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5 Key Payer Contracting Tips for 2018

Wednesday, April 11, 2018   (0 Comments)
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Written for AAOE by Steve Selbst, CEO and Co-Owner, Healthcents Inc.


Now is a great time to highlight key payer contracting tips that will help you as a provider to be successful in 2018 and beyond. I made this paper extra special by adding new tips that can be helpful to you that I have learned recently. While many of the fundamentals of successful payer contracting are the same, we are in a changing landscape of healthcare reform so responding to this change is key to success.

Tip 1: Break through the obstacles of closed networks

You may desire new payer contracts only to get a quick reaction that a “network is closed”. What can you do to get past this? First, assume that the “no” that you received is really a “yes”.  Then further assume that the person that you are speaking with in the payer organization either does not have the salient points and benefits about having your company / practice in its network or that you are not talking to the right person- yet. In fact, getting a “no” response, fast, is often a much more positive indicator than getting no response at all. It means you now have an invitation to tell your compelling story to the payer about why they need you in their network.

Focus on why having your company or practice in the payer’s network is good for the payer. Focus on unique service benefits, geographic advantages, clinical / treatment benefits, and out of network patient counts and referrals.

For example, if you are an orthopedic surgeon and use a unique product such as a compression boot for diabetic foot ulcers that reduces in patient stay days and saves limbs, point this out.  Payers love to enhance their reputation with their customers, especially large employers, by keeping their employees healthy and out of the hospital. Typically, a single day of inpatient (hospital based) savings equates to $1.5K or more.

You can quickly do the math and see how this kind of savings and value proposition is great for a payer. Value can be based on the products and / or services that you deploy.  For example, if you can demonstrate that you perform a robotic assisted surgery which is more cost effective and reduces inpatient stay days, this will be immensely helpful to justifying par provider status.

Do you implement unique surgeries that are non-invasive that reduce inpatient stay days? Can you move some of your hospital-based services into your office or an ASC?  Are you servicing certain rural areas that other providers don’t service? All these attributes are compelling to a payer.

Often, you will find that a closed network is really a “narrow” network and the door is cracked open to get a contract if you can demonstrate unique value. In today’s competitive environment, most thriving medical providers and product companies have something unique to offer. Make sure the payer knows it.

Tip 2: Consider Complementary Payers in your payer mix

A recent trend that I detected in doing payer contracting all over the country is that there are “complementary” payers that generally are anxious to expand their provider networks and, as a result, will help you expand your network of patients / customers thereby helping you to grow your business.

Complementary payers come in two flavors: primary and secondary. A primary complementary payer enables network access to a broad range of national payers, including many of the well-known health plans, accountable care organizations (ACOs), independent practice associations (IPAs), and self-insured companies. A key benefit of getting contracted with a complementary payer is that it broadens network participation and does not preclude you from getting contracted with the same payers who are accessed via a complementary payers’ leased networks. Therefore, this kind of an agreement could be an expeditious way of getting contracted while you continue to negotiate a direct commercial agreement with payers that are in the leased network. Also, the complementary primary payers’ plans have an order of precedence where a direct payer agreement will supersede the complementary payer agreement once such a new agreement is put in place.

There are also secondary complementary payers. These are leased networks which provide out of network access for patients with out of network benefits. This kind of agreement, too, will help you to reach new patient populations.

Below in Figure 1 is a diagram which depicts the complementary relationship of commercial / primary payers to complementary payers. For this year and beyond, it is very desirable for you to have a mix of direct commercial payer agreements and both primary and secondary complementary payer agreements.


Tip 3: Make sure to focus on weighted averages, not averages, when you evaluate payer fee schedules

By way of example, suppose you are a Medical practice and you provide services for two codes, 99213 and G6016. Further assume that you perform 99213 1000 times and receive reimbursement at 100% of the local Medicare rate and is priced at $90/service and code G6016 is performed 10 times at 200% of Medicare and priced at $400. If you were to average the Medicare rates, it would be 150% of Medicare. However, if you calculate the “weighted average”, which is the ∑ of each codes reimbursement rates * volume / ∑ of each codes Medicare rates * volume. Therefore:

(1000*90)+(10*400)/(1000*90)+(10*200)=94000/92000=Weighted average of 102% of Medicare.

