Now that you have a background in government payment methods, it's time to look at getting paid from insurance companies. The first key to getting paid properly by insurance companies is to negotiate the best contract possible. This is becoming more difficult with the variety of products on the market.

The next step is billing for physician services. Once you have a contract, it seems like this would be very simple. However, there are many rules to follow for each type of insurance product, and these rules change frequently. For a smaller practice, these rules can be very difficult to keep up with. Consequently, many practices experience denied payments on valid charges every day. The way for a smaller practice to survive is to have motivated, qualified, and up-to-date billing staff who embrace technology, and to also have practice administration software that is updated regularly.

The final key aspect of getting paid is to follow up on denied charges and unpaid bills regularly and completely. Although following up on a denial of a $50 item may not seem worthwhile, it might lead to uncovering nonpayment of all items with the same codes from a particular insurance company that would cost thousands if ignored. And $50 in challenges per week adds up to $2600 per year. With this amount for 12 payers each, that adds up to $31,200 per year.

Let's examine these steps in more detail.

A Brief History

In the early 1900s, most US citizens did not have health insurance. Patients were expected to pay all healthcare costs out of their own pockets under what is known as the "fee-for-service" business model. This is the model for most other services purchased in the United States today.

Although health insurance was first introduced in the 1920s, most people could not justify the expense. The first employer-sponsored hospitalization plan was created for teachers in 1929, but widespread acceptance of health insurance did not happen until employer-sponsored health insurance plans expanded as a result of wage controls during World War II.

Federally imposed wage and price controls prohibited employers from increasing wages to attract employees during a labor shortage caused by the number of men involved in World War II. When the National War Labor Board declared that fringe benefits, such as health insurance, did not count as wages for the purpose of wage controls, employers rushed to offer fringe benefits, especially health insurance, to compete in the labor market. Historically, religious organizations and charities would assist some people with high medical bills. Once insurance came into widespread use, the impetus for and prevalence of charitable assistance waned dramatically.

Once World War II ended, employees had come to expect health insurance as a benefit. Between 1940 and 1960, the total number of people enrolled in health insurance plans grew from 20 million to 140 million, ^[1] and by 1958, 75% of working Americans had some form of health insurance coverage. ^[2]

Up until the mid-1970s, the financial relationship between patients and physicians was usually direct. Patients paid their physician directly for their services, and then filed a claim with their insurance company to get reimbursed for their expenses in excess of their yearly deductible. Although most insurance claims were filed by hospitals for the patients, physicians generally did not follow suit.

In 1988, economist Eli Ginzberg ^[3] said that in the 1950s, authorities considered 140 physicians per 100,000 population to be "a reasonable minimum." The market was tight in those years, but even so, "very few people were dropping dead because they had to wait a couple of days to see a doctor." Now there has been an immense increase in supply. "If one postulates that on average a ratio of 200 physicians per 100,000 is more than adequate...then a prospective rate of 260 in the year 2000 indeed represents a surfeit," he maintains.

The most recent information reported by the World Bank was 250 physicians per 100,000 population—just shy of Ginzberg's prediction. However, this number does not reflect the change in percentage of specialists and maldistribution of workforce, and it leaves the erroneous impression that the supply of physicians in the United States is adequate.

This significant increase took a small "cottage industry" of physician medical service providers and created a multimillion-dollar business. With this growth in volume also came a growth in fee per procedure. Fees increased owing in part to the policies of insurers of not informing physicians when the allowable rates were increased for services. This, combined with the inability to "balance bill" in many insurance contracts, meant that physicians, medical groups, and hospitals that didn't raise their rates to above those allowed by insurers were, relatively speaking, "leaving free money on the table." Ultimately, patients could no longer pay their bill and wait for reimbursement by the insurance companies. The era of physicians billing insurance companies on behalf of the patient was born.

By the end of the 1970s, very few physicians required payment by the patient at the time of service. This fact began the separation of patient-as-purchaser from physician-as-provider and ushered in the era of "free" healthcare from the perspective of patients. Because the insurance company paid the physician directly and deductible and copays for insurance were initially rather low, patients were unaware of the skyrocketing cost of healthcare and demanded more and more services.

There is a shift back to consumerism in the healthcare industry with high deductibles and transparency in fees, but insurance companies or the government will pay the bulk of healthcare costs for the foreseeable future. That being said, physicians need to understand how to select the plans they wish to participate in and how to negotiate agreements that work for them.

Currently, most medical practices participate in 50 or more plans, with various documentation requirements and other administrative hoops to jump through. Preauthorizations, referrals, and collection of copays are typical, but many other things may be required. Each insurance company offers multiple plans, and often the company pays the practice according to the fee of the lowest plan even if the practice is not participating in that particular plan. Many physicians contract with the insurance companies through hospital provider groups (eg, independent practice associations), and they may not even be aware of the plans they accept by being part of a group negotiation.

So, what plans should a physician or group accept, and how should those plans be negotiated? The first step any physician should take is to find out what the current condition is in the geographic area where they practice. Whether the physician is just setting up practice or has been in the area for 20 years or more, a complete knowledge of what plans are accepted by the area hospital, laboratories, physical therapy centers, surgical centers, and surrounding physician offices is critical in establishing the practice as part of the community or as an outsider. If a physician is out of network and every other provider the patient sees is in network, the patient will view seeing that physician as too expensive.

Do the research. Know your environment. Know your competition.

