Knowledge of costs and group effort result in beneficial contracts

Managed care negotiations require attention to detail and requirements

(Editor's note: This is the second of a two-part series that looks at the financial challenges to home health agencies. Last month, we looked at an overview of some of the issues. This month, we discuss managed care contracting and tips for handling the process successfully.)

California has always been a state with high managed care penetration, but home health agencies throughout the country are seeing the need to understand how to negotiate managed care contracts as managed care organizations become more predominant.

"With the evolution of Medicare managed care organizations, it is particularly important for Medicare-certified agencies to become experts at negotiating managed care contracts," points out Sherl Brand, RN, BSN, CCM, president and CEO of the Home Care Association of New Jersey. The market penetration of managed care differs from state to state, but growth in managed care coverage means a smaller pool of potential referrals, she explains. Patients now covered by a managed care contract can only choose your agency if you are on the managed care company's list of agencies, even if they have used your services in the past, she adds.

As agency managers look for ways to ensure future financial success, contracting with a range of managed care companies, not just Medicare, is also a way to diversify your payer sources, says Brand. "You don't want all of your eggs in one basket when it comes to your reimbursement," she explains.

The first step for a successful negotiation is to identify the managed care payers in your area, Brand suggests. "Hospital-owned agencies have the luxury of access to the list of managed care payers with whom the hospital contracts," she says. "Freestanding agencies can identify payers by contacting their state insurance department to see what companies are in their area."

After identifying the companies in your area, research their penetration in your market, says Brand. "If the payer does not have a lot of members in your area, don't pursue a contract," she says. "You want to spend time negotiating with a large organization with a lot of members."

The initial contact with a managed care organization varies from organization to organization. "Research their web site to find out how the process works for each company," she suggests. "Many times, an agency will send a letter of interest to file an application; then the company will provide more detailed information about the application," she says.

Be sure that you know the true cost of all of your services, says Brand. "The first contract that the managed care organization will present to you will contain their ideal rates," she says. If the initial reimbursement is less than what you can reasonably accept, make sure you can explain your costs and your capabilities, she says. "Your expertise with special populations, disease management programs, geographic coverage, stability, accreditation, and successful outcomes are all reasons that the managed care company should offer a reasonable reimbursement.

"After you have the initial contract, be sure to review it with all of the stakeholders," says Brand. These stakeholders include the chief financial officer, the operations manager, quality or risk manager, an attorney, a clinical manager, and a business office representative, she suggests. "Quite often there is a lot of facility lingo included in the contract that may not be understood by everyone and requirements that may seem reasonable to everyone except the person who will have to meet the requirement. By having everyone read through the contract, pitfalls can be avoided," she says.

Important to involve other staff

It is important to involve clinical and business office staff in the review of the contract because they are the ones who deal with insurance verification and need to understand different requirements, says Steve Telles, CPA, home health financial consultant with Management Consulting Services in Albuquerque, NM. Very often a nurse will learn about a change in coverage through conversations with the patient and be able to notify the business office of the need to re-verify coverage, he adds.

Don't sign a managed care contract just because you want the contract, warns Brand. "The initial contract might include a requirement that the physician order be signed within 24 hours, but you know that's not feasible," she explains. Be ready to explain that this is not reasonable and point out that a signature within 24 hours is not required by Medicare or state regulations, she suggests. Offer reasonable guidelines to replace unreasonable ones, but be careful that you can live with the ones to which you agree, she adds.

All changes throughout the negotiations must be in writing, Brand says. "If the contract states that all billing will be done within five days of discharge but you know that your system will not enable you to meet that deadline, change the wording to what you can provide," she suggests. After the managed care company responds, explain your reasons for the change, if necessary.

Always be ready to walk away from negotiations, Brand stresses. If you encounter a requirement that the managed care company won't change, ask yourself if it is a deal breaker, she adds. "If the requirement or the reimbursement level is something with which you can't live, walk away."

Be ready, also, to admit that managed care contracts may not be right for your agency, says Brand. "A managed care contract always adds administrative costs and requires that you put systems into place to monitor contract requirements to make sure you are billing correctly," she says. If your agency is not ready to handle the additional administrative responsibilities, don't rush into managed care contracting, she suggests.

"When negotiating," Brand suggests, "you should understand that the managed care organization will initially ask for the universe but be willing to accept the moon and stars. The key to successful managed care contracting is to make sure you can provide the moon and stars at the reimbursement level offered."


For more information about managed care contracting, contact:

  • Steve Telles, CPA, Management Consulting Services, 7007 Wyoming Boulevard NE, Suite D-5, Albuquerque, NM 87109. Phone: (505) 888-5439. E-mail:
  • Sherl Brand, RN, BSN, CCM, President and CEO, Home Care Association of New Jersey, 14 Washington Road, Suite 211, Princeton Junction, NJ 08550. Phone: (609) 275-6100. Fax: (609) 936-9349. E-mail: