It’s a long-standing paradox: When resources are tight, practices tend to omit some of the fundamental activities that could help generate additional revenue. Many practices are still feeling the effects of pandemic-related volume reductions, which have resulted in negative financial impacts and placed a strong emphasis on improving profitability and finding growth opportunities in the revenue cycle.
While payer contracting carries a high level of complexity, it is a crucial area of practice management for attaining higher reimbursement rates for months or years at a time with the appropriate analysis. The key is to examine fee schedule strengths and weaknesses by collecting and assessing existing data and then developing a strong case to share with payers to increase reimbursement.
Follow these four basic steps to develop a proactive, data-driven approach to optimizing payer contracts:
Practices must understand the reimbursement methodology tied to their managed care agreements, many of which allow for intermittent fee schedule changes. To verify that the fee schedules on hand are current, every practice should periodically review their Explanation of Benefits (EOB) statements for the most commonly billed codes to determine if reimbursement rates have decreased. In essence, an internal audit should be completed on a quarterly basis to verify that the correct reimbursement rates are being used by every payer tied to your practice.
Practices can work through their payers’ contracting departments, provider relations representatives, or other network contacts to access agreements and begin the appropriate analysis. Start with your practice’s largest commercial payer and work your way through the list. During this process, it is important to establish collaborative relationships with your payer contacts. In many ways, building a reliable payer contact network is as valuable as analyzing your reimbursement data since you will be frequently working with these individuals during future negotiations.
While waiting to receive copies of your agreements, run a revenue-by-payer report to determine the practice’s largest payers. In addition, practices should also run a report on the top CPT/HCPCS codes the office bills by annual volume, by payer, and the dollar amount tied to them. This helps identify how much revenue is generated from each payer on the services your practice performs most frequently.
The goal of the database is to clearly indicate reimbursement received for each of your top codes for each payer. In addition to providing an easy visualization tool, the database can assist in analyzing payer performance and comparing the practice’s payment rates against regional market standards. This inventory also will help your practice prioritize the most frequently billed services and determine if there are opportunities for rate negotiations.
Use Medicare and/or Medicaid reimbursement as your benchmark. For each code in the database, are the commercial payments above or below the Medicare or Medicaid rate? Many payers set reimbursement at a certain percentage of the Medicare fee schedule. Others create their own fee schedules, with some as low as 72% of the Centers for Medicare & Medicaid Services (CMS) fee schedule.
With the data gathered from these four steps, clear patterns and outliers should emerge that identify by code where areas for improvement exist with certain payers. For example, reimbursement rates that fall below Medicare standards should raise a red flag.
Baseline data allows your practice to begin to assess the competitive differentiators that could help optimize reimbursement. At a high level, most practices understand their competitive advantages and disadvantages. However, to attain more attractive reimbursement rates, practices need to convey how those advantages translate into value for the payer. Data analysis helps pinpoint the specific services and codes the practice should focus on during contract negotiations and provides the quantifiable evidence needed to fully illustrate what differentiates the practice from others in your local healthcare market.
Most practices find that roughly 70% of their revenue comes from the services represented by approximately 10 codes. Therefore, it is recommended practices look for opportunities to secure better rates for just those services rather than implementing an entirely new contract. To do so successfully, practices should take a targeted and collaborative approach. Narrowing the discussion to your top four or six codes, for example, makes it faster and easier for the payer to run its own cost analytics. This kind of cooperation can help increase the likelihood of a positive result.
It takes time, efficiency and focus, but contract rates can become more favorable when agreements are effectively managed and payers are approached in the right way. The onus is on practices to audit EOBs against reimbursement to ensure accurate payments, resolve any payment discrepancies or fee schedule reductions, and play an active role in collaborating with and reaching resolutions with payers.
A considerable amount of revenue can be generated by negotiating a reimbursement increase from just one payer on just one of the practice’s top codes. Practices with access to the consistent expertise and resources needed to manage multiple payer contracts can produce substantial returns.
However, the ability to understand the market and unravel the intricacies of working with each payer on a larger scale can be a full-time job that comes at a significant expense. Rather than paying for additional staff, practices can leverage experienced third-party partners that can deliver overall budget stability as well as the potential for increased returns. In an uncertain market where volumes have not yet returned to pre-pandemic levels, the latter may make more financial sense.
Practices that recognize and prioritize contract optimization as a vital component of the revenue cycle will experience a financial upside. Thoroughly evaluating payers’ reimbursement requirements, fee schedules and contract timelines allows practices to create a compelling story for payers and convey mutual benefits for both parties. With knowledge, data analysis and proactive management, practices can establish more productive working relationships with payers and achieve their desired end-goal of securing better reimbursement rates.
Brian Bellamy is a Vice President of Payer Contracting.