The healthcare landscape is constantly evolving, with changes in technology, patient care, and the business of medicine all occurring at a rapid pace. One area that often goes overlooked but is equally critical to the success and sustainability of medical practice is the negotiation of payer contracts. With the rising costs of providing healthcare, it’s essential that physician offices stay on top of their contracts with payers, such as insurance companies and government agencies. This article will explore the importance of renegotiating payer contracts every 18 months, focusing on three key factors: inflation, payer rate reductions, and the cost of retaining talented employees. Negotiating your contracts on your own may lead to increases, but you can also retain companies that specialize in this service. Researching both options is important, but negotiating your contracts is essential.
Inflation Devalues Contracts Over Time
Inflation is a natural economic phenomenon that results in a general increase in prices and a decrease in purchasing power over time. According to the U.S. Bureau of Labor Statistics, the average inflation rate from 2010 to 2020 was approximately 1.5% per year. When applied to healthcare, this means that the costs associated with providing medical services continue to rise over time.
For physician offices, inflation can have a significant impact on their bottom line. As prices for goods and services increase, so do the costs associated with running a medical practice, such as rent, utilities, and supplies. To maintain profitability, it’s essential for physician offices to ensure their payer contracts keep pace with inflation. By renegotiating contracts every 18 months, practices can better account for rising costs and maintain a more stable financial footing.
Payers Lower Rates Over Time
Insurance companies and other payers are continually seeking ways to cut costs and improve their bottom line. One common strategy is to reduce reimbursement rates for medical services over time. For example, Blue Cross Blue Shield, one of the largest health insurance providers in the United States, has a history of implementing rate reductions to control costs.
When payer contracts are not renegotiated regularly, physician offices may find themselves locked into agreements with steadily decreasing reimbursement rates. This can lead to significant financial strain, as practices struggle to maintain profitability while still providing high-quality care to their patients. By renegotiating contracts every 18 months, physician offices can ensure they are receiving fair and accurate compensation for their services, preventing the erosion of their revenue streams.
The Cost of Retaining Talented Employees Is Much Higher
Retaining top talent is essential for any medical practice, as it directly impacts the quality of care provided to patients. With an increasingly competitive job market, the cost of retaining skilled and experienced employees has been on the rise. According to the U.S. Bureau of Labor Statistics, the median annual wage for healthcare practitioners and technical occupations increased by 2.7% between May 2020 and May 2021. This trend shows no signs of slowing down, making it more important than ever for physician offices to offer competitive salaries and benefits to retain their best employees.
In order to maintain a talented workforce, physician offices must ensure their payer contracts provide sufficient revenue to cover the costs of competitive compensation packages. Renegotiating contracts every 18 months enables practices to stay ahead of market trends and offer their employees the financial incentives necessary to stay with the practice, ensuring the continued delivery of high-quality care to patients.
The importance of renegotiating payer contracts every 18 months cannot be overstated. With inflation steadily devaluing contracts over time, payers reducing rates to control costs, and the increasing expenses associated with retaining top talent, physician offices must stay vigilant in their contract negotiations to ensure the long-term success and stability of their practice. By maintaining updated and fair agreements with payers, physician offices can better manage their financial health and continue to provide the highest quality care to their patients.
About Cameron Wood
Cameron Wood is the Head of Client Services & Chief Operating Officer at NGA Healthcare. NGA Healthcare specializes in negotiating reimbursement rates for providers of all specialties all over the country. They also offer ongoing credentialing services and ensure that groups receive fair market rates, and guarantee their fees.
