LMS President’s Message: Tips for the Business Side of Medicine
By Khalil Rahman, MD, MBA
The labor costs of my practice this year have increased higher than any other year I have been in practice. In order to keep good employees, I’ve had to increase base pay across the board, and I’m not alone. According to an article in Healthcare Finance News, clinical labor costs have increased by 8% per patient per day. For a 500-bed hospital, this equates to a $17 million increase in labor costs. Factor in the current inflation rate, and whatever you are getting from insurance companies is probably not going to be enough.
This month I will discuss renegotiating insurance contracts. Maximizing revenue by negotiating with payers for reimbursement is essential for the survival of your practice. Medical practices are one of the few businesses in America where negotiations between physicians and insurance companies hardly ever take place. Many medical practices sign managed care contracts, without reading or negotiating. Insurance companies continue to under-pay, or worse, deny paying for the service provided. Periodic reviews of payer contracts ensure that providers are receiving optimal reimbursements for their services.
Navigating the relationship between provider and payer requires demographic knowledge, analytical skills, and organized processes. First, get familiar with the current contract. Know if renegotiations are only allowed in a certain period, understand are there any clauses related to the payment changes, and collect solid working knowledge of your practice to the point where you understand all the data key and can recite the numbers. Being armed with key knowledge puts you in a powerful position. Bring all the data to the negotiating table and wield the information to your advantage.
For better negotiating, follow these tips:
- Assess the financial data of your practice. Using the data of the average revenue per patient, the total revenue from that payer, or the highest percentage of your practice revenue. Then call the representative for that payer and inquire what you can do to get a better contract agreement.
- Assess payments on an individual service to see what is being charged for that service. This will show if some payers are markedly lower in reimbursement than others. During negotiations do not pay attention to any single procedure but be mindful of all the charges. For example, in Nephrology, while there may be an increase in the office visit charges, at the same time they decrease the dialysis charges by a $1-2, which may result in losses.
- Make your case, why are you the best for their patients? How do you keep their costs down by keeping the patient out of the hospital? Show that your practice sees patients in a timely fashion, orders diagnostic tests, and keeps up with the current evidence-based practices.
- Make sure you know your practice’s expense per patient from your financial data. Factor in the current and future labor costs and inflation. Explaining the cost per visit, help the payer understand the reason for renegotiation. In some contracts, an annual raise can be negotiated.
- During negotiations, if you get frustrated and state that you are going to drop their insurance, follow through with it. Otherwise, you can only make them stronger to place you on the sideline. Always know your bottom line, enter negotiations with confidence, and get fairly compensated for the important service you provide to your patients.
- All oral promises must be written in the contract, if it’s not in the contract, you’re not getting it.
We all went to medical school to become physicians. To practice medicine, there must be a revenue stream. In order to do this, we must understand the business side of the medicine.
Khalil Rahman, MD, MBA.