Updated on: June 11, 2020

Payer Contract Negotiations: How to Improve Your Negotiating Skills

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Original story posted on: June 8, 2020

When payers and providers come to the negotiating table this year, they will do so during a pandemic or the tail end of it.

Whether you are a novice or a seasoned negotiator, payer contracts can be complicated and difficult to interpret, even with an attorney or a consultant by your side. I have walked physicians and medical practices through this process many times over the past 25 years, and there are always negotiating points to keep in mind during “debates” with payers over contract language, inclusions, exclusions, and coverages.

When commercial payers and providers come to the negotiating table this year, they will do so during a pandemic, or at the tail end of it. The unprecedented financial and public health challenges payers and providers face will, in turn, affect the types of agreements they strike. The following will focus on points of negotiation and trends that may affect payer-provider contract negotiations, given the COVID-19 pandemic.

Before I begin with the best tips of negotiation, I need to define exactly what the term "negotiation" means.



The Merriam-Webster dictionary defines "negotiation" as "a formal discussion between people who are trying to reach an agreement,” an “act of negotiating."

Negotiation also involves each party trying to gain an advantage by the end of the process. Let's take a look at the roles physicians might play in negotiating. In order to sustain viable revenue, it is prudent to analyze and effectively negotiate healthcare payer contracts. Cost analysis should be performed in an organized way to establish dollar value of tangible and intangible items. You need to have a clear understanding of business principles, current market trends, and the cost of delivering quality healthcare.

Healthcare contracts are legal documents, and need to be reviewed carefully. Many physicians sign payer contracts without negotiating. 

Often, the payer will say, “this is what we are paying in your market. Take it or leave it.” We must understand that the terms in the contract are not absolute until you sign on the dotted line. We have to create and demonstrate value in terms of data, quality of care, and cost-effective, long-term goals that benefit the team as a whole.

Even if the practice is run efficiently, with low overhead, if the payer contracts are not properly negotiated or worded, it can result in a loss in net revenue.   

Here are my 10 points of negotiation that will help you navigate these waters, or at least have a good idea about what you are in for before you engage with your payers.  

  1. It’s business, not personal. Many practitioners take the process personally (and why not, it is their livelihood), but the truth is that it is a part of doing business. Post-pandemic tensions will be high, and payers may try to play on your sense of “we are in this together,” but remember their profit margins and yours. We are definitely not on the same playing field, as many commercial payers have seen their highest profits this year, with the nationwide quarantine order and the lack of elective cases being done in 2020.

  2. Know the rules of engagement. Who is going to be accessing you through the contract? Self-insured plans? Fully insured plans? Workers’ compensation plans? Is this a leased network? Each will have its own rules of engagement of which you need to be aware.

  3. Understand authority levels and limitations. Have you ever discussed a myriad of options during a consult for an elective procedure and thought that you had explained something sufficiently for a decision to be made? At the end of your consultation, you ask for a decision, only to learn that the patient has to check with another party (husband/wife/mother/sister, etc.). Why didn't you know this up front? Did you ask before the conclusion of the consult? Did you even ask when the patient was considering having the procedure performed, or inquire about how many previous consults he or she has had? It helps to know where you stand if you know the level of authority of the person with whom you are negotiating has.

    When you are negotiating with payers, this is a must. You don't have extra time to spend in your office when you need to be treating patients. Insurance payer negotiators, or provider relations representatives, are salespeople, and are only given a certain level of authority for discounting, financing, additional offerings, etc. – and if you find this out early in the process, you can eliminate a lot of wasted time by cutting to the chase and insisting on speaking with someone who may have the ultimate authority to negotiate to your satisfaction.

  4. Are you willing to walk away? Know before you go in to negotiate which procedures or terms that, if not met, will cause you to walk away from the table. Know which ones you are going to use as concessions to get what you really want. Ask yourself what your practice can and can’t live without. You’re not going to get everything you want – a negotiation is just that – and in the end, you will have to compromise on some points.

  5. Read everything. Read the contract very carefully for terms and clauses that are one-sided, such as amendment provisions, definition of medical necessity, rate changes, timely filing provisions, prevailing contract, and termination. Also, insist on putting everything in writing during the meeting, even in preliminary formatThe worst thing that can happen is that the deal changes after you've arrived at a verbal agreement. A negotiator may make promises that he or she can't carry out. You never know whether these issues will come up until it happens, and then it's too late. These types of issues can permanently destroy future relationships with your payer’s representative, and also with the company he or she represents.

    As an example, let's see how such a situation might play out in your practice. Have you ever quoted a price to a patient for a specific elective procedure and the patient relates a totally different scenario or treatment plan than the one you reviewed? The treatment and the fee associated with it isn't even close to the one that you quoted. Putting the quote in writing, with a copy to the patient and a copy in the patient's chart, would minimize the chances for ill feelings among the parties involved.

    The confusion isn't necessarily any one person's fault. Remember the old saying, "what I said is not what you heard?" The identical words were spoken and heard by everyone, yet the interpretation may not have been identical. The movie studio owner Samuel Goldwyn once said that "an oral agreement isn't worth the paper it's written on." When parties fail to live up to an agreement, written proof of the negotiators' intent is critical. First, it enables you to avoid the "he said, she said" bickering, and helps those in charge of resolving the dispute know what was intended. It’s called “keeping the other person honest.”

  6. State laws apply. Be aware of your state laws and how they affect the way insurers do business. For example, be aware of timely payment rules and takeback rules – and let’s face it, PHE rules, if we ever find ourselves in this situation again.

