nsufficient attention to commercial payer contracts may be causing significant revenue short-fall for many different types of practices. The good news is that practices can do something about it - and this article presents 12 key actions that practices can and should take to make sure they are getting what they should be paid. For additional resources and information please visit: http://sites.mckesson.com/practiceconsulting/kc_coding.htm

1. Revenues Down? Examine Your Contract Prices
By Rob Saunders, MHA
Senior Consultant, McKesson Practice Consulting Solutions
The Reality of country, we have seen payers reduce what they should be paid. Case in
Reimbursement Declines fee schedules in amounts ranging point: We recently reviewed contracts
from 5% to 12%, depending on the for a practice and found $165,000 in
“In this age of declining market. On top of that, payer mixes are underpayments from two commercial
reimbursements…” has been the changing to reflect higher percentages insurers over a multi-year period.
opening line of many articles I’ve read of Medicaid and more self-pay and bad
over the years. I mostly dismissed the debt from patients who can’t afford to Sometimes practices enter into payer
claims of falling reimbursement because pay the new, higher deductibles and/or agreements, but then never review
they did not accurately depict market co-insurance balances. them again. As a result, practices
conditions. Instead, we have seen fall prey to eroding reimbursements.
minor fluctuations in reimbursement We know of a practice that hadn’t
rates, which often averaged out to renegotiated its payer contracts in 10
A Hidden Cause of
equal reimbursement stagnation. Now, Revenue Short-Falls years. During that time, rates had fallen
however, things have changed. And it’s significantly -- mainly due to changes in
time for everyone to pay attention. Not surprisingly, practices are the payer’s payment methodologies –
responding to declining reimbursement even when compared to like practices
This year, the Medicare fee schedules and payer mix changes with efforts in that practice’s market. When we
have decreased and in certain states to cut expenses in order to improve worked with another group, we
the Medicaid fee schedules have also the bottom line. Yet, even some of discovered contracts that had not
decreased. Commercial payer rates are the most responsive practices are been reviewed in several years. For
following suit. Additionally, radiology overlooking an important area each procedure offered as part of the
groups that bill for the professional where they could be losing money group’s services, the payer established
component are seeing falling – the allowable rates in the payer a different payment percentage. Even
reimbursement as a result of coding contracts. Sometimes medical groups if the physicians were aware of these
changes associated with CT exams of don’t have ready access to the group’s contractual arrangements, it still would
the abdomen and pelvis. While working contracts with payers. When that have been exceedingly difficult to track
with physician groups across the happens, the group cannot confirm payment accuracy.

2. A 12 Point Check LIst
1. Make sure you have copies of your contracts. Far too many practices do
not have ready access to these critical documents. Determine how each payer
agreement is structured. Is the payer contract with the group or with each
individual physician? If the latter, are there different effective dates amongst
group members? Is it a direct contract with your practice, or was it negotiated
through an IPA (Independent Physicians Association) or PHO (Physician Hospital
Organization)? Armed with these answers, you will know who has the authority
to renegotiate, and how that process will take place.
2. Examine your payment vouchers and audit your explanation of benefits
(EOB) documents routinely. Verify if you’re getting paid correctly, or if
payers have made changes, by reviewing your top 5 to 10 payers for payment
inconsistencies. Keep in mind that if you are not being paid accurately, the
burden is on you to alert the payer and ensure a correction. Most payer
agreements limit the time a practice (or physician) has to challenge the accuracy
During a recent engagement with a of a payment. Routine (e.g., quarterly) EOB reviews are critical.
pathology practice, we discovered that 3. Know your state’s regulations and laws on balance billing. This past
instead of receiving the market rate of June, Illinois implemented a law (HB 5085) prohibiting hospital-based physicians
$50-$55 for the group’s highest-volume from balance billing patients. This essentially forces physicians who do not
procedure, one of the group’s payers participate in a given insurance company’s plan to comply with the insurer’s
was reimbursing only $18. These payment schedule or enter payment arbitration. Many states have laws that
below-market rates had been occurring limit or prohibit balance billing at some level. It is important for you to discuss
for several years, resulting in significant the implications for your practice with qualified individuals, including your legal
amounts of lost revenue. counsel.
4. Pay attention to filing timeframes. One commercial payer recently released
Often, payers send notices to practices plans to cut its timely filing deadline from 180 to 90 days. It’s certainly possible
describing a new payment methodology to submit claims within 90 days, but if your practice is hospital-based, you are
or fee schedule but couched in dependent upon the hospital for rapid and accurate information. If you don’t
seemingly innocuous goals such as file within the payer’s timeframe, your claims could be denied for untimely filing
“striving for fairness, predictability, which means you could be forced to write off an account balance instead of
transparency and consistency in collecting it.
compensation”. That kind of language 5. Keep the hospital administration informed. Hospital-based practices should
should sound an alarm bell since request the hospital’s assistance in resolving questions about payer policies.
these notices often translate into a Hospital administrators may be able to assist with negotiations with payers
lower fee schedule. Unfortunately, to resolve issues. It is also important for groups to check any existing hospital
many physicians ignore these notices agreements to determine whether managed care participation in all hospital
assuming the change is beyond their payers is mandatory.
control. A former office manager 6. Recognize that payers are under increased scrutiny. Realize that payers are
for a group that performed its billing also facing more intense scrutiny and increased cost pressures and do not benefit
in-house failed to open certified letters from unilaterally agreeing to rates in favor of physicians. Physicians must be
from a national payer. The letters prepared to educate payers with solid market data and be willing to compromise
informed the group that this payer’s if necessary. Many payers start with a no negotiation stance, and many practices

