The Contract Trap: Is That New Insurance Payer Actually Worth It?

I don't know about you, but every time a new insurance contract hits my desk, I get this weird mix of excitement and dread.

Excitement because, Hey! More potential patients, right? More revenue streams, more families we can serve.

But then the dread kicks in. Because I've been burned before. And I'm guessing you have too.

There's nothing quite like spending six months getting credentialed with a new payer, only to realize three months later that you're losing money on every single appointment. Or worse, that you've locked yourself into a contract you can't get out of without a 90-day notice period and negotiations that feel like pulling teeth.

Sound familiar?

I talk to therapy clinic owners all the time who are dealing with this exact issue. They're approached by a new insurance company (or sometimes an existing one with a "new opportunity"), and they don't know whether to sign or run in the opposite direction.

So let me share the framework I wish someone had given me years ago. It's not rocket science, but it'll save you from what I call "The Contract Trap", that moment when you realize you've committed to something that's actually hurting your practice instead of helping it.

The Three Questions You MUST Ask Before Signing

Before you put pen to paper (or finger to DocuSign), you need to ask yourself three brutally honest questions. And I mean brutally. No sugarcoating, no wishful thinking, no "but it might work out."

Question #1: What Are You Actually Getting Paid?

This sounds obvious, but here's where most practice owners mess up: they look at the rate sheet and think, "Okay, that looks reasonable."

Wrong.

You need to dig deeper. Way deeper.

First, what's the reimbursement rate per unit compared to your other payers? And I'm not talking about comparing it to your absolute worst payer, that's setting the bar way too low. Compare it to your average reimbursement across all payers.

Here's what I do: I pull my top 5 payers by volume and calculate the average reimbursement per evaluation and per treatment unit. That's my baseline. If the new payer is offering less than 85% of that average, it's an immediate red flag.

But wait, there's more. (I sound like an infomercial, but stay with me.)

You also need to factor in:

• Authorization requirements: If you need to get auth for every 10 visits, and your authorization specialist spends 30 minutes per request, what's that costing you in labor?

• Denial rates: Ask the payer directly what their average denial rate is for therapy claims. If they won't tell you, that's... well, that's telling you something, isn't it?

• Payment timeline: Are they paying in 14 days or 60 days? Because cash flow matters, especially for smaller practices.

I’ve worked with clients who have learned this the hard way with a payer in Central Florida. The rate looked decent on paper, actually, it looked great. But their denial rate was over 35%, and every denial required a phone call, an appeal, and about two hours of staff time. By the time we did the math, they were making about 40% of what they thought they’d be making.

Phew! That’s an expensive lesson.

Question #2: What's the Administrative Burden?

This is the one that sneaks up on you like a ninja in the night. (A really annoying, paperwork-wielding ninja.)

Look, we all got into this business to help kids and families, not to drown in prior authorizations and eligibility checks. But some payers make the administrative side so painful that it's literally not worth the hassle, no matter how good the rate is.

Here's your checklist:

Credentialing complexity: How long does their credentialing process take? Are we talking 60 days or 6 months? I've seen both, and six months of waiting means six months of lost revenue.

Authorization requirements: Do they require prior auth for evaluations? For every treatment block? Are re-auths automatic or do you need to submit clinical documentation every single time?

Claims submission: Can you bill electronically or are they still living in 1995 with paper claims? (Yes, this is still a thing in 2026. I wish I were kidding.)

Medical necessity documentation: What's their documentation standard? Are they reasonable or are they asking for War and Peace after every 30-minute session?

Here's a real example from a client: They were evaluating a contract with a managed care plan that served a demographic they really wanted to reach. The rate was acceptable. But then come to find out they required therapists to submit a 2-page treatment note after every session, they only accepted paper claims, and prior authorizations had to be requested via fax (fax!) at least 10 business days before the evaluation.

Pass. Hard pass.

Your therapists are your most valuable resource. If they're spending 15 extra minutes per patient on documentation just to satisfy one payer's quirky requirements, that's 15 minutes they could be seeing another patient, or, and here's a crazy thought, taking a breath between sessions.

Question #3: Does This Actually Fit Your Growth Strategy?

This is the question most practice owners skip, and it's honestly the most important one.

You need to get crystal clear on this: What are you trying to build?

Are you trying to grow patient volume? Are you trying to increase revenue per patient? Are you trying to serve a specific community or demographic? Are you trying to reduce your dependence on one major payer?

Because here's the thing, not every contract moves you closer to your goals. Some move you sideways. Some move you backward.

Let me share a real story of a client I worked with. They were heavily dependent on Florida Medicaid, like, scary dependent. About 70% of our revenue came from one source. (If you've read our article about the 80% trap, you know why this is terrifying.)

So when a mid-tier commercial payer approached them, the first instinct was "Yes! Diversification!"

But then they asked themselves: Who are their members? What areas do they serve? What's their demographic profile?

Turns out, there was almost zero overlap with their target market. They would've needed to expand to a completely different geographic area to make it worthwhile. That meant new space, new hires, new everything.

Did they need that complexity? No. No, they did not.

On the other hand, when a different commercial payer approached them whose members were right in their existing service areas, with demographics that matched their specialization? That was a different story. That contract moved them toward our goal of diversification without requiring massive operational changes.

See the difference?

The Hidden Trap Most People Miss

Okay, here's something that doesn't get talked about enough: the future limitation trap.

I found this in the research I was doing for our podcast episode, and it made my blood run cold. Some payers: especially when they're trying to get you into a direct contract: include language that prevents you from contracting through shared networks later.

Read that again.

They lock you out of better options down the road. So even if a fantastic network wants to bring you on board a year from now, you can't do it because you're bound by this exclusivity clause you didn't even realize you agreed to.

This is why you need to read every single page of that contract. And I mean every page. Not just the rate sheet. Not just the first 5 pages.

Every. Single. Page.

If you see terms like "exclusive network participation," "direct contracting exclusivity," or anything that smells like it's limiting your future options: get a lawyer to look at it. Seriously. A healthcare attorney costs money, but getting locked into a bad contract for years costs way more.

The Termination Test

Here's my final tip, and it's weirdly simple: Before you sign, figure out how you'd get out.

What's the termination clause? How much notice do you need to give? Are there penalties?

If you can't terminate without cause with 60-90 days notice, that's a red flag the size of a billboard.

I know it feels weird to plan your exit before you even enter, but this is business. And in business, you need to know your exits. Always.

So... Should You Sign?

Only you can answer that for your specific practice. But if you've gone through these three questions honestly, you're in a way better position than 90% of practice owners who are just winging it.

And look: I'm not saying you should never take a chance on a new payer. Sometimes you need to experiment. Sometimes you need to take calculated risks to grow.

But the key word there is "calculated."

You're not throwing darts blindfolded. You're making an informed decision based on real data, real administrative capacity, and real strategic fit.

That's the difference between growing your practice and getting trapped in a contract that drains your resources and drives your staff crazy.

If you're currently evaluating a contract and you're feeling stuck, reach out to us. We've seen hundreds of these contracts across Florida practices, and we're happy to give you a second set of eyes. No obligation, just fellow practice owners trying to help each other avoid the traps.

Because at the end of the day, your practice is too important to gamble with. Your team is too valuable. And the families you serve deserve a practice that's financially healthy enough to be there for them long-term.

Choose wisely, friends.