GE Healthcare Camden Group Insights Blog

14 (More) Managed Care Contracting Do's & Don'ts (Part 2 of 2)

Posted by Matthew Smith on Jul 30, 2014 11:51:00 AM

Provider Contracting, Physician Contracting, Revenue Cycle

Yesterday's HD Insights Blog Post identified fourteen common traps for basic hospital and physician contracts, and the negotiating strategies around them. Today's post delivers Part II of this article--with fourteen more tips. Again, some of these tips are obvious, yet one would be surprised how many payers’ “boilerplate” or “standard” contract templates do not address these issues in a manner that provides reasonable protections for providers.

We hope that you find at least one valuable insight from the 28 tips mentioned in these combined articles, and encourage you to comment below on other tips you might wish to share with others. (Ed. note: Nothing in this article or the member comments below should be construed as encouraging a party to deal or not to deal with a payer.)

  1.  Protection from Bad Debt. Bad debt can be worth 3 percentage points or more of the total yield on a managed care contract. As employers push an increasingly large portion of financial responsibility onto employees, providers’ bad debt and the cost to collect patient liabilities will increase. Benefit plans can be designed to reduce the provider’s bad debt exposure (e.g., by deducting a patient’s financial responsibility from his or her pay check and remitting it directly to the provider). Depending on what kind of products and benefit design the payer sells, your exposure as a provider could increase or decrease. Talk with the payer about how you can be protected from bad debt exposure. And make a provision for it in a yield guarantee (see below).
  2. Get a Yield Guarantee. Simple concept, tough to operationally define, tougher still to negotiate, but the ultimate protection. Concept: At the end of the year, did I get the percent of charges I thought I would when I negotiated this deal, or did the “fine print” cheat me out of it?  For some payers, the fine print can be worth 6 – 8 percentage points or more. Plus the administrative hassles. The details can get excruciating, but don’t give up. If necessary, agree to hire a mid-level audit firm familiar with healthcare experience to play referee. Payers are giving this. If they intended to pay you x percent of charges, then they shouldn’t protest. But it has to cut both ways.
  3. Look backs. Limit look back periods to 12 months after payment is received. Both parties. Don’t allow exceptions in the case of “fraud”, unless fraud is very carefully defined. Otherwise, a vaguely defined fraud exception just becomes a backdoor way to allow look backs forever.
  4. Recoveries. Do not agree to allow recoveries to be made against future payments. And hire a recovery firm of your own to review otherwise closed accounts. These firms usually work on a percent of recoveries, so there’s no expense to you. Make sure they provide detailed reports of their findings so you can learn from your mistakes (e.g., change the way you do billing and/or change provisions in the contract next time it comes up for renewal).
  5. Waiver of rights. There are many state laws that were put on the books to protect providers against the bad deeds of insurers. Examples include interest penalties on late payments and the right to balance bill certain patients. Standard language on some contracts would have you waive those rights. Don’t do it. Laws were created for a reason. If the payer doesn’t plan to violate those laws, they shouldn’t mind following them.
  6. Conflict resolution. Used to be, arbitration was a good thing. Experience has shown it costs as much and takes as long as the courts, but the process requires you to give up certain rules of evidence and the right to appeal an adverse decision. Avoid both binding and non-binding arbitration. If a conflict arises, the parties can always agree to non-binding arbitration later. But to make it a contractual requirement just adds a year or more to the resolution you might otherwise get through the courts. Of course, the jurisdiction should be your home state. Don’t agree to a bench trial, juries love to spank misbehaving managed care companies. And don’t waive your right to join in a class action lawsuit either.
  7. Evergreen Terms. Anticipate that difficulties may arise during contract renegotiation. Allow for evergreen periods. Make sure they include annual inflators pegged to inflation indices relevant to the healthcare industry. Otherwise, the payer has all the incentive to drag out discussions or even not renew the contract, and you have to “eat” inflationary costs.
  8. Avoid “Forever” Contracts. Read carefully language about termination, including termination at the end of the contract term. Some “standard” contracts may construe the very right to terminate as being subject to the contract’s dispute resolution provisions. Is the right to terminate the contract itself subject to arbitration?
  9. Gag Rules. While it is certainly appropriate for certain terms of the contract (e.g., rates) to remain confidential, don’t allow overreaching limitations on your rights to communicate directly with employers, patients, the media, etc.
  10. Signing bonuses. If there’s a “special project” you’re pursuing and capital funds are tight (e.g., that new electronic medical record system you are eying to improve patient safety), don’t be afraid to ask. But do so after all other key deal points are negotiated. Don’t trade off a one-time signing bonus for other concessions that may have a higher value over the life cycle of the contract.
  11. Haste Makes Waste. As managed care companies have consolidated, the skill level of their negotiators has increased commensurately. Providers who negotiate only a handful of contracts a year are little match for highly compensated (e.g., often in excess of $1.0 million in total compensation per year) professional negotiators who work argue their boilerplate contracts every day, and have a ready answer for every issue. Resist getting boxed into committing to finish negotiations by a date certain. Once you put your head in that noose, it’s “burn the clock” time for the other side. Rather, commit to a certain number of hours per week. And don’t feel apologetic for having to take a time out to attend to other responsibilities. That’s just another pressure tactic.
  12. Take a “Time Out”. Prior to signing the final documents, take a few days off to regain perspective. Do a fresh read of the documents, and come back for one last round of discussions if there are issues with which you’re still not comfortable. If it still bugs you now, just think how you’ll feel about it later.
  13. Don’t Waive Your Rights. After you have a deal, payers are beginning to request/demand a separate agreement be signed that gives up group rights to join any and all class action suits during the life of the contract – and even beyond. Try to avoid entering into these agreements, or at least restrict it to certain categories of class action. After all, if they don’t intend to do anything wrong, why should they need this kind of super-ordinate protection. But they do tend to be tenacious.
  14. Sunset Clauses on the Back End. Be sure to have “sunset clauses” for protections on the back end, and do a careful editing of definitions and other language to ensure appropriate terms “survive” the termination of the agreement. For instance, you should seek protection that they will keep paying you after termination as claims run out, that the same policies and procedures would be in place post-termination for claims incurred while in network, etc.
© Copyright Health Directions, LLC, 2014

