Negotiating HMO and PPO Agreements
The many things payers don't want you to know, and how we can help you navigate the pitfalls.
First of three parts
When it comes to negotiating a physician agreement with a third-party payer, knowledge is power. There is a direct correlation between your level of success and how well-informed you are about payers' needs, their knowledge, and their bargaining strategies.
Here is what to keep in mind when dealing with third-party payers, so you can leverage your power and increase your chances of entering into a productive provider contract.
Charge master analysis
The Charge Master Analysis is a spreadsheet that tracks all of your reimbursements in a variety of ways: by payer, procedure, timeliness of reimbursement, average reimbursement per payer, average reimbursement by procedure, and monthly, quarterly, or annual reimbursement per payer or procedure.
Such a spreadsheet can provide you (and the payer with whom you are negotiating) a clear and indisputable picture of where your reimbursement is coming from, which procedures are most profitable for you, and which reimbursement items must be improved to be acceptable. This information provides you with an invaluable bargaining tool to use during negotiations and can be quite convincing to a payer. It is essential, however, that every figure in your spreadsheet be documented and supported by evidence that you can produce on demand.
Third-party payer reimbursment
Payers profit by negotiating contracts favorable to them and by negotiating rates based on whatever the providers in a particular market will tolerate. Try to get a true picture of the reimbursement others are receiving in aggregate by product line. For PPO business in particular, we recommend that physicians try to benchmark reimbursement for their top 40 codes against what other similar providers are receiving, in the aggregate, in their Medicare locality for these same services. One product available is Healthcents' Revolution Software, an internet-based software tool, which can assist you in many of these decisions including obtaining this aggregated information and determining whether in-network or out of network payer participation is right for you.
What can you do when a payer quotes you on the basis of apples and you've been charging by the orange? For example, you may currently be reimbursed at 140% of Local Medicare Locality rates. Yet, when you renegotiate your agreement, you find that this same payer now wants to reimburse you a percentage of their proprietary fee schedule.
Are you better off? Maybe, maybe not. Some codes may be higher and some lower than CMS allowables, depending on a unique blend of factors that impact the market rate in your area (at least from the perspective of the payer). To make this determination, you need to find out the specifics of what comprises the “local payer fee schedule.”
Your best response is to choose your top 40 CPT codes (top 20 by volume, top 20 by reimbursement), and provide them to the payer with a request for their reimbursements on those codes. The key is to use the 90/10 rule. Choose the top codes that represent about 90% of your business and not the other several hundred that represent only 10%. Place the payer's proposed reimbursement for the top codes alongside Medicare's allowables and the reimbursement that you are currently receiving for them. You'll be able to make a more relevant, apples-to-apples comparison. Also, you will be placing the focus where it needs to be—on the codes that are driving the most revenue into your practice.
Assess geographic leverage
How close, geographically, are your neighboring urology/renal specialists? If you are one of only a few, are the only provider in your area, or you provide a service that others don't, you have additional bargaining power.
If your reimbursements at the contracted in-network rate are not high enough to be viable, and there appears to be no room for negotiating a better rate, consider staying out of network and billing the patient for the balance of the unpaid charges. If you're debating the value of an existing contract, and considering renegotiating or terminating your agreement, weigh the pros and cons by anticipating your losses.
Determine the revenue you would lose if these patients are required to seek urology/renal service elsewhere, and compare this to the out-of-network revenue you might receive in its place. You also need to think about the effect on your practice of displacing (and annoying) patients.
Accepting blanket reimbursement rates for all coded services can frequently result in significant and consistent losses when some of those codes reimbursed at below cost. In some cases, it may make sense to identify and request a higher rate for your high cost services. If the payer won't agree to pay the higher rate for these carve-outs without simultaneously accepting the standard reimbursement for the low-paying codes, it may be wise to cut your losses by terminating the agreement.
Gathering the information is the first step. Next month, we will discuss how to write your proposal letter and the actual negotiation process as you move forward.
Ms. Charkin is the president of Healthcents, Inc. of Salinas,