Home Page > Healthcare Revenue Cycle Management > Tips and Tricks: How to Accurately Calculate Rates for Contract Negotiation

Tips and Tricks: How to Accurately Calculate Rates for Contract Negotiation

Practices need all the power they can get when it comes to negotiating rate agreements with payers. Two ways to gain credibility and some leverage at the bargaining table involve preparation. First, run your practice’s numbers. Then, make sure you understand some key underlying details about the payment methodologies your payers are proposing.

When you run your numbers, take into account both the amounts you’ve historically been paid for your services and the payment amounts you anticipate needing to continue operating profitably. In other words, be forward-looking in your requests without ignoring the past.

Then, turn your attention to payment methodologies. Insist that payers show you exactly how they calculate the fee schedules they offer.

Payers use all sorts of different methodologies in their contracts, so understanding the different ways can ensure your practice doesn’t lose out on significant revenue. In addition, they may end up calculating their own incomes incorrectly.

No matter the methodology used, there are a few essential facts you must also nail down in order to accurately assess what a contract will mean to your bottom line:

  • Fee schedule year. If a contract is pegged to Medicare fees, is the payer using the current year’s fee schedule or one from the past?
  • Conversion factor (CF). Keep in mind that Medicare’s CF changes annually, so you need to know which year’s CF is being used. A change in the CF can have a significant impact on your practice’s reimbursement because it affects every code billed by your practice.
  • Relative value units (RVUs). The reimbursement for every code you bill varies according to the code’s RVUs. However, it’s important to know which RVUs are being used in a contract. As a practice, you should be reimbursed based on the higher non-facility total RVUs, which take overhead costs into account. Practices should challenge any contract that sets fees based on the lower facility total RVUs, which reflect hospital/outpatient surgery center cost structures.
  • Geographic practice cost indexes (GPCIs). GPCIs reflect regional variations in Medicare reimbursement, so it’s important to ask whether your payers are using them or not.
  • Bundled or excluded services. Be aware if and when procedures or services will not be paid—especially for your high-volume or high-dollar codes.

One last tip: When it comes to Medicare allowed amounts, check not only whether they’re based on facility or non-facility RVUs, but also whether the patient portion is included. Some payers, for example, include patient co-pays in the total fee amount allowed.

In some states, payers are required to describe how they calculate their fees. If they don’t offer this information, ask for it! While all of these details may seem overwhelming at first, don’t give up. A little front-end knowledge can add a lot to your bottom line.

You may be also interested in