Revenue Cycle, Key Performance Indicators, KPIs,

Topics: Revenue Cycle, Managed Care Contracting, Hospital Contract, Physician Contract, Payers

14 Managed Care Contracting Do's & Don'ts (Part 1 of 2)

Posted by Matthew Smith on Jul 29, 2014 12:48:00 PM

Contracting, Hospital, Physician

Some perspectives on managed care strategy and contract negotiation can only be gained with experience over a number of years, and with a number of different payers and negotiators. This article focuses on some of the revenue cycle management issues in contracting.

It identifies some of the common traps for basic hospital and physician contracts, and negotiating strategies around them. Some of these tips are obvious, like our opener, “No Logo, No Discount”, yet one would be surprised how many payers’ “boilerplate” or “standard” contract templates are silent about this or do not address the issue in a manner that provides reasonable protections for providers.

We hope that you find at least one valuable insight from the 14 tips mentioned in this article, and encourage you to comment below on other tips you might wish to share with others. (Ed. note: Nothing in this article or the member comments below should be construed as encouraging a party to deal or not to deal with a payer.)

  1. No Logo, No Discount. It’s obvious, but it’s unlikely you’ll see it in the “standard” contract language or boilerplate the payer sends you. Even if you do, the protections provided you may be insufficient, and the administrative processes imposed upon you may be excessively burdensome.
  2. No Logo, Part II. Who has access to the contract?  This is a variation of the “No Logo, No Discount” point above. Be sure the contract specifies who the actual payer is, especially in contracts with insurance companies that have a high percentage of administrative services only (ASO) business. Who stands behind the contract if the ASO client fails to pay the insurance company with whom you have a contract?  Beware of “affiliates”. Specifically address rent-a-networks, out-of-network benefits being made available to other insurance plans, silent PPOs and discount cards. The only parties who should have access to your contract are the payer’s fully insured business and self-insured ASO clients of that same payer.
  3. Definition of a Clean Claim – Denials of claims is a major concern in revenue cycle management. Engage the See if you can get definitions of things that matter to you. For example, what is a “Clean Claim”?  How many ways can claims be “pended”, “denied”, “disputed” or otherwise held up from being paid?  What is “Medical Necessity” and how is it determined?  Which “charges” are to be used: yours or some payer-defined subset of your customary charges (e.g., “eligible”, “allowed”, “usual and customary”, etc.)?  What is “fraud”?  For every term you define, be sure to establish a performance expectation (e.g., a “clean claim” is to be paid within 15 days if submitted electronically) where appropriate.
  4. Representations and Warrantees of the Payer. Typically payers ask providers to warrant more things than they offer to warrant of themselves. How about a warrant that the rates specified by the payer represent x percent of charges?  That way, if it is subsequently determined that they represent less, you have a better basis for pursuing recoveries, supporting allegations of misrepresentation, etc. How about warranting the solvency of the self-insured employers who are ASO customers?  Payers will say they can’t do that. So you should ask for reasonable protections (and reward) for taking credit risk. Then what protections will they provide for this legitimate risk and area of concern for the provider?
  5. What “products” are you participating in and at what rates?  Get a complete listing of the products offered by the payer. Be clear what products you are negotiating to be “in network” with. What steerage will there be?  How will you be listed on payer’s website, especially as it relates to “quality” and “efficiency” measures?  What rate will you receive for each product?  If you are only going to be listed in the “higher tier” (more expensive) network, then you should get higher rates. How can the payer change what networks you’re in after you sign the contract?  Generally, one rate for all products provides you with the most protection. Besides, it costs you the same to provide a day of care to an HMO patient as it does to a PPO patient. If there is a different rate for different products, what is to protect you from the payer shifting all the volume in the higher paying product into the lower paying product?
  6. Uses of Data. Payers seem to know a lot more about your pricing with competitor payers than they should. Presumably payers are getting access to this information through data sharing services like Ingenix and consultants like Reddon & Anders. With the recent investigation into Ingenix, there is enough of a spotlight being shone on these data sharing practices that providers should reasonably ask for some protections. Payers have a legitimate business need to have sufficient data to perform coordination of benefits and administer out-of-network benefits, but providers should argue that this data should not be shared with the contracting arm of the payers. One solution would be an outright prohibition of the sharing of competitor rate information with the contracting area of the payer. An alternative solution would be a licensing agreement that explicitly spells out how your claims data can and cannot be used. This would force the payer’s hand to disclose their business practices, and provide a basis for cause should data be misused.
