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How to Terminate Contracts to Boost Revenue

By Greg Freeman, for HealthLeaders Media  
   March 04, 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.”

Managed care contracting is becoming more complicated than in years past, Schmitt says, particularly with the growing popularity of incentive-based payer programs. These arrangements can hinge on promises that, if unfulfilled, may form a reasonable basis for terminating the relationship, he says. 

The incentive arrangements require a great deal of trust between the two parties, Schmitt says. If the managed care provider is not transparent, cooperative, and willing to resolve problems, the arrangement can fall apart. 

Detecting a lack of trust should put you on the alert that this may not be a contract that is worth keeping, Schmitt says. Warning signs can be a pattern of delayed or denied claims that seem unreasonable, a failure to respond in good faith when the practice reports concerns about transactions, or overly burdensome requirements from the payer, he says.

“When there’s no trust, the negotiations are slow, and because they’re slow, you lose revenue you could have made in the meantime, and it’s more costly in terms of the time it consumes,” Schmitt says. “So it actually results in a trust tax, so to speak.”

Not the time for emotion

So when it comes time to say goodbye, how do you do it? The first rule is to make the termination strictly factual and not emotional, Schmitt says. All communication should be respectful, and you should document why you have decided to end the relationship, he says. 

“You should present it to them in a very clear way, saying, ‘These were our expectations and these are what the results were. We expected these things and you did not deliver. You didn’t keep your commitment to what you said you were going to do.’ They deserve to know why you’re terminating the contract, but this is not the time to get angry or tell them how frustrated you are. Simply state the facts calmly and leave it at that.”

Although terminating a contract can be the right business decision, do not take the decision lightly, Schmitt says. Remember that terminating a contract will cause some headaches for you.

Not likely to come back

For starters, you must give notice to patients covered by that payer, and the patients will not be happy about the news, Schmitt says. Patients should be notified individually, and a notice should be posted in the lobby stating that you no longer accept the payer’s coverage, but you will still see the patients if they wish to self-pay.

“The front office should be prepared to convey this information and discuss it in a caring way because this  is a difficult issue for patients. They take it personally,” he says. “You can’t just say, ‘Oh, we don’t take that  anymore.’ ”

Don’t terminate or threaten to terminate a contract in hopes of getting a better offer from the payer, Schmitt says. If the payer were going to make you a better offer or provide better service, it already would have before you got to the point of termination. Likewise, don’t expect the payer to court you in the future. The relationship will be strained at best, he says. 

“Will they come back later and try to make it all better, change their ways and give you better rates?” Schmitt says. “Well, some divorced couples get back together. But don’t count on it. Usually it takes a new era of management to come in at the payer and change things around, then they try to show you they don’t have the same problems as before.”

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