Contract Basics: The 4 Foundations of a Successful Healthcare Contract
Did you ever consider that the question “Trick or Treat?” is something of a contract negotiation? Granted, those kids are playing hardball — they know what they want and they are willing to do what it takes to get it. Jokes aside, we are going to walk through some of the basics of successful healthcare contract negotiation here. If you do your homework, you can win at getting the best contract for you, and you too might even get a treat or two along the way.
Please note this is only an overview of what providers need to consider in entering a new healthcare contract. There is more to contract oversight than this, including quality, security, and confidentiality. As with any negotiation, the better prepared you are, the more likely you will get to the most favorable terms.
1 – Parties to the Contract
When entering a healthcare provider contract, it’s crucial to ensure that the terms align with your needs and protect your interests. Here are a few basic steps you can take to at least know the critical terms of the agreement..
Basic information to look for:
- Identify who is involved in the contract. It should read the XYZ Payor (Company) and Dr ABC (Provider). Is the contract for the individual provider or the provider’s group or practice?
- Who or what is identified in the contract can dictate the scope of services and how the fee schedule is determined?
2 – Duration of the Contract
The term of the contract is one area that can be negotiated before the contract is signed. A three-year term can be reduced to two years. You should always request a favorable discretionary negotiation period to avoid missing an opportunity for the next term.
- What is the start date (effective date)?
- What is the initial term of the contract? The initial term determines how long you will have to wait before you can terminate or ask for adjustments.
- What are the renewal terms?
- Does initial term determine when you can ask for adjustments?
- Is there a limit on when you can ask to re-negotiate or term the contract? Is renewal or term dictated by specific time frames? i.e. 90 days prior to renewal after the initial term. If this window is missed, the contract remains the same for another year.
3 – Payment and Fee Structure
How is the fee structure created?
Most contracts will use a percentage of Medicare or RVBS as a model. Be aware that the percentage may be an aggregate of the overall and could be different based on the specialty. Medicare schedules are determined by location and locale. We are fortunate in Oklahoma to have one locale which standardizes the method to determine fees. Other states with multiple locales can have different fees to the same provider depending on the zip code and place of service.
Scope of Services:
Some contracts will list the scope of covered services and exclusions in th e contract, but most will refer to the Provider Manual. When you sign the contract, you are often signing that you have received a copy of the manual. It’s important to know this process, you can ask for a copy of the manual if it is not offered but more likely today it is on a website and available for review. Have someone in your practice do this before signing.
4 – When and how to negotiate a contract?
We will now look briefly at negotiating and re-negotiation contracts. Preparation is the key to successful negotiation. To better prepare, we have put together 9 ideas to consider before entering the negotiation.
- Be fully informed about your practice.
- As stated above, the optimal timeline for negotiation is well in advance of the contract renewal. You want to start this process early if you desire to get to the most favorable outcomes. With most payors, that window of time begins 90 days before renewal.
- Is there a negative financial impact on your practice from one or more payors?
- Do you track the current fees you are receiving from a payor and compare the cost ratio? Do you have the plan fees? A contract can have more than one plan with different fees schedules. What is the volume of business by plan versus by contract?
- Are there specific codes or procedures where you pay below or near below cost?
- What is the outcome that you want? What areas might you be open to compromise on? Are you prepared to walk away?
- How many cases do you need to see for break-even and for desired growth?
- What is the environment in which you practice? Where else can patients receive the same care? What uniquely sets you apart?
- Understand what constitutes a win for the payor. Be prepared to explain your value, what you bring that can lead to success for both parties. This can help you more quickly get to a mutually beneficial arrangement.
When you have done your homework, you will be more equipped to negotiate with a payor to get to the best agreement for you.
We will continue exploring this in next month’s newsletter, so stay tuned!
