Payer Contracting: Part Two

Richard: Welcome back to Agile&Me a PT Leadership Podcast series. I am excited to welcome back Mark Setlock who is our Director of Payor Relations for Alliance Physical Therapy Partners. So welcome.

Mark: Thank you, Richard. It's great to be back.

Richard: So we get to talk about all things payor contracts again, so exciting. In this episode, what I'd like to do is talk in more detail about the contracts. As therapists, we never got any training on contracts in school. In fact, I didn't get much training on anything apart from manual therapy and exercise-based care, to be honest. But I'm sure as Local leaders or private practice owners. I think your insight into contracting will be very valuable for those that perhaps didn't listen to the first episode. Would you like to just remind the listeners about your background briefly? And before we dive into perhaps the topic of contracts?

Mark: Sure. So a long time ago, I started in the contracting world under an academic medical center. And shortly after having a job there, I joined a physical therapy provider that became a national provider. And for the last 15 or so years, I've been doing managed care contracting negotiations for mostly PT and physician groups.

Richard: Well, you've weathered it well, Mark. So congratulations! I think I'd probably be ready to run for the hills if it was me doing payor contracting. So in the last episode, we talked about payor contracts, what contract is in and out of network, the pros and cons associated with it. This episode, I'd really like to kind of dive into payor contracts because what I've seen is a lot of providers have contracts, but one, they probably don't have a copy. If they do, they probably can't find it. And they honestly probably have limited understanding of what's in the contract and what they're supposed to be doing and the parameters of it. So I think it's valuable to talk in a little bit more detail about payor contracts. So to kick off, what are the key components and terms that are embedded in payor contracts?

Mark: Sure, so the good news is that a lot of the contracts are structured similarly based on, I guess, contract law. So a lot of the same clauses are in all the contracts and the standard contract, and they're generally in the same place in the contracts, and they're broken up into articles. So usually on a contract there is an exhibit A and that's usually your rates. I go there first to make sure that the contract is worth reading anyway, that if they're not going to pay me decent rates right off the bat, I can assume that the contract is probably going to be very restrictive. So after the rates. The second key thing I look at is for the initial term, so the initial term dictates that when you sign that contract, how long are you abiding by those rules until you can amend the contract into more favorable terms for yourself? So generally speaking, the initial term is generally

one year to five years, and a lot of them fall on that third year on a three year initial term. So just in general terms, that means that if you sign your contract on day one. That you have to abide by that contract for three years until you can even hope to get better rates or get it amended or get any language changes or anything like that. So rates, first initial term. Second or third thing I look at is the termination clause, so that's the clause that's going to tell you how easy is it to get out of this contract if that contract happens to go sideways and you decide that this isn't what you wanted to generally speaking, the termination clauses are generally about 180 days. But in an ideal case, you want it to be as low as possible. And generally, I try to negotiate that to 90 days or less. I feel that in that time frame that window would give you enough insight into the referrals that you're receiving and how well the payor plays with you in paying the claims properly. In speaking about paying claims properly, the next item I look at is the timely filing clause. So that tells you once you send a clean claim, meaning there are no adjustments that need to be made to that clean claim or that claim that how fast do they pay for that claim and get you reimbursed back. So a lot of states have 45 days as this as the state rule, but you try to get that as quickly as possible, and generally you want you would like it to be within 14 days, which is generally what Medicare pays, but these but the payors will often push that date the date back after the timely filing. So the timely filing is the amount of time that they require you to get a claim into them after that data service has been completed. So a lot of times they will restrict that to 90 days or to 120 days. And whereas if it's a secondary claim or there's a problem with the insurance or getting the proper documentation in place. You might need to push that back. A lot of times it has to do with credentialing. So they might backdate your claims for you, meaning that if you treat somebody as out of network, but you're in the process of signing a contract that they will go back to that data service and pay it as if it were in-network. When you treat it, that's going to push your time back, and so the timely filing is very important because as you're holding those claims, you want to make sure you have as much time possible to get that claim in so that they accept it as an in-network claim and pay it appropriately. So, generally speaking, I look to get at least 120 to 180 days for a timely filing clause so that I know that credentialing can take up to six months to get done. And so we want to make sure that we have as much time as possible to submit that claim for payment. The next thing I look at is timely payment of those clean claims. So generally speaking states have mandated timely filing regulations that payors have to follow for a clean claim. And generally speaking, that's usually between 45 and 60 days. Now, I always look to try to get that down closer to what Medicare generally pays and that's 14 days. So anytime between 14 days and 45 days, you're going to be getting payment faster. And so that's why I look at the timely payment of clean claims. And then just two other ones that I check to see what the arbitration process is. So if you're in the middle of this contract that you thought was going to be an excellent contract, and for whatever reason you're finding that it's not what you signed up for, then generally speaking, you work in good faith to fix whatever

