Negotiating for Better Reimbursement
Negotiating higher reimbursement is nearly always possible, according to Penny Noyes, president and CEO, Health Business Navigators, Bowling Green, Ky. She presented Payor Contracts: Strategies to Analyze and Negotiate Improved Payor Reimbursement on October 21, 2008, in San Diego, at the annual conference of the Medical Group Management Association.
Noyes emphasizes that it is a mistake simply to accept whatever a commercial payor offers as its standard fee schedule, even though insurers may claim that they have set those fee schedules because they do not negotiate with individual practices and physicians. Her message, she says, is that it is imperative to negotiate in order to protect income. She covers not how to negotiate, but why, when, and using what ammunition.
The real incomes of physicians are declining, Noyes says, and this becomes obvious once those incomes have been adjusted for inflation. While the average incomes of professional and technical workers of all kinds increased about 7% between 1995 and 2003, according to the US Bureau of Labor Statistics, physicians’ incomes decreased during the same period. For all physicians, the average decrease was 7%, but this represents declines ranging from 2% for specialists to 10% for primary care providers. Reimbursement levels that are dropping (or, at best, remaining flat) are the primary reason for these income losses among physicians.
There are three steps, Noyes says, that must be taken before the physician practice can begin to negotiate with payors. First, an inventory of current agreements with payors must be completed. Second, a timeline must be drawn up for each active contract. Third, the components needed for analysis of all current payor agreements must be gathered. 
Conducting Inventory
The inventory of current agreements should list, for each contract, its original effective date; the number of days remaining before its anniversary date; the length of its term (and whether it has automatic-renewal, or evergreen, features); the basis, such as a fee schedule or percentage of Medicare fees, of its reimbursement rates; the notice requirements and address for its termination; and contact information for the payor’s representative. Noyes uses ContractMaster software for this inventory and FeeMaster software for the subsequent contract analysis.
A side-by-side comparison of payors’ standard fees, by CPT® code, can help the practice decide which contracts will require the most attention when their terms approach expiration. The payment rates for a particular code can vary to a surprising degree, even if the payor applies a payment formula based on a percentage of Medicare fees, because the systems used to assign CPT codes to various payment levels by commercial insurers do not always rank a code at the same payment level.
Making a Timeline
A timeline for each contract is constructed next, with action points based on the number of days’ notice required for changes. For a contract that requires the typical 90 days’ notice, data analysis begins 150 days before the renewal date. Meetings to determine the practice’s negotiating strategy should take place 120 days before renewal and should be followed by the sending of a letter to the payor requesting new rates and setting a deadline of 60 days before renewal for the payor’s response.
The payor’s receipt of that letter should be confirmed 90 days before renewal. Negotiations should begin about 75 days before renewal, and rates and contract language should be settled on by both parties by about 45 days before renewal. The new agreement should be signed 30 days before renewal, with the intervening time used by the payor to set up the new rates before they go into effect on the renewal date.
Analyzing the Offer
Before it is possible to understand, with certainty, the full effects on the practice’s income of a given payor’s offered payment rates, Noyes says, those rates must be compared with the practice’s actual cost of performing a procedure. For the payor in question, each CPT code under which that payor has been billed is determined, along with the frequency with which the procedure is performed, the associated charges and payments, and the current fee.
In a tabular format, this information allows one to see, at a glance, which CPT codes have the greatest effect on income, due to their frequency of performance. It also shows clearly any danger zones: the CPT codes for which the practice’s cost of performing the procedure exceeds the fee. These are the codes that then assume highest priority for negotiated fee changes.
The last step before the actual negotiations begin, Noyes says, is to evaluate the net effects of possible changes in all payment categories, tying the individual analyses together in order to determine how they would affect the bottom line. This lets the negotiating team know which specific points are worth a fight and which might be conceded, if necessary, without doing much financial damage to the practice.
It is advisable to concentrate on making gains in areas where the practice is the only provider in the locality of a particular service, Noyes says, since this gives the practice more bargaining power. The other area where standing firm will make the most difference is, of course, the reimbursement rate for the procedures and studies that are performed most often, since even a small gain in per-procedure dollars will have a large impact when it is multiplied so many times. 
A Final Caution
By the time all of the hurdles associated with preparing for, initiating, and managing negotiations with a payor have been jumped, Noyes says, it may be only natural to feel somewhat overwhelmed by the process. This is a dangerous time, however, to let down one’s guard. Having negotiated better reimbursement rates with a payor is certainly an accomplishment, but it is not wise, at this point, to go ahead and sign any contract that the payor might proffer. There is much more to a contract than the rate of payment, and every provision of it deserves careful scrutiny.
