You've heard the advice before: Review those managed care contracts carefully before signing. But now that advice takes on a new urgency because of all the changes in the healthcare industry that can escalate the threats posed by contract clauses that were always problematic, and new risks are being introduced.
Any physician practice that wants to survive the coming changes, let alone thrive, must pay extra attention to managed care contract negotiations, says John Shufeldt, MD, a consultant on practice management and enhanced efficiency and CEO of Doctors Express, the first nationally franchised urgent care network. Shufeldt also is CEO of MeMD, an online physician consultation service.
Reimbursement rates are going to be tightened at the same time managed care companies and the federal government expect high quality and efficiency, Shufeldt says. This will make the contract terms more critical than ever. Contract terms that favored the managed care company but still allowed you to "get by" in past years might now have a more significant effect on your practice, he says.
"I don't believe physicians spend enough time going through managed care contracts. They are very complex, they are certainly negotiable, and they have a lot of potential pitfalls in them," Shufeldt says. "Many physicians just receive them, sign them, and send them back without really knowing what they are signing."
What's needed is not anything new in terms of strategy, but now you have to get serious about it, says Taylor Moorehead, a partner in billing operations with healthcare billing consultants Zotec Partners and also its corporate compliance officer.
"It's the basic blocking and tackling that people just weren't motivated to do enough of in the past," Moorehead says. "The reimbursement was good enough, the time to payment was good enough, and so people just took the contract and lived with it. That's not going to be the case anymore."
The impact on your practice can be huge, Shufeldt says. Failing to find the "gotcha" clauses in a contract can be so detrimental in the long run that your business is threatened, and a more favorable contract can improve your profitability.
"If you can negotiate rates that are 10% or 15% better than what they offered, that essentially goes right to your bottom line," Shufeldt says. "Had you not received that additional payment, you presumably would have treated those same patients anyway and maybe just made ends meet. Even a single-digit percent increase goes right to the bottom line, and in today's world of decreasing reimbursement, every penny counts."
The larger your practice, the more leverage you will have in contract negotiations, Shufeldt notes. There is strength is numbers. A smaller practice group or independent physician's office will have more trouble negotiating favorable terms, but that does not mean you have to roll over and accept whatever is offered, he says.
Your negotiations can be hampered, however, by what other physician practices in your community accept from the managed care companies.
"I always tell people you are only as good as your dumbest competitor," Shufeldt says. "If someone opens an office down the street, accepting much lower reimbursement and terms much more favorable to the managed care companies, you will be at a real disadvantage when negotiating."
The managed care company says it doesn't need to provide you with better terms because the office down the street does the same thing for less money, and the physician practice typically responds by saying it offers higher-quality care. But even with all the emphasis on quality measures and outcomes, Shufeldt says that argument often does little to sway the people negotiating the contract for the managed care company. Quality is undefined and hard to measure, they usually reply.
If you don't have the data to back up your claim for higher quality, the conversation might end there.
"You can reply that the other practice will be out of business soon because no one can practice that cheaply, and the managed care rep will shrug his shoulders and say, 'Okay, we'll chat when that happens,' " Shufeldt explains. "They will play hardball in this situation and there's not a lot you can do when you don't want to accept those contract terms."
Colluding with other nonaffiliated practices to agree on the terms you will accept is not legal, of course, but you can join an existing network that not only has more bargaining power for contracts but provides patients a higher quality of care and more clinical integration.
"They will pay a higher rate for that," Shufeldt says. "The managed care companies do recognize the value of that network access."
Competing with cut-rate physician practices can be avoided by operating in a community in which your specific services are needed. If your practice is the only one providing orthopedic care in the community, for instance, you will be able to differentiate yourself from the general practice clinic down the street that is accepting rock-bottom reimbursement, Shufeldt explains. "That's why it may be necessary to negotiate with the managed care companies before you sign a lease. Where you're located can be a factor in the contract terms you get. If you're already locked into a space and can't move, you're less flexible when faced with this problem."
The other option is to build a portfolio of quality measures that is substantial enough to sway a managed care provider that your care is worth more than the other guy's, Shufeldt says. Remember that managed care companies, not just healthcare providers, are being pressured to improve quality measures. Business models are now focused more on the long-term savings from higher-quality care, so you can negotiate better contract terms-if you have the proof.
Denials also will be affected by the contract terms, and poor attention to detail can create a serious problem for the practice far down the road. It is not uncommon for a practice to get fed up with a high rate of denials, for what seem to be unreasonable causes, and decide to terminate the managed care contract at the first opportunity, Shufeldt says.
"The practice says the managed care organization breached the contract by failing to pay on a timely basis, and the company says you didn't submit clean claims. But what is a clean claim?" Shufeldt says. "That is found in the contract and often it is an incredibly loose definition. Basically if they say it's not a clean claim, it's not a clean claim. If there are no useful definitions, no payment term rights, what do they care if they drag it out?"
Moorehead also cautions that a contract loaded with too many requirements can dramatically lessen the financial impact of what seems like a reasonable payment rate.
"Maybe you agreed on a rate that sounded okay, but it can turn out that with all the staffing requirements, the authorization requirements, all the hoops that a carrier makes you go through on the front end, maybe it's really 70% of what you thought it was going to be," he says. "If you don't understand your true costs, it's impossible to know whether the rate is profitable for you or not. You have to have a system in place to analyze those costs and figure them into the contract negotiations."
Try to make sure Medicare payment policies are not driving your business, Moorehead advises. A contract tied to current Medicare rates and policies will result in minimum payment and constant change, he says. A practice is likely to have some portion of its business tied to Medicare reimbursement anyway, so try to avoid having the potentially more profitable managed care contracts tied to the same Medicare rates.
"If Medicare has an 8% reduction in some modality or procedure you perform, you can bet the other managed care companies are going to try to take that 8% reduction too. They're letting Medicare set the policies and rates so they don't have to, and then they claim that is the industry standard," Moorehead says. "Contract negotiation is the time to say no, you want a better deal than that, a contract that is not directly tied to whatever Medicare is doing."
Once the contract is signed, you still have to make sure you are being paid according to the terms of the agreement, Moorehead says. That may sound simple, but it will require oversight, auditing, and measurement standards to determine when the agreement has been breached, he says.
"You have to fight for what is rightfully yours," Moorehead says. "They're in business to make money, too, so sometimes you have to make sure you're getting everything that you are due."