3. give up, thinking it is less painful not pursuing the issue. But the longer the
current situation continues, the more difficult it can be to untangle, correct and
obtain better rates. So, practices have to educate and continue to state their
case to payers in order to bring them to the negotiation table. Once at the
table, many groups believe that payers can bridge the gap between the current
rate and the market in one fell swoop. But in most instances, this is unrealistic.
Groups that are willing to work with payers and accept a step-up in rates over a
period of time tend to benefit more in the long term.
7. Don’t be afraid to negotiate aggressively. Compare rates among similar
payers. Make it known to the payer if you believe the payers rates are below
market for practices like yours.
8. Recognize when reimbursement is tied to the Medicare schedule. Analyze
the best Medicare schedule for your practice and common procedures. Then
negotiate with your payers to base reimbursements on the most favorable
Medicare product would be reimbursed schedule – even it if is not the most commonly used one. Occasionally payers
at 70% of Medicare’s published will offer a new fee schedule but with a different Medicare “base year” which
rate rather than the former 100% may result in an overall decrease in a group’s fee schedule.
reimbursement rate. 9. Be reasonable when you renegotiate. If you insist on terms that are far
above market or otherwise excessive, the payer may not seriously consider your
positions. . Offer a compromise and you stand a better chance of achieving
The Solution: Get Organized and
results.
Get Aggressive.
10. Verify termination deadlines – and pay attention to them. Contract
If any of this feels familiar, you are not termination can seem like a drastic last resort when a contract is unfavorable.
alone. The truth is that many practices Sometimes, however, it must be done, particularly if a payer refuses to
do not organize contracts in a way that communicate with you. For example, a payer recently announced its new
summarizes all relevant contractual fee schedule but refused to provide any fees for codes billed for professional-
obligations. Likewise, outdated and component services. In this case, the group had no choice but to terminate this
incomplete payer agreements have agreement. Most contracts include a notice period concerning termination. You
become common. The good news is should discuss your options with qualified individuals. However, you can be at a
that you can do something about it. disadvantage for renegotiating your contract if you do not have a copy of your
contract and your termination deadline is approaching.
The bottom line for practices is that 11. Try to establish relationships. As companies move toward more automation,
today’s contract environment is tougher there is still value in person-to-person interaction. It is helpful to develop a good
than ever. Commercial payers are working relationship with a representative within a payer’s organization.
adjusting rates. The government is 12. Be prepared for a complex process. I cannot pretend that the process of
exerting downward pressure on fees. evaluating and renegotiating contracts is easy or efficient. Take a hard look at
Meanwhile, your practice’s day-to-day whether your business office has the time and/or expertise for this responsibility.
responsibilities and operations are as If you don’t have the time or skill set to handle contract evaluation and
complex as ever. It’s easy to let payer negotiation, consider with your legal counsel whether bringing in an outside
contracts fall off your radar. And it may consultant to manage the process will save your group time and aggravation and
be tempting to maintain the status potentially increase revenue for the practice.

4. quo rather than renegotiate. However, About the Author
you may be missing an opportunity
to increase your revenues if you don’t Robert Saunders, MHA
Senior Consultant
begin now to better manage your payer McKesson Practice Consulting Solutions
contracts.
Saunders specializes in client service
for medical groups with a focus on
A Call To Action
financial and strategic growth. He
In short, with the potential for declining routinely conducts managed care
reimbursements practices that do not contract and practice reviews, performs
monitor contracts could be foregoing financial modeling and has helped
tens, if not hundreds of thousands practices restructure non-clinical
of dollars. Practices with inaccurate practice operations. With over 22
or unfavorable payer contracts may years of experience serving in various
suffer increasingly significant losses in physician practice management and
the areas of income, staff recruitment operational roles, he has a consistent
and staff retention. Practices that have track record of maximizing revenue
more favorable payer contracts will be opportunities for his clients. In
in a better position to compete and addition, he assists physician groups
thrive – even in “this age of declining and hospital administrators with
reimbursements.” maximizing managed care contract
results, determining fair market value
stipend and subsidy arrangements, and
structuring of hospital, facility, and
other professional service arrangements.
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REV-629 02/2011