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Payer contracts blogWritten by Madeline Hyden, MGMA writer/editor

In a value-based arrangement, risk is shifted to providers and payers base reimbursement on documented quality of care with the potential of shared savings.  As a result, these arrangements usually involve more extensive data reporting and payer collaboration.

Here are three ways to prepare for value-based payer contracts:

Plan for payer negotiations

When negotiating with payers, stay focused on achieving specific financial, clinical and administrative goals, says John P. Schmitt, PhD, managing director, Reliance Consulting Group, Atlanta. Don’t bring up old issues or stray from the core goals of the negotiations.

It’s important to understand your practice’s underlying costs of doing business. Prepare by creating a sample fee schedule that includes high-revenue CPT codes. In most practices 80 percent of practice revenues are attributable to 20 percent of billed codes.

Other crucial analytics to have during payer negotiations:

  • Practice costs broken into specific CPT codes using RVUs
  • Payer mix — know what percent of business each payer represents
  • Your physicians’ productivity levels and coding patterns

The negotiation phase is a good time to review and make corrections to the legal terms of your payer contracts, which should be reviewed by your practice’s legal team. Aspects of payer contracts, such as exclusivity, payment timelines and risk exposures, can affect your practice’s operations and revenue cycle.

Build high-trust payer relationships

Schmitt says that trust among payers, providers and hospitals is extremely low in a fee-for-service world. Value-based contracting will likely require more of a partnership that may span several years and involve a joint commitment and a much higher level of cooperation.

Make an agreement upfront on what information you will share with the payer and vice versa. Payers should be transparent about the information they use to determine what your practice is paid.

Assess the cost of care

Knowing how much it costs to perform certain procedures, or for an episode of care, will be important information as payers move to bundled and value-based payments in an attempt to omit unnecessary care and improve quality. Practices with a sophisticated understanding of their financial analytics will be best positioned for evolving payment methods.

The MGMA Cost Survey provides annual benchmarks on total operating costs per patient, total operating cost as a percent of total medical revenue (overheard costs), as well as practice operating costs per provider. Compare your practice’s data to that of other practices to see where there’s room for cost reduction.

Get more detailed payer-contracting advice in the on-demand webinar Payer contracting strategies to boost your bottom line while preparing for value-based contracts. The webinar includes information on:

  • How to reposition your practice culture for success in value-based contracting
  • Assessing your practice’s payer contracting portfolio
  • Estimating potential returns from contracting

Schmitt is presenting his session “How to prepare for accountable care contracting: Priorities and negotiations” at this MGMA 2013 Financial Management and Payer Contracting Conference Feb. 24-26 in Phoenix.

More from mgma.com:
Ready for the payer negotiation marathon? They’re betting you’re not Members Only
Lessons from a puffer fish: Swim with the sharks with it comes to payer negotiation strategies Members Only


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