Contracts: In(crease), Out or Hold
Reading Time - 4 min
Why you should spend 4 minutes reading this:
Deciding which contract to sign and which ones not to can impact your bottom by 10%+
Contracts is on your desk. The question is:
Not To Sign
First let's think about the different outcomes for the contracts awaiting your signature via the Long-Term Winning Contract Matrix
1. Long-term winning contracts have reimbursement rates that will exceed your future Net Income targets. More on that here.
2. Short-term winning contracts meet your current Net Income Targets but need to be improved for the future targets.
Cost of Loss references the short-term impact to your bottom line if you lost that contract. You can find more on that here.
Depending on your contract types, the logic will vary. Fill out the form at the bottom of this article if you'd like to develop logic for your specific practice/clinic. Here’s a sample if your working with fee-for service (FFS) and capitated (CAP) contracts.
For a practice with both FFS and CAP contracts, this is a process to determine if you should sign the new contract on your desk.
FFS Contract Logic
If your variable cost rate is higher than what any insurance is willing to give you, that likely means your cost structure is too high. Until you decrease your variable costs below your contracts rates, your business is in serious risk
CAP Contract Logic
Step 1: Make sure you have the highest Per Member Per Month (PMPM) reimbursement they are willing to give you.
Step 2: Based on population type, arrive at an estimated MCA collection rate for that PMPM. Learn more about capitated contracts: Capitated Care: The Good, The Bad and how to keep it Good
Follow FFS Contract Logic from here
If you need support developing contract logic specific to your challenges, make sure to fill the form below
High-level actions you can take based on this article:
1. Review current contract signing logic
2. Update contract logic based on net-income targets and cost structure
3. Incorporate improve logic into contract management process
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