10 tips for successfully negotiating payer contracts

Medical Economics Journal, Medical Economics May 2022 edition, Volume 99, Issue 5

Before her practice joined an accountable care organization (ACO), payer contract negotiations seemed impossible, according to Karen Smith, M.D. Her family medicine practice in Raeford, North Carolina, couldn’t compete with large multispecialty clinics and hospital corporations.

“We accepted what we were given,” Smith says. “Contract negotiations were definitely one-sided.”

Since her practice joined the ACO, however, payment rates have gone up. There’s also the potential for shared savings — additional money that ACO members receive for providing cost-effective, high-quality care.

“Now we get paid in a manner that supports our practice, including our overhead,” she says. “That makes life a little easier and it allows me to invest back into my practice.”

The struggle is real

Many physicians struggle with fee-for-service payer contract negotiations because asking for higher payments can feel like a futile effort, says Andrew Harding, co-founder and vice president of customer success at Rivet, a healthcare billing and payment company that works with practices. “Payers invest millions of dollars into modeling software,” he says. “They hold the data and they basically hold all of the cards. They have a lot of power.”

Still, negotiating a successful payer contract is possible for those willing to craft a thoughtful, data-driven argument for why they deserve more money, Rivet says.

“I think this is an often-overlooked revenue generator,” he says. “Physicians think it will be really stressful or not yield any results, but if it’s been more than a few years, chances are your payers haven’t kept up with industry changes and inflation.”

What’s a reasonable payment increase?

Harding says he often helps physicians successfully negotiate a 3% to 5% increase every few years.

Consider these strategies to negotiate favorable payer contracts:

1. Obtain copies of payer contracts and fee schedules. “You can’t negotiate if you don’t know the baseline,” Harding says. “Use those contracts and fee schedules to forecast a 3% or 5% increase. How much actual revenue will that bring to your practice?”

Another reason to review current contracts is to identify and address payment variances that are below your contractually agreed-upon rate. Harding worked with one practice that hadn’t realized a payer never implemented a 5% increase negotiated five years previously.

2. Explore alternative payment models. If an independent physician isn’t already part of an ACO or clinically integrated network (CIN), they should consider joining, says Faisal Khan, senior counsel at Nixon Gwilt Law. “You can still be a standalone practice,” he says. “It’s about taking advantage of opportunities to partner with a larger entity to demonstrate quality.”

Smith agrees. “Our payment models are going to continue to change,” she says. “It’s so important for practices to be prepared to move and shift in the direction that will keep the business alive.”

3. Provide cost and quality data. Even if you’re not part of an ACO, CIN or other type of value-based contract that requires you to capture certain quality and cost metrics, you’re probably participating in Medicare’s Merit-based Incentive Payment System, which does require some of this data collection. What do Medicare data say about the care you provide, and how might you use those data to your advantage when negotiating with commercial payers? Use those results as leverage.

“It’s beneficial for payers to have these high-quality independent practices in their network,” Harding says.

4. Differentiate yourself.
When you ask for a payment rate increase, show the payer what value you provide compared with your local peers, Harding says. For example, is yours the only practice that offers extended business hours during the week or telehealth appointments on the weekends? Are you the only primary care physician in a 5-mile radius? Harding says it’s easy to obtain this information by going to a payer’s website or an online booking service such as Zocdoc and performing a search using your ZIP code to see how many physicians practice nearby. Physicians may have market dominance within a few-mile radius and not realize it.

5. Identify your volume of active patients. This is the number of unique patients you’ve seen in the past two years, Harding says. Remind the payer know that if you go out of network, the payer will need to notify patients that their designated primary care physician is no longer in network, which potentially will make patients unhappy about having to switch physicians. “It’s a lot of administrative headaches for payers and for patients,” he says.

6. Consider an escalator clause. An escalator clause is a contract provision that guarantees a specific payment increase during a define period. For example, practices could negotiate a three-year contract but build in automatic increases of 1% each year.

7. Perform a payer analysis.
How does one payer’s payment rates compare with others? Is that payer paying below-market rates? If so, use deidentified information (either the average or rate by rate) to build a case for higher rates, Harding says.

Talk with other physicians in your local area to get a sense of their contracted rates, says Boyd Stewart, vice president of payer/provider collaboration at KLAS Enterprises. KLAS is working with various practice management vendors to obtain blinded data it can use to publish benchmarks for payment rates, denial rates and more.

8. Negotiate carve-outs for high-utilization services.
For example, your practice may be able to negotiate higher rates specifically for office visits to maximum revenue impact, Harding says.

9. Add services to your fee schedule. Many physicians perform COVID-19 immunizations and laboratory tests, the codes for which may not be on their fee schedule with a specific pre-negotiated contracted rate, Harding says. Instead, they’re paid a percentage of charges, which is often lower. “All you need to do is add these services to your fee schedule and you’ll be paid more money for performing the same service,” he says.

10. Know where you’ll draw the line. “If a payer isn’t going to pay comparable rates or increases, you always have the option to leave the network with a termination,” Harding says.

Words of caution

When you do negotiate an increased payment rate, doublecheck that it will benefit your practice. “A payer might provide a 5% increase, but when a physician looks at the services they provide most often, they might see those are actually getting a 2% cut,” Harding says.