Three Key Items to Negotiating Successful Payor Contracts
The purpose of this article is to help you, as a provider, hone in on three key items to look for in payor contracts that will help you get profitable contracts in place. The three key areas that we will examine are fee schedule amendments, lesser of billed charges versus contracted rates, term and termination without cause, and claims’ payments.
Fee schedules sometimes are RVU based or based upon a percentage of Medicare or based on a percentage of a payor’s proprietary fee schedule. Fee schedules may also be based on a percentage of your charges, sometimes with upper limits. In these scenarios, it is best to ask the payor to provide you with the exact fees by code / service to be sure that you know exactly what to expect to be paid. It is very easy to miscalculate based on the way that codes are grouped, or the proprietary formulas used.
A related clause that is almost universally found in payor agreements is the “lesser of billed charges versus contracted rates” language. This means that you will get paid your billed charge instead of the contracted rate if your billed charge is less than the payor’s contracted rate. For example, if code 99213, an office visit code, has a contracted rate of $100 and your billed charges for this code are $80, you will get paid $80 not $100. The effect of this discrepancy is that you have negated the higher contracted rate by setting your charge master too low. Rule of thumb: Set your billed charges for every code well above contracted rates, usually this means calibrated at 250%-300% of local Medicare rates.
Term and termination
Next is termination without cause. The most common termination clauses are 90 days without cause, 90 days prior to the anniversary date, and similar clauses for 120 days. What you are looking to do is maximize your flexibility to either renegotiate rates periodically or have the option to terminate an agreement. When the condition for termination without cause is 90 days’ notice only, then you may give 90 days’ notice at any time during the contract period and then the contract will terminate if you give this notice 90 days hence. For example, if you give notice to terminate on Oct. 1, then your termination would be effective on Dec. 30. Many payor contracts have a related stipulation that the initial contract term must happen before you issue the termination request. For example, you may be on a minimum three-year agreement from the date of signature. The three-year term may have to take place first and the contract may specify that the soonest you may terminate is on the third anniversary of the agreement, which means that the soonest, in this situation, that you could give notice would be roughly two years and nine months from the date of signature of the agreement. Other agreements are “evergreen.” Like an evergreen tree, they keep renewing as of a certain date, usually annually, unless either party issues a termination request. The best time to negotiate rate increases is about three to four months prior to the termination notification date (not the actual termination date). This gives you and the payor time to adjust the terms of the revised agreement.
The third item is claims’ payments, both how long you have as a provider to file and how long the payor must pay claims from the date that they receive the claims. Ninety days to file after the date of service is desirable. If necessary, you may request up to 180 days. The key is that you make sure that the claims filing requirements meet your business / operational practice for filing claims. If you routinely file within 10 to 20 days of performing a service, you will be well ahead of the 90-day requirement. The norm is for payors to pay claims within 30 to 45 days of receiving a “clean claim.”