Why It’s Important

Healthcare providers offering services covered by insurance enter contracts with insurance companies (payors) to determine reimbursement rates. These contracts affect how much providers are paid for their services. Since most of these contracts are negotiable, terms can vary greatly, even among similar providers, leading to a system where no two contracts look alike.

Over 85% of physicians are contracted with private payors such as Blue Cross Blue Shield, Aetna, and UnitedHealthcare—a number that, according to KFF, has steadily increased over the past decade. For many providers, payments from insurance make up the majority of revenue, so having favorable reimbursement rates is critical. Competitive rates can set a practice up for success, while unfavorable rates can quickly put a strain on operations.

In addition to securing reimbursement, payor contracts grant providers access to patients covered by those insurance plans. Once a physician signs a contract with a payor, they become in-network, allowing patients to receive services at lower costs. Being in-network also makes providers more visible on payor portals, where patients often search for care. For most practices, being accessible to patients across multiple insurance plans is crucial, which is why many providers contract with several payors. In fact, the average provider is contracted with around 20 payors, according to a recent CAQH survey.

Maximizing Payor Contracts

While signing payor contracts allows providers to see patients and receive reimbursements, understanding how to manage and optimize these contracts can boost revenue and streamline operations.

Reimbursement Rates

Payor contracts typically specify reimbursement rates in two ways: as fee-for-service (FFS) arrangements or alternative payment models (APMs), such as value-based models, capitation, or bundled payments. Although APMs have gained popularity, the majority of contracts still use FFS arrangements. These contracts often tie reimbursement rates to Medicare’s fee schedule, either for the current year or the year the contract was signed. For example, a contract might specify payments at 105% of current Medicare rates or 150% of 2023 Medicare rates.

But how do you know if your rates are competitive? This can be a difficult question to answer, as rates vary significantly by specialty, practice size, location, and patient population. A 2020 analysis found that dermatologists averaged 90% of Medicare rates, while anesthesiologists averaged 330%. Historically, private payors have been reluctant to disclose contracted rates, leaving providers in the dark about how their rates compare to others. However, the 2022 implementation of the Transparency in Coverage rule has changed that. Payors are now required to publicly disclose all contracted rates, giving providers the opportunity to benchmark their rates against market standards.

Contract Terms

While reimbursement rates are essential, the terms within payor contracts are equally important. Specific terms can significantly impact reimbursement, billing, and overall cash flow. Here are a few critical clauses to watch for:

• Timely Filing and Appeal Deadlines: With denial rates high nationwide, the time allowed to file claims and appeal denials can affect revenue.

• “Lesser of” Clauses: These clauses allow payors to reimburse the lesser of the provider’s charged amount and the contracted amount. It's often possible to remove these clauses from contracts through negotiation.

• Amendment Terms: Some contracts give payors the power to unilaterally modify terms, often with little notice. This can lead to rate reductions that providers may not be aware of until much later, causing financial strain.

While rates often take center stage in negotiations, the terms of the contract are just as critical for protecting your revenue and ensuring a smooth billing process.

What You Can Do

Understanding payor contracting is just the first step toward maximizing revenue. Here are a few strategies you can use to make sure you’re getting the most out of your contracts:

Audit Your Contracts

Start by gathering and reviewing your current payor contracts. Look at both the rates and the terms to get a full picture of what you’ve agreed to. With the availability of transparent rate data, compare your contracted rates with market benchmarks or similar practices in your area. Beyond rates, examine clauses like “lesser of” provisions and unfavorable terms related to claim denial appeals and amendments.

Negotiate with Payors

If you find opportunities for improvement, don’t hesitate to reach out to payors. With transparent rates now publicly available, you’re in a stronger position to negotiate. Use this data to push for better reimbursement rates, especially if you can demonstrate high-quality care, strong patient outcomes, or specialized services that set your practice apart.

Stay on Top of Your Contracts

Managing multiple contracts can be complex, especially when each is unique, and payors are able to update rates unilaterally. To stay organized, consider using contract management software or services to track and optimize your payor agreements. This will ensure that you’re always up to date on your contracted rates and terms while monitoring for negotiation opportunities.

Need Help?

Navigating payor contracts can feel overwhelming. At Vivid, our mission is to help providers optimize their contracts and maximize reimbursement without the administrative burden. If you need assistance with payor contracting, feel free to reach out—we’re here to help.