Tips for Negotiating Managed Care Contracts

Tips for Negotiating Managed Care Contracts

You will sign a lot of contracts when you start your medical practice, and they all have the potential to impact your bottom line. But one type of contract will impact your incoming revenue more than most... That is why it is important for you to understand the different aspects of contracting with a managed care organization (MCO). A managed care organization is a provider-sponsored network, health maintenance organization, or healthcare plan, and your contract with the MCO will define your relationship with them. Examples of MCOs include Private Healthcare Systems (PHCS), First Health, and Beech Street. MCOs typically lease out their network list to third party insurance companies, called payors. Some of the larger insurance companies have their own networks and do not use an MCO. Examples of these payors include: Blue Cross Blue Shield, Aetna, CIGNA, and Unitedhealthcare.


Sound confusing?


For many people it is. Nonetheless, it is important you understand all the provisions in your contract with an MCO or a payor before signing it. Provisions to your contract can affect the payments you receive, the way your office is organized, the confidentiality of records, and even some of the decision-making at your medical practice.


What is Contracting?

In medical practice, contracting is the art of negotiating and signing a contract with an MCO to join a health plan as a “participating provider.” You should start the contracting process at least eight to twelve months before opening your medical practice, as it is a lengthy process that can take 100 days or longer to complete.


Where to Start?

After you have a signed lease or have a contract in hand for where you are going to build your new medical practice, you should contact the MCOs and payors with whom you want to contract. Who you contract with may vary on where you’re located. Some of the payors you may want to consider include: Blue Cross/Blue Shield, Aetna, Cigna, Medicare, and Unitedhealthcare. To find out which major MCOs you should contract with, do your homework. Consider talking to established physicians in your community and research large employers in your area to find out who they use. These employers have input and direct negotiation with the payors. If you are going to hire a company to do your medical practice billing, they can also usually provide you with information on who the major MCOs are for your area. When you contact the different companies, ask to speak with the Provider Relations Department. Once transferred, ask to speak with Contracting. Depending on who you speak with, one of three things will happen:


1. You will be sent a contract to review

2. You will be asked to send a letter of request

3. You will be told no because there are too many other medical practices in your area.


What to Say When Negotiating?

It is important for you to know that payors can refuse to negotiate with you for any reason. That is why contracting is an art. You have to be able to make the payor believe negotiating with you is in their best interest. Before you make your first phone call, you should have a list of benefits you are bringing with you to the contract. Things on your list should include:


1. Your medical practice will help the contractor get more market share

2. Your medical practice will provide better customer satisfaction for patients through decreased wait times and faster, same-day, service

3. Your medical practice is cheaper for contractors than emergency room visits

4. Employers find relationships with medical practice clinics more beneficial than having to utilize a local emergency room


Understanding Reimbursements/Fee Schedules

Once a payor agrees to negotiate with you, you must understand the next important part of negations: reimbursements and fee schedules.


Medicare Rate

Reimbursement is the amount of money the payor is going to pay your facility for your services. The standard rate of reimbursement is 80 percent of billed charges. Billed charges are determined by the facility and most commonly calculated by the Medicare fee schedule. This figure is normally multiplied by the fee Medicare reimburses for the service. For example, if Medicare reimburses an office visit at $55.00, you may choose to set your fees at four times the Medicare rates. This rate is then used as a base fee schedule for your facility. The fee schedule would be updated with Medicare rates as often as needed. It also needs to be revised as needed to make sure your reimbursement is sufficient for the supplies and overhead used for the service provided. The reimbursement for this rate would also include copays ranging from 20 to 80 percent out of pocket from patients.


Fee Schedule

Another rate of reimbursement offered is a Fee Schedule. This is a set fee schedule with hundreds of codes supplied. The amount of reimbursement is set for each service provided, no matter what charge is billed. The Fee Schedule allows you to get an accurate contractual total for all services. In simpler terms, you will know what you are going to be paid upfront. The downside to the Fee Schedule is if the global rate changes, you are locked in to that rate without change for the duration of your contract.


Other Negotiation Tricks

Finally, there are a few tips you should know about when contacting a payor. First, the standard length for a contract is three years. You should ask for your terms to be two years or less. You should also ask for a 90 day or less termination clause. The standard termination clause is six months. Next, if a payor refuses to contract with you because you do not meet their criteria, ask them to send you the “criteria” or “performance guidelines.” It is quite possible they are using this as an out, and you have a right to prove you do meet their criteria. Payors may try to get you to agree to “market rates” or “discounted rates.” Neither rate is in your best benefit. Market rates are based on the lowest rates people who didn’t know how to contract agreed to. Discounted rates are the discounts offered to other payors. Keep a log of your adjustments and write-offs for particular services where one payor will pay for the service and another will not. Your log can be used in negotiations with payors when it is time to renew your contract. Finally, you can hire a contracting service to help you organize your payor contracts. This service keeps up with renewal dates and issues with your current contracts. Beware that some payors will not deal with third party contractors, so you may still have to do paperwork and negotiations on your own.