Renegotiating contracts is an important part of the contracting cycle, but it often doesn’t happen. Most practices don’t renegotiate as often as they should, if at all, because the process can be intimidating or they think payers have to make the first move. To help you feel more confident, we’re sharing some key steps in the renegotiating process, as well as some helpful tips.
To start the renegotiation process, revisit your practice’s marketing position, or create one if you haven’t yet. What services make you stand out? What can you do that no one else does? What are you good at? What have you improved since the last time you talked with the payer? Market your medical practice’s best qualities. Know the local competition and how to position yourself against them. Think in terms of what the payers want – higher quality for lower cost – and show them how you are doing that.
While many providers write letters to payers (whether a letter in the mail or via email), the most effective way to renegotiate contracts is to start the process off in-person. If you don’t have the contracting representative’s contact information, reach out to the provider representative to get it. Requesting an in-person meeting shows credibility and creates an opportunity to build a relationship.
Collect and analyze your data.
When renegotiating with an existing payer, pull all claims-based data for that payer for the past twelve months. If it is too much to pull all volume for that time period, at least pull your top 25-50 codes. Look at volumes, charges, and current allowables at the line item code level to get a clear picture of how the payer is reimbursing you today.
Model the proposed rates to get an idea of how much money that would bring in, assuming volumes and services are relatively the same in the following year. If cost data is available, pull it in as well to make sure costs are being covered for each service line (or at least overall). Do not accept rates under the break-even point unless there is a strategic reason for it.
In addition to claims data, it is also helpful to pull data for the payer’s denial rates, days in accounts receivable, underpayment issues, coding/bundling issues, and to evaluate how much time and energy it takes to deal with them. Be sure to update your payer mix to see how important this payer is to your practice.
By knowing how important this payer is to the overall business, the desired rates, the lowest acceptable rates, whether costs are being covered, and what the payer’s performance is relative to other payers, you will be able to establish the strategy for renegotiating with the payer. Payers pull all of this data when negotiating so it is imperative you do too. The more data you have, the better position you will be to renegotiate
Use proven negotiation tactics.
If payers propose first, be sure to never take their first offer. Sometimes payers will insist you propose first so always propose higher rates than your real desired rates. Be reasonable, and do not make the proposal so high that it is completely out of the question for the payer. Setting the proposal at higher rates allows the use of the common negotiation tactic of “bracketing,” which creates a range in which there is potential agreement. Typically this negotiating process leads to a middle ground from which the parties can split the difference in order to come to an agreement.
If payers aren’t willing to increase your rates, think about what creates a burden for your staff. Review your base agreement, amendments and exhibits to see if there is language or other requirements you want changed and bring that to the payer’s attention too.
The most important thing to remember is if you don’t ask, you’ll never get it. Payers are more willing to work with you than you think so be proactive about finding ways for you both to win.