Payor Contracts Facing Changes in 2016

Installment planAcquiring the right payor contracts with pleasing reimbursement rates is most likely one of the first things on a physician owner’s mind when opening the doors to their new healthcare business.  However, healthcare is a fickle business and contracts seem to be in a constant state of fluctuation.  From rate changes to new stipulations in the contracts themselves, The Ambulatory M&A Advisor covers what providers need to know when applying for a payor contract in the current industry.

Olga Khabinskay, Director of Operations with WCH Service Bureau says there are two major changes occurring in payor contracts in 2016.

“There are a lot of mergers that are taking place between insurance companies.  Larger plans are buying out smaller companies so there is a delay in credentialing overall as far as getting on board with panels,” Khabinskay says.

The second issue Khabinskay discusses is the fact that rates have changed.

“Once a company takes over an old company, they offer UCCs and ASCs new rates called global billing.  It affects the bottom line at every practice because some of the rates have drastically decreased.  Some rates will increase by 2%, but there are some specific limitations in benefits.  The main issue is that because of the mergers, there is a delay in contracting for new facilities or facilities upgrading their contracts; and changes in rates because of the merger.”

Kelly Mattingly, Director of Contracting and Credentialing with Practice Velocity says that in all honesty, one can only guess why the rates are declining.

“What we tend to hear from insurance carriers is that they are trying to cut costs to save healthcare dollars for their employer groups.  The employer groups are the ones that are purchasing the insurance, and they are really pushing the insurance carriers to cut their costs and to offer them an insurance plan that is something they can afford,” Mattingly says.

At that point, Mattingly says the insurance carrier would then have to look at where they can reduce cost so that they can then pass that on to the employers.  Mattingly believes that one of those ways is looking at what they’re paying providers and reducing that payment to the provider which will then get passed on to the employer.

Although Mattingly and Khabinskay say that rates are declining in the industry, Jamie Pearlman, Vice President of Managed Care with Meridian Surgical Partners says there are some areas with increases. According to Pearlman, in the current market, there is a lot of payment pressures to try to keep medical spend even.  Pearlman says the industry is seeing typical inflationary type adjustments which are on the single digit increases.

“Everything is relative to local market dynamics and the type of services that you are providing.  Some of the areas like GI and pain, Opthamology…those services have prices that have been fairly established.  They are high utilized services, so those areas are harder when trying to negotiate increases,” he says.

“However, the services that are migrating from inpatient to outpatient like orthopedics and spine, even gynecology; those things that are transitioning into outpatient are opportunities where in the industry the ability is seen to actively increase rates.”

Pearlman says typically payors budget anywhere from 3 to 5 percent increases every year and most centers are able to enjoy those type of increases.

“Where the challenges are, is if you have a pain practice and have established rates, and still want to secure a 20 percent increase…good luck.  But, if you have got a  business mix with something like a lumbar spinal fusion business and that represents tremendous savings for a particular payor, all of a sudden you can adjust your pain rates up 20 percent because of the savings you will realize on the higher acuity cases.  It’s all how you package your overall deal,” Pearlman says.

“From an industry perspective, you are looking at inflation as the baseline unless you have another strategy like an alignment with a hospital system, or you have certain services that have high saving potential that you can wrap into broader facility negotiations.”

Changes Besides Rates:

Mattingly says that aside from rate decreases, there are other ways in the recent industry where payor contracts are changing.  Mattingly says this change is mainly in the methodology in which payor contracts are paying under.

“For example, whereas years ago, insurance carriers would pay providers based on a percentage off of billed charges they would reimburse the provider on;  which is quite favorable today.

If you look at the next methodology, they move to after percent off of bill charges, was a fee for service methodology.  This is where they would pay for each CPT code.  Then you would move from there to case rates where the insurance payors would then pay a case rate, or flat rate.  Regardless of the acuity of care, whether it’s for ottitis media or fracture care, they are paying, for example, 120 dollars for that visit,” Mattingly says.

Another area of change involves the process of gaining a contract itself; which Khabinskay says has effectively slowed down and made contracting difficult for some.

“Recently we had a couple of clients that wanted to get under a particular contract, and it took us four months after communication to get a final contract, an additional three months for the processing to become effective,” Khabinskay says.

“Overall we were looking at about six to seven months to get it accomplished when it typically takes about three months to get it done.  This was also done through intensive calling, communicating with management, upper management, going above the regular customer service representative.  This required a connection with upper management to get it done even in the time frame we received.”

Mattingly says she has seen changes in these areas in the form of the verification process.

“What we have noticed in agreements is that in order to be contracted with certain insurance carriers, part of your hiring process you are checking the Office of Inspector General, that you are checking the practitioner’s licensing to make sure there are no sanctions and that their license is in good standing.

They are also requiring a lot of other verifications as well like checking the provider’s National Practitioner Data Bank,” Mattingly says.

She adds that some of these verifications are going to incur a cost to the provider or practice, and some of them are free resources.

“I think when the provider starts seeing these things in the contracts they get worried that it will be an administrative burden and be tough to do.  Some of these things are not hard to do and you can allocate the administrative burden to a lot of services that actually would do it for them.”

Mattingly believes the key reasons that the industry is seeing these changes in contracts is because a lot of Urgent Care contracts that insurance carriers are extending do not require individual provider credentialing.

“I feel like what they are trying to do is pass along the responsibility onto the clinic to do that, and then the insurance carrier can follow up with the clinic and make sure that they are doing those things,” Mattingly says.

For Urgent Care specifically, Mattingly says there are provisions and criteria in certain payor contracts that could potentially make contracting very difficult.

“There are access and availability of service standards that they must meet.  They have to have hours of operation where the facility shall provide urgent care services at least eight hours per day Monday through Friday with a minimum of two hours per day after 6 pm.  Facilities must also provide urgent care services eight hours per day on Saturday or Sunday,” Mattingly says.

“They are getting very specific about what they are looking for in an urgent care.  If you don’t meet the requirements, 9 times out of 10 they will not let the business into network as an urgent care. “

Mattingly says some of these contracts are requiring that urgent cares offer certain services.

“So, not only do they need to provide basic urgent care services, but STAT laboratories, plain X-Ray films, minor surgical procedures, close treatment of fractures and injectables.  They are also prohibited from doing certain things.  For example, if you are center that wants to open up as a blended practice offering primary care and urgent care, it becomes very difficult with some of the insurance carriers.  They start limiting what you can do in an urgent care,” she says.


If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or

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