"Taking an Aggressive Approach to Managed Care Contracting"

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"Taking an Aggressive Approach to Managed Care Contracting"

What can a one or two-doctor practice do?

Gil Weber, MBA

Adapted with permission from Podiatry Management
© Copyright, 2007. All rights reserved.
April/May 2007


Every year podiatrists face important decisions as managed care contracts approach their anniversary dates. Will they allow their third-party contracts to roll over for another year, or will they review them with an eye toward renegotiation? Most practitioners are aware that the contracts will renew automatically under the existing (possibly unfavorable) terms, but assume that they have no negotiating power, and so do nothing.

The result is the physicians lose and the third-party payers win. That kills me because it doesn’t have to be that way. Physicians don’t have to lose.

Full disclosure here: I am a practice management consultant, and I make a good part of my living reviewing provider agreements and advising physicians on ways to negotiate better contracts with third-party payers. I worked for an HMO for more than eight years, much of that time in provider relations, negotiating contracts with doctors, so I know the "game" from the inside. Knowing how health plan negotiators work and think I take an aggressive approach with my clients when advising them on ways to bring things back toward a more level playing field.

While third-party payers will always have the upper hand, it’s not impossible to negotiate more favorable terms, and it’s not unreasonable to expect that if you invest some time and a few dollars in the process, you can come out better off.

My Three, Immutable Rules of Managed Care Contracting

Accept these three rules as immutable truth and you’re less likely to sign or continue in a problematic provider agreement:

  • No contract is better than a bad contract,
  • Bad contracts rarely get better with time,
  • Third-party payers deal out bad contracts more often than good contacts.

Keeping these three rules in mind when presented with terms that are not balanced and reasonable, and having the resolve to say "No!" will put the practice into a stronger position vis-à-vis dealings with payers who would seek your participation in a contract tipped too much in their favor.

To successfully negotiate any contract with a third party payer you must be prepared -- really prepared -- to walk from the negotiating table, and you must be willing to let a contract go rather than feel forced into signing by fear, the most dangerous word in managed care. This mind-set is the aggressive, confident, professional approach to negotiations and contracting that differentiates practices that grow with managed care from those that end up taking a bath, or at best, that barely get by.

Win the Battle; Lose the War

I can’t tell you the number of physicians I’ve spoken with who describe their reception area as full of patients, and their appointment schedule as full for several weeks, but the practice is not doing all that well financially. "I’m busy as can be," says the physician, "and we’re billing hundreds and hundreds of patient visits a month, but we’re just not making any money."

When I look into the situation, the problem almost always has one or more third-party contracts as an underlying root of the evil. The doctor sees the full schedule and assumes that’s good; but a reception room full of patients on whom the practice makes little or no profit indicates that the doctor may have won the battle but is losing the war. Having a contract gives the practice access to patients, and it may give the physician a sense that by being busy, all should be well. More often than not, the reality is that the practice would be better off without the problematic contract, and without some or many of those patients.

Why? It’s simple, really. A reception area full of patients from poorly-paying plans is almost certainly displacing other patients from better paying plans, or cash patients, or patients from consumer-directed healthcare plans where the patient is responsible for a significant slice of the charges that should be collected up-front. Take some or many of those patients from the poorly paying plans, and instead fill the appointment slots with patients representing better income per visit, and a weak financial picture can turn dramatically.

Work less; earn more. Suddenly that strange, almost incomprehensible concept can become reality when problematic managed care contracts are culled or successfully renegotiated.

So, How Does a Solo or Small Group Practitioner Deal With the Contracting Process?

Unfortunately, right from the get-go most solo and small group physicians deal with the contracting process by not dealing with it. Initially, when the physician receives a contract in the mail -- perhaps 20-25 pages in length and filled with all sorts of legalese mumbo-jumbo -- he thinks, "I really don’t know what a lot of this means. What leverage do I have anyway when I’m a small practice and the payer has a team of high-priced lawyers?"

