If you’ve been in practice for any length of time, you’ve probably felt at one time or another that some of your insurance contracts cost you more than they’re bringing in. But without a clear framework for evaluation, contracts stay in place whether or not they are adding value to your practice.
Evaluating your in-network insurance contracts is a fairly simple task that you and your team can tackle together. DDA frequently helps teams with some or all of this process, but it always starts with annually compiling insurance related data. Let’s start with the data and then go through the entire process.
Where to Start:
The first data points to compile are your overall practice adjustment percentage and the adjustment percentage for each insurance contract. Ideally, your practice is billing out your UCR (usual and customary rates) fees on all claims and then adjusting the balance to match the in-network fee schedule. *If you aren’t doing this, you should be! Then we can pull what these adjustment percentages are. Together, these data points tell you the size of the gap between what you charge and what you actually collect — and which contracts are responsible for it.
Overall practice formula:
Overall Adjustment % = (Total Write-offs ÷ Total Production) × 100
Example: $180,000 in write-offs ÷ $600,000 in production = 30% adjustment rate
Let’s look at an example of a 12-month production and adjustment report from your practice management software — Dentrix, Eaglesoft, and Open Dental all support this. When pulling this data, we want to ensure that we filter insurance write-offs separately from courtesy discounts. This report will show the overall write-off rate for your practice as well as for each of your contracts.
| Insurance plan | Annual production | Write-offs | Adj. rate | Status |
| Delta Dental PPO | $210,000 | $42,000 | 20% | Healthy |
| Cigna DPPO | $95,000 | $24,700 | 26% | Review |
| MetLife PDP | $130,000 | $52,000 | 40% | High risk |
| Aetna DMO | $55,000 | $24,200 | 44% | High risk |
| Fee-for-service / other | $110,000 | $8,800 | 8% | Healthy |
| Practice total | $600,000 | $151,700 | 25.3% | — |
In this example, the overall rate looks acceptable at 25.3%, but two plans are operating at above 40%. That’s the picture your aggregate number was hiding.
The last piece of data that you need to gather is how many of your patients are utilizing those insurance plans. Then you have the full picture of how much you are writing off, where you are writing off the most and how many of your patients are in each plan.
What’s Next:
Armed with your practice data, it’s a good time to set a goal for the practice. What is an ideal Overall Adjustment Percentage for your practice? From there we identify which insurance contracts we should start with.
In completing this analysis, you may determine that you want to make changes to some of your existing insurance contracts.
- Complete a Fee Analysis: It’s important to know how your fees compare to others in your area. You should also look at how often you are billing each of your codes, as it will help you with negotiating.
- Negotiate Contracted Rates: Some insurance companies claim that contract negotiations can only occur at specified times. Regardless of this, we recommend that you attempt to negotiate as soon as a concern is identified. The goal is to get increased rates on codes you bill most frequently and to get closer to your target overall adjustment percentage
- Consider Termination of Contracts if Necessary: Deciding to terminate an insurance contract is a legitimate business decision, but the execution matters enormously. Done poorly, it feels like abandonment to patients. Done well, it’s a transition that preserves trust, retains the majority of your patient base, and sets your practice on stronger financial footing. There are two things you need to handle in parallel: the contractual requirements with the insurer, and the communications plan for your patients. We recommend a step-by-step process to ensure that your patients are educated throughout the process, and you retain as many of them as possible.
- Verify what your contract stipulates for cancelling your participation. Some require 90 days or more advance notice for leaving a plan and you want to make sure you meet your requirements.
- Communicate with your patients. We recommend sending them multiple letters/emails to let them know that you have attempted to negotiate and that you have decided to go out of network. Add information to your website, send them emails or letters and consider texting. Key verbiage to use includes:
- What Out-Of-Network (OON) means and what it doesn’t mean.
- The patients can still choose you as their dental provider and you hope that they do.
- In most cases, they will still have insurance benefits to use. There might be some differences but sometimes there are no differences.
- You are here to answer their questions and help them through the change
- You hope to remain their provider (Say it again!)
By analyzing your adjustment data, identifying your highest-volume codes, negotiating fees, and building a clear termination and communication process, you can transform insurance management from a reactive headache into a proactive business strategy. You don’t have to be a victim of the fee schedules you signed onto years ago.
Regardless of the outcome, annual evaluation of your contracts and working to improve your rates allows you to make educated decisions for your practice that you can feel good about. Ultimately, that’s what it’s all about.
If you would like help on any of the following topics, please reach out to a member of our team HERE:
- How to calculate your Overall Practice Adjustment Percentage
- How to Negotiate my Contracted Fees
- How to best Communicate with my Patients about Dental Insurance
If you missed our last blog post about Tracking Referral Sources, read it HERE.
To request a FREE Practice Optimization Analysis for your practice and to learn more about how to create more profitability in your practice, click HERE.
