(August 14, 2013): In today’s reimbursement environment, solo physicians and physician practice groups are witnessing a steady decline in reimbursement rates. Unfortunately, their overhead costs and obligations due to the imposition of Electronic Medical Records, HIPAA Privacy, OSHA and a litany of other regulatory requirements are making more and more difficult to remain profitable each year. Health care providers have long accepted the fact that they have very little leverage when it comes to negotiating contracts with Medicare, Medicaid and other government health benefits programs. Nevertheless, that is not necessarily the case when dealing with private payor contracts. The purpose of this article is to discuss several of the issues you need to consider before you enroll or extend your participation as a provider in a private payor plan.
I. The Importance of Reading Your Private Payor Contracts:
When is the last time you sat down and carefully reviewed a proposed private health plan prior to merely signing the last page and sending it in for processing?
Working with physicians and practice groups on a daily basis, we have found that very few health care providers have ever read their contract with the private payor. There are a number of reasons why you should always read a payor contract before signing it or renewing your agreement with a payor:
- We recognize that it is likely to take a considerable amount of time for you to review and understand what is expected of you as a participating provider. In recent years, we have noted that many private payor plans only provide a written copy of the basic contract information for your review and consideration. It is very common for payors to now maintain portions of their plan on their website for a provider’s review. At first blush, you may think that this facilitates the review process. Think again. Providers have often complained that they have had a difficult time looking up important information (such as reimbursement rates) directly associated with their payor contract. Some providers have encountered broken links and / or pages that no longer exist when trying to look up specific terms of their contract with the payor.
- You are likely signing multiple private payor contracts each year. Once executed, you and the payor plans will be required to adhere with the obligations set out for each respective party to the agreement. As you review your private payor contracts, you will likely note that there is no provision which allows you to bill “insurance only” and fail to try and collect any copayments or deductibles that may be due.
- Medical necessity and coverage requirements may vary from plan to plan. While there is arguably a right way and a wrong way to assess whether a specific care and treatment regimen would be “medically necessary,” you may find that a plan appears to confuse issues of medical necessity with those relating to “coverage.” For example, one private payor contract may cover the administration of a certain chemotherapy drug if a patient is diagnosed with a specific type of cancer, while another contract policy may conclude that the use of the same chemotherapy drug for patients with this type of cancer is not medically necessary (or is non-covered) because it would involve using the drug in an off-label fashion. As a participating provider, it is your job to know what each private payor contract and policy covers.
II. Why You Need Higher Reimbursement Rates:
In the healthcare environment today, costs continue to rise while provider reimbursement rates are in decline. The introduction of the Resource Based Relative Value Scale (RBRVS) and Medicare’s adoption of a national fee schedule have also impacted a practice’s ability to generate additional income from insurance plans by simply raising what it charges for services. Physicians and practices are now scrambling to assess their options when it comes to maintaining profitability. As any business owner can attest: Profitability is the only way to ensure Viability.
III. Benefits of Engaging in the Negotiation of Reimbursement Rates:
Physicians and multi-disciplinary practices may not realize it, but they have quite a bit of leverage when it comes to negotiating fees with private payor health plans. So what’s the problem? Unfortunately, an informal survey we conducted found that most health care providers: (1) Were not aware that private payor contracts were subject to negotiation, (2) Didn’t feel comfortable engaging in the negotiation process, or (3) Had no real frame of reference to use if they were to try to negotiate with a private payor. Regardless of your reason(s) for not seeking to negotiate with a private payor, if you use the right approach and are equipped with the right information, negotiating your way towards higher reimbursement rates can be a successful process.
Physicians and multi-disciplinary practice groups may consider the large insurance companies – Blue Cross, Blue Shield; United Healthcare; Aetna; CIGNA; etc. – as daunting obstacles, unwilling to negotiate with the sole practitioner or small physician practice group. But consider this: today’s healthcare market reflects a massive shortage of certain providers. As a result, the fee negotiation process, often considered to be very adversarial, should be considered as a mutually beneficial partnership between physicians and health plans in which they desire to serve as a participation provider.
IV. Issues to Consider Before Engaging in the Rate Negotiation Process:
Before you attempt to negotiate more favorable rates with a private payor plan, physicians and small practice groups should consider the following?
- Who will represent me or my practice in the reimbursement rate negotiation process?
