How to get a good deal in payor contract negotiations

2013 02 27 12 16 36 423 Stiles John 70

It's no secret that what radiologists want to do most is practice medicine. It's why they get into radiology in the first place. So, when it comes to billing issues and negotiating contracts with commercial insurance payors, it's no surprise they typically don't want to get involved.

Most radiologists just want to know that things are working correctly and they have fair deals in place that pay them the money they have earned. What many of them don't understand is that well-informed radiologists are often the most effective negotiators for their practices. A radiologist, armed with the right information and the autonomous power to approve and nix deals, is a third-party payor's most formidable opponent at the negotiating table.

Also, as an insider's tip, it has been my experience that having the group's most aggressive doctor handle the negotiations can be beneficial. This doesn't mean that you have to be cantankerous and outspoken to get the best deals, but it doesn't necessarily hurt either.

John Stiles of HealthPro Medical Billing.John Stiles of HealthPro Medical Billing.
John Stiles of HealthPro Medical Billing.

Taking an active role in contract negotiations is a great way for radiologists to help their practices get the best deals with commercial insurance providers. Radiologist involvement is a great starting point for this article because it shows how factors other than negotiated rates are important to securing contracts that provide maximum reimbursements for services, as well as practice-friendly terms that can dramatically affect overall profitability in the long term.

Look at the big picture

Repeat after me: Rates aren't everything. Rates aren't everything. Rates aren't everything.

I can't stress this enough. Negotiating favorable rates is important to achieving a good deal, but many radiologists, practice managers, and billing managers perceive rates as the point where contract negotiations begin and end.

The truth is that there are many other contractual elements that can affect reimbursements over the life of an agreement. Commercial payors are well aware of this fixation on rates, and they use it to their advantage. They bank on the myopic view of many radiology practices and then appear to cede ground on favorable rates, only to try to make it up -- and then some -- in other areas of the contract.

It's not unethical, just smart business from their perspective. It's the radiology group's responsibility to maintain a broad view of the negotiation terms, and act accordingly.

While we're on the subject of rates, there are some things to keep in mind when negotiating. Most commercial insurers use Medicare and Medicaid rates for specific services as benchmarks in negotiations. This is because the rates set by government payors are nonnegotiable and provide a common framework from which to work.

It's also why commercial payor reimbursement rates end up as something like "144% of Medicare" for a particular service. Generally speaking, it's always beneficial to negotiate the highest rate possible, but you need to be careful. Agreeing to a higher rate that's tied to variable Medicare rates that fluctuate over the life of the contract is not usually a good idea.

Here's why: If Medicare pays $100 for a service this year, but reduces that rate the next year, your reimbursement just dropped by whatever percentage was cut. To prevent this from happening, you should attempt to set the current-year Medicare rates as the basis of your contracted rates. This way, you are shielded from negative changes that may occur year over year.

Because we're looking at the big picture here, we must consider some other factors that are related to rates but go beyond the actual rates themselves. One way to safeguard your practice from receiving depreciating payment value for the work you do is to negotiate "not less than" language into your contract. This keeps reimbursements from dipping below predetermined levels, and takes some of the uncertainty out of planning and revenue forecasts.

Another way to ensure the value of reimbursements over the life of a contract is to push for automatic, incremental rate increases to cover rising practice costs. As you know, the costs of practicing radiology are nowhere near fixed. Staff, equipment, malpractice coverage, and other overhead expenses can change at any time and rarely remain static for any significant period of time.

This means that if you can negotiate some breathing room into rates that combat rising costs, you should. For instance, if you have a procedure rate set for 140% of Medicare in the first year of a three-year contract, you would ask for the rate to move up to 145% for the second year and then to 150% in year 3. From that point on, the 150% rate would be evergreen for that particular item.

Deciphering the effect of HCPCS codes

Healthcare Common Procedure Coding System (HCPCS) codes -- procedures that have not yet received CPT assignment -- may be eligible for reimbursement from commercial carriers. This is important because these codes are often overlooked in contract negotiations.

You should ask that HCPCS codes be treated like CPT codes in terms of reimbursement methodology and eligibility. Common HCPCS codes include digital mammography, abdominal aortic aneurysm screenings, and vein mapping, and new codes are added frequently.

So, as you can see, you would not want to miss out on these reimbursements by simply failing to ask.

Knowledge is power

To get the most favorable terms from commercial insurers, you have to know what you're talking about at the negotiating table. Having the right data, organized in a meaningful and informative way, can make all the difference in setting reimbursements that work for your practice.

Here is an example of a report that contains factual evidence of a practice's third-party payors and compares and contrasts the payments received from each one (contracted and noncontracted). It shows procedure volumes and payor yields, as well as rates per Medicare benchmarks, and works as a shield from insurance-carrier manipulations in negotiations. In short, a table like this gives you the facts you need to protect your interests.

This type of report is referred to as a "six-month look back" and is created by taking six months of data based upon claims from specific dates of service that range from 12 months ago to six months ago. Using this range of data establishes a six-month gap from the date it is created to ensure ample time has been allowed for payments to be received on the largest possible percentage of claims. This gap provides reliable accuracy and gives you data that strengthen your negotiating position.

Your billing system should be able to generate this kind of report based on the primary insurance listed on any claim. And because any secondary insurance is under the guidance of the primary insurance, using the primary insurance will be sufficient.

As you look at your own table, if you notice that some of your contracted network carriers are carrying less volume than you expect, you may want to reconsider the rate you're giving them and push for a higher rate to make up for their lack of volume.

It may even turn out that a carrier's volumes are so low that it makes sense to drop out of their network altogether. With the data in the table, you'll know. The bottom portion of the table shows carriers with whom you don't have agreements. With the data provided, you'll have an excellent starting point for negotiations when and if the time comes to discuss joining their networks.

Other things to consider

Because negotiating with a commercial insurance carrier from a broad perspective gets you the most return for your hard work, here are a few other helpful things to remember.

First of all, you should avoid setting a rate based on a specific payor's fee schedule. Typically, payors can change these rates at any time and will leave you out in the cold more often than not.

Second, if at all possible, you should try for a contract that is based on a percent of your gross charge. Contracts like this are rare these days, but some do still exist and should be jumped at if available.

Last, but certainly not least, be sure to state what the conversion factor for the rates of your contract is supposed to be. This is simply the dollar amount to be multiplied by the relative value units (RVUs) assigned to each procedure as published in the Federal Register every year.

Keeping all of this in mind when you sit down to negotiate with a third-party payor will prevent you from getting a raw deal, and it will help you protect the best interests of your practice as you fuel your success moving forward.

John Stiles is a principal at HealthPro Medical Billing in Lima, OH, as well as the company's compliance officer and director of information services. A former insurance actuary with more than 30 years of experience in medical billing and physician practice management, John joined HealthPro in 1981 and is active in the Radiology Business Management Association (RBMA), Healthcare Billing and Management Association (HBMA), and Medical Group Management Association (MGMA).

The comments and observations expressed herein do not necessarily reflect the opinions of AuntMinnie.com, nor should they be construed as an endorsement or admonishment of any particular vendor, analyst, industry consultant, or consulting group.

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