AAOS Now

Published 7/1/2010
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Susan E. Charkin, MPH

Making your pitch for higher payments

Let your proposal letter make the case

The first step in negotiating reimbursement rates with third-party payors is assembling the data. The second step is putting those data to work with a simple but substantive proposal letter. Addressed to the payor’s contracts manager, the proposal letter introduces the practice, requests a rate increase and, most importantly, makes the case for the proposed increase.

It’s important to avoid over-explanation and unnecessary content when preparing a proposal letter. The purpose of the letter is to get the payor to focus on why your practice should get a rate increase. You don’t want to lose that basic message in a letter that has too much detail.

For example, letters that start by recounting the qualifications of a single doctor in the practice, or the practice itself, quickly lose their effectiveness. Similarly, explaining the many subspecialties and educational background of each doctor is also distracting.

Your letter should be a sales pitch and attention-getter, written in payors’ terms and explaining why your reimbursements should be increased. Payors need a good reason to give you more money.

To get payors’ attention, consider structuring your letter in the following manner:

  • Who you are and why you count
  • Your “place” in their network
  • What sets you apart
  • Why you can’t continue at the current rate
  • What, specifically, you want
  • When you need an answer

Who you are; why you count
Start with the name of your practice, your book of business with the payor, and the number of patients you treat per year. Remember that “money talks.” Practices with large books of business and large patient loads have leverage.

Payors want to maintain practices in their networks that keep their patients and large employer groups happy because that’s where they get their business. A payor’s most important customer is usually the large employer who brings in big premium dollars that can be invested to generate more profits.

Your place in their network
Next, talk about your geographic advantage, if you have one. For example, if you are the only full-service orthopaedic practice between Phoenix and Tucson, you have leverage. Payors need to meet individual state licensure requirements for a certain amount of specialty physician coverage within a specific geographic radius. Having your practice in its network could be critical to a payor’s coverage strategy.

What sets you apart
Discuss your specialties and qualifications, but be careful not to go overboard. In one or two paragraphs at most, describe the qualifications and specialties of your practice, including those that distinguish you from your competition.

Why you can’t continue at the current rate
Explain that you cannot keep treating the payor’s patients at the current contracted reimbursement. Specifically, explain that you have analyzed your current reimbursement levels and have determined that the rates in your current agreement are not competitive with your other payor agreements and that you are losing money on many of the procedures you perform.

This leads directly into your proposal for reimbursement.

What, specifically, you want
Provide a clear list of items that you are seeking. Keep it short. Depending on the structure of your agreement and your analysis, you may ask for a specific percentage increase in the payor’s current fee schedule for all of your codes.

Or, you may ask for a specific percentage over local Medicare rates for specific codes that you outline, which represent your highest volume and highest priced procedures. List the top 40 to 50 codes, based on your analysis of volume and total reimbursements.

You may also want to carve out high-volume/high-priced ancillary and surgical codes because these are paid at substantially lower rates or receive no reimbursement at all under many payor agreements. The key is to make sure you have the data to back up your request for an increase. You may also need these data later in the process to finalize negotiations.

At this point, you may also include a list of physicians in your practice, especially if the practice is large and has prominent physicians. Don’t forget to mention the longstanding relationship that these physicians might have in the payor’s network.

When you need an answer
Include a timetable specifying when you expect to hear back. Allowing the payor three weeks to respond is a good rule of thumb.

Make sure the letter is directed to the correct person and department in a payor’s organization. Determining this can take many calls—possibly even to the state director or the corporate office—but will ensure that your request is read by the individual who can make the decision.

In summary, the proposal letter makes your case for a rate increase. Payors need to understand the business value of your practice in their network.

Ms. Charkin is president of Healthcents, Inc. of Corral de Tierra, Calif., a physician contracting consulting and software firm.

Editor’s note: This is the second in a three-part series examining various aspects of negotiating payor agreements. The first part, “Negotiating Contracts”, covered what orthopaedic practices should know before they begin contract negotiations. This article covers writing an effective proposal letter.