- Do I feel comfortable negotiating my contract? Alternatively, is our office manager capable of representing our interests in the process?
- What types of data and bargaining methods would be useful when trying to negotiate a reasonable contract with private payors?
The answers to these questions will allow the solo physician or practice group to stay in business and continue to provide quality healthcare to their patients.
V. The Negotiation Process – the Use of Leverage:
Hospital-based physicians may be the lucky ones. They have a little more leverage in the negotiation process. For instance, a physician performing services at a hospital is generally paid the health plans’ usual, customary rates for that location. What happens when a physician asks for an increase in reimbursement rates, but the health plan carrier declines his requests?
In response, the physician may cancel his contract and begin working non-contracted with the plan. He knows that the plan’s patients are going to come to the hospital regardless of whether he has a contract with the private insurer or not. The physician can now bill the patient for 100% of his fee schedule. While the health plan will pay what it believes is appropriate, the remaining balance then is owed by the patient. The patient now becomes the physician’s best advocate.
The patient’s complaints move up the insurance chain, and the problem ultimately ends up with the carrier. This may force the carrier into the negotiation process to give the physician a better reimbursement rate. In this situation, the physician has had the upper hand.
VI. Using Data as Leverage in the Negotiation Process:
Unfortunately, the negotiation process is not easy and can be a frustrating process. In fact, it is more difficult for independent physicians, i.e., those who rely on the third-party carrier to direct its members to the physician’s practice. They are at the whim of the insurer and do not have substantial bargaining power at the outset. As a result, the physician must be proactive and make an argument using business data.
Unfortunately, physicians are reluctant to make the next step. It takes time, diligence, and preparation and physicians are already pressed to do their job and provide quality care. But remember: the carrier is not going to grant you better reimbursement rates unless you make the argument and demonstrate that you deserve it. Thus, solid data and a well-reasoned argument must be brought to the negotiating process.
VII. Assembling Helpful Information Prior to Negotiating for Higher Reimbursement Rates:
Before you’re ready to get to the negotiating table, you must assemble all of the necessary facts and information that will give you bargaining power. The following steps are suggestions that will allow you to assemble a strong portfolio:
Step 1: Determine the Big Picture of Your Contract Reimbursement Rate
Before renegotiating your reimbursement rate, know where you stand. If your payor’s fee schedule results in payments that are less than what Medicare typically pays, you already have a strong argument for increased reimbursement rates.
Determine whether the insurance payer maintains your fee schedule based on a percentage of a given year of the RBRVS (let’s say, 120% of 2010 RBRVS). Find out if, and when, the payer updates its fees. You should also consider what components of the RBRVS the carrier uses (e.g., geographic practice cost indices (GPCI) adjustment, site of service differential, etc.).
Step 2: Identify Your Most Commonly Used CPT Codes
Make a list of your most commonly used CPT codes. Ensure that your list accounts for at least 75% of your total practice charge
A majority of practitioners derive their revenue from office-visit, hospital and preventive-medicine codes. These will be the first codes to identify.
Just as important, you should determine the frequency of each CPT code, i.e., the number of times the service has been provided over a 12 month period. Certain codes may not, individually, be significant revenue generators; but if your practice consistently bills for them, they are a vital bargaining tool to identify.
For example, if you determine that evaluation and management (E/M) constitutes 75% of what the practice does, you might try to negotiate a lower reimbursement on other procedures to increase reimbursement for E/M services. In the long run, you’ll gain more by accepting less.
The easiest way to assemble this data is through your electronic billing system.
Step 3: Define Your Top Payor Matrix
Medicare and/or Medicaid may, individually, comprise the bulk of your practice’s business. However, they use established fee schedules and do not negotiate.
Thus, prioritize your top three to four private carriers that make up the bulk of your reimbursement. Collectively, they may represent the largest percentage of the practice’s income and will be easier to negotiate fees.
Step 4: Determine Your Reimbursement for Each Code.
Review the Explanation of Benefits statements from your top payers and assess how much they “allow” – but not how much is “paid” – for each of your top billing codes.
Then calculate each payers’ reimbursement rates as a percentage of Medicare’s reimbursement rates.
