Use Billing Reports to Test Managed-Care Contracts

January 4, 2019

Too many practices simply accept every available managed-care plan on the premise that something always beats nothing. Don’t be one of them.

Your billing system probably contains some of the tools needed to truly evaluate the value a managed care contract can bring to your practice.

Use the information from your billing system and a payer-performance table to evaluate whether a managed-care contract is truly worth your time and effort.

Step 1: Review reports. Start by tracking payer performance for several consecutive months using the outstanding-claims report and the aged-receivables-by-payer report. The outstanding-claims report identifies the payers with the most pending claims. The receivables report shows you how much money various payers owe you.

Step 2: Identify suspects. The relationship among the data can suggest contracts that might not be worth keeping. For example, an insurer with many outstanding claims but owing relatively few dollars may be an administrative “black hole,” using much of your time and effort but returning little. Dropping that payer would cause little financial loss but would free up your time for more lucrative work.

Investigate suspect contracts—and even seemingly good ones—further by developing a payer-performance table for your medical practice (for examples, visit the Forms & Checklists page on my website at www.rtacpa.com). Based on dollar value, determine the Current Procedural Terminology codes that capture 70%–80% of your practice’s charges. That number will vary from fewer than 10 for some specialists to several dozen for more general practitioners like pediatricians and internists.

Step 3: Make a map. Enter the reimbursement and volume from each contract payer into the payer-performance table you created. Creating the chart may take some time because you need to pull information from a range of places, but the completed table will quickly organize contract payments.

You’re not finished just because you know the hard dollars. One plan may reimburse less than another but may pay promptly and accurately and create relatively few headaches for you and your staff. This “hassle factor” affects a contract’s real value. Develop a hassle-factor score for each payer and include it on your table.

Every time you answer “yes” to one of the following questions for a payer, give that payer a point toward its hassle factor:

  • Does the plan repeatedly request referral or preauthorization?
  • Does the plan slow claims processing?
  • Do patients frequently complain to staffers about the insurance company?
  • Is the carrier’s provider-relations department unwilling or unable to readily answer your staff’s questions?

The combination of reimbursement level, procedure volume, and payer hassle can tell you whether a contract is a candidate for the paper shredder. Before you start shredding, assess how eliminating a contract might affect your practice.

Consider the following:

  • Can you afford the revenue loss of the reduced volume?
  • How will dropping the contract affect existing or future patients?
  • Will dropping the contract—and in turn, losing some patients—permit you to see more patients from better-paying sources?
  • How will dropping a plan affect referring physician relationships?

Proceed cautiously

Answering these questions about your suspect contracts lets you confidently decide whether to take the serious step of dropping a payer. But do take that first step cautiously. Review and understand your worst contract’s terms for termination, drop that single payer, and see what happens.

Figure out how you’ll continue caring for patients you’re already treating under that plan and how you’ll tell them you intend to drop their plan.

Never say anything negative about the payer to the patient. Not only will you appear unprofessional, but you’ll also put yourself at greater risk for legal action from the payer.

Even if you elect to keep all your current contracts, evaluating them helps you fully understand your practice’s finances and improves your ability to negotiate contracts in the future.

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