Examine your payer contracts

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nsufficient attention to commercial payer contracts may be causing significant revenue short-fall for many different types of practices. The good news is that practices can do something about it - and this article presents 12 key actions that practices can and should take to make sure they are getting what they should be paid.

For additional resources and information please visit: http://sites.mckesson.com/practiceconsulting/kc_coding.htm

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Examine your payer contracts

  1. 1. Revenues Down? Examine Your Contract PricesBy Rob Saunders, MHASenior Consultant, McKesson Practice Consulting SolutionsThe Reality of country, we have seen payers reduce what they should be paid. Case inReimbursement Declines fee schedules in amounts ranging point: We recently reviewed contracts from 5% to 12%, depending on the for a practice and found $165,000 in“In this age of declining market. On top of that, payer mixes are underpayments from two commercialreimbursements…” has been the changing to reflect higher percentages insurers over a multi-year period.opening line of many articles I’ve read of Medicaid and more self-pay and badover the years. I mostly dismissed the debt from patients who can’t afford to Sometimes practices enter into payerclaims of falling reimbursement because pay the new, higher deductibles and/or agreements, but then never reviewthey did not accurately depict market co-insurance balances. them again. As a result, practicesconditions. Instead, we have seen fall prey to eroding reimbursements.minor fluctuations in reimbursement We know of a practice that hadn’trates, which often averaged out to renegotiated its payer contracts in 10 A Hidden Cause ofequal reimbursement stagnation. Now, Revenue Short-Falls years. During that time, rates had fallenhowever, things have changed. And it’s significantly -- mainly due to changes intime for everyone to pay attention. Not surprisingly, practices are the payer’s payment methodologies – responding to declining reimbursement even when compared to like practicesThis year, the Medicare fee schedules and payer mix changes with efforts in that practice’s market. When wehave decreased and in certain states to cut expenses in order to improve worked with another group, wethe Medicaid fee schedules have also the bottom line. Yet, even some of discovered contracts that had notdecreased. Commercial payer rates are the most responsive practices are been reviewed in several years. Forfollowing suit. Additionally, radiology overlooking an important area each procedure offered as part of thegroups that bill for the professional where they could be losing money group’s services, the payer establishedcomponent are seeing falling – the allowable rates in the payer a different payment percentage. Evenreimbursement as a result of coding contracts. Sometimes medical groups if the physicians were aware of thesechanges associated with CT exams of don’t have ready access to the group’s contractual arrangements, it still wouldthe abdomen and pelvis. While working contracts with payers. When that have been exceedingly difficult to trackwith physician groups across the happens, the group cannot confirm payment accuracy.
  2. 2. A 12 Point Check LIst 1. Make sure you have copies of your contracts. Far too many practices do not have ready access to these critical documents. Determine how each payer agreement is structured. Is the payer contract with the group or with each individual physician? If the latter, are there different effective dates amongst group members? Is it a direct contract with your practice, or was it negotiated through an IPA (Independent Physicians Association) or PHO (Physician Hospital Organization)? Armed with these answers, you will know who has the authority to renegotiate, and how that process will take place. 2. Examine your payment vouchers and audit your explanation of benefits (EOB) documents routinely. Verify if you’re getting paid correctly, or if payers have made changes, by reviewing your top 5 to 10 payers for payment inconsistencies. Keep in mind that if you are not being paid accurately, the burden is on you to alert the payer and ensure a correction. Most payer agreements limit the time a practice (or physician) has to challenge the accuracyDuring a recent engagement with a of a payment. Routine (e.g., quarterly) EOB reviews are critical.pathology practice, we discovered that 3. Know your state’s regulations and laws on balance billing. This pastinstead of receiving the market rate of June, Illinois implemented a law (HB 5085) prohibiting hospital-based physicians$50-$55 for the group’s highest-volume from balance billing patients. This essentially forces physicians who do notprocedure, one of the group’s payers participate in a given insurance company’s plan to comply with the insurer’swas reimbursing only $18. These payment schedule or enter payment arbitration. Many states have laws thatbelow-market rates had been occurring limit or prohibit balance billing at some level. It is important for you to discussfor several years, resulting in significant the implications for your practice with qualified individuals, including your legalamounts of lost revenue. counsel. 4. Pay attention to filing timeframes. One commercial payer recently releasedOften, payers send notices to practices plans to cut its timely filing deadline from 180 to 90 days. It’s certainly possibledescribing a new payment methodology to submit claims within 90 days, but if your practice is hospital-based, you areor fee schedule but couched in dependent upon the hospital for rapid and accurate information. If you don’tseemingly innocuous goals such as file within the payer’s timeframe, your claims could be denied for untimely filing“striving for fairness, predictability, which means you could be forced to write off an account balance instead oftransparency and consistency in collecting it.compensation”. That kind of language 5. Keep the hospital administration informed. Hospital-based practices shouldshould sound an alarm bell since request the hospital’s assistance in resolving questions about payer policies.these notices often translate into a Hospital administrators may be able to assist with negotiations with payerslower fee schedule. Unfortunately, to resolve issues. It is also important for groups to check any existing hospitalmany physicians ignore these notices agreements to determine whether managed care participation in all hospitalassuming the change is beyond their payers is mandatory.control. A former office manager 6. Recognize that payers are under increased scrutiny. Realize that payers arefor a group that performed its billing also facing more intense scrutiny and increased cost pressures and do not benefitin-house failed to open certified letters from unilaterally agreeing to rates in favor of physicians. Physicians must befrom a national payer. The letters prepared to educate payers with solid market data and be willing to compromiseinformed the group that this payer’s if necessary. Many payers start with a no negotiation stance, and many practices
