Payer Contract Renegotiation Process – Where to Start?

May 11, 2018

Let’s start off with a few questions:

  • Do you know what your fee schedules are for your largest payer or network?
  • Do you know when they were last changed?
  • What about how to find negotiation terms in your contract?
  • Do you even know where your contract is?

Don’t panic if you can’t answer these questions with “yes.” When it comes to payer contract rates and terms, the typical practice has no idea where they are. You could just blame whoever came before you, it’s probably their fault anyway, right?

If you know how to tackle the renegotiation process, you can improve your practice’s bottom line and manage the process moving forward. Here are some tips to help you through the process.

Step 1: Get your contracts and agreements together for all payers

The first step is gathering up all of your contracts, and you should start this immediately. You can and should expect it to take up to two months to gather the required info if you’re diligent and a year to complete your first few renegotiations.

Ensure that the versions you have are both current and fully executed, meaning that they have been signed by the practice and payer. Make sure you have any addenda and amendments between the contract’s effective date and the current date. But if you can’t find them, don’t worry and don’t be embarrassed, you can simply request copies from your payer or network.

Each payer has its own unique ways of requesting fee schedules and contracts. Don’t expect it to be a clear-cut process.

Step 2: Figure out your fee schedules for all of your codes

I have found that payers put a lot of obstacles in the way of finding fee schedules, and if you think you’ll find it in the contracts you’re wrong. Payers have all sorts of ways to make code rates difficult to get: special fax and email requests, web portals that provide only a handful of codes at a time, or vague contract exhibits referring to undefined standard market schedules.

Gather up the codes that you use and develop a spreadsheet for all of your codes with modifiers and places of service for each payer product. Send this to your payer representative to populate for you. Hopefully they’ll populate it for you, but often will send you a full list of codes for you to search or direct you to a portal.

Do whatever the rep tells you to do. Go to the portal, send the fax in or email, but get the rates for everything you do. Don’t accept that they’ll send you just a handful or the top ten, and make sure you get all of them.

Look at the entire schedule, not just a handful of codes. Look at all of the codes’ rates, then compare the entire schedules to weight them by utilization over a year (because some are seasonal, like allergies). Then compare it to the Medicare rate. Then multiply it by your utilization rate, and then by your payers, asking yourself ‘what if each of these powers had all of my business’ and weight it by each code. It’s the only way to get an apples-to-apples comparison of fees.

Step 3: Inform your payers that you wish to renegotiate with a formal notice

Decide which to pursue first, based off of the notice dates and financial impact upon your practice. Figure out your dates and figure out who has the worst schedules. Then marry the two and go after the weakest.

Search your contract to find the notice terms, which are frequently in the termination provisions. This will help you to decide which to pursue based on the timelines of all of your payers. That’s where you start and end the negotiation process, noting that most friendly requests for term renegotiations are fruitless.

The most common response is ‘Oh, we’re not negotiating at this time,’ and that’s why you submit a notice.

Step 4: Negotiate

The warning shots fired in the form of a termination notice begin the process, and now it’s time to push for negotiation. It might be a long time before [the termination notice] works its way to a human being but send it to the notice party stated in your contract. Then send it to your rep saying that it was sent by certified mail on whichever date, but you thought it was a courtesy to send it directly to them.

You can expect the initial response to inform you of a moratorium on negotiation or a “not at this time” message. Don’t accept that. Tell them that’s not in the contract, then move forward on your mission. Typically, payers will then ask what you’re going for. Ask them if you need to base this on their proprietary fee schedule, or if you can propose something based on a certain year or percentage of Medicare. There may be something they can put together more readily.

The payers are pretty darn stingy (about rate increases). Like, smaller single-digit numbers: two, three, maybe four percent. But if those codes represent 30 percent of a small practice’s business, that can be hundreds of thousands of dollars over a year.

Tell them your providers are really disappointed with their offer, then ask to take whatever percentage seems fair and take a carve out on certain profitable procedures. Or, accept the offer if you can make it a three-year deal and put a 2 percent escalator in the contract.

Step 5: Be realistic, and decide where you stand

You must ask yourself this very real question: are you willing to walk out on the contract and actually terminate if the network or payer won’t work with your terms? Select payer contracts that are outdated or outmoded, and be firm on the terms you want.

It’s important to create realistic expectations of potential rate changes for yourself and your physicians. Know that your major payers are more or less aware of each other’s rates when you try to leverage them. It’s up to you to decide what to accept.

You should be verifying your rates annually. Ask yourself, what if you get notice saying rates are changing in 60 days, and by not objecting within 30 days of notice you’re accepting them? Advise them that you manage your contracts even if you don’t plan to renegotiate. It’s good to have these on hand so you’re never crunched for time. You can’t ignore these things. Rates can change without you knowing, so keep your amendments in order and up to date once a year.

What to Put in a Contract Termination Notice

Keep your notice formal and simple. Most people don’t realize that the termination clause is where the process starts and ends. Set the clock, tell them you expect them to renegotiate in good faith, and that you expect a follow-up. I would suggest that you use plain language, like:

“According to the terms of our agreement in <place your termination section here>, I can serve you notice at this time. Please know that the purpose is to renegotiate and not terminate, but if we don’t come to terms in 30 days, please understand that this is my termination notice.”

Here’s a checklist of things to include in your notice:

Practice Name
Practice TIN and locations
Physicians in the Practice
Signatures of each provider, if using individual agreements
Intent to renegotiate but with a termination date if terms aren’t met
A date by which you expect a response

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