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How physicians should negotiate with payers


In order to sustain viable revenue, it is prudent to analyze and effectively negotiate

healthcare payer contracts. Cost analysis should be performed in an organized way to establish dollar value on tangible and intangible items. You need to have a clear understanding of business principles, current market trends, and the cost of delivering quality healthcare.

Healthcare contracts are legal documents and need to be reviewed carefully.  Many physicians sign  payer contracts without negotiating. 

Often the payer will say, “This is what we are paying in your market. Take it or leave it.”  We must understand that the terms in the contract are not immutable.  We have to create and demonstrate value in terms of data, quality of care and cost- effective, long-term goals that benefit the team as a whole.

RELATED COVERAGE:9 points to consider when negotiating with payers

Even if the practice is run efficiently,  with low overhead, if the payer contracts are not properly negotiated or worded, it can  result in a loss in net revenue.   

There is a benefit in numbers, the larger the organization, the greater the leverage.

The organization can do SWOT analysis, which is assessment of strength, weakness, opportunities and threats to the practice. For example, internal strengths can be analyzed by reviewing: the number of new patients enrolled in the plan, utilization of revenue and expenses with quality measurements, patient satisfaction reports, benchmarking quality and efficiency, providing service that is unique and new in the current market and networking with peers at state and national levels.

In looking at weaknesses, we need to analyze the fee schedule, which is a percentage of the current Medicare fee.

To help reveal the rates and overcome payment inequities, we can create a utilization report to capture and review data. Using a spreadsheet, determine the frequency of a current procedural terminology code and the number of times it was billed to that payer. Multiply that by the current payment amount.  Determine the break even point. This is done by adding overhead and physician compensation by total frequency of all codes for that payer. The results are weighted average cost.  Compare the weighted average cost to weighted average reimbursement. 

Threats are when contract start and end dates are not monitored. We need to know how much notice is required to make any changes. It may be advisable to start discussions with the payer representative 150 days before the contract term ends. It helps tremendously when the communication is channeled through one individual from the health plan with whom a business relationship has been built.

NEXT PAGE: Preparing for negotiations


In preparation for negotiations, we need to set a bargaining range that includes optimum and minimal target goals. The optimum goal is where the terms are ideal. The minimum goal is the point which absolutely has to be met. The target is the point where you would like to be at the end of negotiation.  

It would be advisable to meet face-to-face with the payer representative and present clear data and  requests for change, and to listen to what the representative has to say.  The person who has the most experience with complex negotiations should do this.

It would also help to know the issues of concern to the payer. For example, if the payer’s concern is with high use of ancillary services, it would help to point out how effectively you manage the use of these services. You can show cost control and forecast the predictable costs. Share practice data that shows compliance and improved outcomes.

Demonstrate the efficiencies that reduce  costs, and that the goal of this business relationship is to provide cost-effective healthcare. This can be done by showing  the payer how many of their members avoided hospital re-admissions because of the effective, quality healthcare you provided. 

There are other items to negotiate in the contract. The prior authorization process can be made easier. The period for submitting a claim may be extended. Improvement and ease of the appeal process is helpful. Timely payment and interest on late payments need to be clarified.

READ MORE:6 tips for improving your negotiating skills

When presented with a well-documented and organized data analysis, the payer may be able to recognize the value your practice brings to its members. This, in turn, will help increase the revenue generated, anywhere from a 3% to 10% increase in reimbursements.

In conclusion, it is essential that payer contracts are carefully reviewed for their fee schedules and the provisions that can alter the net revenue a practice generates. Research shows that larger corporations have an added advantage in using volume of providers that service their clients. 

If there are clauses in the contract that the insurance companies won’t negotiate that affect your  break even point, a letter of intention to discontinue the contract should be sent. Ultimately, the payer may come to realize that a large portion of its members would not have care providers and would thus reconsider their position.

Raju Kurunthottical, DO is a family physician who practices in Round Rock, Texas. This essay was an honorable mention in the 2014 Medical Economics writing contest. 

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