Rather than invest the time and resources to figure it all out and make the best of a challenging situation, the physician flips to the reimbursement page, gives the numbers a quick look, and signs. By doing so, that physician gives up all opportunity to cut a better financial deal and also to modify crucial administrative terms that can have equally profound effects on the contract’s profitability potential.

The same thing happens at contract renewal time when a physician either does nothing, assuming she has no bargaining power, or because the physician has forgotten that those contracts are rolling over automatically.

Get Help!

First and foremost, don’t allow yourself to be steamrollered by default. Managed care is all about survival of the fittest -- those with the most business savvy.

To that end, don’t try to do battle with third-party payers on your own. You need the guidance and advice of someone who understands the contracting process, what can and should be negotiated, and how to craft the deal. Now, you’re probably thinking that this is a bit of a self-serving statement coming from a practice management consultant, and you’re right. It is.

But it’s an accurate statement because the Provider Agreement and associated, collateral documentation control everything you do when dealing with third party plans and their members (patients). You simply can’t afford to sign any contract as presented, especially if you’re told, "Take it or leave it." You must never sign in the wishful hope that things will work out over time.

A relatively nominal expenditure for professional contracting help can prove to be miniscule when compared to the costs of financial and administrative nightmares some physicians have experienced as a result of signing when told, "That’s our standard contract. Everyone else is signing it."

Help is available from many sources: state and national podiatric societies, professional meeting speakers, word-of-mouth from other podiatrists or physicians in other specialties, authors of articles in professional journals, on the Internet, etc.

Can I Negotiate the Fee Schedule?

As with so much in managed care, how successful you’ll be negotiating the fee schedule depends on a number of factors. Many payers will present the physician with a reimbursement schedule and declare that it cannot be changed. ("It’s a uniform fee schedule for all practices on our provider panel.")

While that is a common statement, I have found that most payers do have some flexibility with the fees, if not across the entire fee schedule, then certainly on selective services. It is less common that a payer absolutely will not budge on any of the fees; but if that’s the situation you’re facing and if a payer won’t budge, and if the fees are unacceptable, then that should be a clear signal that it’s time to walk from the deal. You can’t provide care at a loss.

Recently one of my clients in another medical specialty was presented with a fee schedule by one of the largest national plans. It offered the following:

Evaluation and Management 100% of 2004 Medicare
Surgery 100% of 2004 Medicare
Medicine 100% of 2004 Medicare

My client felt these were unacceptable, and so I advised, "Just say no." About a week later, the plan representative came back with a second offer:

Evaluation and Management 150% of 2004 Medicare
Surgery 185% of 2004 Medicare
Medicine 100% of 2004 Medicare

My client (a practice heavily focused on surgery) felt this second offer still was unacceptable, and again said "no." In its discussions with the plan representative, the practice emphasized years of quality services provided to the plan’s members, the excellent outcomes, and the high levels of patient satisfaction reported to the plan.

The plan then sent a third fee schedule, this one offering:

Evaluation and Management 141.13% of 2003 Medicare
Surgery 318.30% of 2003 Medicare
Medicine 180.37% of 2003 Medicare

At that point the practice felt the fee schedule in its entirety had reached a point where it was in the ballpark. Some of the reimbursements were still lower than desired, but overall the fee schedule worked, particularly on the services most important to the practice. Combined with a series of cost-saving changes to administrative protocols negotiated into the contract, the deal then made sense.

Now, don’t think for a minute that this negotiation was easy. You’ve probably guessed that these financial terms were not offered to every other practice in town. I think the truth is that these remarkably higher fees were offered to a practice that not only understood how to negotiate and did it properly and professionally, but also was a practice that represented "marketability" value for the payer. In other words, the payer recognized that the practice brought value, and it was willing to pay for that.

This is an important concept that physicians need to understand and take to heart. It’s clear that a payer will be more responsive and willing to negotiate fees with a practice if that payer feels it needs the practice, or if it perceives that the practice brings certain special value (e.g., prestige/reputation, location, accessibility) to the provider panel. If you’re special, flaunt it for all you’re worth! (But be prepared to document that differentiation.)

