It's Complicated! (Part 2) Payer Contracting is Complicated

By Dana R. Bellefountaine Jr., CEO, CodeToolz

With overhead costs increasing from year to year and declining payer reimbursements, practices are struggling to find ways to increase, or just maintain, profitability.

Payer contracting, evaluation, and renegotiation is critical to every practice, yet many practices set up their contracts one time and allow them to automatically renew (known as an evergreen clause), without any negotiation.

Instead, providers can improve their revenue by adopting an aggressive managed care payer contracting strategy, which starts with understanding their negotiation leverage.

A SWOT analysis (strengths, weaknesses, opportunities, threats) will help you identify your negotiation leverage (or lack thereof) and opportunities for shared benefit.

• Strengths/Opportunities = Positive Negotiation Leverage
• Weaknesses/Threats = Negative Negotiation Leverage

The core of your contract strategy is to define up front what leverage your practice has. Here are some examples:

• Most markets have a shortage of primary care physicians, and members are very loyal to their PCPs.
• If your practice includes specialists or someone who performs unique procedures and/or services, this can serve as leverage. This is especially true if there’s a shortage of such specialists in your market.
• Practices that have a significant amount of the managed care plan’s provider panel usually have some form of leverage. The managed care plan knows it runs the risk of losing a portion of its panel if these doctors terminate the contract. If doctors leave the plan and patients must switch doctors as a result, most will inform their employers.
• Payers want to keep their customers (employers) happy. Don’t forget to keep employers with which you have a good working relationship informed about your services and circumstances.
• Payers want to keep costs (reimbursements) down. Maybe you have extended office hours, keeping members out of expensive emergency departments. Shared cost-savings is a reasonable negotiation tool.
• If a health plan is in the early stages of developing a provider network in your area, your participation is more valuable because it can help the health plan sell its product and increase its membership. As a result, the health plan might be more willing to offer additional concessions in reimbursement levels or contract language revisions to secure your commitment to the network.

Be aware that an inability to define your leverage will inevitably lead to failed negotiations—payers are not going to bring up missed points of leverage with you.

Dana R. Bellefountaine Jr. is CEO of CodeToolz . He holds a Bachelor of Business Administration (Accounting and Finance) degree from Texas State University. He has decades of success in healthcare revenue optimization, physician practice management and physician network development at all levels.