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5 Successful Tips for Payer Contracting

1. Understand your needs and your strengths

It’s important to note where you stand in the market so that you know what leverage you have going into contract negotiations. Payers you’re contracted with have you in their networks for a reason, and you should know those. For example, if you’re the only practice offering certain services in your area, you can dictate (within reason) how you want to be reimbursed for those services. You should also understand what portions of your revenue come from which payers and which lines of business (Commercial, Medicare and Medicaid). This will dictate which contracts you should focus your efforts on, just as how your largest service categories will point you to what rates are most important in the contracts you negotiate.

2. Summarize your current contracts

Documents allowing you to quickly review the key terms of your contracts with all contracted payers are invaluable, and we strongly urge all practices to have some. Since negotiations often focus on reimbursement rates first and then language, it’s a good idea to create two different matrices, one for each.

Important terms to summarize include (but not limited to) reimbursement methodology, rates and potential carve outs. Similarly, some important language clauses to summarize include (but not limited to) timely filing, amendment, assignment, chargemaster update and termination language. We’ve included blinded examples as an appendix.

3. Establish your goals and negotiating strategy

Armed with your rates and language matrices, you can now easily identify discrepancies between different payers. Most evidently, you should take note of which payers are reimbursing you at lower rates. You should also note which payers have the most cumbersome language. Figuring out those discrepancies will allow you to set goals for how to align contracts across payers, which will greatly reduce your administrative burden in addition to giving you further leverage when negotiating. One way to use those identified discrepancies is by creating blinded parity rate matrices. These are tables highlighting key reimbursement terms, where you’ll want to include a few of your best contracts (anonymously) next to a lower paying payer. Sending such a table to the lower paying payer along with your initial proposal for a contract renewal will show you’re aware that the current reimbursement rates are unfavorable, and is the best kind of justification when asking for a significant increase.

4. Negotiate early and often

Negotiating a contract renewal with changes in rates and language takes time. The back and forth of proposals and counters with payers can take months, as most insurance companies need a few weeks to model your proposals and craft their counters. You will likely also need time to create yours and evaluate theirs, as you want to make sure you analyze newly proposed rates based on all the procedures you performed over a certain time span (we recommend utilized a year’s worth of data, as that tends to capture well practice’s activity). To do so, price all the claims with your current contracted rates as well as with proposed rates, so you can project the percentage change in revenue associated with a proposal. It’s particularly important you don’t simply take an average of the change in reimbursement for all the CPT codes utilized, but rather take a ‘weighted average’ based on the volumes performed for each procedure.

Best performing practices will renegotiate all their contracts with significant revenue on a yearly basis. The more often you renegotiate your contracts, the better your reimbursement rates will be, and the quicker each negotiation round will be. This is due to the changes CMS makes to the fee schedules it publishes every year, which you’ll want to be aware of and proactively scrutinize, as we explain in our next section.

5. Proactively evaluate the impact of CMS updates and state regulation updates

A vast majority of payer contracts rely on CMS fee schedules (RBRVS, ASC, ASP, etc.) which get updated yearly or quarterly. A lot of contracts will have language stipulating that reimbursement rates are tied to the most recent release of the CMS fee schedules, and therefore these CMS updates will affect your reimbursements regardless of whether you renew or amend your contracts. For that reason, it’s to your advantage to proactively scrutinize new releases of relevant fee schedules. A significant example of this lies with the quarterly updates of the ASP fee schedule. The reimbursements for drugs can vary greatly from one quarter to another and you should make sure your practice’s acquisition costs are going down at least as much as the ASP rates are. Being aware of these changes before they take place will provide you the opportunity to better negotiate your renewals, and better project how new rates would affect your revenue.

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