Physician Compensation and Managed Care Contracting Negotiations

September 6, 2012

To download the PDF, click here: Physician Compensation and Managed Care Contracting


We all know we are in an era of declining physician reimbursement. What physicians get paid for their services is much less than it was 5-10 years ago. This is particularly true with respect to managed care payers.

It is important to understand that employers drive managed care. Most employers, in an effort to contain their own costs want good insurance coverage for the owners and the employees, but do not want to pay a large sum for it. This is especially true of larger employers. Employers are constantly attempting to reduce or contain what they pay out for health insurance. As a result many are switching to managed care plans for their health insurance coverage simply because of the cost savings that can be achieved.

This creates constant pressure on managed care payers with respect to pricing their premiums. If health plans have to reduce or maintain what they charge as premiums to the local employers, they must find ways to maintain their profits. One way is to look at their cost structure – Specifically how much and at what price they are paying their contracted health care providers. Reducing what prices they pay providers is one simple way to maintain and increase their profits.
As medical practice revenue declines and overhead increases, guess what gets caught in the middle – physician owner compensation! Overhead often increases from year to year but most medical practices have done a good job creating an efficient overhead structure – in simpler terms, overhead needed to run the medical practice is “lean and mean.” This way, a medical practice can concentrate its efforts on increasing its top line – revenue. If revenue can be maximized and overhead contained, the result is increased monies for physician compensation.

One way medical practices can increase their top line is by negotiating or re-negotiating with their managed care payers. When originally contracting with or renegotiating a provider contract with a managed care plan, the physician and the medical practice should strive for two specific goals: (1) to obtain the most favorable legal terms possible and (2) to obtain the most favorable financial terms possible.

To continue reading this article, download the PDF: Physician Compensation and Managed Care Contracting

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