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The common “trapdoors” in payor contracts – and how physicians can avoid them

Blog
Article

A business in the health care system usually succeeds or fails depending on the complicated, multi-layered contract negotiations between physicians and payors.

Scott Dewey: ©PayrHealth

Scott Dewey: ©PayrHealth

It’s a tragic story that’s all too common: A hardworking physician practice owner, busy with a full schedule of patients, is thrilled with the new contract she negotiated from a major Medicare Advantage payor. On paper, the payor agrees to reimburse the practice well: 100% of Medicare fee-for-service rates. That’s revenue this practice owner can invest in her staff, her facility, and new ways to care for her patients.

Then reality hits. The denials start piling up. The payor begins to downcode claims based on administrative requirements that don’t reflect clinical reality. And shortly after the first year under contract, this physician owner realizes she’s wasted precious time and staff resources only to end up with payment far below the promised 100% of Medicare rates.

Most health care professionals get into medicine for the mission, not the financial margins. But the reality of running a business in our health care system is a stark one, and it usually succeeds or fails depending on the complicated, multi-layered contract negotiations between physicians and payors. Once those negotiations are complete and the terms are laid out on paper, physicians often face a reckoning: how does this contract function in practice? How will it impact my practice, and my patients?

The bad news is that every day, far too many dedicated health care clinicians fall through hidden trapdoors in their contracts with payors. These trapdoors can cost a practice, hospital, or health system enormous revenue, and are a reminder that the playing field in contract negotiation is still tilted against physicians.

The good news is that these trapdoors have some common signs and signals. With a handful of best practices, health care professionals can avoid them and settle on contracts with payors of all types and sizes that optimize revenue and align every party’s work toward the long-term health of patients and communities

To start, physicians have to look beyond the numbers. They should always enter negotiations with a clear sense of what reimbursement rates are necessary to serve their patients and their community. But the language of the contract is just as important as the math, and this text can often have an outsized impact on a practice’s financial health.

Here are six of the most common contractual trapdoors physicians should watch for:

Overpayment recoupment. Many payor contracts include clauses that allow them to recoup overpayments from the practice, generally with no time limit. That means a payor can go back to a specific service a physician gave a patient 10 years ago and demand repayment from the physician, throwing a whole new source of financial instability at the practice. Physicians should always ask for a time limit for recoupment, preferably a year.

Prior authorization protection. Prior auth is the bane of many a physician’s existence. Unfortunately, it can get worse. Standard payor contracts require physicians to follow authorization processes that are one-sided in favor of the payor, and are administrative in nature. Physicians should seek the addition of language that requires medical necessity standards to be used in making authorization and appeals decisions, and allows for the provider to request peer-to-peer review of authorization denials. Other contract clauses allow a payor to rescind prior authorization after a service has been provided, even if the payor initially granted prior authorization. Physicians should advocate for an affirmative statement in the contract clarifying that once a payor approves an authorization, they cannot rescind it.

Financial penalties and fines. Some payor contracts are replete with clauses that bring financial pain on physicians and their staff. They could require physicians to pay payors’ fines from regulatory penalties, provide medical records for free for payors’ audits, or even incur financial penalties if they fail to notify payors before they deliver care to their patients. Physicians should keep a close eye on contracts for these financial pain points.

Language that allows payors to unilaterally amend the contract. There isn’t much point in negotiating a contract if one party can instantly change it by simply sending a notice with new terms. Some contracts even allow a payor to merely post an update on their website instead of notifying physicians directly about the change. Physicians should limit this language.

Time limits on claims. Payors typically grant a window of 90 days from the date of service to file a claim. While most practices strive to meet this deadline, extenuating circumstances outside the physician’s control may prevent this, which should not allow the payor to deny payment for legitimate services a health care professional has provided to their members. Physicians should try to extend that window.

Contract durations that are simply too long. Too many physicians get locked into long-term contracts that they are not allowed to terminate. This language keeps physicians from shopping around and removes a strong incentive for payors to improve. In negotiations, physicians should push for shorter initial contracts, especially to get a feel for their relationship with the payor.

The worst trapdoor of all, though, is when a physician simply assumes the proposed language in a contract is set in stone and can’t be altered. Most payors negotiate contracts using a common template, with a few alternatives of increasing favorability to the physician and their practice. Each time a physician pushes back on language or a specific clause, the payor may be willing to adjust contractual language to make it more friendly. Eventually, the physician might experience some resistance if the next step up requires approval from a senior leader at the payor. But by finding these limits and asking the right questions, physicians can often get a contract that’s friendlier to them and bring a real benefit to their bottom line.

No one wants physicians to spend all of their time figuring out how to become the best contract negotiator. We want them to do what they do best: care for us, our loved ones, and our communities. But with a few tried and true best-practices, and by looking out for the most common contract trapdoors, health care professionals can go into contract negotiations on strong footing with their eyes wide open. They can lock in the financial security to help them keep their lights on, their doors open, and their mission at the center of their work.

Scott Dewey is chief managed care officer at PayrHealth. With more than 30 years of financial, operational, and network development experience across large health plans, hospitals, and health systems operations in both the public and private sectors, Scott brings a depth of knowledge to the PayrHealth team on a range of health care delivery and payment models, including traditional fee-for-service and sophisticated value-based care approaches.

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