Negotiating Podiatry-Specific Terms and Reimbursements

I can’t possibly cover all aspects of contract negotiations for smaller practices in this brief, macro- over-view. I do want to mention two podiatry-specific issues that have come up repeatedly in discussions on Internet list-servs, and at professional meetings.

Low Orthotic Reimbursement

I’ve heard, on occasion, of podiatrists signing managed care contracts that reimbursed for orthotics at less than the physician’s acquisition costs. Some podiatrists have taken the position (incorrectly in my opinion) that they can selectively set aside the contracted fee schedule, and instead, cut private deals with patients by charging for the orthotics service on a cash basis – at higher than the contracted reimbursement rate.

Frankly it’s disheartening that any physician would sign a contract reimbursing at less than costs, but I realize that for a variety of reasons it does happen. Once signed and until changed, a deal is a deal, and the law does not protect physicians who sign unfavorable contracts. It only protects them in the case of illegal or improper ones.

Thus, I can conceive of no possible way that the terms of a contract (e.g., specific, unfavorable fees) can be selectively ignored by a physician who decides after signing that the deal is not so good. When a contract is signed, the entire fee schedule becomes part and parcel of the agreement. There simply is no way a doctor can agree to a fee schedule but then decide, once the contract is in place, that he will accept the fee for service "X" but won’t accept the fee for service "Y."

It’s absolutely clear that when a Provider Agreement specifies that the contracted reimbursement for a covered service is the entire reimbursement (except for co-payments, deductibles, and co-insurance), and that such reimbursement shall come only from the payer or the payer’s representative, then there is no way that the patient can be charged for the covered service as a "side deal."

So what is a podiatrist to do when one or more reimbursements on the fee schedule are too low to make any sort of financial sense? The answer is to renegotiate.

Ideally you should be prepared to present documentation to demonstrate that your practice’s hard acquisition costs exceed the proposed reimbursement. When shown such evidence, most payers will raise reimbursements on specific services at least to a level that the physician won’t lose money providing the care. In this case, the fee schedule is selectively changed.

If a payer won’t raise the fees, even when presented with evidence that the practice’s costs are not covered, then that’s a big yellow, perhaps red flag that the payer is disingenuous, and that the contract may not be worth taking or renewing. You’ll need to evaluate the reimbursements in their entirety and decide if the losses on orthotics will be so great that they will unreasonably offset profits on other services.

In other words, you’ll need to calculate how much you could lose on each orthotic service, multiply that by the expected number of orthotic services you’re likely to provide to that plan’s members over a year’s time, and measure the loss against the projected profits on all the other services you’ll provide to the plan’s members in the same time period. If the orthotic losses represent too great a "hit," then you can’t afford to take that contract no matter how many patients may come into the office. It’s just that simple.

Remember, my first rule of managed care contracting: No contract is better than a bad contract.

Collecting a Deposit For Lab Charges on Custom Devices

Many podiatrists have encountered a particularly frustrating and vexing problem when patients order custom devices but then never pick them up. In some cases, if the custom device is not dispensed, the podiatrist may not be able to bill the payer for provision of the service. Then the podiatrist is hit with a double whammy: he not only loses the compensation due from the plan for the patient care, but also "eats" the acquisition (lab) cost that was incurred when the custom device was ordered. What to do?

While it’s clear that managed care agreements allow the physician to collect from the patient for non-covered services, most managed care Provider Agreements specify that the physician shall not collect a deposit from the member for any covered service.

So you may find verbiage in your Provider Agreement something along these lines:

"Physician hereby agrees that in no event, including but not limited to non-payment by <plan>, insolvency of <plan>, or breach of this Agreement, shall Physician bill, charge, collect a deposit from, seek compensation, remuneration or reimbursement from, or have any recourse against any Member or persons other than <plan> acting on their behalf for Covered Services provided pursuant to this Agreement. Physician shall have the right to collect coinsurance, deductible and/or co-payment amounts (collectively referred to as "Member Payments") in accordance with the terms of the applicable Benefits Agreement.