  7. Be aware of the contract term. Many payers want to sign providers to long-term (three or more years) contracts. Does your contract have built-in increases to keep pace with inflation or other considerations? Most do not.

  8. Make sure rates are clear. If the rates are based on a proprietary fee schedule, you need to know what they are before signing. If the rates are based on Medicare, is it current/prevailing, or another year? If current/prevailing, what will you do if the rates drop significantly? Are there multiple plans under this payer, and do you have the fee schedules for all of them? Are there PPO, EPO, or other administrative and contract provider adjustments that you need to be aware of before you sign on the dotted line?    To help reveal the rates and overcome payment inequities, I suggest creating a utilization report to capture and review data. Using a spreadsheet, determine the frequency of a current procedural terminology code, and the number of times it was billed to that payer. Multiply that by the current payment amount. Determine the break-even point. This is done by adding overhead and physician compensation by total frequency of all CPT and HCPCS codes for that payer. The results are a “weighted average cost.” Compare the weighted average cost to weighted average reimbursement. It is essential that payer contracts are carefully reviewed for their fee schedules and the provisions that can alter the net revenue a practice generates. Research shows that larger corporations have an added advantage in using a volume of providers that service their clients.

    If there are clauses in the contract that the insurance companies won’t negotiate that affect your break-even point, a letter of intention to discontinue the contract should be sent. Ultimately, the payer may come to realize that a large portion of its members would not have care providers and may accordingly reconsider their position.

  9. Know what isn’t covered. Be clear on what the contract is not covering, i.e. what procedure codes are not covered, procedures with very low reimbursements, services that require you to use a specific outside vendor, limitations on therapies or pre-existing condition issues, specialized care such as acupuncture, or diagnostic services. It would also help to know the issues of concern to the payer. For example, if the payer’s concern is with high use of ancillary services, it would help to point out how effectively you manage the use of these services. You can show cost control and forecast the predictable costs. Share practice data that shows compliance and improved outcomes.

    Demonstrate the efficiencies that reduce costs, and make it clear that the goal of this business relationship between you and the payer is to provide cost-effective healthcare. This can be done by showing the payer how many of their members avoided hospital readmissions because of the effective, quality healthcare you provided. Information sharing like this only strengthens your negotiating position.

  10. Prepare! Preparation, also known as due diligence, requires a lot of energy and commitment. To paraphrase an old cliché, the three most important things about a negotiation are preparation, preparation, and preparation.

    Proper preparation certainly allows you to understand whether the process is worth pursuing. Be ready to ask questions and demand answers. Today's patients, vendors, and yes, insurers, are more educated than ever due to the availability of information from the Web. You can obtain many varying opinions (positive and negative) by conducting online research, but at least you have the information and can make your own decisions based on it.

    Did the insurance payer prepare dialogue for you, or is he or she just repeating what every other physician is told? Your office is unique, and therefore, demands individualized attention.

In Summary

It is advisable to start discussions with the payer representative 120 days before the contract term ends. It helps tremendously when the communication is channeled through one individual from the health plan with whom a business relationship has been built.

In preparation for negotiations, you need to set a bargaining range that includes optimum and minimal target goals. The optimum goal is where the terms are ideal. The minimum goal is the point that absolutely has to be met. The target is the point where you would like to be at the end of negotiation.  

It would be advisable to meet face-to-face with the payer representative and present clear data and requests for change, and to listen to what the representative has to say. The person who has the most experience with complex negotiations should do this. If you do not have someone in your practice who has experience with this, hire an outside consulting firm to negotiate for you. That is my job as a consultant.

We ask questions on certain other items needing to be negotiated in the contract, including some that a physician may not be aware of, that can also affect cash flow. A couple of my sticking points include the question of how the prior authorization process can be made easier. Also, can the period for submitting a claim be extended? Improvement and ease of the appeal process is helpful. Timely payment parameters and interest on late payments need to be clarified.

When presented with a well-documented and organized data analysis, the payer may be able to recognize the value your practice brings to its members. This, in turn, will help increase the revenue generated, anywhere from a 3 to 10 percent increase in reimbursements.

Patient satisfaction surveys and what you can offer patients to ensure high marks for outcomes can be a huge contract negotiation tool. Most commercial plans use those to drop providers from contracts. Use them to your advantage as a negotiating point for your patient community, and being the face of the payer.

Programming Note: Listen to Terry Fletcher report this story live today during Talk Ten Tuesdays, 1010:30 a.m. EST.

Terry Fletcher, BS, CPC, CCC, CEMC, CCS, CCS-P, CMC, CMSCS, CMCS,  ACS-CA, SCP-CA, QMGC, QMCRC

Terry Fletcher, BS, CPC, CCC, CEMC, CCS, CCS-P, CMC, CMSCS, CMCS, ACS-CA, SCP-CA, QMGC, QMCRC, is a healthcare coding consultant, educator, and auditor with more than 30 years of experience. Terry is a past member of the national advisory board for AAPC, past chair of the AAPCCA, and an AAPC national and regional conference educator. Terry is the author of several coding and reimbursement publications, as well as a practice auditor for multiple specialty practices around the country. Her coding and reimbursement specialties include cardiology, peripheral cardiology, gastroenterology, E&M auditing, orthopedics, general surgery, neurology, interventional radiology, and telehealth/telemedicine. Terry is a member of the ICD10monitor editorial board and a popular panelist on Talk Ten Tuesdays.

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