In an environment of rising costs and diminishing returns, it's easy to hone in on contracted rates as the sole source of financial woes. Certainly, negotiating favorable reimbursements with payers is key to a healthy bottom line, but it's really only half the story.
Conducted as a pilot project among primary care practices in Colorado, an MGMA payer survey from a few years ago underscored the disparity between negotiated rates and actual reimbursements. Interestingly, respondents were often unable to identify the agreed upon rates … let alone know if they were being accurately reimbursed for services.
Elizabeth Woodcock, principal in Atlanta-based Woodcock & Associates, noted it's not unusual for administrators and physicians to be unsure of what the practice is owed by various payers. "We complain about reimbursements, but do we know what they are supposed to be?" questioned the speaker and author, who is working on her tenth physician practice management book. "If not, get out contracts and look at fee schedules." Typically, she added, the practice must request the fee schedule from a commercial payer.
Woodcock added most practices could sum up their business in about 50 CPT codes plus modifiers. She suggested making a spreadsheet with those codes and, where applicable, modifiers and asking a payer to outline agreed upon reimbursements for each. Clearly pinpointing the starting line is key to identifying where the practice hopes to finish at the end of negotiations.
Because most payer/provider contracts have an evergreen clause, the terms of the negotiated contract simply go on and on until one party asks to renegotiate or declines the current agreement. "Terms from 15 years ago just keep going until you say something," Woodcock pointed out. However, she cautioned against trying to get around evergreen clauses by using broad statements like "pay me at 125 percent of Medicare … ok, what year? How about (last month) when rates were cut 21.3 percent. Do you want your commercial rates cut like that?"
Jeffrey B. Milburn, part of the MGMA Healthcare Consulting Group who has extensive experience in the realm of provider/payer negotiations, concurred with Woodcock's assessment that the heavy lifting on contract negotiations really begins long before meeting with a payer. The first, crucial step is a frank self-evaluation of the practice's contracting leverage.
"Recommendations for negotiating contracts are situational, depending on the geography. If you're in a state where one payer controls 80 percent of the market, you're probably going to have limited leverage," Milburn stated. He did add the one exception to that rule might be if a practice has the market cornered on a particular specialty or service line.
"I think the next step is to understand the payer's position," he continued. Milburn said it is worth recognizing payers are under a lot of pressure from employers to keep rates as low as possible and are unsure how healthcare reform is going to play out. "Try to avoid an adversarial negotiation process … that usually doesn't result in long term positive outcomes."
The third step, he added, is to determine on the front end what the going rate is for a practice's specialty in the area. "Although you can't gather information in support of anti-competitive behavior, you can solicit market information," Milburn clarified.
Along with assessing competitive leverage, another key piece of homework is "to understand your financial position and know prior to negotiations what is required in terms of revenue," he counseled. To find that magic number, he continued, the practice should evaluate its payer mix and look at overhead expenses.
Finally, Milburn noted, it's wise to build a relationship with the payer's representative. If a payer is concerned over hospital readmissions, share how the practice has the ability to monitor that quality indicator and the steps in place to reduce readmissions. In other words, demonstrate the practice's willingness to be a team player and showcase the value the practice brings to the relationship. He added it isn't a bad idea to have the physician leadership meet with the payer's chief medical officer to discuss the clinical components of the relationship.
When it's time to actually talk numbers, Milburn said, "I find it's a whole lot easier to try to request an annual incremental increase of 2-3 percent rather than every five years demanding a 10 percent increase. They don't react well to that."
He added payers might even balk at an across-the-board increase so it might be wise to ask for a bump up in reimbursements for specific, high-volume services. This advice dovetails neatly with Woodcock's '50 CPT code' spreadsheet of most popular billable services. Milburn said that exploring pay-for-performance options is another way to enhance revenue while simultaneously improving quality.
However, Milburn cautioned, negotiations are simply hard right now in the current unsure environment. He added physician practices tend to have the least amount of leverage in comparison to hospitals, ambulatory facilities and pharmaceutical companies. For this reason, he said many physicians join integrated relationships with acute care facilities and leave the negotiations up to the hospital administration.
Although he dislikes nagging, Milburn said light persistence often works wonders. "Don't take 'no' for an answer."
While negotiated rates are the foundation of a healthy bottom line, they are truly only the first half of the story. Once rates are established, a practice must capture actual revenue through accurate coding and billing. Woodcock adamantly stated coding is as much a revenue issue as it is one of compliance.
"I think it's time to look at making sure we're capturing all of the services a physician tenders," she said. She highly recommends dedicating a half day each year to attending a coding class and pointed out such courses are typically hosted by specialty societies. Knowing the right codes and modifiers is essential to the reimbursement process. "It's the way you translate your work to a billable service. If you don't know the translation, — if you don't have the dictionary — you're not going to get paid accurately or completely for your work."
Knowing the value of services relative to other practices in the region, understanding your practice's revenue requirements, doing homework on current contracted rates, being mindful of a payer's stressors, making reasonable requests for increases and then following up by correctly coding services rendered all contribute to a better bottom line. In turn, that leads to higher level of satisfaction and more productive relationships between providers and payers.