In fact, failure to evaluate the provisions of the contract as closely as the reimbursement rates—and to apply as much negotiating skill and effort to making those provisions work for the benefit of the physician practice—can actually undo all of the hard work that has been devoted to the process up to this point. As Noyes notes, a single provision in the contract can override the carefully negotiated fees, and it may very well be part of the contract’s boilerplate text, automatically included in every contract proposed to a physician practice.
Unless further negotiations can remove that one provision, it will be the downfall of all the practice’s careful efforts: it is the clause that allows the payor to amend the contracted reimbursement rates at any time, without the written consent of the physician practice. Beware the effect of this and similar provisions, Noyes concludes, but above all, protect the practice and its income by taking charge: go out and negotiate.
Conducting Inventory
The inventory of current agreements should list, for each contract, its original effective date; the number of days remaining before its anniversary date; the length of its term (and whether it has automatic-renewal, or evergreen, features); the basis, such as a fee schedule or percentage of Medicare fees, of its reimbursement rates; the notice requirements and address for its termination; and contact information for the payor’s representative. Noyes uses ContractMaster software for this inventory and FeeMaster software for the subsequent contract analysis.
A side-by-side comparison of payors’ standard fees, by CPT® code, can help the practice decide which contracts will require the most attention when their terms approach expiration. The payment rates for a particular code can vary to a surprising degree, even if the payor applies a payment formula based on a percentage of Medicare fees, because the systems used to assign CPT codes to various payment levels by commercial insurers do not always rank a code at the same payment level.
Making a Timeline
A timeline for each contract is constructed next, with action points based on the number of days’ notice required for changes. For a contract that requires the typical 90 days’ notice, data analysis begins 150 days before the renewal date. Meetings to determine the practice’s negotiating strategy should take place 120 days before renewal and should be followed by the sending of a letter to the payor requesting new rates and setting a deadline of 60 days before renewal for the payor’s response.
The payor’s receipt of that letter should be confirmed 90 days before renewal. Negotiations should begin about 75 days before renewal, and rates and contract language should be settled on by both parties by about 45 days before renewal. The new agreement should be signed 30 days before renewal, with the intervening time used by the payor to set up the new rates before they go into effect on the renewal date.
Analyzing the Offer
Before it is possible to understand, with certainty, the full effects on the practice’s income of a given payor’s offered payment rates, Noyes says, those rates must be compared with the practice’s actual cost of performing a procedure. For the payor in question, each CPT code under which that payor has been billed is determined, along with the frequency with which the procedure is performed, the associated charges and payments, and the current fee.
In a tabular format, this information allows one to see, at a glance, which CPT codes have the greatest effect on income, due to their frequency of performance. It also shows clearly any danger zones: the CPT codes for which the practice’s cost of performing the procedure exceeds the fee. These are the codes that then assume highest priority for negotiated fee changes.
The last step before the actual negotiations begin, Noyes says, is to evaluate the net effects of possible changes in all payment categories, tying the individual analyses together in order to determine how they would affect the bottom line. This lets the negotiating team know which specific points are worth a fight and which might be conceded, if necessary, without doing much financial damage to the practice.
It is advisable to concentrate on making gains in areas where the practice is the only provider in the locality of a particular service, Noyes says, since this gives the practice more bargaining power. The other area where standing firm will make the most difference is, of course, the reimbursement rate for the procedures and studies that are performed most often, since even a small gain in per-procedure dollars will have a large impact when it is multiplied so many times. A Final Caution
By the time all of the hurdles associated with preparing for, initiating, and managing negotiations with a payor have been jumped, Noyes says, it may be only natural to feel somewhat overwhelmed by the process. This is a dangerous time, however, to let down one’s guard. Having negotiated better reimbursement rates with a payor is certainly an accomplishment, but it is not wise, at this point, to go ahead and sign any contract that the payor might proffer. There is much more to a contract than the rate of payment, and every provision of it deserves careful scrutiny.
In fact, failure to evaluate the provisions of the contract as closely as the reimbursement rates—and to apply as much negotiating skill and effort to making those provisions work for the benefit of the physician practice—can actually undo all of the hard work that has been devoted to the process up to this point. As Noyes notes, a single provision in the contract can override the carefully negotiated fees, and it may very well be part of the contract’s boilerplate text, automatically included in every contract proposed to a physician practice.
Unless further negotiations can remove that one provision, it will be the downfall of all the practice’s careful efforts: it is the clause that allows the payor to amend the contracted reimbursement rates at any time, without the written consent of the physician practice. Beware the effect of this and similar provisions, Noyes concludes, but above all, protect the practice and its income by taking charge: go out and negotiate.