"Physician further agrees that (1) this provision shall survive the termination of this Agreement regardless of the cause giving rise to termination and shall be construed for the benefit of <plan> Members and that (2) this provision supercedes any oral or written contrary agreement now existing or hereafter entered into between Physician and any Member or persons acting on their behalf."

Now that’s pretty clear, isn’t it? No deposits on covered services; however, in the matter of custom devices, we have an exceptional situation wherein the physician must incur up-front costs for materials that may not (can’t?) be recovered if a patient fails to complete the course of care. That clearly is unfair to the physician who has provided care in good faith and in the reasonable expectation of being paid for such services. After all, it’s one thing to "eat" payment on your time. It’s quite another to "eat" hard acquisition costs.

Obviously there is no way to force the patient to pick up the custom device. The solution to this cost recovery conundrum may lie in the wording of the Provider Agreement and applicable regulatory requirements.

Show documentation to the payer that specific materials acquisition costs are incurred in advance of providing a custom device to the patient. If your contract prohibits billing for the service until after the device is dispensed, then confirm the payer understands that in such cases the practice is forced to "eat" the acquisition costs. Then ask the payer to write a provision into the Provider Agreement allowing for collection from the patient of a fully refundable deposit covering only the acquisition cost of the custom devices, such deposit to be refunded when the patient picks up the custom device.

Now, depending on the type of health plan, it may be that state or federal law prohibits the collection of such a deposit for covered services. If that’s the case, then the only recourse I can suggest is to get the payer to agree that it will pay for the properly authorized, custom device in any case, even if the patient fails to pick it up. You may need to agree to send the patient a certain number of reminders or bills before submitting the claim to the payer, and that’s okay. It’s better than being denied any chance at reimbursement.

The Bottom Line

The bottom line (hardball) negotiation point here is that if you incur materials acquisition costs for covered services ordered on behalf of a patient (thereby, on behalf of the payer), then those costs need to be reimbursed.

While the Medicare and Medicaid rules and regulations are written in stone, if a commercial payer says that it won’t agree to a reasonable and equitable solution of this sort, if it insists that it won’t pay for the service unless the device is dispensed, and if it in effect insists that you "eat" the costs of patient care provided in good faith, then that payer is being disingenuous. Maybe again that’s a contract you don’t need.

Focus on the Totality of the Deal

As you’ve seen, I believe in taking an aggressive approach to third party contracting. It’s either fair and equitable for both sides or there’s no reason to sign or renew a provider agreement. Who can afford to work for free? Maybe a big hospital that receives some measure of federal or state funding for indigent care can absorb some "hits," but certainly not the solo or small group practitioner.

The key to successfully negotiating a provider agreement is to focus on the critical issues, the bottom line, and the totality of the deal. While you’re unlikely to get everything you want, particularly when it comes to significantly higher fees, measure success based on whether you get enough to make the deal worthwhile as a whole. In some cases, even if you can’t get some of the fees raised to desired levels, you still may be able to negotiate enough changes in the contract’s administrative protocols to at least make viable the less-than-desired fees.

Create a Three-Tiered Priority Totem Pole of Key Issues

  • Those that are deal-breakers if not resolved in your favor,
  • Those on which you and the payer can meet in a middle ground compromise,
  • Those that you can throw back as giveaways.

If the payer wants to craft the deal and wants to establish a mutually beneficial, long-term relationship, you’re likely to make it happen. If the payer is interested only in its deal and won’t negotiate, then it’s showing that yellow or red warning flag.

Remember that contracts are supposed to be offered for negotiations; they’re not supposed to be presented as ultimatums. If you’re told, "This is the deal, take it or leave it," then your response must be firm and unequivocal.

Just say "No!" and leave it.


Gil Weber is a nationally recognized author, lecturer and practice management/managed care consultant to physicians and industry. He has served as Director of Managed Care for the American Academy of Ophthalmology.

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