Wow, even on two codes we can have a 48% difference on a weighted average vs. an average percentage of Medicare.

So, why is this important and relevant? For many reasons.  First, averages count each item once and divide by the total number of items. Averages do not consider the workflow of a practice or company and the real weighting of services. In this example, almost all service provided by this practice was the office visit 99213. Therefore, it counts the most. As such, the weighted average is very skewed to the percentage of Medicare of this code.  If we don’t calculate the weighted average, we get a different and inaccurate view of our reimbursement. This example demonstrates that even if I am getting 200% of Local Medicare rates for the IMRT code G6016, I only move the need up 2% to 102% of Medicare overall on a weighted average. Therefore, I really need to focus on increasing the rates for office visit codes or other highly utilized codes to drive the reimbursement up.

In my experience, payers do a great actuarial job of filling out fee schedules of hundreds of codes, only a handful of which have high utilization so, in a situation like this one, the payer may say, what is the problem, I am offering you 150% of Medicare? However, now you know your real reimbursement based on utilization, the weighted average, is only 102%.  The truth here, can be told multiple ways. The number you should negotiate up from is the 102% weighted average, not the 150% average Medicare reimbursement.

Tip 4: Once you are done negotiating the rates of your payer contracts then focus on any concerns you may have about contracts’ language

All too often, providers try to package all their concerns about contracts’ language into a negotiation up front.  In my experience, this is a big mistake. It will often derail a negotiation and take the focus off rates.  Flip this process. Get to agreement on rates first, then request a contract only after you agree on rates.  The final step in payer contract negotiation is to focus on language and ask the payer to provide you with their draft contract and indicate, pending your final review of the contract, that you agree with the rates.  This gives you the option of rejecting or negotiating contract language once you have come to terms on the reimbursement which is the key headliner of a contract negotiation. You will be inviting the payer to delay the negotiation and perhaps never get a fee schedule proposal to you if you start with contract language.

My caveat here is that when my company does a contract’s language analysis, we focus on the business / operational language. This is not a substitute for a legal review and, as with any legal document / contract, you should also have it reviewed and get input from a qualified legal counsel.  Getting input from both a business expert and a legal counsel enables you to cover all key items in a contract.


Having said this, often I get asked, do I need to focus on the business and operational language of my contract in a payer contract negotiation? The clear answer is “it depends”.  For example, do you have a contract in place with this payer and has it been operating successfully?   If so, and there aren’t any operational problems and this contract has been in place for a long period of time, it may be best to keep the focus on rates only.  Make sure that your legal counsel does not have any legal concerns as well. If this is a new contract, and you notice potential issues with items such as claims payment terms, retrospective reviews or term and termination language, and other similar operational terms, then it likely is necessary to focus on these items in the later stages of your negotiations.

Tip 5: Build your fee schedule proposals based on the payer’s method of reimbursement

Payers structure fee schedules in various ways. In the most fortunate case, it would be a high percentage of billed charges for all codes. The more usual case is a proprietary payer fee schedule which has specific rates by code or code grouping. Other fee schedules calibrate to a percentage of local Medicare rates, where applicable. Certain specialized fee schedules, for example some behavioral health contracts, have per diem rates. Some payers may be willing to “carve out” a small number of codes. Clearly, if this is the situation, you would want to carve out a small number of codes with desirable rates for codes that represent the preponderance of your revenue mix.

In any event, it is best to find out, up front, the structure of the payer’s fee schedule, and to make your proposals accordingly.  Just like our human immune systems, payers will usually reject fee schedule proposals that are inconsistent and unfamiliar with their standard methodologies.


I expect that you can put these valuable tips to work for your company or practice now. At any time, feel free to reach out to me directly for payer contracting, marketing, and credentialing help. You can send emails to or phone 1-800-497-4970.


                                                                    Figure 1


 About the Author

Steve Selbst is the CEO and Co-Owner of Healthcents Inc.,, the leading payer contracting company in the USA. Steve has successfully led provider negotiations of about 40,000 payer contracts since 2002 and is the inventor of Healthcents’ RevolutionSoftware™, the leading Cloud Based Software Service for analyzing and benchmarking payer contracts’ fee schedules. Steve is a well-known and respected healthcare executive and was previously a Program Director at IBM leading major software and business development businesses.

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