issue you happen to find. But if you can't resolve it on your own between you and the payor, then you want to be sure that there's some kind of an arbitration process to look at so that you can go to a third party. They can hear both sides and then they can decide, who is right, who is wrong, who needs to change. And then the final thing I look at is the future amendments. I want to make sure that the payor can't unilaterally change the contract without us having some kind of an opt out mechanism so that if we don't agree with it, it's going to hurt our business. Then we want to be able to say, okay, we're not going to accept that product. We're not going to accept a different rate or something like that. So those are the key items I look for in a contract.

Richard: There is an absolute huge amount to unpack here. Isn't that so? That's quite a few things to look at. Before I was educated, I thought, well, it's just negotiating a rate. And there isn't really much else. But whilst it's the first and foremost, it's certainly in itself, not necessarily the key part in some respects. One can perhaps be prepared for a slightly lower rate than perhaps one would normally accept as long as all the other things are perhaps good and vice versa. So it's interesting that there are so many different components to look at. The first one I think I would like to question or ask about is this idea of term now, if I understand correctly, it may be, let's say a three year term or a five year term, but most of them, I believe are evergreen in regards. So they just auto renew? So unless you actively approach the payor, it's just going to renew exactly the same terms.

Mark: Correct, but it happens that the evergreen clause kicks in after the initial term, so it will set aside either a year or three years or five years where you can't do anything. You can't terminate. You can't change any clauses or anything like that. So it is true that payors like them to be evergreen so that we forget about them and we don't force ourselves to renegotiate or bring issues to the table or consider not getting out of the contract. So those are two different things, and generally they're in the same clause, but they are two distinct time periods that you need to be aware of.

Richard: You bring up a really good point about this concept of, well, once it's signed and put in the cabinet, you just forget about it, and that's, I believe, part of the reason why our rates are so bad at certain times is because we haven't gone in, dusted it off and actually challenged them. Sometimes it's just the fact that we just forget about it. Like most things, a bit like your Netflix or Amazon membership. It's just, it comes out of the bank and you just forget about it. And I'm sure with some of these lower rates even if people just dusted them off could probably get some improvements.

Mark: I agree.

Richard: Now we talked about this concept. Let's say, for instance, a three year term, but there's a termination clause. Is it normal to have termination clause capabilities within that initial three year term? Or is it only for cause that you're able to implement that termination clause? Sorry, there's a lot of confusion, so, for instance, if you're going to sign an agreement contract, It's a three year term. Is it really three years where you can just give ninety hundred days out at any point? Or are you literally stuck for three years? Unless there is good reason.

Mark: Yeah, so you bring up a great point that you have a termination with cause and you have termination without cause. The termination with cause would be that one party or the other has breached the contract in some way. They haven't upheld their end of the agreement. And generally speaking, then that gives you a time to remedy that. And generally that's like a 60 day time period where you're working in good faith. And that's where that arbitration call clause kicks in then to make sure that. Somebody in a third party, a group of decision makers that are not connected to either company would be making a decision based on the evidence that you each bring up in an arbitration meeting. However, during that initial term of 1, 3 or 5 years, then you could potentially terminate with cause. And that would not be part of the waiting period. However, if you're trying to terminate without cause because you just want to get out because it's not working for you, generally, you need to wait until that final that that initial term has ended before you can implement that. You can ask to terminate the agreement based on however long it takes to terminate.

Richard: So really what that means to me is you may have made sure that you really want to get in bed with this payor and truly become an in-network provider because you could be stuck in a really bad marriage for a period of time.

Mark: Yeah, that's exactly right. And that's why contracts are never written easily. And in layman's terms, they're very distinct and you really have to read through them to make sure that something provided in one clause isn't taken away in a couple clauses down. So it's very important to make sure that you're looking at the contracts and any references that they're making to exhibits and attachments that are to that contract. You want to make sure that you're following through to see that. What does that exactly mean based on this clause?

Richard: And then, even after the contract ends, are there any constraints, limitations or any requirements usually embedded within the contracts that are maintained or continue after the contract has ended, or is it literally you're done, no responsibilities, no commitments and off you go again?

Mark: Yeah. So generally speaking, you have to give a certain period of time notice. And again, I try to get that down to about 90 days. But during that 90 days that you're unwinding and getting out of that agreement, that participation you're required to continue to see your patients. If they haven't moved on to someone else and if you haven't found a suitable person to take over, that you still need to see the patients and continue to treat them based on the regulations and the, and the clauses in the contract.

