed proposals and rationale for contract changes, you are ready to negotiate with confidence. If there is one payer you have a pre-existing relationship with or feel is more likely to offer better terms, start negotiations with them first. Use these negotiated rate increases and term changes to your advantage in negotiations with other payers.
The Bottom Line: Regular Contract Review Helps Protect Practice Viability
Negotiating payer contracts is a critical aspect of ensuring financial sustainability for healthcare practices. Regularly revisiting these contracts at least annually makes it so that your reimbursement rates align with the value you provide. By following the negotiation practices outlined in this article and adopting a proactive approach, your healthcare practice can achieve favorable payer contract terms.
Review Contracts and Negotiate with Expert Guidance
As a leading provider of technology-driven RCM solutions for healthcare for more than two decades, Resolv Healthcare has helped countless ambulatory groups and practices improve their financial health through our proven payer contract review and negotiation processes. Contact us today for guidance in optimizing your payer contracts so that they best support not only your patients, but your practice’s financial future.