The Key to Successful Payer Contracts? Pay Attention.
Are your contracts holding your revenues down?
Declining income and profitability are among the top reasons why hospitals and medical practices may turn to an outside consultant. After all, there are as many ways to improve income and profitability as there are healthcare organizations. But often, we find that the reason behind declining revenues doesn’t have to be uncovered – it’s right there in plain sight in your payer contracts.
While working with healthcare groups across the country, we have seen payers reduce their fee schedules by 5 to 12%, per market. Occasionally, payers may accomplish these reductions by terminating an older agreement with very favorable terms of reimbursement for the healthcare organization, so that they may enter into a new provider agreement with less favorable terms. On top of that, payer mixes are changing to reflect higher percentages of Medicaid, more self-pay and bad debt, which may be partially attributed to higher deductible health insurance plans and increasing co-insurance/co- payment responsibilities.
We’ve also seen payers send amendment notices to physician practices and practice employers, indicating their desire to “streamline” or “improve competition” which can indicate an intent to lower the fee schedule.
The challenge is that healthcare organizations may be given as little as 30-45 days to respond to amendments to contracts, with failure to respond interpreted as acceptance. And, unfortunately, many healthcare organizations routinely ignore such notices or fail to route them to the appropriate person for action. The opportunity to negotiate more favorable terms is lost and the new, lower fee schedule is implemented.
In other words, if you aren’t paying attention to your contracts, you may have foregone revenue.
The importance of an accurate payer matrix
I am often astonished to discover physician practices and practice employers that not only don’t have ready access to their payers’ contracts but also have not completed a payer matrix. A payer matrix is essentially a table that lists key data for each payer, including contact information (phone/fax/email), current and historical reimbursement terms, and key provisions in the written agreement. Without that information complete and readily available, it can be cumbersome to figure out who to contact in the payer organization, and it can be nearly impossible to determine whether your terms are fair and you’re getting paid what you should.
We recently worked with one group that thought they had a payer matrix, but it was incomplete – and it kept them from realizing that they had two significant problems with one particular payer. They were near the end of the fourth year of their four-year contract, which was written such that they received a 3% rate increase each year. But the payer had failed to implement the “year four” increase. The final year of the contract was about to end – and nobody had noticed. Worse, the window for negotiating a new agreement had closed. So, the group would have to go a whole year with no additional increase. We brought the underpayment issue to the payer’s attention and recovered more than $35,000 in lost revenues. The payer organization was obviously at fault for the underpayment, so they were more inclined to reopen the renegotiation window and a new four-year contract – complete with appropriate increases – was signed.
Beyond the up-to-date payer matrix, healthcare organizations also must pay attention to how well payments match their contract terms. Many billing systems have built-in “expected payment” reporting tools, designed to flag when reimbursements are either above or below expectations. Yet, all too many business managers are unaware that they have these tools, or simply do not use them.
Either way, if you aren’t seeing this kind of reporting on at least a quarterly basis, your organization probably isn’t monitoring and recognizing issues that could become serious problems.
If you are using these automated reports, you’re seeing more useful information than most. But let me give you an example of why automated information must be combined with critical analyses and action: During a recent audit for a hospital’s pathology department, we discovered gross underpayment on a code that accounts for 50-60% of the group’s service volume. A particular code, which often must be billed as many as five times to the same patient on the same day, was being recorded in a way that was inconsistent with payer requirements. As a result, only one of these codes was being allowed for payment and entire balances on the residual codes were written off. Surprisingly, the billing staff had been blindly following instructions from the associated Explanation of Benefits (EOB) reports for years without questioning these write-offs. These billing errors and the billing staff’s lack of attention resulted in enormous revenue losses, which most likely will never be recovered, since most payer agreements limit the time during which suspected underpayments can be reported. For this reason, we strongly recommended conducting a review of the top 5-7 commercial payer contracts on a quarterly basis (or more often) to verify payment accuracy.
Clearly, contract problems can cause direct revenue issues. But they can cause indirect revenue issues, too. We worked with one group that hadn’t negotiated an increase with their largest payer in nine years. That neglect resulted in lost revenue and, since this was the group’s larger payer, revenues remained stagnant (or even declined), which led to destabilization; physicians were leaving and the group was unable to compete effectively for new physicians. Meanwhile, other groups negotiating for rate increases were in a position to be much more competitive employers.
Knowing your contracts isn’t that difficult – or is it?
It actually isn’t difficult to pay attention to contracts, organize key information in a readily accessible way and know what you’re getting paid. Yet so many hospitals and practices don’t do these things –or they do them with insufficient attention. Why?
Our experience has shown that the reasons are all too understandably human. People are often uncomfortable with the whole process. They are afraid to really delve into what they consider to be impenetrable legal language and often very lengthy payer agreements. They don’t have the expertise and skills to confidently analyze issues related to changes in relative value years, percentages, Relative Value Units (RVUs), etc. And without the skills to perform the analyses, it’s difficult to make good decisions. On top of that, most people don’t find contract work interesting and compelling. There are usually more immediately pressing tasks to pursue, so contract assessments, analyses and comparisons get pushed to the back of the to-do list. And so, years go by this way.
Fortunately, longstanding patterns of poor attention to contracts can be broken. Schedule time to monitor contracts, seek out inaccuracies and unfavorable arrangements and take action to correct issues. You’ll be more informed and in a much better position to compete and thrive.
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