What to watch for when negotiating payer contracts in 2018

Medical group practice leaders need a sharp eye for unusual or obscure language when hammering out payer agreements, according to Penny Noyes, CHC, president and chief executive officer, Health Business Navigators, Bowling Green, Ky.

Noyes, who spent many years working on the payer side, outlined a variety of vague provisions she has seen in provider-payer agreements during her March 5 presentation at MGMA18 | The Financial Conference in Orlando, Fla.

Here are four of the major areas of contracting that Noyes said may be problematic for group practices as they establish new agreements this year:

“Joint construction”

In many cases, practices will work from a framework of an agreement the payer offers and then attempt to make changes.

“When you go to negotiate an agreement with a payer, it’s their agreement. You might ask for five or 20 things to be changed and you might get one or two of them changed. I wouldn’t call that joint construction. It’s essentially them dictating what the contract is going to look like.”

Noyes said she has seen such agreements, in which the language includes a “joint construction of agreement” clause, essentially outlining that both the payer and the practice had the opportunity to be represented by counsel in forming the agreement and that its final form was “drafted jointly by the parties.”

By agreeing to this language, both parties are responsible for the terms if legal action is necessary in the future. Noyes recommends that practices attempt to reject this language, adding that it’s not often a deal breaker for payers.

“Lesser of”

“Reimbursement is almost always based on ‘lesser of’” in a payer-provider agreement, Noyes said. That phrase helps the payer ensure they can reimburse at a rate favorable to them.

A contract may call for the lesser of the contract rate (100% of Medicare, for example), a certain percentage of billed charges (such as 80% of the practice’s highest payer rate) or a determined percentage of a state fee schedule, such as with workers’ compensation.

Noyes said that if practices aren’t careful around “lesser of” language, “you could really be shooting yourself in the foot.” If you’re in a state with an already low fee schedule, payers may attempt to get a practice to take “a discount off … something that you’re already losing money on.”

When this language is included by a payer in a proposed agreement, Noyes recommends verifying your state schedules against an existing contract rate. The chargemaster should be set high enough above contract rates to ensure enough reimbursement to make the service financially sustainable.

Losing termination rights

Many payer-proposed agreements now include language that undercuts the practice’s right to terminate the agreement, with or without cause, in exchange for slightly better reimbursement rates for the practice.

Noyes offered this sample language from a recent amendment to an agreement: “In exchange for payer’s agreement to amend the applicable Plan Fee Schedule, as additional consideration for same, Group agrees that it shall not terminate this Agreement or an attachment thereto without cause as set forth in Section 8.2 of the Agreement during the term this Amendment is in effect.”

The devil, as they say, is in the details. In this example, Section 8.2 allows either party to terminate the agreement without cause with 90 days’ notice.  Furthermore, there is no time limit for the loss of this right so long as the amendment is in place. Losing the ability to terminate is harmful for practices that may use the threat of termination as a tool in future negotiations with the payer.

Noyes recommends that practices facing this type of language in an amendment press the payer for a limit on this provision. If the agreement in question is valid for three years, setting a 12-month effective period for that amendment would allow the right to terminate without cause to be re-established for the remainder of the agreement.

Noyes said this type of payer tactic can be challenging in today’s healthcare industry climate. An orthopedic group in the Midwest she worked with faced complications during an acquisition because the purchasing group could not terminate the agreement with the payer, which would force them to abide by those terms indefinitely or scuttle the merger. Noyes said that practice leaders need to understand the long-term consequences of these contractual provisions as consolidation and mergers increase.

Less favorable notice provisions

Noyes advised that changes to rates may not always be communicated in a way that many practice leaders would notice. Instead of sending a letter to the practice when the payer makes rate changes, many organizations have proposed agreements with “less favorable notice provisions,” as Noyes dubbed them, in which “other generally accepted media” are allowed to notify about rate changes.

Those “accepted media” may include emails — which may come from someone’s personal email address or get caught in a junk/spam folder — or newsletters, which may be ignored or discarded if the practice does not recognize them as one of the ways the payer can communicate rate changes.

Many agreements have language that allows payers to make those changes and announce them without sending a separate letter specifically outlining the change and the practice’s rights to object. Noyes said that if this language is included in an agreement, practice staff will need to review those “accepted media” on a regular basis to avoid being surprised by revised reimbursement rates.