Practice Makes Perfect: Factor in changes from reform when negotiating payer contracts

Last June, MGMA-ACMPE released the results of a questionnaire that ranked members' most pressing practice-management challenges. In this edition of “Practice Makes Perfect,” we'll tackle No. 13 on that list: negotiating contracts with payers.

I work with many practices that want a better understanding of payer contracts so that they can negotiate them more effectively. The current healthcare environment has certainly affected the process. Employers may be looking to reduce or manage their healthcare premium expenses and seek avenues for reducing costs with insurers. And negotiations with payers can affect providers and patients down the line.

Also, payers are now addressing the financial impact of accountable care. It is still difficult to predict what might happen in the future, but there are many factors in play. With increased consolidation and the move to providing more integrated care, whether it is formal or informal, some payers are now dealing with entities exerting increased negotiating leverage.

If your practice is negotiating or renegotiating payer contracts, here are a few recommendations:

Perform a self-assessment to evaluate your payers like you would evaluate your retirement plan. Determine by payer the amount and percentage of charges and collections. As a percentage of charges or a percentage of Medicare, evaluate who you work with best. Incorporate the information you have from the last couple years. Examine how diverse your payer mix is and your accounts receivable by payer. Are one or two payers responsible for the majority of your denials and subsequent appeal rework? Don't forget to include an assessment of your government payers, even though contracts may not be negotiable. Having a handle on all this information may help you prioritize and focus your contract negotiation efforts on just a few of the many contracts you have.

It's important to assess and understand your negotiating leverage or lack thereof. Do you have a specialty and/or geographic monopoly? For example, are you the only orthopedic provider in a ski area? Are you a large multispecialty group in a city where the closest providers are 100 miles away? Or are you one of many small, primary-care practices in a suburban setting where all the providers contract with all the payers? In any event, it is usually easier to go for relatively small reimbursement increases on an annual basis instead of pushing for big percentage increases every couple years.

Look for new opportunities under healthcare reform to work with payers and other providers. “Value” is the big buzzword or concept under accountable care. Although sometimes difficult to identify, quantify or define, there will be multiple opportunities over time to participate in new methods of healthcare delivery and reimbursement. These methodologies are still evolving and include medical homes, case management, bundling and accountable care organizations. With these new opportunities come the challenge of better understanding your costs, partnering with other providers, and entering a variety of financial risk and reward agreements relating to population management. All of this requires practices to have access to appropriate data and national benchmarks, such as information from MGMA-ACMPE.

Consider developing your own internal quality incentive programs. Administration and physician leadership should work together to identify a short list of specialty-specific targets that are meaningful and measurable.

When negotiating, or renegotiating payer contracts, embrace the change happening in our industry. Do your homework and learn more about opportunities for your practice. This will benefit your organization and, in the long term, your patients seeking quality care within their budgets.

Jeffrey Milburn

Independent consultant MGMA Health Care Consulting Group Englewood, Colo.