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How to detect trouble spots in contract negotiations

By Phyllis Maguire

ORLANDO, Fla.—Contrary to popular belief, contract provisions drafted by health plans may not be set in stone—depending upon a medical group's size and clout.

"The toughest thing about negotiations is knowing where your group has leverage," said Philip L. Beard, president of ProStat Resource Group, a consulting firm in Overland Park, Kan., at a recent Financial Management Society conference sponsored by the Medical Group Management Association. "Physicians need to be part of a larger group or organization where the health plan really needs that entire network to have a viable presence in the market."

Even if you're not your market's biggest player, Mr. Beard said, you may still be in a position to negotiate. Here are some tips he offered.

Starting out

First, do your homework on the health plan. What is its reputation and how financially healthy is it? When health plans go broke—and some do—physicians are lucky to get 20 cents on the dollar. Check financial statements the plan has filed with the state insurance commission and find out about its profitability, medical loss ratio, number of subscribers and monthly premiums.

Pay attention to any plan weaknesses like low reimbursement, slow market penetration or limited financial resources. Is the plan building market share by lowering premiums and physician fees? (Since lower physician fees usually result in increased market share or profitability, consider negotiating an equity or bonus arrangement if that's the case.)

What is the plan's motivation for entering into the contract? What markets does it need to capture? Is it just trying to get accredited by organizations like the National Committee for Quality Assurance?

Your next step is to define your position. What do you have that the health plans in your area want? Be prepared to show how your group favorably measures up to the competition. Go into negotiations, putting your best utilization figures forward. Make sure that you can handle the terms of the contract regarding patient load. Will you have to hire new staff or buy new equipment, and can you afford to do so?

Mapping out strategies

As you're reading through the first contract offer, make a list of changes that you want and mark those areas where you're willing to bend. Those can become your compromises, proof that you're willing to participate in the give-and-take process. Physicians tend to compromise most when setting capitation rates; payers realize that and often offer rates that can be as much as 30% lower than what they are actually willing to pay.

Note too which of your changes represent deal-killers—if you don't get them, you will walk away from the contract. Mr. Beard cited "the unilateral amendment clause," which gives the health plan the right to unilaterally change its fee schedule or other contract elements, as one such area where physicians should not compromise. In these instances, your group's only recourse is to cancel the contract. Mr. Beard said that such a clause is a red flag that signals trouble ahead.

An even more common deal-killer are fees that are set well below current market values, but even that dilemma has variables. If the plan delivers a sizeable percentage of your patients, it may be hard for you to just say no. One recent client of Mr. Beard's did just that, but the contract that he refused to sign was with a plan that provided only 7% of his total business.

You might even be able to turn fee discounts to your advantage by negotiating some type of an exclusive arrangement for your group, such as serving as the health plan's sole source for an ancillary product like lab services. Mr. Beard suggested trying to sweeten deep discounts by showing the health plan that you can effectively manage costs and negotiating additional dollars to perform peer review and medical management functions.

Getting details

The vaguer the language, the harder the contract will be to enforce or take to arbitration. Make sure the contract includes definitions for "covered services." Since most health plans hedge on defining services, ask to see a copy of their subscriber policy. At least you'll know what services they've promised their members.

Also make sure that the contract clearly states which services get carved out of capitation. And if the payer can terminate you for "good cause," get a list of good causes. Negotiate a "right to cure" clause, which gives you the ability to correct any problem before you're terminated.

Pay particular attention to language defining any obligation to continue care for plan members if your contract is terminated. One insidious clause keeps physicians caring for members until the plan's employer contracts get renewed; Mr. Beard ran across another that locked physicians into continuing care until the health plan printed a new provider directory. Don't accept such open-ended arrangements; instead, negotiate a definite deadline—say, three months after termination—when your obligation will end.

Look for language that describes how rights and obligations get assigned or delegated if your practice is sold. Typically, physicians cannot transfer or sell their contract with a plan without the plan's written consent—an obligation that most health plans would rather avoid.

What if the plan merges with another organization? Will you be forced to see patients from that plan under its terms and conditions, something known as automatic assignment?

"We really try to preclude automatic assignment by the plan," Mr. Beard said. "We say the assignment is not allowed without the physicians' approval." If the plan wants to farm out certain services to subsidiary corporations without physician approval, get a list of those services in the contract. And if the plan will not negotiate an approval-of-assignment clause and you feel strongly that there are plans that you do not want to do business with, negotiate a right of refusal to be assigned to those specific plans.

Because health plans typically get the right to amend contracts, you want the right to get advance notice of any amendment and the right to accept or decline it. Typically, advance amendment notices are the same as your cancellation terms; if you have a 90-day term of cancellation, for example, that's the amount of time you should ask for advance notice. Also give yourself some protection against significant shifts in patient age or gender. If the contract causes your average patient age to go from 55 to 65, you want the contractual ability to renegotiate your capitation rate.

Pay attention to risk pools, Mr. Beard said, because health plans and hospital systems have a bad habit of inappropriately overcharging risk pools to recuperate their own costs for ineligible patients and out-of-area and unauthorized services. If a substantial amount of your income depends on the administration of the risk pool, try to negotiate the right to monitor the risk pool by downloading claims data so you can do your own audit. At the very least, Mr. Beard said, audit the data at your own expense.

Negotiating penalties

Look for clauses that spell out penalties and remedies. "Usually the penalties and remedies are very well defined on your side of the line," said Mr. Beard. "Look for remedies on the flip side." Once you agree on what constitutes a clean claim and its timely payment, for instance, negotiate a penalty for late payments. Thirty days is a reasonable amount of time to give a health plan to process claims; one possible penalty is to make the plan pay your actual charges if it doesn't make timely payments.

Negotiating a penalty clause may also be appropriate when it comes to getting data. "Every contract that we've seen, the health plan promises data," Mr. Beard said. "But we see data only 5% or 10% of the time, and it almost always isn't what we wanted."

How much data your group needs—and gets—depends on how much risk you assume. Big risk contractors can count on health plans sending monthly claims data about 75% of the time, while fee-for-service providers typically get nothing. If the plan promises you data to help you manage risk, make sure that promise is enforced with a penalty for noncompliance. A monetary fine for every day the data aren't delivered is standard.

And finally, how favorable is the term of the contract? Are you building tenure with the health plan, for instance, or can it dump you in 90 days with or without cause, even though you've invested in costly risk or disease management infrastructures?

"If you're taking high levels of risk, try to negotiate longer terms," Mr. Beard said. Contracts that run from two to five years give you more security.

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