With a basic understanding of who pays physicians, how can you best evaluate what plans your practice should participate in as an in-network physician, and what plans the group should consider staying as out of network? You'd use a different process depending on whether you're with an established practice or with a start-up practice.

Start-up Practice

When a physician or group opens a practice, they must determine what plans to join as an in-network physician and what plans to stay "out of network." This process can be daunting, because many of the large insurance companies have multiple plans and it is difficult to understand the differences among them.

The simplest way to determine what plans to take is to first determine what group of patients the practice wants to have as its target market. Is the group targeting older patients who have multiple medical issues? Or younger, more health-conscious patients? Other important questions are: What is the economic condition of the neighborhoods around the practice, and who are the largest employers? Because most patients choose healthcare close to where they live or work, the largest employer will probably determine the economic condition of local patients.

Finally, find out which plans the local hospital or hospitals accept as in-network. In most cases, it's difficult for a physician to be out of network with a payer if the area hospital is in-network. Patients expect that if the hospital will take their insurance; the affiliated physicians must do so as well.

With this information, your practice can determine what coverage the majority of the patients will have and what the payment levels of the top payers have been. One way to gather information on the payment level is to call the company and ask about specific plans and indicate interest in those plans. At this point, you can ask for a selection of in-network payment rates and determine what percentage of current Medicare these payments would be.

Another option is to contact a local billing company that provides billing services for area physicians. That company should have statistics on the payment levels and accuracy of the predominant payers in the market.

Finally, your practice should research any independent reports comparing critical metrics, such as timely payment, accuracy of payment, or dispute resolution statistics. One example of this type of report was the American Medical Association (AMA) National Health Insurer Report Card, which the AMA discontinued in 2014. This report compared the payment timeliness of seven independent payers with that of Medicare.

An example of report findings is the percentage of time that the payer pays at the correct rate according to their agreements in place. This statistic shows that Aetna paid at the correct rate 70.76% of the time in 2008; this improved to 96.22% in 2012. Anthem increased their denial rate from 4.62% in 2008 to 5.07% in 2012, whereas Medicare's denial rate went from 6.85% in 2008 to 3.78% in 2012.

Another example is athenahealth's PayerView, a report card prepared by a large billing software company that is based on their billing statistics gathered during the processing of claims. Although this report does not cover a large percentage of all participating physicians, it is very specific, because the company has access to all of the claims filed with their software. The report shows comparisons with Medicaid, Medicare, Blue Cross companies, national commercial companies, and major payers. It does not list specific payers, but it does show some statistics that do not appear in the AMA report.

Once you've analyzed the data, select the plans that cover 80% of your patients—unless the plans with the most volume are significantly underperforming compared with their competitors. If all of the expected patients' plans are underperformers, you or your group should consider relocating to an area with a better payer mix.

After you have an understanding of the payers' strength and weaknesses, focus on the strength of the economy of the area where you want to open your practice. For example, in an area where the economy is strong and the expected patients will be relatively healthy and working, you can consider being out of network for all plans and establishing a cash-only practice. However, in an area where residents have less disposable income and there is a large number of retired patients, the practice will probably consider being in network for at least Blue Cross plans and Medicare, and you also may need to accept Medicaid.

Finally, a new physician must consider any independent physician groups operating in the area. These groups are often organized and supported by the hospital and are referred to as PHOs (see Chapter 1). They can be very active and profitable in one hospital and be financially unstable and very poor payers in another hospital. If you're considering joining a PHO, have a frank conversation with other physicians in practice at the hospital and ask about the payment rate, speed of payment, and ease of working with the group before you agree to participate. Also, find out whether this is the principal negotiating arm for insurance contracts for the physicians who practice at a particular hospital. Often, if physicians join a PHO, they will be given access to the contracts negotiated by the PHO, which may be better or worse than the contracts that the physicians could get on their own.

Established Practice

Established practices would follow a similar process for choosing plans, except that the practice should have statistics from their billing system that can tell them what percentage of Medicare each payer is paying the practice. They should also have speed and accuracy experience to rely on. Once you gather the data, evaluate which 20% of your payers are giving you 80% of your revenue. Go out of network for the lower-volume payers.

You should also analyze your data to determine what payers are paying, on average, as a percentage of Medicare. Eliminate payers that are not paying at least some level above Medicare rates. When doing this analysis, make sure you gather all of the "allowed" payment information for each data set examined. In some cases, payers show up as very low, when actually the payments included are only the secondary insurance payments or exclude patient deductible payments.

If you find that a significant number of patients are coming from a payer with a very low reimbursement, the practice can consider discussing the situation with the physician representative at the local hospital. As previously stated, in many cases, hospital systems have PHOs that contract with payers for group rates for their physicians. If your practice can join one of these larger groups, you may get the leverage necessary to increase the rates to a reasonable level.

As for the economic benefits of participating in a PHO, an established group can either review their own practice results from participating in the PHO, or if they do not currently participate, they can ask other physicians about their experience. Often, a group will drop out of a PHO and find that the rates they can contract for are higher than the rates contracted by the PHO. On the other hand, a group could find that large bonuses are being paid to participants in the PHO and that these bonuses make up for any reduced fee schedule.

If you cannot join a hospital-sponsored group, consider contacting the insurance representative and explaining that you're thinking about dropping out of network because of the low level of reimbursement. Sometimes, if the payer is confronted with the fact that they are significantly below market payments for the area, they will negotiate higher rates for the group.

Medicare

As the number of people older than 65 years increases, it will be difficult for a physician or group to avoid participating in Medicare. Once you decide to participate in Medicare, you must decide whether you want to provide the data necessary to participate in the various "pay for performance" programs discussed above. It seems that the majority of physicians will participate in the technology-based incentives, but plans that require significant infrastructure will be sponsored only by hospitals and very large groups. What remains to be seen is whether these alternative payment programs will be significant enough to force individual physicians to practice in large groups.

Another issue to consider is the healthcare community. Does your practice get most of its new patients from other physicians? If so, consider what plans these physicians participate in and approximately what volume the referring physician has in a particular plan. If the referring physician has most of his or her practice through the local PHO or with Medicare, they will be hesitant to refer their patients to a practice that does not participate in the same plan.

On the other hand, physicians who decide to drop out of a plan must also consider whether they get a lot of referrals from the hospital through the emergency department or through in-patient required referrals (such as the anesthesia or pathology departments). In these cases, the patient expects that the physician will be in-network if the hospital is in-network. In fact, some states (eg, Illinois) require hospital-based physicians to take the negotiated rate for all insurance plans that the hospital accepts, even if the physician does not contract with the payer. In those cases, it may be better to negotiate the best deal possible with the payer and be in-network rather than just take the rate that the law requires.