Payer contracts redux

By Alice G. Gosfield, Esq., December 1, 2023

DermWorld covers legal issues in “Legally Speaking.” This month’s author, Alice G. Gosfield, Esq. is a health care attorney at Alice G. Gosfield and Associates, P.C.

What has changed?

Probably the first major change from seven years ago is the considerable consolidation throughout the health care system. This includes the payers themselves, some of whom are now part of provider entities too, such as CVS owning Aetna, and the merger of CIGNA and Express Scripts, among others. The size of the payers has increased as has the managed care market generally. It is expected to continue to grow into 2026. Medicare Advantage now accounts for more than half of the Medicare population. And, while those plans must cover what is available under Medicare Parts A and B, contracting with them is like contracting with any other private payer. In terms of negotiating contracts, these changes give the plans more power since they become more essential to any physician practice the more market share they have. Any physician’s ability to negotiate will turn on the configuration in which the physician finds themself. Are they in a stand-alone practice, part of a small cadre of dermatologists in a large multi-specialty group, or are they part of a consolidated dermatology practice itself?

This raises the second major change in the configuration of physician practices: the advent of private equity. According to VMG Health:

“There were 134 private equity transactions recorded between 2020 and 2022, indicating a strong and consistent demand for investment when compared to the 171 transactions between 2017 to 2019. However, it is important to note these figures only include transactions that are strictly related to dermatology practices and do not include med spas or other aesthetic services. Additionally, even with the significant deal flow in the space, the market remains highly fragmented with no single participant owning 1.0%+ of the total market”.

The goal of private equity is to improve the value of the assets they have bought and then sell to a bigger fish. These companies are wildly variable in their expertise in managing dermatology practices, which includes negotiating payer contracts for the purchased practices. Still further, their financial goals may not be consistent with the physicians whose services they manage. Because they represent multiple practices they own, their goals may be to solve problems not relevant to a specific, local practice. Other commentators have noted that private equity faces special challenges from underestimating the contracting timeline, to overestimating the value proposition to payers, to lacking payer contracting history and infrastructure…and more. The success of their managed care payer strategies can be variable; and depending on the structure of the transaction putting private equity in ownership, more or less difficult for physicians to influence. And then there is the problem that at some point in the future someone else may own the practice/assets.

What doesn’t change?

Despite the dynamism and sometimes chaos of the changing system over the last few years, some things in payer contracting are immutable and never change. Primary among them is the ‘beneficiary hold harmless’ provision which says the physician or non-physician provider can only look to the payer for payment of covered services. Medical necessity is always a requirement for services to be covered unless there is a specific screening or preventive services benefit. Cooperation with the payer’s management systems — from credentialing, utilization review, quality assurance, record-keeping, subscriber grievances systems, and claims submission — is required. Those programs are frequently documented in separate manuals, and more and more often online only. Licensure and malpractice insurance are required, and many require board certification, and DEA. Any changes to the basic qualifications must be reported within specified timeframes. Physicians may charge only for co-pays, deductibles, and non-covered services. They must refer in-network to other participating physicians and non-physician providers.

Variability

The programs of the payer with which the physicians must participate can vary. Some require participation in all plans and others do not. Timeframes for termination for breach or without cause are quite diverse. How amendments may be added — by mutual agreement or unilaterally — differ. Different payers are more or less concerned about practice mergers, acquisitions, and reformation; but it is becoming more common for them to restrict the application of their rates if these changes occur. Some do not allow the addition of ancillary services, so the increasingly common addition of dermatopathology to a dermatology practice may not be so viable under some contracts which carve out all pathology to specified physicians.

New payment models are still evolving as the cost of health care has become unmanageable. Fee for service, while widely decried as causing much of the inflationary cost increases, remains the dominant form of payment. Still, payers increasingly introduce new payment models which have widely divergent effects. How those are negotiated, if at all, during the term of the agreement is another point of variation.

What is to be done?

Unless a dermatologist is part of a large negotiating group, the ability to haggle over actual terms of payer agreements may be insignificant. For practices that have sold to private equity or have consolidated into a health system practice group, there is typically no role for the physicians in negotiating. In the multi-specialty practice group setting, whether dermatologists are involved in negotiating for the group is subject to the vagaries of group practice governance specifics. That said, the payer contract’s provisions, no matter how much was negotiated or not, especially depending on the plan’s market share, can drive how a practice organizes itself to maximize the financial potential that exists under the terms of the applicable agreement. Ultimately, this can influence how a dermatologist acts clinically. Knowing what those terms mean is essential.

Editor's note: Another consideration is whether sequestration will be applied to your Medicare Advantage (MA) reimbursement rates. Sequestration refers to the 2% reduction that CMS applies to Medicare payments to MA plans. Although not required by CMS, MA plans may pass these reductions on to physicians. Many times, the sequestration reduction is not mentioned in the MA contract.

This article is provided for informational and educational purposes and is not intended to provide legal advice and should not be relied upon as such. Readers should consult with their personal attorneys for legal advice regarding the subject matter of this article.

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