Your Contracts

By Lynn Steffes, PT, DPT*

2020 has certainly been an interesting year in health care.

As your practice attempts to return to a new normal, analysis of your bottom line will become even more important than before the pandemic. A good place to start may be to take a critical look at your revenue as it relates to both your payor mix and your third-party payer contracts. You will want to determine which third party payers are your primary revenue sources and how are they performing for your practice?

The first step would be to identify your top five revenue contracts. Assemble these top revenue contracts for review. If you are unable to locate your most recent contracts, call the third- party payer and request a copy of the most recent contract for your practice that they have on file. Take a careful look at those contracts and determine where you stand.

Here are a series of questions of 10 important questions that you should ask yourself when reviewing:

1. What was the date of the last contract you signed? And what was the term (duration) of your last contract? When was the last time you reached out to renegotiate the contract? (Every 1-3 years is reasonable)
2. When was the last time your practice increased your usual and customary fee schedule? If you have not increased your fee schedule to reflect an increase in your cost of doing business, why should a payer increase what they pay you? Perhaps revisiting your fee schedule would be a good place to start!
3. Does the contract have an “evergreen provision,” which is actually a provision that automatically renews that contract every year unless one of the party’s gives notice? If so, what is the “notice period”? This notice period is usually 60, 90, or 120 days. If you choose to renegotiate, giving your payer written notice before your anniversary date would be appropriate.
4. Does that contract have a fee schedule attached? If so, has a fee schedule been updated since the contract was signed? How does the fee schedule compare to your average cost per visit? Is the current payment profitable to your practice considering who and how care is being provided?
5. What products does that contract cover? Does it cover Medicare, Medicaid, workers compensation, or auto? Are each of of these products reasonable under this contract? Should you “opt out” or have an addendum that modifies a particular product payment?
6. Is that contract indexed to the current Medicare fee schedule (i.e., the fee schedule is 125% of the current Medicare fee schedule)? If so, Medicare’s reimbursement is incredibly volatile at this time and indexing could significantly impact your practice revenue for this contract as well!
7. Has that contract added additional administrative burden, such as a utilization review or utilization management services that add additional staff time or create delays in providing services? Does the contract payment cover these additional expenses?
8. Ask critical questions about the contract: “Is this contract important for my practice?” “Is it important for my patient access?” “Is it important for my key referral source access?” “Is this a good contract?”
9. If I terminated this contract, would patients continue to seek services from my practice if it is out of network and they potentially had higher co-pays or a separate deductible? Would they remain loyal if they had to pay cash?
10. Finally: Take action now to improve your bottom line for your top five third-party payers!

Consider: Can you address the model in which you apply services to ensure that revenue covers expenses? Can you reduce your cost of services? Should you increase your usual and customary fee schedule and requesting a commensurate contract increase? If the contract is important to your practice but it is no longer profitable, ask yourself what fee schedule would be appropriate to cover your cost of services and a reasonable profit margin? Should you renegotiate this contract? Or should you terminate? 

Lynn Steffes, PT, DPT, is president and consultant of Steffes & Associates, a national rehabilitation consulting group focused on marketing and program development for private practices nationwide. She is an instructor in five physical therapy programs and has actively presented, consulted, and taught in 40 states. She can be reached at steffbiz@gmail.com.