Richard: Moving on. What I've been told very often and see is very often many payors will follow to a certain extent Medicare with regards to their requirements. What I believe I'm seeing is the following Medicare with lower rates and an increasing burden, administrative burden. Is that fair and reasonable to say?

Mark: Yes, and I think that's very accurate to say. And I know that there's a school of thought out there that you can't just say you follow Medicare rates or Medicare rules without actually following all of Medicare's rules. So picking and choosing which rules you want to follow under Medicare is not is not appropriate. And there is a body of evidence that states that you should not be held to those standards unless they're accepting everything from Medicare.

Richard: So I know we can't talk about individual rates because contractually we're not allowed to but at a very high level, when I came across 20 years ago, Medicare was, I perceive to be one of the lower payors. But nowadays I believe that it's probably one of the better payors and I hate to say it, probably one of the ones with the least administrative burden, which I never thought I would say in my entire career. So there's definitely been a change in rates over time and not in a positive way, unfortunately. And there's changes in administrative burden.

Mark: Yeah, exactly. So a lot of times when I'm looking at contracts, I'm using Medicare as a benchmark. So to know if I'm getting a fair rate from a payor what I try to do is quantify what my clinic's cost to provide care is, and then see what the fee schedule will provide based on the codes that I'm billing.And if I'm over my cost, then I'm like, okay, how I'm How much bigger can I get that operating margin? The other thing I would do is I compare it to other payors that have similar products and compare the two and see how close they are to those. And then, like I said, I benchmark Medicare because Medicare is generally higher than the cost to treat. And so if you can bump that to at least 100 percent of Medicare or at 105 percent or even 140 percent, Then you're that much better off.

Richard: Yeah,what I think everyone should do is really what you're saying is calculate the actual true cost of a visit. If you're not sure as a private practice

owner, I think what you do is you just go to a publicly traded entity like USPTO, for instance, or ATI and look through their quarterly reports and you can work out approximately what their cost is, which would probably be. Actually cheaper, probably than what an independent practitioner's cost is. So, looking at reports, I would say a cost per visit is anywhere between probably 85 and 95. Well, 85 and 90 a visit and whilst not pointing fingers, there are definitely reimbursement rates in contract rates that are south of that.

Mark: Oh, yes, yes, there's many of them out there.

Richard: I think the last thing about the contracts, the specific key components that I find interesting, this concept of timely filing. I find it amusing the fact that credentialing can take well in excess of 120 days now. Well, in excess by many payors, and then if they've got a clause in there that says you have to present the file within 120 days, they're essentially getting free care.

Mark: Yeah, that's certainly how that would work out because you're using the same time frame, the same dates from data service to when you're filing the claim. So yeah, there's certainly not a good thing for the provider.

Richard: So if one is wanting to set up a practice or add another clinic, because not only individual providers have to be credentialed, but clinics as well, if you are setting up a private practice, then that's probably really important, well it is really important to look at when you're looking at payor contracts because otherwise you could be providing significant amounts of care for free, at very best it will be a cash flow concern, at worst you'd have to essentially write off potentially a significant number of visits, yes?

Mark: Yes, exactly right. And you can't balance spilling the patient on those visits. So you're stuck.

Richard: So I think the question is, and I think we've kind of touched on it. But how do I know if I'm getting a reimbursement rate? That's fair and reasonable. So I think it really goes back to that kind of Medicare piece as well. But, having said that, I certainly don't want to answer that question. Perhaps listeners feel that Medicare is a gold standard. It's probably a pewter at best. And, and I believe that we've kind of sunk so low where if we get a mediocre reimbursement rate, which is probably Medicare, we think that's a win, but, but I don't want to put words in your mouth, but how, how do I know if I'm getting a reimbursement rate that's fair and reasonable without obviously talking numbers.

Mark: Right, so I think that it's very important to consider everything when you're looking at the costs that your company is needing to bear. So you do have your cost of care, but you also should be looking at your credentialing costs and how easy is it to get credentialed or not and how many submissions do you have to take you submit to get all the data in how what's the authorization process the verification process how difficult is it to get that claim to them and I think you need to consider all of those costs when you're looking at your rate and looking at other payors that may pay similar rates but don't require all that extra administrative burden and so certainly if one is causing you additional burden, then they should be paying you additionally as well.

