Who's Got Your Back?

January 1, 2006

Tips for better contracts


Physician offices are awash in payer contracts. In most, standard contracts get quickly reviewed for the fee schedule and are hastily signed. There seems to be little point in digging any deeper; most practices can't raise a payer rep on the phone, let alone someone who could actually negotiate.

But there is more to contracting than doing a quick price check. Common key clauses can make or break the deal down the road. (We have a list of some of those below.) Here's how to get ready for the fight.

You can negotiate

It is possible to get payers to change their standard terms, insists R. Todd Welter, president of R.T. Welter & Associates, a company that specializes in physician contract analysis. "It's a copout to say you can't negotiate," he says. "This is a relationship business; you've simply got to get to the right person. Over time, we know who runs the contracting department, we know who the medical director is, and we just pick up the phone and call them.

"Everyone has some leverage" they can use when negotiating, he adds. "You just have to find it." For example, one of his clients is a solo pediatrician - at first glance, she'd seem to have the absolutely weakest possible negotiating position. Pediatricians are common and solo physicians have little clout in a large payer panel. However, the wise physician realized that many of the parents in her practice are teachers. She purposefully even has hours that suit a teacher's schedule. So, concludes Welter, "if the school district uses Aetna, we stick it to Aetna at contracting time."

Welter suggests every practice do a "SWOT" analysis - a chart outlining the practice's strengths, weaknesses, opportunities, and threats when it comes to contracting - and act to improve things.

Then hit the phones and get to know who's who at your payers' offices. That way, when the contracts cross your desk and you see something troubling, you'll know whom to talk to.

Favored Nation contracting

We thought we had seen the end of so-called "favored nation" clauses in managed care contracts. We were wrong. These odious clauses have returned in some markets.

They basically obligate you to tell the payer if you accept a lower rate from another payer. If you do, the payer reserves the right to lower its fee to match.

In other words, payers no longer have bother negotiating or promising a competitive rate. Providers take on the burden of tracking a payer's competition and get a pay cut as thanks.

Linda Millazzo, practice manager of Colorado Neurology in Englewood, Colo., has seen this in two new contracts. She even had one payer call her and straight-out ask her the lowest rate she has accepted from any payer. Millazzo replied, "I'll tell you that as soon as you tell me the highest price you give any provider." The payer didn't think this was at all the same thing, but, of course, it is.

If payers take this tack with you, fight it, advises Welter, who has seen favored nation phrasing come and go for the past 25 years.
"I would never sign a contract that has that language in it - never," says Susan Charkin, president of Salinas, Calif.-based Health Cents, which also helps physicians with contracting issues. "It's better to have your patients go out of network." She worries that the clauses essentially put all the physician's fee schedules in the public domain, as the payer presumably has the right to audit and make sure it has the most advantageous rates.

If the payer won't back down, try rephrasing things. Specify that the clause will only apply if a new, lower-priced contract is exactly the same in every way as the already signed, higher-priced contract - same number of beneficiaries, same services covered, everything. "Make it apples to apples," says Welter. That allows the managed care company to continue telling any employer that its pricing to physicians is as low as any other company's. But since you are unlikely to ever be presented two contracts that are alike in any way, it basically makes the clause meaningless to the physician.

Charkin says favored nation clauses are rarely deal breakers for payers. Say you'll "make your best reasonable effort" to make sure rates are not out of line with the norm, she suggests. "It's language without teeth, but it's enough to placate payers sometimes."

Nuclear option

If a contract stops paying off, you need to get out - but you might not be able to. "For the most part, these contracts contain evergreen clauses which means that unless a person gives specific notice of termination based on a defined time period (60, 90, 120 days, whichever is called for), the contract will be automatically renewed for one year or more," warns Ira Rosenberg, president of Managed Care Resources in Burr Ridge, Ill. "Thus if a contracted provider wanted to negotiate new rates or change contract language, they would have to ... provide written notification to the insurer within that time period to preserve their negotiation rights. Otherwise, they could be forced to wait a year."

Welter similarly advises understanding how to get out of contracts. Some contracts will specify that your termination only takes place after a certain amount of time. Ninety days is ideal; 120 days is OK, says Welter. But watch out for a contract that won't accept your termination for 180 days, and then says the payer can still assign you patients for up to another 100 days. "You essentially can't quit," Welter points out. "[The physician's] leverage is termination; the health plan will never be the doctor. If they take away my ability to [quit], it weakens my position ... Termination is not an option you always want to use, but it is the nuclear option."

