During Contract Negotiations: Advancing Your Strategic Goals

What to Expect During the Process

Negotiations can be a lengthy process, spanning many months. When a payer presents you with an initial rate offer or a counteroffer, you do not have to immediately accept. Be prepared to respond with a well-supported counterproposal that provides clear justification for the rates you are proposing based on your cost of care, market rate for the codes, and the value you provide. 

If both parties cannot reach an agreement, it’s important to know that walking away is an option. A temporary “no” doesn’t close the door permanently—you may be able to revisit the discussion and reach an agreement in the future. 

Payer contracts typically require advance written notice to terminate without cause. In some contracts, notice of termination must be submitted by a certain timeframe before the renewal date, which could significantly impact how long you remain in the contract. 

Communicating With the Payer

Clear, consistent communication helps keep negotiations moving. Identify key contacts, document discussions, share summaries of meetings, and set expectations early regarding follow-up timelines, meeting structure, and decision-making authority. 

Negotiating Payment

Setting Goals and Proposing Rates
Once you have clarified your strategic priorities, begin developing your initial proposal or counterproposal to a payer’s initial offer based on your financial assessment of your contracts. There are companies that can assist with negotiations, such as contracting consultants and law firms.

Be prepared to clearly communicate your value narrative to the payer to reinforce the rationale behind your proposed rates. Throughout the negotiation process, consider alternative ways to reach goals if the payer is unwilling to budge on certain items. 

Annual Payment Adjustments
Practices should carefully review whether payer contracts include provisions for regular year-over-year payment adjustments, as rates may remain fixed otherwise. Options such as carveouts (ie, specific, generally higher rates for certain codes), multi-year escalators (ex. 3% increase in year 2 and 3 of contract), or other benchmark-based adjustments can help prevent stagnant payments and reflect rising costs. Including clear provisions for periodic payment updates can help support long-term financial sustainability

If the payment methodology is based on the Medicare Physician Fee Schedule, clarify what year of the fee schedule that payment rates will be based upon and if/when rates will be updated.

Vaccine payment and carve-outs
Practices should determine how vaccine acquisition and administration are paid within payer contracts, as they involve significant upfront and operational costs. Contracts should clearly define whether vaccines are paid within the standard fee schedule or carved out into a separate payment structure. 

Contracts typically state that the payer will pay the lesser of the negotiated rate or a specified percentage of billed charges. Review your chargemaster to see if this could impact payment.

Some of this language may appear in the base agreement, which is the part of the contract that covers terms between all parties to the agreement. This is why it is also important to review the entire base agreement during the negotiation process.

Considering Value-Based Care Arrangements

Payers may approach you about participating in a value-based care agreement at any time. Before participating, practices should understand the structure of the proposed arrangement, as well as the financial and operational implications and risks. Resources from the American Medical Association (AMA), America’s Health Insurance Plans (AHIP), and the National Association of Accountable Care Organizations (NAACOS) offer guidance on evaluating value-based care models, data-sharing expectations, and readiness for participation:

• Payor Contracting Bootcamp 201 covers trends in value-based care arrangements, different risk arrangements, and practical tips for making an informed decision before entering a value-based care arrangement.
• Creating a Sustainable Future for Value-Based Care: A Playbook of Voluntary Best Practices for VBC Payment Arrangements, offers insights and best practices for total costs of care (TCOC) models.
• Voluntary Best Practices to Advance Data Sharing Playbook provides guidance to help practices assess their readiness to meet data-sharing and performance measurement requirements that typically accompany value-based care arrangements. 

Importantly, pediatric value-based care differs fundamentally from adult models, and arrangements should reflect children’s unique needs and emphasize prevention, care coordination, and population health activities.  See findings from the Libby Fellowship in Pediatric Practice and Payment Transformation.

Even if you choose not to enter into a value-based care arrangement right away, being informed and understanding what questions to ask allows you to make a decision that is right for your practice.

Negotiating Language

Since negotiating payment rates can take several months, request the base agreement early to allow time to thoroughly review and redline language. 

Consult an attorney experienced in payer contracts for assistance with negotiating contracts. 

While not all terms will be negotiable, it’s important to understand terms that could impact your experience with a payer. The following is a high-level, non-exhaustive list of terms to pay attention to during your review:

Term and Termination

These terms, including the effective date, initial term, and renewal provisions, determine how and when you can initiate renegotiations and how quickly you can get out of the agreement if needed. 

Participation in Plans and Products

Payers may request that you participate in all applicable plans and products, so identify which products you plan to participate in and whether terminating participation in one plan or product would trigger termination of the entire agreement.

Payment Terms

Pay close attention to provisions and timeframes regarding timely filing, prompt payment, appeals processes, recoupments (including due to eligibility issues), and overpayments. Some of these timeframes may be governed by state law.

Dispute resolution

Understanding the dispute resolution process upfront helps make sure you are prepared if issues arise.

Amendments

Amendments can significantly alter the terms of your agreement, so review this section carefully, note notice requirements, and seek mutual consent and dual signatures when possible to avoid unilateral changes. 

Policies and procedures

Contracts often incorporate a payer’s policies and procedures by reference, so clarify which document prevails if there is an inconsistency between your contract and the external document. 

Additional Resources

• The Pediatric Management Institute and AAP price transparency resource tools include data on negotiated commercial payment rates for the most common CPT codes used by pediatricians.
• For more details on provisions within the payer agreement, check out the AMA private practice toolkit, Payor Contracting 101. Further, the AMA Payor Contracting Bootcamp 101 provides an overview of commercial payer types and payment models, considerations for contracting, and key insights on negotiating terms of the agreement.
• The AMA Managed Care Legal Database can help in identifying relevant statues in your state.