Richard: It reminds me of perhaps certain payors have to be careful with regards to whom and not give any indication, but there's definitely a trade off, isn't there? I remember, I can think of two comparable payors and one pays at a higher rate, but you have to wait a long time and one pays at a lower rate. Okay. But they pay very quickly. So do you have both? Do you accept the longer term? Because time is money. So in that respect, they probably know that if they pay quickly, they can get away with a lower rate for the bank.

Mark: I think you're right. Yep. They figured it out.

Richard: That's right. Yeah, it's clinicians. We've got to figure it out. How else might we know, we talk about Medicare and a percentage of Medicare. Is that actually quite a common way payors will will set their rates?

Mark: A lot of times they will go with 100 percent of Medicare and keep that benchmark for themselves depending on your leverage. And again, contract negotiations depend on who has the best leverage at that time. So if you're a major player in your market, then you're usually able to get CastingWords Perhaps slightly above Medicare, 101 percent 105 percent. If they really need you in-network, then you might be able to see 130 or 140 percent. But it's something that I'm always shooting for the stars. And if I'm able to get 140%, then certainly I'm going to ask for it. But we'll have a realistic Expectation of being closer to that 100%, maybe 105 or 110%. One way that you can get to that larger percentage is also to build escalators into the contract so that each year you have a cost of living adjustment added so that you don't get down three or five years into your contract and you're still at the initial rates that you agreed to. So that's one thing you can negotiate. And again, it's leverage that if you have some leverage and they're willing to put it in the contract you can build in some escalators in there to help make sure that you're staying at least close to the rate of inflation.

Richard: Interesting point. I was doing a little bit of research today about essentially the impact of inflation on costs, and I worked out that there was a

theoretical 75 reimbursement per visit, and it was set up in 2013. You would have to be reimbursed at a rate of 99 today just for parity, the impact of inflation. And, when people think, well, it's, it's a flat reimbursement rate, it's not going up. Well, by not going up, it's going down. Exactly. I think people forget about that. And perhaps only the last couple of years with inflation rates have gone up, that's probably been on the radar more, but, but if your rate is flat and you have no escalator, your reimbursement rate is going down.

Mark: I agree. That is exactly right. And that's the realness that we deal with in business.

Richard: The other point that I think is important is this concept of being above Medicare rate. And thinking that 140 percent of the Medicare rate is this real win. Well, the reality is, if I understand correctly, based on conversations I had with other leaders, the Medicare rate has gone down by 30 percent in the last 10 years. So I don't know if that's relative or real. But it's gone down with multiple procedure code discounts, the PTA, 15 percent reduction, the sequestration, et cetera, et cetera. It's gone down. So when we say, well, we're negotiating a rate above Medicare, it's not really a huge win, is it? It's the fact that we're just trying to claw to a certain extent back to parity.

Mark: Yes. Well, you're exactly right. Because you have to remember that if the rates did drop 30 percent, it's taken 140 percent of that 30 percent discount as well. So you need to try to get back up to that 100 percent that you initially agreed to. And so, yeah, the numbers, you can play tricks with those numbers.

Richard: As we might as well depress ourselves a little bit more. So obviously rate is a factor, but with most contracts, there's the fine print, and I'm sure these contracts have some fine print, and I haven't read enough to know if they do it in font size six or not, but I'm sure there is definitely some language that is tucked away, shall we say? What is commonly placed into payor contracts that you would say could trip up providers?

Mark: Yeah, sI think that underscores that even though it's not the funnest thing to do read through contracts, it's very important to do for your business. And so some of the lesser of language that they put in there stating that it's the you'll be paid the lesser of gross charges. Or 60 percent of Medicare, you have to be sure what the lesser amount is, because that's going to be your reimbursement rate. So lesser of language is very important to get out of there. If you can unit limits. Sometimes they'll tell you, 65, but you can only charge 1 unit. And they cap it off. So or they'll say unlimited units, but it's capped at 70. So you might think, OK, well, I can continue to bill as I normally do and get X number of dollars. But in reality, you're going to be limited to that cap rate that they put on there. Sometimes they'll tie the termination to the end of a renewal period. So I've run

into somewhere you have to give 180 days prior notice to the end of the current period. And so it ends on 1231, which means on March 31st of that same year, you would need to put that notification in or wait until the following end of the year of the next calendar year to actually be able to get out of that contract.

So you have to read these things very closely. And so they're always putting new stuff in there, but it's crucial to read through them. Now, some of them don't put these kinds of things in, but there are some out there that do, so you have to be careful.

