Negotiate Contracts From a Position of Confidence

The terms of the deal are well below what you expected. Anxiety is
building and your opposition knows it. As a business owner, if you do not
accept this contract, you may lose a large amount of customers, patients and
revenue. Desperation to stay in network and keep as many customers as possible
can force O&P business owners to accept contracts with low
reimbursement rates. Evaluating your business’ break-even
points, communicating your strengths as a business to
third-party payers and investigating the use of consultants,
will help O&P owners reasonably sustain their business, while still
providing quality patient care.

Make the investment

  Cathie Pruitt
  Cathie Pruitt

According to Cathie Pruitt, president and chief executive officer,
PrimeCare O&P, business owners should know the dollar volume and the number
of patients that they have with any particular managed care organization (MCO)
with whom they will be negotiating. The larger the volume, the better
negotiating power O&P business owners will have at the table.
Unfortunately, the challenge for the O&P business owner is to find the time
to evaluate and research their business and have the ability to negotiate the
best deal for their company.

“Hiring a consultant has become increasingly more valuable to
me,” Aaron J. Sorensen, CPO, MBA, president and chief executive officer,
Restorative Health Services, told O&P Business News. “As
a small business owner, I wear 20 different hats a day. If I can find someone
who knows the game and has played the game, I am willing to cut them a check.
The results from that have been much better than me being the fairly informed
negotiator entering this arena.”

© 2010

For the small business owner, cutting a check to a consultant for $2,000
to $5,000 is a difficult expense to swallow. Sorensen recommended not thinking
of a consultant as an expense, but rather an investment.

Pruitt agreed. f“Even if you think you know what you are doing and
have a pretty decent handle on the situation, the consultant can give you
information on some of the finer points of the contract and the potential
impact on your practice that you may have overlooked,” she said.

Pruitt and Sorensen admitted that it is easy to become intimidated by
the process. Third-party payers generally hold more cards than the O&P
business owner. Generally speaking, Sorensen believes the average O&P owner
does not have the experience or the time to be able to negotiate a contract
with the best terms and rates. For the O&P owner, there are too many
uncertainties between health care reform and regulations at the state and
federal level to fully grasp the depths of these contracts.

“The person on the other end of this line is in contracting. They
have been in contracting. This is what they do,” Sorensen explained.
“As a small business owner, without a lot of time to conduct the proper
research to learn how to properly play the game, I may agree to a contract that
is 15% to 20% less than what a consultant who can play hard ball can get

According to Sorensen, it only takes one or two prostheses to break even
with the cost of the consultant. Anything more than that is profit.

“Unfortunately, I think people in the O&P community do not look
at human resources as an investment,” Sorensen explained. “They may
look at CAD/CAM, education courses and tangible equipment as an investment, but
they have to look at some of these consultants as an investment as well.”

Walk away

Sorensen and Pruitt agreed that if you are a small business owner
negotiating with a third-party payer, it is important to have the willingness
to walk away from the contract.

  Aaron J. Sorensen
  Aaron J. Sorensen

“If you are willing to walk away, then you are coming from this
with a position of confidence and you can counter with the negotiator on the
other end,” Pruitt said. “You are coming from a position of strength
if you have all your facts, most importantly knowing what reimbursement you
need to obtain in order to get a simple break even on the contract.”

According to Pruitt, to a certain extent, these MCO’s don’t
want to “rock the boat” with the employers. She recommends getting
patients and referral sources to write letters stating their viewpoint on the
value of your services. That value can come from convenience of multiple
locations, longstanding relationships with you as a provider and their
reluctance to change providers.

From Pruitt’s perspective, it is a little easier for a network to
have the attitude to walk away because they are negotiating on behalf of other
people, as opposed to being a part of patient care. On three occasions in the
past 18 months, Pruitt has told third party payers that her members are likely
to opt out because the reimbursement rates being offered were too low.

“I said I will send this contract out to my members but I can tell
you based on 12 years of experience, that every one of them is going to opt
out,” she said. “I’ll ask them if they can come back with
something better and I make a suggestion to them. I had one that took a year to
come back … with an offer that met our providers’ floor rate, which was
fine. Another contract I received was a 6% increase and on a third I got costs
carved out with higher reimbursement. You have to make your case to these
payers so they know why they need you.”

Saying you will walk away and actually walking away are two different

“If you know exactly what you need and you are willing to say no,
then you are coming from this with a position of confidence, you can counter
with the negotiator on the other end. You are coming from a position of
strength if you have all your facts in order.”

Pruitt insisted that if you are secure in your business evaluation and
have done the necessary homework, you should not hesitate to walk away from the
deal. If you anticipate going below a certain figure will cost you money for
every patient that walks through the door and there is no way to make up the
difference, then you have to be willing to walk away.

“It is important to make sure that you are aware of your rates and
you have to stay informed in case you have to go back and renegotiate those
contracts later,” Sorensen said.

Keith Senn, chief operations officer of the Center for Orthotic &
Prosthetic Care, agreed that during some negotiations, the rate being offered
is so low that you have to decline.

“I think it probably occurs more often, but it is still
uncommon,” Senn explained. “We have had a couple of providers that
came with a rate that was just too low and at some point you have to say

Out-of-network vs. in-network

You said no. Now what?

“When you see the members of that insurance company, explain to
them the situation. You could ask the members to call the insurance company to
appeal or if they still would like to see the practitioner, they can always
negotiate an out-of-network rate,” Senn said. g“What we would try to
do is to come back annually and still try to get a contract from that insurance
company with a better rate. If they have gone out in the market with a rate
that is too low, they may come back with a higher one so they can get more
providers into their network.”

Pruitt believes providers choosing to become out-of-network may be on
the horizon, but she is also cautionary about how long that is likely to be a
viable option.

“Obviously if you were proposed a rate that was less than what you
would get by being out-of-network, then that seems to be an attractive option.
The flip side of that is that this will have an impact on patients, which will
have an impact on collection. Providers must have a good handle on how you are
going to manage being out-of-network.”

MCOs are working diligently to plug this hole, so it is best to monitor
the situation, according to Pruitt.

According to Sorensen, if you are willing to let your current contract
lapse or not be in-network and enough people that have coverage from that
particular payer start to complain about driving distance, for example, you may
put the responsibility back onto the payer.

“That does open the door to have the opportunity to renegotiate,
but I think too many people are scared to let that contract lapse because they
are going to lose business,” Sorensen said. “But why would you want
to keep seeing that particular group of patients if you are losing money?”

By letting go of the patients who are not bringing in a profit, O&P
owners can focus their attention on patients who are giving the company a
profit. If your company is the only provider in a large area, this may put even
more pressure on the payer to renegotiate.

Show and tell

Senn discussed the possibility of bringing in a representative from a
major third-party payer to your offices. Most third-party payers will not
conduct business face-to-face, opting instead to mail out their terms.

“The small- to mid-sized carriers will mail out their contracts and
say to take it or leave it,” Senn explained. “If you have a good
presence and a good history with one of the larger carriers, you can get to
know their representatives a little better and try to negotiate a better

In Senn’s experience, he has found that many of the third-party
payer representatives with whom he has worked have never been to an O&P
facility. If it is possible, have them meet with your practitioners,
administrators and patients. According to Senn, once you get the
representatives in the office, they become curious as to what the O&P
practitioner does. It is important to remember that their members are the
O&P practitioner’s patients. They do care that their members are being
taken care of properly.

Pruitt recommended highlighting the credentials of your practitioners
and your business. Be sure third-party payers recognize that patients are going
to work with a high-quality practitioner. Talk about the offices that you have
in the area and their convenience.

“Explain to them what the certifications and the credentials are
because they are spending little time with O&P,” Senn explained.
“Most of them do not realize that you do not have to be a certified
facility. So when you tell them what the certification is and what it means, it
adds value to your company.”

The bottom line: Sell your strengths.

“Our credentialing makes us more effective in the managed care
community because it is far and above what they expect to see,” Pruitt
explained. “They know on the front end that they are going to get a high
quality practitioner. That helps too because we have the reputation in the
managed care field of insuring a quality provider.”

The fine print

Now you are at the point where you have a contract in your hand and the
terms seem fair and reasonable. Some of the things that you still need to be
aware of include the fine print.

“Those little footnotes on fee schedules or an unusual paragraph
that you do not normally see in contracts need to be examined with a
fine-toothed comb,” Pruitt said. “I was looking at one yesterday and
our provider was sent a representative fee schedule. That was a red flag right
there. And sure enough, in the fine print, the contract contained all the
different ways the reimbursement rate could be different or changed. It is
becoming more and more prevalent.”

Pruitt suggested keeping an eye out for language like “legacy
pricing,” “assignment of your claims,” or “reprice.”

While acknowledging that most practitioners are focused on the clinical
aspect of the business, Senn believes most contracts are straightforward.

“The contracts are not difficult as long as you are seeing your
patients, getting your authorizations and verifying insurance,” Senn said.
“You are going to be reimbursed the contracted rate. I do not find that
there are a lot of tricky spots in the contract.”

If you can not hire a person dedicated to just billing and contracts,
Pruitt suggested having your head biller work with the contracts.

“I think it is important because we talk to our provider members
all the time who sort of accidentally sign a contract,” she said.
“They skim it, look at the reimbursement rate and sign off on it. You
could get away with that back in the day, but now there are just so many ways
these contracts can be written on the back end, that you get so many

In Pruitt’s estimation, depending on their size, third-party payers
will be forced to provide 80% to 85% in actual direct medical care. Payers will
be looking for additional ways to make up that percentage. Pruitt expects
carriers to take it out of the provider’s and the patient’s pockets.
According to Sorensen, there are a few payers out there that will not budge on
their offers.

“From a business owner’s standpoint, you need to be informed
enough to know which payers you think you have the best chance of going after
to renegotiate that contract,” Sorensen explained. “The truth is you
are just sending good money after bad if you hire a consultant to go after
these contracts where you know the payer will not budge from their proposed
rates, no matter what.” — by Anthony Calabro

Disclosure: Neither Cathie Pruitt,
Keith Senn nor Aaron Sorensen have a direct financial interest in any products
or companies mentioned in this article.

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