There are two major components of the payer-negotiation process: the financial terms of the new contract or amendment (“Agreement”) and the actual terms and conditions (“Terms”) of the written agreement. It is typically more productive to conclude the rate negotiations prior to a review of the actual proposed written agreement/amendment. As McKesson has written extensively on the key steps involved in successful payer negotiations as they relate to the financial terms, the main purpose of this article will be to highlight the key non-financial terms and conditions of the written agreement. 

Initial Term Review Notwithstanding the above, the first step a physician practice should take prior to negotiating the financial terms of the Agreement is to review the proposed initial term contained in the written agreement and to determine whether that initial term (e.g., two - three years) can be negotiated. More specifically, payer agreements often include an initial term and a provision whereby neither party can terminate the agreement without cause during this initial term. 

Why this is important can best be described in the following example. Imagine a scenario whereby a group negotiates a 5% increase in their rates with Payer A, at first believing that the initial term will be limited to one year, allowing the group to initiate another round of negotiations after this initial one-year term. However, the group realizes that Payer A’s initial term (during which time neither party can terminate without cause) is three years and Payer A is unwilling to compromise on the length of this initial term. Consequently, the initial euphoria of the group (believing they negotiated a favorable rate) is downgraded to disappointment. Further, due to the time and effort that groups often expend during these rate negotiations, groups are often reluctant to start the negotiations over somewhat unfavorable financial terms. 

Other Key Terms Below is a description of some of the other key terms of the written payer Agreement. It is important to understand, however, that various state regulations may supersede the terms of the Agreement. 

  • Termination: Prior to concluding negotiations on a new Agreement, it is important to understand how either party can terminate the arrangement either during the initial term or any subsequent term, which is typically one-year. From a flexibility standpoint, it is advantageous for the group to have the ability to terminate the Agreement without cause “at any time” with the shortest notice requirement as possible (e.g., 90 days).   

  • Amendment: One of the most important provisions of the Agreement is how it can be amended.  Typically, payer agreements include a provision whereby the group has a certain time period (e.g., 30 days) to object to a proposed material change (e.g., a lower fee schedule). The failure to object timely means the group is bound by this material change. Alternatively, the group could attempt to negotiate this amendment provision so that any material change (versus one required by law, regulation or directive) requires written approval by both parties. The importance of this provision highlights the necessity of ensuring that the Notices section of the Agreement includes the physical or electronic address of the person who is able to respond promptly to any proposed amendments.

  • Under/Overpayments: Another very important provision in payer Agreements is the amount of time either party can challenge either an under- or overpayment. Often, the initial draft of this provision includes language whereby the group is limited in the amount of time to challenge an underpayment whereby the payer has an unlimited amount of time to challenge (and recoup) any supposed overpayments. Ideally, the length of time would be equivalent. In any event, this provision highlights the importance of conducting routine (e.g., quarterly) reviews of payment vouchers to verify payment accuracy.   

  • Claims Submission: All payer agreements include a deadline the group must meet to submit the initial claim to be considered for adjudication. Further, the failure to meet this deadline often results in a denial, which cannot be appealed unless the group can demonstrate unusual circumstances. Physician groups, especially those considered “hospital based,” are typically dependent on their respective facilities to provide them with timely and accurate patient demographic data. Given that this data is often less than ideal and requires numerous steps to verify the accuracy of this data, groups typically benefit by a longer claims-submission deadline (i.e., 120 days or longer).


While the financial terms of payer agreements are paramount in importance, the terms and conditions of the written agreement are also vitally important. Further, the failure to negotiate some of the key terms referenced above can result in significant financial disadvantages for the group. While certainly there are other key provisions, those listed above are often the most important.

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About the author

Rob Saunders, MHS is a Senior Consultant of McKesson Business Performance Services. Saunders specializes in client service for radiology, anesthesiology and pathology groups. He with a focuses on financial and strategic analyses and facilitates group mergers – negotiating exclusive contracts with hospitals, conducting practice reviews and feasibility studies, fee analyses, revenue forecasting, and managed care reviews. Saunders has been with McKesson for more than 20 years and has served in various roles including Regional director Director of Client Services and Director of Client Development.