How to Negotiate a Better Payer Contract: 3 Must-dos Before Signing

One of the biggest challenge facing physician independent practices is staying independent. In order to overcome it, practices must pay attention to payer contracts.

Libby Hornibrook May 2, 2017

It’s safe to say the biggest challenge facing physician practices, in light of MACRA and other healthcare shifts, is actually staying independent. In order to overcome this, practices must pay attention to how they’re generating revenue. Of course, payer contracts are a big part of this.

But all too often, practices accept these contracts as-is, not realizing they aren’t as good as they look, or that a better negotiated contract could be possible. This needs to stop!

Here are a few things you should consider before signing any payer contract.

Understand what you're dealing with
Payer contracts typically revolve around fee schedules and reimbursement amounts, which is why understanding your fee schedule is paramount. For instance, what exactly does a 3 percent increase on your fee schedule actually mean? It’s important to realize that you may be able to increase some fees or procedures codes and decrease others. Segregating procedure codes by payer through an EOB analysis can help you identify overpriced and underpriced procedures. By pushing the top down and the bottom up, it’s actually possible to generate more revenue.


Understand and negotiate a better payer contract
You wouldn’t sign a contract that would keep you from making enough money to survive, would you? Unfortunately, many practices do. Yes, really! In most cases this happens because practices fail to identify two issues: 1) the cost of producing a procedure, and 2) what profit margin a practice needs to survive. Pricing procedures is the catalyst for making that determination. Relative value units and conversion factors are the secret to calculating this information. However, it cannot be done globally but must be done for each procedure code and for each payer. This is where DS+B and its consultants can help. By understanding how much profit you’ll need to be able to pay providers, take care of expenses, and turn a profit, you’ll know exactly what you can agree to in a contract.


Understand and optimize your revenue stream
Identify areas for improvement. These could include increasing revenue, decreasing costs, and developing operational efficiencies. The starting point is understanding revenue cycle management.

A RCM analysis also lets you see how a change—such as when a payer renegotiates a contract—will truly affect your practice. Let’s say a payer allows your practice to increase prices by three percent, in the aggregate. What does this increase really mean? How will this impact your pricing and revenues? A RCM analysis will help you know what to expect.

Think long and hard before you sign

In the current healthcare environment, it’s tough for practices to stay independent. And while contracts from large healthcare systems can seem lucrative in the near term, they often times are a detriment to your practice in the long run forcing you to give up your independence. Take time to understand the payer and, more importantly, your practice. By working with DS+B to determine break-event points and improve your revenue, you’ll be better positioned to accept—or reject—any contract that comes your way.