How to Terminate Contracts to Boost Revenue

Greg Freeman, for HealthLeaders Media, March 4, 2011

When you’re scrambling for revenue anywhere you can find it, terminating a managed care contract may sound like the last thing you should do. But in fact, getting rid of a contract that is not working for you can  actually make your practice more profitable.

Physician practices often hold on to contracts that are not profitable because they have had a relationship with that managed care provider for years and losing it would seem like a financial loss, says John Schmitt, a managed care expert with EthosPartners Healthcare Management Group, based in Suwanee, GA. However, a close analysis of the numbers may show that the contract is not producing any revenue for your practice—in fact, it may actually be costing you money, says Schmitt.

“We can be reluctant to let go. People often think anything is better than nothing, but with managed  care contracts that’s not always true,” he explains. “If you have a bad contract or a bad business partner, it can be very resource-consuming for the practice because it will take a lot of time and require a lot of hassle.”

A practice also may be reluctant to terminate a contract because a personal relationship has been established, Schmitt says. 

“Often the payer is represented by a very cordial, nice person and you don’t want to tell them no,” he says. “So you renew the contract, and then months later you ask yourself why you ever signed this contract in the first place. You have to not make it personal and just say you don’t want contracts that don’t work for you.”

Broken promises often the cause

Termination frequently is prompted by payers who  have unreasonable fees or aren’t responsive to problems such as claim denial rates and pre-authorization rates that are difficult to work with. Another common reason for terminating a contract is the payer not fulfilling promises it made when trying to get you on board, Schmitt says. 

“It can be like a divorce: too many irreconcilable differences and you just can’t work it out,” he says. “Breaking up is not something you want to do, but you just can’t go on like that.”

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