  3. 3. give up, thinking it is less painful not pursuing the issue. But the longer the current situation continues, the more difficult it can be to untangle, correct and obtain better rates. So, practices have to educate and continue to state their case to payers in order to bring them to the negotiation table. Once at the table, many groups believe that payers can bridge the gap between the current rate and the market in one fell swoop. But in most instances, this is unrealistic. Groups that are willing to work with payers and accept a step-up in rates over a period of time tend to benefit more in the long term. 7. Don’t be afraid to negotiate aggressively. Compare rates among similar payers. Make it known to the payer if you believe the payers rates are below market for practices like yours. 8. Recognize when reimbursement is tied to the Medicare schedule. Analyze the best Medicare schedule for your practice and common procedures. Then negotiate with your payers to base reimbursements on the most favorableMedicare product would be reimbursed schedule – even it if is not the most commonly used one. Occasionally payersat 70% of Medicare’s published will offer a new fee schedule but with a different Medicare “base year” whichrate rather than the former 100% may result in an overall decrease in a group’s fee schedule.reimbursement rate. 9. Be reasonable when you renegotiate. If you insist on terms that are far above market or otherwise excessive, the payer may not seriously consider your positions. . Offer a compromise and you stand a better chance of achievingThe Solution: Get Organized and results.Get Aggressive. 10. Verify termination deadlines – and pay attention to them. ContractIf any of this feels familiar, you are not termination can seem like a drastic last resort when a contract is unfavorable.alone. The truth is that many practices Sometimes, however, it must be done, particularly if a payer refuses todo not organize contracts in a way that communicate with you. For example, a payer recently announced its newsummarizes all relevant contractual fee schedule but refused to provide any fees for codes billed for professional-obligations. Likewise, outdated and component services. In this case, the group had no choice but to terminate thisincomplete payer agreements have agreement. Most contracts include a notice period concerning termination. Youbecome common. The good news is should discuss your options with qualified individuals. However, you can be at athat you can do something about it. disadvantage for renegotiating your contract if you do not have a copy of your contract and your termination deadline is approaching.The bottom line for practices is that 11. Try to establish relationships. As companies move toward more automation,today’s contract environment is tougher there is still value in person-to-person interaction. It is helpful to develop a goodthan ever. Commercial payers are working relationship with a representative within a payer’s organization.adjusting rates. The government is 12. Be prepared for a complex process. I cannot pretend that the process ofexerting downward pressure on fees. evaluating and renegotiating contracts is easy or efficient. Take a hard look atMeanwhile, your practice’s day-to-day whether your business office has the time and/or expertise for this responsibility.responsibilities and operations are as If you don’t have the time or skill set to handle contract evaluation andcomplex as ever. It’s easy to let payer negotiation, consider with your legal counsel whether bringing in an outsidecontracts fall off your radar. And it may consultant to manage the process will save your group time and aggravation andbe tempting to maintain the status potentially increase revenue for the practice.
  4. 4. quo rather than renegotiate. However, About the Authoryou may be missing an opportunityto increase your revenues if you don’t Robert Saunders, MHA Senior Consultantbegin now to better manage your payer McKesson Practice Consulting Solutionscontracts. Saunders specializes in client service for medical groups with a focus onA Call To Action financial and strategic growth. HeIn short, with the potential for declining routinely conducts managed carereimbursements practices that do not contract and practice reviews, performsmonitor contracts could be foregoing financial modeling and has helpedtens, if not hundreds of thousands practices restructure non-clinicalof dollars. Practices with inaccurate practice operations. With over 22or unfavorable payer contracts may years of experience serving in varioussuffer increasingly significant losses in physician practice management andthe areas of income, staff recruitment operational roles, he has a consistentand staff retention. Practices that have track record of maximizing revenuemore favorable payer contracts will be opportunities for his clients. Inin a better position to compete and addition, he assists physician groupsthrive – even in “this age of declining and hospital administrators withreimbursements.” maximizing managed care contract results, determining fair market value stipend and subsidy arrangements, and structuring of hospital, facility, and other professional service arrangements.5995 Windward ParkwayAlpharetta, GA 30005www.mckesson.com/practiceconsulting1.800.789.6409Copyright © 2011 McKesson Corporation and/or one of its subsidiaries. All rights reserved. All product or company namesmay be trademarks, service marks or registered trademarks of their respective companies.REV-629 02/2011

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