1. Not signing a contract can be fine. Many practices and many related endoscopy centers have gone bankrupt signing contracts out of concern that if they don’t sign, they will be left out of network. Understanding the value of a contract is imperative. When the overall reimbursement rates are below the cost, it is often more advantageous not to sign and refrain from providing services to payors that are not profitable.
2. Do not sign contracts that are at a low rate just because it represents a small percentage of your business. Increasingly, payors rent their network to other payors. Practices may sign an unfavorable contract without caution because it represents a small percentage of business, assuming that it is not an important payor and they just want to get it done. The practices may be surprised to find out later that they just signed up for a contract that lowers their rate of reimbursement with other payors that are renting their network and, all of a sudden, the volume of business coming through the rental network payor is far greater than expected at lower rates of reimbursement. Thus, rather than simply signing the contract, one is better off not signing the contact at all if it is does not provide adequate reimbursement.
3. Practices must understand what procedures drive 80 percent to 90 percent of their revenues. In most practices, it is a small number of procedures and efforts that generate the greatest percentage of revenues. In contract negotiations, it is critical that efforts be focused on these procedures and codes. Don’t get hung up on codes that represent little volume and may not be at desired rates of reimbursement if you can use them as leverage to negotiate high rates on the codes that represent the most volume. In essence, you can give an awful lot on other codes if you focus heavily on these key codes that will drive up the overall value of the contract, resulting in increased levels of profitability.
4. Understanding your own revenues. Each practice, when negotiating a contract, should understand what they are currently receiving in terms of revenues per procedure. Useful information systems and the ability to understand the current reimbursement per procedure is critical to benchmark expected reimbursement per procedure as you prepare to sign a new contract. If the overall net revenue per procedure proves to be below the overall cost per procedure, consider walking away from the contract.
5. Long-term vs. short-term contract. In simple terms, where a contract provides for adequate reimbursement the practice should be well suited to pitch for longer term contracts with escalators, such as two years, three years, five years or more. In contrast, where reimbursement is not sufficient, the practice is usually better off pursing shorter term contracts or no contract at all.
6. Understand what percentage of reimbursement will be paid by the payor versus the patient. Increasingly, payors have managed to shift significant amounts of the payment rates to patient responsibility. Therefore, increases in reimbursement increase the amount due from the patient. Thus, while a contact on paper may seem terrific, it may also require a great deal more effort to make sure you are collecting from patients to insure that you see the increase that has been promised.
7. Withholds and quality bonuses can still be toxic. There is again talk about increased bonus opportunities based on quality. Over the last 10-15 years, and when this was a more common issue in managed care contracts, the experience of physicians was most universally bad with withholds and bonuses from payors. In essence, payors often did not pay much on withhold amounts, and bonuses were hardly ever seen.
8. Cost control and understanding your costs is critical. As reimbursement becomes tighter from payors and employers crack the whip on payors to reduce provider costs, it becomes more important that practices manage their own business very efficiently. In essence, finding ways to reduce their own costs, and manage their own costs, such that they are efficient in provision of services, allows the practice to retain a greater percentage of their revenues and reimbursement.
9. Merging practices can solve certain contracting problems. Increasingly, practices look at merger situations to allow themselves and another practice to jointly operate and thus take advantage of better managed care rates in one practice or the other. Before completing the merger, practices must really have a good sense of whether or not this is likely to be successful. In essence, is the payor likely to extend the rates from one practice to another? In many situations, payors no longer are as willing to simply allow the second practice to tie into the payment rates of the first practice of the merged or surviving practice.
10. Utilizing consultants. There are increasing consultants that specialize in just handling managed care contracts. Many of these have terrific databases and a terrific understanding of where a payor can move towards in terms of reimbursement for a practice. It often makes sense to utilize one of these consultants and test one of these consultants on a couple of your more important managed care contracts. The impact economically can be very substantial.
Ms. Kehayes (nayak@eveia.com) is founder, managing principal and CEO of Eveia Health Consulting & Management, which is comprised of a team of seasoned professionals who are experts in reimbursement management, managed care contracting, and business management with a specialization in ASCs and surgical practices. Learn more about Eveia.