The next step is to verify what joint contracting groups you participate in and review the terms of these groups. For example, are you required to be in the group in order to be on staff at the hospital? Are you required to take all the contracts the group negotiates, or can you opt out of some?

Once these ground rules are identified, it's time to look at each insurance plan agreement to determine exactly what plans the practice is enrolled in and what the key contract terms are . At a minimum, two terms worth knowing are when the plan comes up for renewal, and what the contracted rate is. Gathering this information is often much harder than it sounds, because hospital contracting groups often do not have a signed, current copy of the contract in their records.

One thing to keep in mind: The key to signing good contracts is to walk away from bad contracts, no matter how difficult this may seem. Be aware that physicians have a choice to not take payment on a product on the basis of another product in which they are not participating. That is where negotiation comes in. This is open for negotiation—not a moot point to acquiesce to.

Once you have a list of the plans that serve the market, find out the approximate share of the market each one has. If the practice has been in the area for many years, this would be as simple as reviewing the revenue collected for the past few years by the insurance company and plan. It is also important to collect data on the number of patients, number of visits, total charges, and total collections.

These data can be used to identify the top 80% of insurers and plans by patient visits (volume) and top 80% by revenue (collections). Usually, the top 80% in revenue overlaps substantially with the top 80% by volume and is usually provided by only 20% of the insurance plans paying the practice.

Once the insurance plans have been ranked by volume or collections, it's time to take a hard look at the top 10 nongovernment plans. These are the questions you want to be able to answer:

1. Do my referral sources take this plan?

2. Do my competitors take this plan?

3. Does the hospital take this plan?

4. Can we get out of this plan, or are we locked in because of our participation in the contracting group (eg, independent practice association)?

5. If we can get out, what are the exit dates (end of contract, noting any notice requirements)?

6. What types of denials have we been getting? Are they random, or have we been seeing a pattern that should be addressed?

7. What does our staff think of this plan, and how easy is it to work with the plan employees?

8. What percentage of my practice does this plan represent by volume (patient visits)?

9. What percentage of my practice does this plan represent by collections?

10. How timely is payment made on a clean claim?

11. What are my five highest billing codes by volume, and what does this plan pay for those codes?

12. How complex are the administrative requirements, and how much do they cost my practice?

Once you have the answers to each of these questions, you should be able to sort them into groups. When determining the average reimbursement, take into account the costs per patient of high administrative requirements.

• The first group is no change necessary. This is the group where the key players in the market take the plan, you have a high volume of patients, and the reimbursement is average or above.

• The second group is negotiate if possible. This is the group where the key players in the market take the plan, your volume is high, and the reimbursement is below average.

• The final group is drop this plan. This is the group with low volume and poor reimbursement.

As you are sorting, you should take into account the dates on which the plans terminate and the dates by which notice of termination is required. Any plan in the second group should be negotiated in the order of expiration of the contract. Any plan in the third group should be terminated, keeping in mind the dates by which the notice is required.

Make sure to contact the insurance company at least 60-90 days before notice is required; this may be 6 months before the contract terminates or is automatically renewed. This will give you time to meet and wait for a response or counteroffer by the insurance company and still have time to give notice.

If you are a new practice starting up, you may not be able to make a full analysis because you lack prior visit or collection data. However, many of the questions above are worth reviewing before you sign up with whatever plans the hospital suggests. It would also be worthwhile to ask a noncompetitor or a local billing company about their experience with each of the plans.

Once you have identified the importance of each insurer, arrange to meet with the plan representatives. Tell the insurer that you specifically want to discuss the terms of your contract, and that it is important that you meet with someone in person. Arrange to hold the meeting in your office, and set a date not to exceed a reasonable time from when you called.

What is important is trying to meet with a person of authority who can make decisions in negotiation. One may waste time and meetings talking to someone who really can't change anything.

Don't let the company stall the meeting beyond the time when you can cancel the contract. If you are a semi-autonomous specialty practice, there are instances in which it can help to contact the hospital staff who are accountable for contracting and express your concern to them. State that you might have to terminate the contract if you are not getting cooperation from the insurance company. The hospital has a vested interest in its physicians participating in the same plans they participate in, and it should be able to get the attention of the insurance company representative.

Most large insurance companies will tell you that they don't negotiate. Don't let that stop you for the larger-volume plans. Consider that you might be able to get concessions on payments for tests or other items even if they will not budge on fees for key services. See whether you can get any other administrative expenses paid.

Keep in mind that you need to go into the meeting with the knowledge of how the practice would survive if you dropped the contract. If you say "or else," you need to make sure you are able to cancel the contract and survive.

When you get the new contract from the insurance company, make sure to have your attorney read it. Ask him or her to give you a list of key items to know and understand, so that you are prepared to give the company a counteroffer. Don't take the first contract as final until you know there are no "deal-breakers" in it. You don't need to pay to have the attorney negotiate the contract if you are a single physician or small group. You can negotiate, but make sure you have the attorney review the contract to make sure there are no hidden items that will cost you later.

It's also a good idea to have an accountant or healthcare consultant review the contract, to look for financial issues that the attorney may not be aware of and to determine that the contract seems to be in line with the current market contracts.

Finally, once the new contract is in place, have your billing staff watch the new claims paid to make sure that any changes agreed to in the contract are being put into place. Notice of noncompliance with a contract usually has a time requirement, and if you continue to take payment contrary to the terms of the agreement, you might not be able to get the company to adhere to the agreement later.