One of the biggest mistakes a physician practice can make is to sign a health insurance contract without reading it and evaluating the impact on the practice. Sometimes practice staff assumes they cannot negotiate the terms of the contract and they fear losing patients. Even if the contract is “take it or leave it,” the practice must make an informed decision about signing the contract.
Health insurance contracts have a huge – and sometimes detrimental – impact on a physician practice. On the one hand, a contract can represent a significant volume of patient business for a practice. On the other hand, if payment under a contract is not sufficient to cover the cost of providing services to those patients it does not make business sense to sign the contract.
- Verify basic information about the company. If the company is not familiar to you, educate yourself. Talk to other providers and check out the company website. Make sure you know the answers to important question:
- Are you contracting with a health insurer or another kind of entity? In other words, are you contracting to provide services that will be reimbursed by the insurer? Or, is it a rental network PPO? Or, are you not quite sure what the company does?
- A rental network PPO is not a “payor.” Instead it creates provider networks that it “leases” to self-insured, self-administered employers, and it also leases provider’s individual negotiated discounts to a payor (including large insurers) when the payor has a “out-of-network” claim for the provider’s services. For the legitimate PPO rental networks, this is specifically spelled out in the contract.
- Practices participate in “rental networks” for two reasons: 1) the networks generally pay the “out of network” claims fairly promptly, even though the claims are discounted; and 2) they receive additional volume of patients from self-insured employers. However, many practices do not review the contracts carefully and are surprised when they are paid a discounted rate for “out of network” services.
- Does the insurer have a local provider representative to help with pre-authorization, coverage and payment issues?
- Not sure about the company? Not sure what you are agreeing to? Don’t sign the contract! Don’t sign a contract just because one of your favorite patients tells you he or she is now covered by the entity. This is a classic mistake. There are legions of stories of practices signing contracts with unscrupulous companies whose sole purpose is to “sell” a discounted rate to all-comers.
- Determine how important the contract is to your practice in terms of patient volume and practice revenue. If a significant number of your patients are covered by the health insurer, you need to ask yourself whether you think your patients are willing to see you “out of network,” which will involve more out-of-pocket cost. This is not something that can be easily quantified. A practice with long-term relationships with patients and a more affluent patient base may be in a better position to walk away from a “bad” contract and not lose significant business. Practices that provide high-cost services are more likely to lose patients.
- Determine whether the fee schedule is adequate. As noted, if the fee schedule does not cover the cost of providing services it is a losing business proposition. Figuring this out can seem like a daunting task for small practices. However, with good electronic billing/claims system – which every practice should have – staff can extract some basic information including:
- Identifying 10-20 most frequently billed codes in the past 12 months.
- Determine the total revenues and then revenues per service attributable to each code.
- Compare that to the fee schedule in the contract to determine the potential impact of the contract over the next 12 months.
- Note: Sometimes the fee schedule for a specific service or procedure may appear inadequate. However, if it is a generally low-paying service that is performed infrequently, and payment is adequate for higher-paying, more- frequently performed services, the contract will be a good business proposition.
- Have your attorney review the contract. An attorney can quickly spot “red flags” in contracts.
- Obtain and review the insurer’s policies and procedures manual. This is considered a part of the contract – in legalese, it is “incorporated by reference” into the contract. The provisions in the manual are likely to have the greatest impact on the day-to-day operations of your practice, including setting forth:
- Preauthorization Requirements
- Enrollee Eligibility Determinations
- Claims Appeal Process
Have Questions About the Contract?
Do not hesitate to call the health insurer’s local provider representative.
Disclaimer: Information on this website does not constitute legal advice. ACFAS members should consult with their own lawyer for legal advice