Ten Key Principles for Physicians Contracting with Third-Party Payors

  1.  Not signing an agreement can be okay.  Many practices and related endoscopy centers have gone bankrupt by signing contracts due to worrying that if they don’t sign, they will be left out of the network.  Physicians must understand the overall value of the contract.  When the reimbursement rates are below the cost, it is usually better not to sign and refrain from providing services to payors that are not profitable.© 2009 Parsonage Vandenack Williams LLC 

  2.  Do not sign agreements that are at a low rate just because it represents a small percentage of your business.  It is becoming more common for payors to rent their networks to other payors.  Practices may sign an unfavorable agreement without pause because it represents a small percentage of business, assuming it is not an important payor and trying to hastily get an agreement signed.  However, practices can later find out that they signed up for a contract that lowers their rate of reimbursement with other payors that are renting their network and, suddenly, the volume of business flowing through the rental network payor is much greater than expected at lower reimbursement rates.  Therefore, instead of just signing the agreement, it is better to not sign at all if it does not provide sufficient reimbursement.

 3.  Practices must understand which procedures drive 80% to 90% of their revenues.  In most practices, a small number of procedures and services generate the greatest percentage of revenues.  When negotiating agreements, efforts should be focused on these high-revenue-generating procedures and codes.  Do not get stuck on codes that represent low volume and may not be at desired rates of reimbursement if they can be used as leverage to negotiate high rates on the codes that represent the most volume.  Basically, you can give a lot on other codes if you focus mainly on these key codes that will increase the overall value of the agreement, resulting in increased levels of productivity.

 4.  Understand your revenues.  Each practice should understand what they are currently receiving in terms of revenues for each procedure.  Useful information systems and the ability to understand the current reimbursement per procedure is important for benchmarking expected reimbursement per procedure when entering into a new agreement.  If the overall net revenue per procedure turns out to be below the total cost per procedure, you may not want to sign the agreement.

 5.  Long-term vs. short-term agreement.  When an agreement provides for sufficient reimbursement, the practice should be better positioned to negotiate for long term agreements with escalators, such as two years, three years, five years, or more.  On the other hand, where reimbursement is not sufficient, the practice should look into entering a shorter terms agreement or no agreement whatsoever.

 6.  Understand what percentage of reimbursement will be paid by the payor versus the patient.  More often, payors are able to shift significant amounts of the payment rates to the patients.  Thus, increases in reimbursement increase the amount due from the patient.  Although on paper the agreement may look great, it may also require a lot more effort to make certain you are collecting from patients to insure that you actually see the increase that has been promised.

 7.  Withholds and quality bonuses can be toxic.  There has been talk of increased bonus opportunities based on quality.  But over the last 10 to 15 years, the experience of physicians was most universally bad with withholds and bonuses from payors.  Basically, payors did not pay must on withhold amounts, and bonuses were rarely if ever seen.

 8.  Cost control and understanding your costs is important.  It is very important that practices manage their own businesses extremely efficiently as reimbursement becomes tighter from payors and employers try to reduce provider costs.  Finding ways to reduce your costs and manage your own costs allows you to retain a greater percentage of the revenues and reimbursement.

 9.  Merging practices can solve problems reaching agreement.  Oftentimes, practices view merger situations as a way to allow themselves and another practice to operate together and thus take advantage of better managed care rates in one practice or the other.  Before agreeing to merge, practices need to really have a strong idea of whether or not this is likely to be successful.  For instance, is the payor likely to extend the rates from one practice to the other?  Lots of times, payors are no longer willing to just allow the second practice to tie into the payment rates of the first practice of the merged or surviving practice.

 10.  Utilizing your attorney.  Attorneys can help you handle your managed care contracts.  Some attorneys have great experience in this area and a very strong understanding of where a payor can move towards in terms of reimbursement for a practice.  It often makes sense to use an attorney when negotiating your managed care contracts.  The impact economically can be very substantial.


 © 2009 Parsonage Vandenack Williams LLC

  For more information, contact info@pvwlaw.com


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