Before you draft your first letter or sit down at the negotiating table, it’s important to do your homework when you are working on contracts with commercial payers.
By building your knowledge stores, you can enter the negotiations backed by data and you have something to draw on if you need to formulate a counter-offer.
Part of this homework before negotiations involves looking at where most of your company or practice revenue comes from. The easiest way to calculate this is by CPT code.
And that brings us to one of the most common missteps we see during this stage: focusing on any and all codes your company/practice has processed.
You could drive yourself crazy – and waste precious time – by trying to follow the long tail of how much money each and every code brings in to your practice.
But in reality, 20 percent of codes will drive 80 percent of your business.
Review your codes (our RevolutionSoftware makes this a snap) and identify the top 20 percent (calculate this by taking reimbursement dollar amount x number of times code billed for). Those are the codes you want to focus on in negotiations with payers.
And here is how this strategy can play out during negotiations. Many payers will start with a proposal for a slight reimbursement increase across the board. It’s tempting to accept that.
But if you know your top 20 percent of codes, you can negotiate for a larger increase on select codes that have a big effect on your bottom line.
A 3-4 percent increase on the top 20 percent of codes that generate the most revenue will help your practice/company more than a 1-2 percent overall increase (Remember: that overall increase is for many codes that are rarely, if ever, used by your practice).
Practice the 20-80 rule, and you’ll do well in payer negotiations.
Also: don’t forget to perform this analysis by payer. One insurance company’s patients could be slightly different from another’s in how they use your practice/company’s services (based on how their plans are constructed).
Want more great advice? Get the free download of our payer contracting white paper.