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Managing Payer Contracts

Managing Payer Contracts

Does your practice need to get a better handle on its payer contracting process? If the following scenario sounds familiar, it may be time to take a closer look at how your contracts develop and evolve.

Say your practice, like many others, employs someone you think of as a "billing and payment expert." This is the individual who runs back to the managing physician in the middle of the day, waving a payment voucher from a payer who allegedly shortchanged the practice. This usually brings forth praise from the physician, and gives him a false sense of security that the practice is catching payment irregularities. But guess again. If this is the only contact you are having with payers, you may be missing out on some opportunities to improve your reimbursement.

Gone are the days when physicians could simply trust that they were getting paid fairly, or in accordance with their payer agreements. Payers are becoming increasingly sophisticated in their ability and willingness to deny, bundle, or reduce payments. Payer errors can be equally damaging to a practice's revenue.

CIGNA, for example, is expected to settle a lawsuit worth an estimated $500 million to reimburse doctors whose claims were inaccurately processed as the insurer converted to a new data processing system. Similarly, United HealthCare and Aetna have settled similar class action suits. Unless your practice has a systematic means to identify these payment problems and resubmit your claims, you may be out of luck.

Know the cycle

The fact is, physicians leave money on the table all the time. How can you prevent this from happening in your practice? The first step is to recognize that contracting with payers is not just a one-time event. Contract management is a cycle involving these components:

  • Setting your reimbursement and contracting goals
  • Negotiating terms and conditions
  • Monitoring and administering the contract
  • Auditing the contract for compliance

Begin this process by identifying where your contract management efforts will be most rewarded and what you are trying to achieve. Practices that I work with are moving back to a fee-for-service mode, so it is important that groups understand the need for appropriate rate targets.

Set reimbursement goals

It's important to set goals -- but before you can decide what your practice needs in terms of reimbursement, you must first understand what you are currently getting. Start by identifying your top five commercial payers and consider the following questions and possible action steps:

How are these payers currently reimbursing you? Make a table that provides an overview of these agreements, including a quick summary of the terms and vital information.

What is your volume by patient visits and revenue by payer? What percentage of your total business do they constitute? This is your payer mix.

What is it that you don't understand about a payer's reimbursement methodology? What terms haven't been fully disclosed? Ask for full disclosure on these.

What are the sensitive areas for reimbursement in your practice? In particular, review how you are paid for ancillaries and supplies if they represent a substantial portion of your production.

Are you at capacity in your practice? If not, how do you want to influence the growth of an improved payer mix? If your practice is at capacity, what would be the impact of not renewing certain payers? What kind of patients would they be replaced with?

How are your charges set? RBRVS (resource-based relative value scale) or based on the local market? Are there any payers paying 100 percent of your fees for certain code? If the answer is yes, it's time to review your charges.

Many practices calculate their expenses by dividing them by the total charges per year in the practice (excluding physician salary) expressed in RBRVS units $/units = conversion factor expense. This gives you an idea of what it costs as a conversion factor to cover your overhead. In some practices, expenses may be higher than governmental conversion factors. In that case you have to add the difference back into your expense conversion factor.


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