Managing Your Practice

Three A's of Managed Care Contracting


The key to successful managed care contracting can be summed up in three words: attitude, analysis, and action. Adjust your attitude, analyze your practice, and take action to make sure you're getting paid for what you bring to the table.

To quote a renowned negotiation trainer, Chester L. Karrass, “In business, you don't get what you deserve; you get what you negotiate.” In the managed care arena, this translates to: “The payer will give you as little as you are willing to accept.” Unfortunately, many of us are accepting far too little.

With the demand for medical services at an all-time high and a diminishing supply of physicians to meet that demand, providers have a strong negotiating position. It is not your responsibility to ensure the profitability of private insurers by selling your services for less than their value. At the very least, you should expect payment that covers your overhead and allows you to take money home to feed and shelter your family; pay off your educational debt; educate your children; and save for your retirement.

Before undertaking a contract negotiation, a careful practice analysis should determine if you are being underpaid. It should help you to answer four fundamental questions:

Is the time you spend with patients who are covered by a given payer proportionate to the revenue you receive from that payer? If 25% of your visits come from a specific commercial payer, determine if that payer is providing a similar proportion of your income.

What is the effect on your revenue of ancillary carve-outs? If you normally provide laboratory services for your patients, but your contract with the payer prohibits you from doing them, determine the lost revenue from those carve-outs.

What are the hassle factors? Does the payer often downgrade your level 4 visits to level 3? Do they require a prepayment audit before paying higher levels of evaluation and management (E&M) services?

How long is your wait list? If you have a long wait list, consider this to be capital in the negotiation process.

A thorough business analysis also requires such considerations as the effect your practice's withdrawal would have on your competition, how dependent your practice is on a given payer, and how dependent that payer is on your practice.

When a business analysis reveals that a given managed care contract is more trouble than it's worth, be prepared to take action. A few years ago, an analysis of our practice revealed that our largest HMO was responsible for more than 13% of patient visits but only 4% of revenues. We realized that we had to see three of these HMO patients to earn what we received from one patient with an insurance company that carried its weight. We discontinued participation with that plan and saw a 20% increase in physician income the following year.

If a company is unwilling to negotiate, be prepared to pull out from that plan. Withdrawal—or a credible threat to withdraw—is the single most effective tool in improving reimbursement. But the primary purpose of withdrawal is to get out of a bad contract. If a company shows interest in negotiating once you have advised them of your withdrawal, they must offer you something that is substantially better.

The prospect of negotiating a managed care contract can seem daunting, but don't let it frighten you. You may be a stranger to managed care negotiations, but you negotiate all the time. You negotiate with your spouse, your children, your patients, vendors, and your staff. You can apply these same negotiating skills to this arena.

Remember that complex negotiations need to be paced, and they do take time. But don't lose momentum. One of the games negotiators play in the managed care business is to delay their responses. Time is money. The longer it takes them to get back to you to approve an increase, the more money they save.

The value of successful contract negotiations between physicians and managed care organizations extends beyond individuals to the profession as a whole. Medicine is at a crossroads right now. Our success can be measured by our ability to attract new physicians. Financial solvency and profitability are critical to this goal.

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