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How to Terminate Contracts to Boost Revenue

Greg Freeman, for HealthLeaders Media, March 4, 2011

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.

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