Protecting Your Business With Viable and Sustainable Payer Contracts

Published in Playbook on April 18, 2023

By Craig Douglas, VP, Payer and Member Relations, VGM & Associates

When it comes to protecting your durable medical equipment, prosthetic, orthotic, and supplies (DMEPOS) business, ensuring that you have payer contracts that have long-term viability can be one of the most important factors in determining whether your company ultimately succeeds or fails. Sure, securing as many contracts as possible for your business can bring in plenty of revenue, but if that revenue doesn’t cover all the expenses and leave you with some profit, your business won’t be sustainable long term.

The Payer Perspective

If you’ve placed a lot of emphasis historically on establishing and maintaining viable payer contracts, you are likely already regularly monitoring the performance of your contracts individually and making adjustments as needed, whether those adjustments are made by you alone or in conjunction with a payer. If this is the case, you may not have much to do right now in terms of shoring up your contracts.

However, if you find yourself underwater on certain contracts as a whole, or even substantial product categories within a given contract, it is time to reach out to the payer to begin the renegotiation process. Some of you may have already reached out to your payers requesting a pay increase or other potential changes.

Payers certainly know that costs are up. It is likely true for them internally, and they are hearing it from all kinds of providers, not just DMEPOS providers. That said, I don’t think it is likely that they understand the depth and breadth of the cost increases that providers are experiencing, and they won’t...unless they hear it directly from you (and other providers like you).

Payers may simply assume that prices went up a quarter or a dollar on DME items. They may not know that for some DME products, the surcharges or price increases alone actually exceed the reimbursement for that product. If they aren’t going to allow you to pass those increased costs along to their members, your patients, which seems to be the stance of many of the payers, then the costs must be passed on to the insurance company itself.

Negotiating New and Existing Contracts

Negotiating and/or renegotiating viable payer contracts can prove difficult, especially given the volatility in our industry over the last couple of years. Virtually everything related to your business has very likely become more expensive over the last 24 months: the products you provide, the staff you employ, and the vehicles and fuel you use to provide your products and services to your patients, etc. There are two separate and distinct situations you need to consider based on whether you are trying to get a new contract or change an existing one.

Negotiating a brand-new contract

If you are currently negotiating a brand-new contract, you need to do so based on current market conditions, while also factoring in what you think the next 12-36 months will look like. That is because that contract will likely have an initial term of somewhere between one to three years, and the payer may be reluctant to renegotiate any terms of the contract or its fee schedule until that initial term has expired. Simply agreeing to contract terms and reimbursement rates that are similar to what you have accepted in the past may not be a wise strategy, as those terms and rates may not work in today’s market.

Renegotiating an existing contract

Along those same lines, you likely have existing contracts that have been in place for several years. The contract terms and reimbursement rates you agreed to at that time may no longer be viable for your company. If you have not already, you should look at those older contracts to make sure both the terms and fee schedule are still something you can work with today. If this isn’t the case, contact the payer to begin renegotiating some of those terms and/or rates.

Fee Schedule vs. Contract Language 

Regardless of which of the above scenarios you find yourself in, when renegotiating a contract, you can choose to focus on contract terms, the fee schedule itself, or preferably both. Some common approaches would include:

Fee schedule focus

• Requesting an across-the-board increase (usually a smaller percentage increase but applies to all products and services)
• Targeted increase (increase only applies to certain products/HCPCS codes – perhaps a larger percentage)
• Reimbursement for something that has not been reimbursed historically (this approach is far less likely to be accepted—examples would be reimbursing for delivery/setup, training, RT/ATP time, etc.)

Contract/terms & conditions language focus

If your reason for renegotiating stems from costs not being covered by reimbursement, focus on things that impact your cash flow and drain money and other resources. Make these targets specific and measurable with a clear understanding of what will happen if the defined thresholds are not met (e.g., interest paid, monetary penalty paid, etc.). Some language to look at includes*:

• Lowering DSO (days sales outstanding) (i.e., clean claims paid in a shorter timeframe, such as 30 or 60 days)
• Clean claim denial rates (denial rate of clean claims can’t be greater than 5%)
• Prior authorization (PA) timeframes (PA requests turned around in less than 48 hours, or some way to designate urgent PA requests for quick turnaround)
• Limit on recoupment timeframes (match timely filing timeframe)

*If some of the things mentioned above are not specifically addressed within the contract, don’t be afraid to ask that they be added so you are better protected.

Preparing for the Meeting

You also need to be prepared for the payer to say no to your request, at least initially. In that case, you also need to be prepared to discuss what denying your request will mean to the payer and their members. This could include:

• Certain items may not be provided to patients
• Those products may only be available to them on a cash basis
• Delivery of items may become limited or not offered at all
• Payer contract may be terminated (a last resort) 

Finding Available Resources

If you are in a position where you need to ask for something from a payer, VGM has created and published several resources that will help you tell the story of the current state of our industry, how we got here, and why there is a need for the changes you are asking for. These can be found at our VGM Government Relations Resource Center. VGM’s Market Data division could also offer valuable insight into referral source and payer landscape in your respective market(s).

If you are in a situation where the long-term viability of your business is in jeopardy unless something changes, the worst thing you can do is nothing at all. 

READ THE FULL ARTICLE HERE

This article was originally featured in the VGM Playbook: Safeguarding Your Future in DMEPOS. To read the full article and more like this, download your copy of the playbook today! 

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