Richard: I’d love to ask which ones do these, these tricks, but I mustn't, I suppose. And I'm sure we get into trouble if we name names, but it's a pretty sad indictment, isn't it? Major payors, I assume they're major payors, are putting things into it and let's give them the benefit of the doubt, I suppose. I don't normally give them the benefit. Let's just say that it's an oversight or it's just that they made a mistake. But anyway anyway. We talked about rate and we also talked about rate a little bit in the prior podcast, but let's revisit it. And particularly with a backdrop of significant labor inflation, inflation generally, for instance, I calculated The C. P. I. In the last three years, of course, the cost of facilities has gone up on average by about 13 percent. Inflation has been higher than that for many health care providers. So with the increasing costs, we've got to be able to increase our revenue. Otherwise, we're gonna have problems and we're already seeing that with a lot of private practices just literally closing the door. I've never seen it before until recently where private practices are just giving up. Some of those obviously others that are successful, but definitely there is a proportion that are just either being acquired or giving up. So ultimately, with increasing expense, we've got to get a higher reimbursement rate and that's either I assume going out to network or offering self pay or it's trying to negotiate better rates in-network. So how we can, one can we push back on reimbursement rate if we're in-network and two what is perhaps some of the tactics that perhaps you can use.

Mark: So I would say, yes, you should always push back on the contracts that if you can better the contract in your favor, that's certainly what you should try to do. As far as some strategies what I like to implement would be getting as much data as I can to quote unquote justify why I feel comfortable. That we deserve higher rates, that we have great outcomes. Our length of stay is typically shorter than perhaps an industry standard. Also consider carving out certain services that we know are popular services for us. And so we might be able to get those services at a higher rate. The same with codes that if there are certain codes that we know we will build high at higher frequency than other codes and we're able to carve them at a different rate. Overall as our utilization is such that those codes would be more frequent. We would get higher reimbursement than just a flat rate given to us on the contract. So those are the

kinds of things that I would do and include building relationships with the payors. Because I think that if you actually make a relationship with someone that your chances are a little bit better for them to humanize you and help you get what you need, or at least meet you halfway somewhere to help. So I always stay civil in any negotiations I do. But I also try to find opportunities to reach out to them and just get my name in their minds and, and let them realize who Alliance is or whatever PT company. And the other thing is that by pushing back on the contracts, you're kind of building that persona that, okay, well, if you monkey with my claims, I'm not going to be happy with that either. And I'll push back on that. And if you don't give me the authorizations promptly. I'm going to push back on that. So I think that setting that expectation up front in your contract negotiations allows you to have a little bit easier journey down the road as you're submitting claims and showing them that you're not going to put up with them making a lot of adjustments off your claims or whatever.

Richard: Interested in knowing your perspective on the impact of labor shortages on payor contracts on being in-network. So we are not graduating a sufficient number of therapists, physical therapists to meet demand. And this will continue based on the literature to at least 2030.

So there is a structured labor issue and it's getting worse to the point that, if I'm correct, based on the literature will result in approximately a 20 percent deficit of therapists by 2030 compared to the demand for therapy. So we've got a supply and demand mismatch. We've got more people essentially on a national basis that could benefit and require therapy compared to the number of providers. And then we've got reimbursement challenges. Do you think that the shortage of therapists is likely to have any impact on payor contracting in any way?

Mark: I think because the industry is going through that, I don't think it's going to have as big an effect. Or positive effect, I should say, from our perspective with the payors. I think that as a society, our patients are becoming okay with waiting lists and not being able to be seen immediately. So with this shortage, what that means is our costs are going to skyrocket trying to get the best and brightest. Therapists to join our provider group. And I don't think the payor really worries about that. I think they know that we're fighting over each other to get these providers in and they can continue to keep paying because they're not going to hear from the members. I have no access. Because they know that. Okay, well, there's a wait list everywhere because there is a shortage. So I think that hurts the P.T. industry because the payor can just point at that and say, well, it's not us. The accessibility, the access point issue that you're having is because they can't find enough providers. So I kind of think from a contract perspective, that's not going to help us. And I think it just gives the payors one more reason to say, well, it's not us, it's them, that they can'

Richard: So thank you. Great to chat with you, look forward to chatting with you again in part three.

Mark: That sounds good, Richard. Thank you so much. 

Richard: Before we wrap up, let's touch on one more important aspect of the P.T. industry - accessibility for patients. As we all know, there is a significant shortage of providers in this field, leading to long wait lists and limited availability for patients.

Mark: You're absolutely right. It's a major issue that not only affects our patients' well-being but also impacts our ability to negotiate contracts with payors.

Richard: Exactly. Payors can easily use this shortage as an excuse for their own lack of coverage or low reimbursement rates. And unfortunately, it also puts us at a disadvantage when it comes to negotiating fair contracts.

Mark: It's definitely a challenge that needs to be addressed by both sides