6 Factors to Consider When Selecting a Practice Management System

I get asked frequently about tips for negotiating (or renegotiating) ABA reimbursement rate contracts with insurance payors. This is something that I had to learn the hard way when my wife and I started our ABA company a decade ago. Like many other providers, we made some of the classic “rookie mistakes”: we took the “standard” rates that commercial insurance payors offered without questioning them, we accepted their slowness in paying our submitted claims, and we survived a multitude of ridiculous claim denials…all while we were in the process of “proving” ourselves to be worthy providers in their network. After a couple of years of dealing with this, I had reached the breaking point. Our cash flow was continually in crisis, due to low rates and slow reimbursement cycles. It was time to renegotiate with our payors. But this time around, I was ready and armed with these 2 sets of facts: Minimum acceptable rates Adequate provider network Factor #1: Minimum Acceptable Rates How do you know if a rate offered by a payor is a “good” rate for your business model? You need to understand your costs! You need to be able to answer this question: What is your “ loaded hourly rate ”? Calculate Your Costs A loaded hourly rate gives you an estimate of the rate that you need to charge to cover all of your costs, in order to break even. The loaded rate is calculated as follows: Loaded Hourly Rate = All Monthly costs / Total monthly billable hours Let’s break this down to make it more understandable: All monthly costs Over a sample period of time (6-12 months), calculate your company’s average costs per month. This number should include all payroll costs (for both billable and non-billable employees), and all overhead costs (rent, insurance, software fees, marketing, etc.). For our example, let’s say the average total monthly cost is $100,000. Total monthly billable hours: Use the same sample period of time (6-12 months) to determine the number of billable hours each month. If you have a practice management system, you should be able to pull a report or query that summarizes this information for you. This will include hours for all billable codes for RBT/BT therapy sessions, as well as BCBA billable hours for supervision and parent training. If you have other sources of revenue besides insurance billing, include those hours as well. Take an average number of these monthly billable hours over the sample period. For our example, let’s say that our average number of billable hours each month is 2,500. When you have determined these numbers, use the formula to calculate your loaded hourly rate. For example: $100,000 (average monthly cost) / 2,500 (average monthly billable hours) = $40/hour (loaded rate) You have just determined that you need to make at least $40/hour just to break even. In this example, if your current insurance contract with a payor is paying you less than $40/hour, then you are losing money on every hour that you bill to that payor! Add Your Profit Margin! Once you have determined your loaded rate to get a baseline number to cover your expenses, you need to add in a profit margin. I recommend calculating 3 scenarios: a minimum acceptable rate , a reasonable rate , and a wish rate . To continue my example, I will calculate 3 rate proposals: a 15% profit margin (acceptable rate), a 20% profit margin (reasonable rate), and a 25% profit margin (wish rate). If our baseline loaded rate is $40/hour, then our 3 scenarios look like this: Minimum acceptable rate: $46/hour (15% profit margin) Reasonable rate: $48/hour (20% profit margin) Wish rate: $50/hour (25% profit margin) Start your negotiation by asking for your wish rate. But, do not accept anything less than your “minimum acceptable” rate. If they refuse to meet even your lowest acceptable rate, it’s time to walk away and focus your energy on revenue streams that will be healthier for your business. We left the Cigna network in New Hampshire in 2019 because their “best” rate was below our loaded rate costs…and they were unwilling to negotiate, even though we were one of the largest providers in the state! Speaking of which… Factor #2: Adequate Provider Network This one is a little bit more abstract, and is highly dependent on the number of “in network” ABA providers in your region for a particular payor. Essentially, insurance providers are supposed to offer an “adequate provider network” for their subscribers. (For Medicaid, this is a requirement under federal law.) Many payors will claim (sometimes truthfully) that you are welcome to choose to leave their network, as they have many other providers in their network that can take the cases. But, if you do your homework, you can sometimes counter this argument (depending on the market factors in your region): Talk to parents who reach out for you to inquire about services. Ask them if they have been calling other providers. In many cases, they will tell you that everyone else has a long waitlist. If you have a friendly relationship with other providers in your region, reach out to them and inquire about their waitlist for a particular payor in the event that you may want to refer some prospective clients to them. They will also likely admit that they are maintaining a waitlist. You can use these facts to inform the payor that they are failing to offer an adequate provider network, as you have researched with parents and other providers and everyone is carrying a long waitlist. This is putting an “unnecessary administrative burden” on their subscribers, and it is causing a “ unnecessary delay in timely access to medically necessary services ”. (These specific phrases can be a trigger for insurance companies.) If you are able to accept new clients with little to no wait, inform the payor of this and emphasize that this will add value to the adequacy of their provider network. It won’t always work, but it is another weapon in your negotiation arsenal that can come in handy. Conclusion Working with insurance payors is one of the biggest challenges an ABA provider will have to deal with. It is often a “David and Goliath” situation, where you as a small company have to attempt to negotiate with a large, faceless corporation. But, never forget that a contract is between 2 parties, each of whom have equal rights to negotiate. Arm yourself with facts and know what you want to accomplish before entering into the negotiations. And, if the other side is not willing to reasonably accommodate and compromise fairly, don’t be afraid to walk away. If enough ABA providers start doing this, the lack of an adequate provider network will bring payors back to the negotiating table.