How to Negotiate Contracts and Reimbursement Rates

By: Rochelle Glassman

In 2014, the U.S. Census Bureau reported that there were approximately 270 million Americans covered by health insurance. Insurance contracts for most practices are the financial heartbeat. Contracts with the health plans and independent physician associations clearly, and sometimes not so clearly, spell out the relationship your practice has with the health plan. Most practices enter into these contracts primarily to be able to accept this health plan’s members and drive patient volume to generate revenue.

Many times the owner of the practice does not review the terms and conditions of a legally binding contract prior to executing it. They execute the contract without knowing what is contractually required of them or their practice. In fact, many practices have no idea where their contracts are even located.

None of us would buy a house or a car, which can have less value, without reading the terms of that agreement. We would want to know what we are paying and what we are receiving for that service. So why would you not want to know that type of information from the health plans you are contracted with? Many of my clients say that there is no point in reading the contract because they are standard and non-negotiable. That is not a true statement - both contractual language and reimbursement are negotiable.

Payer contract negotiations for small practices can be challenging, time consuming, complex, and even costly. However, contracts can be successfully negotiated, even by solo physicians. A small percentage increase can equate to hundreds of thousands of additional dollars to your bottom line without increasing your costs. If your practice collects $1 million a year; a five percent increase would be $50,000 per year.

Most contracts are evergreen and automatically renew every year, but contract negotiation is critical to the continuing success of your practice. It should be reviewed and negotiated annually. Gone are the days when you can call up a buddy you went to medical school with who happens to be the medical director of one of your local health plans and say, “Can you do me a favor and increase my reimbursement”. Today, contract negotiations are complex.

You need to understand the contractual language and obligations of both parties. It also requires a certain amount of time, skill, knowledge, and tenacity. Know your practice’s assets, your competitive advantage, and how to position your practice as a leader in your community. Your best chance at getting paid more is to show them you have something of value to offer:
Here are some examples of assets that can help improve negotiating power:

1. Practice is located in a rural area and there are is shortage of physicians in the community.
2.  You can see new or existing patients the same day or within 24 hours, when your competitors within a five-mile radius have wait times to schedule an appointment.
3. The practice is open for extended hours before 8:00 a.m. until after 6:00 p.m. during the week and/or offers weekend hours.
4. Providers speak another language or come from another country and understand the culture of a specific patient population
5. You have female providers in an area where there is a shortage and a demand.
6. The practices has additional services and/or testing for less cost than urgent care, emergency room, or imaging centers.
7. There is data to articulate that your outcomes are better and/or costs are less than your competitors.

If you do not have at least one of these assets, you may not be a candidate to negotiate your contracts. If that is the case, consider developing one or more of these assets to position yourself better for negotiation.

Where do you start?

My company has over 30 years of experience successfully negotiating payer contracts. I would recommend that you submit a formal proposal to the health plan. The proposal should include, but is not necessarily limited to:

a) A clear statement of what you are asking for in the first paragraph
b) The history of your practice
c) The types of providers and their qualifications
d) Types of services you currently provide and services you intend to provide within six months
e) Locations
f) Hours of operation
g) Any special equipment that you have
h) Statistics that articulate cost savings or better patient outcomes
i) Letters of recommendation from referring physicians who are also contracted with the health plan
j) Patient letters of recommendation that tell the story of why your practice is so wonderful

These proposals should be submitted to a decision maker at the health plan who is authorized to make contractual language changes and to authorize a rate increase. Set your goals high and ask for more than you anticipate receiving. But don’t go too high; you want room to negotiate.