Managed Care Contracting and Reimbursement

Managed Care Contracting and Reimbursement

When negotiating payer contracts, it is crucial to do your own data analysis of the contracts to increase reimbursements. Before negotiating any managed care contracts, the analysis must be completed up-front. To determine your revenues, rely on your billing system. Payers track revenues, but their information may not be consistent with your internal tracking data. Plan to spend 50% of your time determining key codes, with the top 20% of your codes driving 80% of your revenue. For most physician practices, this constitutes around 20-40 Current Procedural Terminology (CPT) codes.

The three analytical techniques for increasing commercial payer contract reimbursements are: 1) use weighted averages to calculate reimbursements, 2) focus on your most important codes, and 3) avoid infamous “lesser of billed charges and contracted rate problems. These three techniques can put your practice in a better position to increase payer contract reimbursements.

 

Technique 1: Use Weighted Averages to Assess Payer Fee Schedules

ReimbursementWhen you are evaluating the percentage of local Medicare rates represented by a payer feel schedule, it is necessary to normalize the calculation across your fee schedule to assess the revenue produced by each CPT code. This involves the volume performed times the payer rate (at 100%), including co-insurance and co-payment versus the revenue produced by that code at the exact volume. You can calculate an average by summing each percentage of Medicare by CPT code and then dividing by the number of codes.

Weighted averages are best, as the average does not consider the relative revenue importance of the CPT code. Additionally, the average treats all codes equally, whether they produce $5 or $100,000 of revenue. Payers will show you a fee schedule based on average reimbursement as a percentage of Medicare rates across the broad fee schedule. However, the codes you use the most are the ones that produce your revenue. All CPT codes are not equal in this situation, and revenue contribution should be used as a differentiator.

 

Technique 2: Avoid “Lesser Of” Language that is Present in Payer Agreements

To successfully negotiate payer contracts for your physician practice, MPMRI Medical Billing watches for language clauses referred to as the “lesser of billed charges” clause. The terminology may vary from agreement-to-agreement, the clause is often worded: “health insurance company will pay the provider the lesser of its billed charges,” or “will pay the payer contracted rate for each CPT code.” This means that if your payer contracted rate at 100%, including patient co-payment, is $110 for code 99213, but you billed $90, you will be paid $90 rather than $110. This problem involves all CPT codes, so contracting rates is vital for maximum reimbursement.

You need to set your charge master at Usual, Customary, and Reasonable (UCR) levels. In the absence of specific accounting advice, a good starting point is about 250-300% of local Medicare rates. This ensures that your CPT codes are well above the payer contracted rates. This prevents your code charges from being set much lower than payer contracted rates, which is vital for your revenue cycle.

 

Technique 3: Focus on Your Most Used Codes

The most used codes are your top revenue codes. Don’t analyze data on payer contracted rates for all codes. Choose the most frequently billed CPT codes for your evaluation. Your goal is to collect volume data specific information for these codes rather than for all codes. If you use a certain laboratory code that reimburses $1.00, and you administer it 2,000 times, then the code is $2,000 total. The same for a $100 code for office visits that are used 2,000 times yielding $200,000.

Make sure you monitor your actual revenue to be certain it is consistent with payments received at contracted rates. In addition, consider the effect of multiple procedures and bi-lateral reimbursement rates on your actual revenue. Work with the most important CPT codes when evaluating the impact to your payer fee schedules.

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