Is it time to walk away from a managed care contract?

Key Points

Some urology practices have become complacent about managed care contracts, assuming there's not much they can do about them. But if it's costing more money to see a patient than you are getting paid, it's time to renegotiate or consider unloading the payer. It takes deliberate action to identify those managed care contracts and understand their financial impact on the practice.

Evaluating contracts

Next, identify the payers that represent the majority of the practice's revenue-typically five to seven insurance carriers. The practice management system should be able to sort this information, and the data are often already included in the month-end summary reports.

This matrix can be quite revealing and often shows a large range of what the practice is being paid. If the matrix reveals poor-performing payers, pull the contract and examine its terms. Is the practice being paid appropriately, what is required to cancel the contract, and is there one contract for all physicians in the practice?

In addition to scrutinizing contracts, be sure your billing department is doing its job by auditing some of the past claims to be sure errors in payment are being appealed and inappropriate claims adjustments are not being made on the assumption that the insurance company doesn't make errors in claims adjudication.

Before contacting the payer to discuss reimbursement issues, the practice must agree on the minimum amount it will accept, based on where the revenue counts the most.

In urology, factoring in the top procedure codes is important. If the plans are paying well on these procedures, it may be reasonable to consider accepting a lower amount for evaluation and management codes, but this must be weighed against the percentage of revenue the E&M codes represent and the financial costs to the practice of continuing with the same reimbursement.

To evaluate how well the practice is paid on top procedure codes, identify the allowable amount on each selected code from the represented insurance plans and compare it against the practice's fee schedule and the Medicare allowable, which is typically considerably lower than the negotiated rate with managed care plans.

Next, consider how the practice might be affected if a contract is bad and you decide to walk away. Here are important issues to think about:
• impact on existing and potential patients
• loss of revenue and long-term economic effect
• existing scheduling needs. (Perhaps eliminating a few payers will open up time on the schedule to see more patients from other, better-paying sources.)
• political issues that may exist with referring physicians. (Perhaps they are considering dropping a poor payer or feel compelled to provide service to a poor payer for reasons that are unknown to you.)

Making the break

The physicians and the manager will need to discuss and agree on what actions should be taken. If the results show the practice is not making a reasonable profit on one or more of these payers, it would not be prudent to continue with the same rate of reimbursement.

The first choice should be to work with the payer to renegotiate the contract pay rate so that it is financially prudent to retain the contract and continue providing care to existing patients and have referring physicians continue to refer patients with these insurance plans. Such negotiations require skill, flexibility, and the desire to reach mutually satisfactory terms with the payer.

Start by contacting the provider relations department and identify who has the authority to negotiate contracts and set up a meeting or phone conference. Beforehand, it is important to determine where you are willing to bend and what the deal breakers are.

A prudent business must make a profit, and a urology practice is no exception. It's important to monitor performance and understand which managed care contracts are pumping iron into the practice and which ones might be bleeding it dry.

Judy Capko is a health care consultant and the author of Secrets of the Best Run Practices. She can be reached at 805-499-9203 or judy@capko.com
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