Have You Evaluated Payer Contract Relationships in Today’s Environment?

Have You Evaluated Payer Contract Relationships in Today’s Environment?

What’s the key to successful payer contract relationships? The answer is found in the title of a report fromMcKesson, “The Key to Successful Payer Contracts? Pay Attention.” Paying attention involves keeping tabs on current market trends, the cost of delivering quality health care, as well as basic business principles. McKesson researchers found “declining income and profitability” to be among the top reasons why medical organizations seek the help of an outside consultant. The current health care environment has practices and large organizations alike scrambling to keep up with legislative changes, medical coding conversions and quality standards, in addition to avoiding penalties. Analyzing payer contracts often gets pushed aside or just left on auto pilot. Have you evaluated payer contract relationships in today’s environment? Here are some tips to get you on the right track.

A Common Scenario

The McKesson report revealed that on average payers are reducing their fee schedules by five to 12 percent, a percentage high enough to become painful dips in a practice’s profits. However, these reductions often go unnoticed until profits are in peril. How so? As Medicaid reimbursements have increased and more patients are self-pay due to high deductible insurance plans, payers are amending their agreements with physicians. These amendments or new agreements are often sent under the guise of “in order to streamline reimbursements” or “to improve competition.” You won’t see a new contract that screams “hey we are reducing your fee schedule.” As a result, these notices are either not routed to the appropriate person or the right person may see it, but may not realize how significant the reduction is because payer contract terms are not readily available. Many payers give organizations 30 to 45 days to respond. No response is interpreted as acceptance. As a result, physicians are in a new contract that lowers the payer’s reimbursement. This scenario often goes unnoticed until profits noticeably dip.

This scenario is not meant to imply that payers are involved in some type of unethical scheme. They are simply surviving in today’s new health care environment too. However, knowledge is power. You can be sure payers have done their due diligence to determine how to reach their profit goals. Physicians must do the same. The McKesson report’s check list recommended creating a payer matrix. This simple record contains all key payer data, including contact information, historical reimbursement terms and key provisions in the contract. Keep an accurate matrix so that you can quickly determine if terms are fair. How important is this tracking? Researchers found that practices that do not track payer data are reimbursed on average four percent less.

If you suspect this information might be too little too late, gather data about how well payments are matching contract terms. Billing software often comes with reporting tools that offer analysis of expected payments. Run these reports at least quarterly to determine if you are coming up short and which contracts are causing the problem.

Use SWOT to Evaluate Contracts

SWOT (strengths, weaknesses, opportunities and threats) is a framework for analysing corporations in the business world. However, Medical Economics recommends using this method within medical organizations. Here’s how.

  • The strength of a contract can be evaluated by reviewing factors such as how many new patients are enrolled in the plan, and how satisfied they are. Benchmark patient satisfaction through surveys that measure the quality and efficiency of the contract. To maintain patient privacy, ensure that surveys are kept confidential and proper encoding is used if they are sent electronically. Compare the contract to current market trends. Does the contract provide a unique or new service that would strengthen your patient base?
  • Evaluate weaknesses in the plan based on the current fee schedule. By comparing your matrix and report from your billing software, you can unveil payment/service inconsistencies.
  • Opportunities would include your bargaining range. Set a goal for what fees are acceptable, optimal and unacceptable. The optimal goal is when the terms are perfect, which rarely happens. But, having a goal range will help you be an informed, assertive negotiator.
  • Threats occur when contracts are not evaluated regularly. McKesson has “schedule reminders for renegotiation” on its check list. Don’t wait for contract amendments to come through, or termination dates to arrive. Be proactive. You must be ahead of the game. Contracts often have a 90-day termination provision. That means if a contract is set to expire on December 31, McKesson recommends starting negotiations in July so the details are settled before the 90-day deadline.

Remember That it’s a Negotiation

Sometimes we tend to only focus on changes to the payer’s side of the contract. However, changes within your own office can aid negotiations. Do your research and find out the top issues of concern for payers today. Gather data to show how well your office manages those pain points. Medical Economics recommended, “show cost control and forecast the predictable costs. Share practice data that shows compliance and improved outcomes.” The ultimate goal for both you and the payer is to provide quality health care in a cost-effective manner. Perform a thorough audit to increase your negotiating power. Look beyond simple fee negotiation. Analyze terms around the authorization process, claim submission or the appeals process. These terms can have a huge effect on the efficiency of your office.

The health care sector has undergone tremendous change over the last five years. Maintaining profitability is more challenging than ever. Advantage Administration, Inc. provides health care consulting to help private practices and academic medical centers reach financial efficiency and overcome the challenges of health care reform. Contact us to find out more.