Multi-year Contracts

Over the last month, I have had three practices ask me about multi-year contracts.  What do I think of them?

Multi-year contracts can be great.  Why not?  It’s one less contract to worry about for 2-3 years.  Presuming you do it properly, of course.  Sometimes, the payors are willing to give price increases over time that you could never get going year-to-year.  In addition to all of the normal contracting issues to consider, here is my general advice when a multi-year contract is on the table:

  • Whatever rate you are paid for your multi-year contract should increase each year.  100% -> 110% -> 120% of Medicare, etc.  Obviously, it’s more money.  And, obviously, it reflects an expected cost-of-living increase.  But it also means that the starting point in your negotiations 3y from now is higher.  And it’s a matter of principle.
  • Lock in your RVU year.  In the past quarter I have seen more contracts that talk about the “prevailing CMS rates” than in the previous two years.  Why?  Because all the payors know that Medicare rates are going to get cut.  In fact, as I’ve pointed out here, depending on your “gypsy,” you may already be getting a sizable cut.  So, the smart payors tie you the most recent year because they expect that it will cut their reimbursement 10-20% in the years to come.  So, lock your contract to, say, 2006 or 2007.
  • Finally, take this chance to make sure the payor refers to RVUs, etc., and not the “Medicare rates” – the latter language gives them freedom to use the Budget Neutrality adjusters, which are an additional ~5% cut.
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