Offering a proposal

The next step is putting together a proposal letter. Selbst said this should be no longer than 1½ pages or it will not be read. It should begin with stating why the letter is being written (for example, you want an increase in the fee schedule). You then can make the case for the request.

It is best to avoid saying “I provide quality service.” In reality, that means nothing to a payer. Providers have to remember that the goal of the insurance company is to make a profit, Brown points out.


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Physicians have to prove they can save money or are more efficient than other providers. They should demonstrate that they have a relative low rate of unnecessary testing and hospital readmissions and that their patients adhere to therapeutic regimens. Much of these information should be readily accessible in the billing system.

Finally, any correspondence should have expected response dates. Selbst recommends giving payers a 3-week period to hear back. After 1 week, call them to make sure they received the note and find out who will be working on your contract. Selbst said to ensure you are not just being sent to provider relations or you may get lost in a black hole.

Once contact has been made and negotiations are moving forward, it is important to be persistent, but realistic. Expect some back and forth and be prepared to continue to do analyses and make counter offers, Selbst said.

He also recommends working your way up the ladder if things stall. A contracts manager may not have the authority to change a contract, so find the person who can.

The brick wall

If negotiations for a fee-for-service rate increase are unsuccessful, Selbst recommends thinking outside of the box. One option might be try to build in value-based rewards. Payers may be willing to offer incentives such as payments of 1% above the fee schedule if you use an electronic medical record system, increase the number of prescriptions of generic medications, or follow a set of best practices.

Particularly for small businesses, the fight to change a contract may be futile, Brown said. Without a lot of negotiating power, it can be difficult to demand change. But that does not necessarily mean they should not try. Even if you get nowhere with negotiations, payers may send a new contract.

“The new base one might be better,” Brown said. “They aren’t going to say anything because they are quietly happy that you haven’t called.”

If all negotiations fail, the final straw may be going out of network. Providers will have to determine whether or not they would fare better out-of-network, Selbst said. They would have to look at how much billed charges are discounted, what they might collect, and how many patients might switch practices if they changed. Providers also have to take into account their demographics (wealthier patients may stay, poorer ones may not) and how many alternatives patients have (more in the city than in a very rural place).

Selbst estimates that his success rate when negotiating contracts for providers is about 75%, with an average increase of 5%–25% per contract. The negotiating process can be done in-house or with outside help. A group may pay $10,000 to have a contractor complete the process for an organization, but if they do, they should be able to expect twice that back in reimbursements the first year, Selbst said. He recommends trying to negotiate a handful of contracts at once instead of just looking at your 1 or 2 highest payers.

“It’s kind of like investing in stocks,” he said. “If you put all of your money on 1 major stock it’s a, high-risk, high-reward scenario. It’s better to try to negotiate 4 agreements at once.”

Finally, Selbst said it is important to monitor the contracts when changes are made. Groups need to sample at least some of the contracts on a monthly basis to ensure they are getting paid correctly.

“This is one of most forgotten parts of it and I have seen huge amounts of money lost here,” he said.