Negotiating for Better Reimbursement

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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.

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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