Is Breaking Up Really That Hard To Do?
BY JIM STOKER, PT, DPT
RENEGOTIATING INSURANCE
Payment agreements for physical therapy can be as intricate and nuanced as the soulful sounds of a rhythm and blues song. A successful negotiation requires skill, precision, and an understanding of the broader context. Payer agreements may need to be revisited when the current terms no longer meet the business’s needs or values. Practice owners must be prepared to modify their agreements to achieve a harmonious balance between professional goals and financial realities.
THE RHYTHM OF PHYSICAL THERAPY AND INSURANCE AGREEMENTS
At the heart of every great song is a rhythm that drives its tempo and energy. Similarly, the smooth operation of a physical therapy practice relies on a steady and predictable rhythm. Those who operate beyond agreements are misaligned with the costs of service, patient volume, and treatment efficacy. However, insurance contracts often fail to reflect the reality of running a practice, resulting in a disconnect between the provider and the insurance company. Just as musicians adjust their instruments to ensure they’re in tune, practice owners must assess whether their agreements are still in harmony with their business and renegotiate accordingly when they’re not.
IDENTIFYING WHEN IT’S TIME TO RENEGOTIATE
There are several factors to consider when determining whether it’s time to revisit an agreement. As a practice owner, you must know your numbers in order to recognize whether the payment agreement is in tune with your practice. This detailed analysis will help you build a secure grounding through the negotiation process.
1. Payment Rates Below Cost of Service
One of the most common signals that renegotiation is necessary is when payment rates from insurance providers fall below the actual cost of providing care. This mismatch can create a negative revenue stream. Providers who consistently face underpayment will find themselves stretched too thin with too many “loss leader” agreements.
2. Frequent Payment Delays or Denials
Consistent cash flow is essential for the survival of a physical therapy practice. Significant disruptions occur in a practice’s financial stability when insurance companies frequently delay payments or deny claims for no valid reason. When payment delays or denials become habitual, it’s crucial to address the issue by renegotiating the payment terms. Know how fast your revenue process and pay claims by measuring your Days Sales Outstanding (DSO).
DSO = Total Accounts Receivable (A/R) ÷ Average Billed Charges Per Day
Accepted ranges for DSO are:
- Less than 30 days – very good
- 30-40 days – OK
- 40-50 days – needs attention
- More than 50 days – poor
3. Administrative Burden, Authorization Caps, and Complexities
The administrative burden associated with insurance billing, claims processing, and obtaining pre-authorizations can be overwhelming. Authorization terms such as requiring an evaluation before additional visit authorization or only authorizing a few visits at a time may delay the provision of care. This hurts timelines, quality of care, and the patient experience. When insurance agreements require excessive paperwork, arbitrary caps or limits, pre-approvals, or other complicated processes, it can detract from the provider’s ability to focus on the patient.
HOW TO APPROACH RENEGOTIATION
When the practice rhythm is off and it’s clear that renegotiation is necessary, it’s important to approach the conversation with insurance companies with clarity, preparation, and goals, as a sense of professionalism. Just as preparing for a performance, preparing for the negotiation process requires thorough planning and confidence.
1. Know Your Costs
Practice owners should understand the market rates for services in their area as well as the costs associated with running their practice. Break down your costs per unit, per patient, per visit, and your total PT compensation costs, and add a percentage for profit margin to determine the minimum per visit you can accept.
2. Know Your Payment and Identify Problematic Payers
Besides knowing how quickly you receive payment from a payer (DSO), you should know what you are paid per payer. This is not as clear-cut as you may believe. When assessing payment per visit per payer, you should review an extended time frame—preferably at least 12 months—to account for DSO and outliers. Identify which payers fall at or below your minimum.
3. Know Your Value
An essential aspect of negotiation is understanding the value you bring to the table. The Economic Value of Physical Therapy in the US from APTA is a great resource to support your value discussion.
4. Know Your Audience, and Be Clear and Specific
Find someone at the insurance company who will talk to you. This may take a while, but be persistent. Clear communication is key in any negotiation. Start with asking the payer questions: What is most important to them? How can you meet that need? Can you find common ground?
5. Know Your Ask
Be prepared with your ask. Understand your current agreement beyond payment and how other terms impact your practice.
6. Know Your Walk Away
Not every negotiation will result in a favorable outcome. Determine your walk-away point before you engage in the negotiation. Don’t sell yourself short.
FINDING THE RIGHT GROOVE
Negotiating insurance payment agreements is a delicate and complex process. Like an artist crafting a song that resonates with their audience, physical therapy practices must create an agreement that reflects the true value of their services. Whether choosing to renegotiate or opting for out-of-network status, the goal should always be to keep the rhythm of the practice in tune with financial and professional objectives, ensuring a successful, harmonious future for both provider and patient.
REFERENCES
- Best Practices for Negotiating Health Insurance Contracts for Medical Practices. Docvital.com. https://www.docvital.com/2024/03/06/best-practices-for-negotiating-health-insurance-contracts-medical-practices/
- The Economic Value of Physical Therapy in the United States. American Physical Therapy Association. https://www.apta.org/economic-value-pt
Jim Stoker, PT, DPT, is a PPS member and CEO of Medical Billing Center in Greenville, SC. He can be reached at j.stoker@mbc.com.