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Successfully Negotiating Managed Care Contracts
We asked the experts to reveal their top bargaining strategies.
Dan O'Connor
Publish Date: October 10, 2007

When it comes to negotiating a managed care contract, knowledge is power. The more you know about your top procedures and case costs, your desired and minimum margins, and your payers' policies and ploys, the better job you'll do at hammering out a contract you won't be smacking your forehead over in six months.

"Once they know that you know, they're on their toes," says Christine L. Kulina, RN, a Medford, N.J.-based managed care consultant.

1 Know where your bread is buttered.
Figure your case costs for your top 10 procedures, then ask the managed care company for its rates for those CPTs, says Dawn Gray, CPC, CCP, the billing and coding supervisor of Surgery Center Billing in Fort Myers, Fla. If your ortho cases cost $1,000 per case and they represent 80 percent of your volume and the payer is offering $500, you know right there that's a losing situation. "Make sure the contract pays each of these high-volume procedures enough to cover costs, overhead and to make a bit of a profit," says Ann Deters, CEO and owner of SevenD & Associates. "If you know what your costs are, then you know what you can accept."

2 Know what sets you apart.
It's all about finding your point of leverage, says Shannon Marie Smith, CPA, president of The Rush Group, LLC. "Why should a payer negotiate with your center, and why do you deserve more pay than somebody else?" she asks. "Identify some unique services your center offers the carrier's members." A tip for ASCs: If you're offering a procedure that's still being done at a hospital, find out what the hospital charges for that service as a way to demonstrate your value to the managed care payer's network.

3 Develop a fair advantage.
You'll often have information that the payer doesn't, especially if it's a first-time negotiation. Only you know your top high-volume CPTs, case costs for those CPTs and the percentage of business represented by the payer. "Use this information to develop reimbursement targets," says Naya Kehayes, MPH, managing partner and CEO of Millennium Health Consulting in Issaquah, Wash.

4 Fight nice.
By their nature, contract negotiations breed mistrust: Providers think payers are out to lowball them, and payers think providers are out to gouge them. "But negotiating is about relationships and establishing mutual respect," says Ms. Kulina. "When you're cordial, you can get past the roadblocks." Your payer rep might not leave his cubicle much. Why not invite him to your facility? "They'd love to take a field trip to your center. Even though they're working in the business, they may not have ever been to a surgery center or seen an implant," says Alona Zaitzeff, ASCOA's vice president of finance.

If negotiations come down to a test of wills, you've already lost, says George Stevens, senior vice president, managed care, of Surgis, Inc. "At the end of the day, the carrier can craft the program to include you or exclude you," he says. "You're better off viewing yourself as a partner, somebody trying to add value to their process, than you are creating an adversarial relationship."

5 Make contracts easy to administer.
Your objective is to maximize your revenues and minimize your administrative burden. One way to do this, says Mr. Stevens, is to build implant values into CPT codes. If 29881 has implant costs that average $800 a case, add $800 to your base fee and use that as a contracted rate. "This means you don't have to track whether you got authorization, you don't have to get a copy of the invoice from the materials manager and you don't have to print and track a separate bill," he says. The true value of any managed care contract is in the first dollar paid, says Ms. Kulina. "If you have to chase the money, that contract is worth less than what it is on paper when you consider time and effort recouping dollars," she says. "The best contract is only as good as how it's administered."

Make the carrier responsible for alerting you in writing every time it changes its administrative procedures, says Mr. Stevens. "And you reserve the right to accept the change," he says.

6 Watch out for the shell game.
If the contract uses a grouper-based system, be sure to differentiate between a payer-defined grouper system and a Medicare-based grouper system (which may be based on the CMS groupings for ASCs or on the APC groupings for HOPDs). "It might look like and smell like Medicare's grouper systems, but some payers reassign CPTs into their own grouping system," says Ms. Zaitzeff. A game payers like to play is reclassifying CPTs into lower payment groups, making a group eight procedure a group three, for example. "When [a payer] reserves the right to modify crosswalks that deviate from Medicare's crosswalk, you should reserve the right to approve any such changes," says Mr. Stevens.

7 Make concessions.
Take higher reimbursement on high-volume procedures and discounts on low-volume ones. If you know your desired margin and your minimum margin, split the difference. If high-cost, high-volume CPTs are classed in a low-paying grouper, carve out these CPTs and negotiate at flat rates by code or move the codes into a higher payment group, says Ms. Kehayes. Carve out cases that require extra time, expensive equipment or instruments, additional staffing, extra supplies and expensive packs and expensive implants (at least cost plus shipping), says Ms. Gray.

8 Sweat the details.
Make sure that every rate is properly defined so that it leaves no question what's being paid and how it's being paid, says Ms. Kulina. Don't assume a payer is following Medicare's multiple procedure policy if you don't have it in writing, cautions Ms. Deters. "Read your contract thoroughly before you sign. Highlight areas you do not understand and have them explained," says Ms. Gray. Areas to look for when reading proposed contracts, she says, include prompt payment clauses that follow state regulations and are enforceable, timely filing deadlines and unfavorable terms such as affiliate clauses, high malpractice requirements, and requests for a center's financials and capitation.

Listening before you talk means you won't take discounts you don't have to, says Mr. Stevens. Let the payer tell you that it won't pay you for more than one procedure or for implants before you make a bid to them. Don't tell them what you're going to do, but ask them how their system works.

9 know when to walk away.
"You have to establish the discipline before the negotiations about what your walkway point is, or payers will have absolute leverage over you," says Mr. Stevens. "How do you walk away if you have to? By not being overly dependent on a single payer source and by diversifying your payer base."