Retrospective audits

"We are working with a client where the insurer came back and said they did an audit and asked for refunds going back three years," says Rosenberg, outlining the need to understand the payers' rights in terms of retrospective audits. "A doctor, like anyone, closes his books at the end of the year. He doesn't hold a reserve out there" to cover such events, Rosenberg points out. And he probably can't create the billing path himself to contest the payer's claims.

Try to set limits to how far back payers can audit, the methodology, and establish your appeal rights.
Welter says the main problem he sees is that the standard is to take any refunds out of prospective payments. That is, if a payer decides you owe them $100,000 in refunds, it will take a piece out of each check it sends you over the next year to get it back. "It's a nightmare for billing," Welter says. Set a contractual agreement that you'll settle up some other way.

Silent PPOs

Silent PPOs are the bane of many practices, but they are, alas, very hard to get out of through the contracting process.

In a silent PPO, a physician signs a contract agreeing to a discounted fee schedule from one payer. The contract specifies that the rate applies to all the payer's "partners," a seemingly innocuous phrase. The payer then rents its provider network to other networks - large employers, for instance, or other PPOs. Suddenly, the practice is getting EOBs that include the agreed-upon discount from patients with all kinds of payers.

The problem is that it's very hard to tell if the discount is correct without doing a lot of detective work, says Charkin. "It's really hard to track where this employer accesses you. You have no way of knowing what PPO Smith's Garage contracted with ... Most offices just write it off."

"This is a deal-breaker for the PPOs," she adds, "because that is how they make their money. They have to rent out the network."

Charkin has had limited success negotiating the terms with large payers and for clients the payer really wants. She specifies who else can have access, usually large regional employers such as Mervyns or IBM.

"I only recommend contracting with the largest PPOs out there," Charkin says. "You still get silent PPOs, but you don't need to contract with every PPO put there ... A lot of these PPOs are in business just to sell their networks."

Money does matter

Of course, contracts also are about the fee schedule, but even that isn't usually as straightforward as it looks. Here are some top catch-phrases to look for, provided by Chris Hicklin, senior contract analyst at IMACS, a Dallas-based company with multiple revenue-management tools, including contract review:

  • "Reimbursement will be X percent of Medicare's Resource Based Relative Value Scale (RBRVS), while drugs will be reimbursed at X percent of Medicare's fee schedule."
    The problem: The contract does not mention labs or durable medical equipment, neither of which are included in Medicare RBRVS, anyway.

  • Drugs will be paid through Medicare's drug fee schedule."
    The problem: Which year's fee schedule? Drug reimbursement has bounced all over the place in recent years. Also, there is no percentage specified. You can't assume it's 100 percent of the Medicare schedule.

  • "Payment is based on Medicare's RBRVS."
    The problem: The contract fails to mention the year, percentage, multiple procedure reductions, and modifier reductions - just to name a few missing elements.

  • "Reimbursement will be X percent of Medicare's fee schedule."
    The Problem: Although this language seems to be detailed, the year of the Medicare fee schedule is left out. Also, the contract really should be for Medicare RBRVS not the "fee schedule." Otherwise, the payer can pay only the procedures reimbursed by Medicare.

  • "The following Conversion Factors (CFs) were used in calculating fees. These CFs are an unweighted average for each group. Therefore, the fee will not equal the Relative Value Unit (RVU) times the conversion factor."
    The problem: "The contract states that the CF is indeed a custom conversion factor and lists the conversion factor for a couple different procedure code ranges. That would be great by itself - and would make it easy to evaluate payments. Unfortunately the contract then goes on to say that the CF listed is an average for each procedure code range and will not be able to be used to evaluate payments. This is a slick way the payer says, 'We will pay you something like this but not exactly, so don't try to check on us.' Therefore, without the payer's fee schedule, the reimbursement is only a guess at best," says Hicklin.

  • "Only the provider numbers listed below will receive X percent of Medicare; all others will be ..."
    The problem: Providers come and go. Never put a provider's number in a contract because when that provider is replaced, the contract will need to be updated.

  • "X percent of usual and customary, provider's billed charges or maximum fees as defined by law."
    The problem: "This language is in more contracts than you would think. It seems to be a straight percentage reimbursement contract, but there is a catch. 'Usual and customary' is defined by the payer and can fluctuate as the payer sees fit. Although the contract clearly has X percent of billed charges, the payer can pay a fraction of that percent if the payer decides that the provider's charges are not usual and customary for the provider's area. Many contracts have this language with little consequence; however, the provider is at risk of being deceived regarding the actual allowable," Hicklin reports.

A little careful reading and review can go a long way to better payment and processes later on.

This article originally appeared in the January 2006 issue of Physicians Practice.