What to Look Out for with Payer Contracts, Part 3 of 4: Evaluating an Existing Contract

There’s an old adage that says, “If you don’t inspect, don’t expect.” Nothing could be more true when it pertains to payer contracts.

In our first two posts of this series, we showed you how to evaluate a payer contract opportunity. and how to prepare for the actual negotiation. Today, we’ll look at the best way to evaluate your current payer contracts with a more objective eye.

The first step is to create an Excel spreadsheet with your top 5-10 private/commercial payers and Medicare. If your clinic is like many PT and OT practices, this list will represent about 85% of your business. Next create a column for each of your most often used codes (For example 97110, 97112, 97140, 97530, and 97001) and note the rates you receive for each code. This exercise will not only show you in black and white which payers are more lucrative than others, but will serve as a good reference chart for your payment posters to verify payment compliance.

What are the REAL costs?

Now that you’ve figured out how much they should be paying you, what are the hidden costs of collections? You’ll want to create columns beside each payer representing denial type and dollar amount. When these figures are higher, you actually make less per visit due to this added administrative burden. Are you also experiencing a lot of check write-offs for non-covered services, underpayments/adjudications errors, out-of-network errors and expensive claim re-working? Collectively, these figures can have a huge impact on your overall profitability.

Are they delivering patients?

Is this payer contract bringing in a healthy amount of business?
Take a look at your visits and payments as percentages of your monthly totals. Are these figures going up or down? Is it related to referral activity or a change in a large employer in your area?

To profile your major payers, you must track the following for each one:

A/R days: the average number of days it takes to collect from a payer:

Mon-end A/R X 30 = A/R days
Pmts + Adj

You should be able to get this data from A/R by payer or insurance class report. You’ll need to track your patient and visit distribution across financial classes and large payers. (These changes can be sudden or gradual.)

Timing is everything.

The expression “Window of Opportunity” is certainly true with payer contracts too. You’ll only have a certain period of time to renegotiate the optimal rates with your existing payers. Otherwise, they will have the upper hand with a deadline quickly looming for you to commit to a renewal. So you’ll want to create another column that identifies evergreen renewal/agreement change deadline dates for each one. After preparing this spreadsheet, you want to ensure that you’re always in a strong position by being proactive, not reactive. This will help give you the upper hand with any renegotiation.

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