Providers must stop subsidizing payors’ profit margins. Consider UnitedHealthcare, which boasts a 6 percent margin on revenue (equivalent to $22 billion), while hospitals manage a slim 3 percent margin, and physician practices often struggle to stay financially viable. This imbalance underscores the urgent need for hospitals, health systems, and physicians to negotiate rates that not only cover their costs but also generate margins sufficient to offer competitive salaries and reinvest in technology and facilities.
The financial strain is evident—health systems lose more than $200,000 per employed physician annually. As a result, renegotiating payor contracts must become a top priority for 2025. Encouragingly, payors have shown a willingness to establish physician rates at the 70th percentile. Those who have secured such rates often follow a disciplined, strategic process.
The first step is conducting a detailed market analysis. This involves comparing high-volume Evaluation and Management (EM) and Current Procedural Terminology (CPT) codes to regional rates, allowing providers to identify discrepancies and advocate for fair compensation.
Next, health systems should establish a formal board policy that sets minimal acceptable rates for payor contracts. If a payor fails to meet these standards, going out of network should remain a viable option. A clear policy provides leverage in negotiations and protects the financial stability of the organization.
Before negotiations begin, it is essential to educate payor representatives. Providers should meet with them to outline a justification for increased rates. The rationale may include the need to achieve regional financial targets at the 75th percentile, align rate increases with payor trends, and offer competitive compensation to attract and retain high-quality providers.
When it comes to negotiations, preparation is key. Providers should submit a detailed request for rate increases by EM and CPT codes over a 24- to 36-month period. Additionally, it is important to quantify how any proposed payor rates will impact the group’s financial performance. Having this data in hand can strengthen the provider’s position.
In cases where negotiations stall or progress is insufficient, providers should be prepared to send a notice of termination. This step, while serious, signals that the provider is willing to walk away if the terms are not fair. Clear communication with employers and patients about potential “out of network” implications is also critical during this phase.
Once a contract is finalized, vigilance remains necessary. Providers must ensure the new fee schedule is correctly loaded into their billing system and verify that reimbursements match the agreed-upon rates. Any discrepancies should be flagged and addressed immediately.
By following this structured approach, many groups have successfully achieved rate increases of 20 to 25 percent. Furthermore, payors are acutely aware of the importance of maintaining positive relationships with providers, especially in light of high-profile disputes, such as the recent UnitedHealthcare incident in New York City.
Jeffry A. Peters is a health care executive.