For instance, a health plan may indicate that it pays 120% of Medicare’s rate for a certain code. You can calculate Medicare’s current rates for your geographic area on the “Medicare Physician Fee Schedule Look-Up” tool at http://www.cms.hhs.gov/physicians/mpfsapp/step0.asp.
You should also determine the current relative value units (RVUs) Medicare assigns to each code. Because many health plans now incorporate RVUs in the payment process, it is important to understand what they represent. Under Medicare’s RBRVS, each service is assigned RVUs based on the physician effort, practice expenses and malpractice risk involved.
Step 5: Review Your Reimbursement Rates for Each Code.
Analyze your current fees for each CPT code on your list against your fees as a percentage of Medicare’s rates.
If you determine that the insurance carrier is reimbursing some of your charges in full, this may mean your fees are too low. If so, the payor may be willing to pay more. You could also consider raising those fees or, alternatively, standardizing all of your fees at practical and reasonable percentage of Medicare (e.g., 130%).
If your payers seem to pay more for procedures or diagnostic studies, another approach is to establish a tiered fee schedule. For example, your schedule could set E&M services at 130% of Medicare while charging 150% of Medicare for other services.
Step 6: Organize the Data and Analyze Your Position.
Compiling this data will help you identify which codes or health plans should be targeted for negotiating higher reimbursement rates.
At first, focus on the codes with the highest volume and dollar value. These codes will yield the most return for negotiating efforts.
If one health plan’s rates are clearly lower, or if one code is reimbursed at a lower percentage of Medicare than the others, these determinations will also be clear targets for negotiation.
For instance, if one of your health plans pays 95% of Medicare for preventative services and 130% of Medicare for lab services, you could use that as a negotiating tool. Disease prevention is a vital part of most health plans; they should provide proper incentives to do so.
After considering these issues, ensure that you develop target reimbursement rates for your negotiations.
VIII. Take Action and Negotiate Your Case:
Once you have completed an analysis of fees being paid, you should now move to negotiate with the health plan carrier. First, you should identify an important payor contact. This usually is your provider representative. Although this individual may be incentivized to keep your reimbursement rate increases to a minimum, he or she can be a very helpful contact. This person will likely be the person that ensures that your proposal gets into the right hands.
You should then prepare and send a formal health plan proposal letter. In this letter, differentiate yourself from your competitors and demonstrate the strengths and assets of your practice. Specify what your practice brings for the payor and how you are the better provider for the health plan members. Ensure you point out several key factors if they exist: Is your particular field or specialty in high demand, unavailable in certain geographic areas, or not provided by your competitors? If so, these factors can be significant tools in the bargaining process and can be vital in securing higher reimbursement rates.
Hopefully your diligent work has paid off and you receive an offer from the health plan carrier. Once you do, make sure you request and review the complete agreement. This will allow you to ensure that your entire offer (i.e., rates and contract language) are acceptable to the unique needs of your practice. If necessary, you should draft revisions to specific terms or language within the contract. Make sure you prepare additional letters to your payor and specifically reference what language may be problematic. Ensure that you also note why you are objecting and propose alternative language that will be feasible to both entities. Continue this process until both you and the health plan carrier are satisfied and in agreement.
IX. The Bottom Line:
At the end of the day, some key points that every health care provider should consider when negotiating for higher reimbursement rates:
Analyze your fee schedule and your health plans’ reimbursement rates. This will help you reveal and overcome any payment inequities.
Review your fees annually and make sure you set them at a reasonable rate (e.g., at 130 percent of Medicare’s rates).
Even if you’re only to gain a small increase for just a few codes, this increase can generate enough income for your practice to keep you profitable.
Don’t forget – annual increases in the overall costs of healthcare are increasing demands to depress future provider reimbursement rates. Annual adjustments may not be sufficient to allow a practice or a physician to stay viable. As a result, unless the physicians are willing to work harder – or work for less – they must make the adjustments now in order to capture the revenue. Negotiating for increased reimbursement rates will take the work, but it is not a process that is not manageable. With the right tools and information, you can be prepared to effectively make your case for higher rates. Do you need assistance with your contracts? If so, give us a call.
Robert W. Liles, MBA, MS, JD, serves as Managing Partner at Liles Parker, a boutique health law firm representing health care providers around the country in connection with audits, investigations, compliance and transactional health care projects. For a free consultation regarding your case, please give Robert a call. He can be reached at: 1 (800) 475-1906.