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Managed care contracts are the foundation of many practices' revenue streams. Poorly negotiated contracts can result in ineffective patient flow and cost providers thousands of dollars—or even their businesses—so it's essential to get them right the first time. Though the process may seem overwhelmingly complicated, it need not be. The secret to negotiating contracts lies in the following six key business strategies:
1. Know Your Market, Your Competition, and the Network Composition
As a provider, understanding your place in the market is one of the best negotiation tools at your disposal. Networks want to look attractive to employer groups, so they strive to offer a breadth and depth of providers.
One of the most effective ways to place yourself in a position of strength is to show the value that you would bring to the network. Perhaps you have multiple facilities that can serve the network in multiple locations to eliminate travel for members. You may have your own fabrication lab, have received recognition for a particular product that you make, or offer a specific product for your customers that your competition doesn't offer. Evaluating and understanding the quality of provider networks and positioning yourself as a key addition to those networks is fundamental to your negotiation power.
Positioning yourself against other practices of similar size requires a different approach than positioning yourself against a large national chain. Knowing the pros and cons of the competition will help you to prepare your contracting strategy.
Reporting on health outcomes is an effective, albeit uncommon, contracting strategy. Though health outcomes are not widely tracked within the O&P field, the power of data is a strong tool for negotiating profitable contracts. Make it a priority to know the following statistics:
- Number of members the carrier has in your service area.
- Name and volume of the large employer groups that use that particular payer.
- Statistics of the health outcomes for the patients you have served. For example, the success of the fitting process, the follow-up services your practice offers, and the level of customer satisfaction, as well as the number of re-fittings, infections, ulcers, etc. that were reduced due to your process as compared to those in competition with you. With the implementation of many electronic medical record (EMR) systems, it is now possible to track these types of outcomes. If your practice uses EMRs, run reports on your practice's quality outcomes prior to negotiating your contract. If your outcomes are outstanding, encourage the payer to run the claims data from their systems on the competitors in your area to match the costs with the outcomes.
2. Build Your Network Participation Based on Key Referral Sources
Developing strong relationships with key referral sources such as orthopedic surgeons, podiatrists, and hospital emergency staff who also belong to the network you hope to contract with can help you negotiate if those sources are referring the majority of their business to you or are willing to request your participation within the network for the continuity of their patients' care. Specialists are harder to contract within a network because, from a contracting perspective, they are in higher demand. Usually, a limited number of specialists serve a contracted service area and, therefore, hold a little more negotiating power. If the specialist uses your practice exclusively, it may present your practice with a greater probability of negotiating a higher rate. You should strive to participate in the same networks as your referral sources; participation in networks that do not match those of your referral sources will net a decrease in your patient flow.
3. Understand Your Raw Costs and Profit Margin Before You Negotiate Rates
There are several rules for establishing the costs of the services and products you provide to your patients. Many providers look at the competition to establish the prices they charge, which is only one component of establishing costs. Providers use different suppliers, order different quantities, and produce different amounts of products, so the price of materials is different for each provider. Correctly establishing charges should be based on the combined costs for materials, overhead, staffing, and labor, as well as on your desired profit margin. If you eliminate this cost-analysis step, negotiating reimbursement rates becomes risky and will most likely lead to a loss.
Since a provider must charge the same amount for a product to self-payers, insurance companies, and government payers, it is critical to understand the business aspects of pricing before establishing your prices and negotiating your contracts. Once you have completed your cost analysis, compare it to the rates in your contracts and determine which contracts should be kept, renegotiated, or dumped.
4. Be Aware of Contract Terms that Could Negatively Impact Your Business
There is more to a contract than the reimbursement terms. Don't sign a contract just to sign it; read all of the pages and make sure to review all of the terms. Although it is critical to negotiate the most profitable contract for your business, it is also important to be aware of other contract terms that could be detrimental to your practice. These are just a few examples:
- Timely filing: This is a completely negotiable term. Always seek at least 120 days to submit a clean claim.
- Network fees: Some networks actually charge monthly fees to belong to the network. Watch these costs carefully and negotiate a rate that is reasonable for the number of members you see from the carrier. If the number of members is low, try to negotiate these terms out of the contract because their steerage may not produce the increase in patients you need to justify the fees.
- Access to other networks or products that are tied to this contract: Be aware of other products this contract will service at the fees that you have negotiated.
- Liability for billing patients: Be aware of terms that make you responsible for the total costs of a claim if your charges are denied due to the claim being determined not medically necessary, having lack of prior authorization, or for other reasons.
- Appeal time frames: Negotiate appeal terms to allow time for receipt of payment from multiple payers and for you to appeal the denial, rejection, or payment of the claim.
- Termination terms: Be aware of early termination penalties, the ability to terminate without cause, and the length of notice that is required to terminate the contract.
5. Negotiate a Smart Rate for Your Business
All payers will send you a base contract with their lowest possible fee schedule or terms for contracting. It is your responsibility to ensure the "sample" fee schedule they provide to you is applicable to the services you provide. If it isn't, you should provide the payer with your top 25 codes (most used, largest reimbursement opportunity) so that they can provide you with their reimbursement for your specific codes. Evaluate the payer's reimbursement rates for those top 25 codes and compare them to your cost analyses for the same devices to determine whether or not the reimbursement would be profitable for your business. You'll also need to consider what profit margin is acceptable to you. If you don't know what the profit margin is for your costs, compare the fee schedule to Medicare's. Through my experience working with providers, I have found that most providers can break even at 70 percent of Medicare. Be aware, however, that this is an average only; some providers have higher costs, while others' are a little lower.
When negotiating your fees, always start with a higher number than you expect to receive. If your break-even rate is 70 percent, don't be afraid to start at 120 percent of Medicare. If your positioning is on target and you have a sound understanding of your financial position for this network, you may be able to negotiate somewhere between 100–110 percent of the Medicare fee schedule.
6. Know When to Walk Away
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Participating in networks is important; however, sometimes you have to walk away to save your business from reimbursement rates that will eventually bring a negative return. For both small and large providers, contracting with large national payers is typically the key to serving the patients in the payers' service area. Some national payers begin contracting at rates as low as 40 percent of Medicare fee schedules; this is detrimental to an O&P practice's bottom line. Never agree to the original proposal; always negotiate above your break-even point. Though you may need to accept rates just above the break-even point in order to gain the contract, you should never start there during the negotiation process.
To summarize, the following key steps can help you better negotiate your contracts:
- Do your homework: Understand your business, the competition, and the network position.
- Complete a cost analysis: Know your break-even point and the profit margin you need to create a successful position and a profitable practice.
- Position your business for success: Build your story and sell it to the network.
- Read all of the contract terms: Be prepared for "gotchas."
- Don't undersell yourself: Negotiate for more than what you need, and settle for what will allow you to make a profit.
- Walk away: Don't be afraid to walk away when the deal won't bring you the patient flow you are expecting or the revenue you need.
Christine Duprey is the co-founder of CARIS Innovation, Abrams, Wisconsin. She can be contacted at 920.826.5300 or at www.carisinnovation.com
