Knowledge Expansion

Developing a payer contract termination strategy

Insight Article



MGMA Staff Members
Doral Jacobsen, MBA, FACMPE, chief executive officer, Prosper Beyond Inc., Asheville, N.C., has worked on both the payer side and the practice side in navigating issues with revenue cycle, contracting and payments.

“One of the most difficult things that I see [practices] walk through is a termination” with a payer, she noted during her session at MGMA19 | The Annual Conference in New Orleans, alongside co-presenter David Martin, MBA, chief executive officer, Tribe513, Greenville, S.C.

The steps for terminating a payer contract should fold into an overall payer contracting strategy, Jacobsen said. In building out that planning and strategy, the more you do makes everything work better — which is especially important for such an “uncomfortable topic,” she said.

“None of us really want to be there; we really want to come to an agreement,” Jacobsen said. “But there are times” that just leave you feeling anguished from something that happens with a payer that results in an “emotional burst” or is “super irritating” to doctors and practice administration alike.

The first step in building that strategy and process is “deciding to decide,” Jacobsen noted. There are any number of fears that might prevent a practice from considering a payer contract termination:
  • Loss of revenue
  • Negative effects on the provider-patient relationship
  • Effects to referrals.

Knowing those potential pitfalls is helpful in defining a contract termination target, in which the range of issues usually includes low reimbursement rates, high administrative burdens, unsuccessful attempts at negotiating reasonable rates, unreasonable contract language or simply misalignment of core values between the practice and the payer, Jacobsen said.

Practice leaders must balance three key areas in the “deciding to decide” phase, as there’s a lot of background work to be done in setting a termination strategy:
  1. Termination impact: Issues such as revenue (how will it be replaced?), referrals, culture and access (replacing patients who drop from your practice once they are out of network) all should be considered. Jacobsen also recommends practice leaders consider diversification in this process: If you retire a relationship with one payer, you may be giving another payer more market share that can affect future negotiating strategies.
  2. Contracting strategy: Internal comparisons are important to help show physicians when they are not being reimbursed for the costs of their services. Similarly, a practice’s participation in an accountable care organization (ACO) may be a key consideration in aligning short- and long-term goals for a payer. “Sometimes it makes more sense for a practice to exit a direct agreement and go with an ACO agreement, or vice versa,” Jacobsen said.
  3. Market conditions: Understanding your market and what’s happening with other groups with a payer targeted for termination is vital to identifying your leverage in the process. “Sometimes the termination is the start of negotiations, and you’ve got to be finding what those trigger points are for your practice,” Jacobsen said.

To that end, the strategy a practice should have is to “minimize the emotional” elements in communicating a termination to a payer and “say very little about the details” and simply let the initial explanation be “for business reasons.”

With these areas of analysis done heading into a termination process that spurs renewed negotiation for key aspects of a contract your practice is looking for, “many times the termination actually never really happens” and a new way forward is established with that payer.

Learn more

  • Jacobsen will lead two hours of a six-hour, two-day Online Payer Contracting Seminar, Nov. 13-14. Her presentation, “Articulating Practice Value, Developing Contract Proposals and Building a Go-Forward Strategy,” will explore developing proposals and your practice value proposition; identifying your specific negotiation targets, including identifying top CPT® codes; comparing rates, evaluating proposals and methodologies across your book of business; and establishing targets for negotiation.

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MGMA Staff Members

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