  7. Payment Policies, Protocols, Pre-Certification, “Medical Necessity” and other administrative guidelines, policies and procedures.
    • Attach all current and existing policies to the contract as an exhibit.
    • Do not grant the payer the right to change these policies at their sole discretion at any time during the contract, unless you can get some form of protection from the adverse impact these changes could have on you (e.g., a “yield guarantee” as described below).
    • Require changes to be provided in writing, clearly marked, with 90 days advance notice.
    • Don’t be deceived by “make whole” provisions whereby, if you can prove loss of reimbursement or increased administrative cost, rates will be adjusted. It’s a great sound bite for the payers, but it’s a war of attrition with all the cards (and, as usual, the money) in the payer’s hands. The burden of proof is on you, and it probably won’t happen. So if they’re offered, take them, but don’t do so if you have to give up something else (e.g., a yield guarantee).
    • Include a section spelling out the order of legal precedence of various documents and exhibits included in the total package of your deal. After state and federal law and your organization’s Board policies, the contract you sign should trump any attachments, especially any administrative policies the payer has the right to change at a future date at its sole discretion.
  8. Charge master protection. Charge master increases have been abused too much by the industry, and all the payers have sniffed this out by now. It’s a concession you have to give. But get something in exchange for it.
  9. Fixed pricing structure. With increased transparency and cost shifting to the member, you will be competitively disadvantaged if your prices can’t be stacked up against those of your competitor on the payer’s website. So agree to fixed pricing, as long as you have sufficient guarantees that you’ll get paid what you thought you negotiated for. This should apply to both the inpatient and the outpatient side too, although beware of the effect of APCs which, by their nature allow bundling and elimination of “related” charges. Use groupers, DRGs and APC methodologies consistent with Medicare rules.
  10. Avoid Black Boxes. Example 1: payer-specific “proprietary” DRG and APC payment methodologies that do not follow Medicare guidelines. Example 2: Payer “medical necessity” guidelines that are not based upon peer reviewed medical literature. Many other examples could be found. Black boxes are “licenses to steal”. If you must agree to a black box (e.g., because it’s a “national policy” that “everyone else has agreed to”), get protections for the downside. Payers should readily agree to grant these protections because surely they didn’t mean to misuse their black boxes anyway, right?  It’s always a good idea to test run a number of your cases through their payment model before the contract term period begins to see if the yield is as expected. But don’t be tricked into foregoing a yield guarantee which would protect you for anomalies outside the sample universe and future changes to payer’s policies over which you have no control.
  11. Push profits back to the inpatient side. Take lower rates (as a percent of charges) on the outpatient side. Patients faced with increasing financial responsibilities will become increasingly price sensitive. By the nature of the services, more comparison shopping is done on the outpatient side.
  12. Performance criteria for adjudication and payment of claims should be spelled out. For example, if you are not notified of a problem with a claim within 30 days, it is automatically deemed clean. How soon should a clean claim be paid?  How long do you have to submit a claim, and corrections of a claim, additional documentation, etc.?  Be sure to have a clear definition in the Definitions section of any measures around which you want an enforceable performance target. Look at some of the recent class action settlements on physician contracts for some additional ideas.
  13. Partial denials. Hold out for language that says if part of a claim is denied, the entire claim is not denied. Similarly, if a portion of a claim is in dispute, payment for the undisputed portions of the claim should still be paid promptly.
  14. Principle of the Reciprocal. Example of the principle: If the payer can deny payment of a claim received after the deadline for submission, they should lose their discount if they don’t pay within their deadline. Every demand of the payer should have a reciprocal in-kind protection for the provider. You should be willing to provide reciprocal protection or consideration to the payer for every demand you make. Fair is fair. Applications of the principle: they want “predictability” in the form of fixed DRG and APC rates. That’s great. So do you, in the form of a yield guarantee.
© Copyright Health Directions, LLC, 2014
Watch for Part II of this article tomorrow--with 14 more tips for successful managed care contracting.

Topics: Revenue Cycle, Managed Care Contracting, Hospital Contract, Physician Contract, Payers

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