The reimbursement gap: what we see when practices first look at what their peers are being paid

The most common reaction isn't anger. It's disbelief — followed by a quiet recognition that nothing is ever going back to how it was.

In the years since the Transparency in Coverage rule made negotiated rate data publicly available, we have walked a significant number of large medical groups through their first look at peer reimbursement. The experience is fairly consistent regardless of specialty or market. There is a moment — usually within the first twenty minutes of the analysis — when the practice's leadership team realizes that the rates they have been accepting are not, in fact, reasonable market rates. They are simply the rates the payor offered, and the practice said yes.

This piece is about what that moment looks like, what it reveals about the structure of commercial healthcare contracting, and what practices do differently afterward.

The shape of the gap

When we benchmark a practice's rates against peers in their market, the distribution almost always has the same basic shape. There is a cluster of practices at the lower end of the range — practices that have been with certain payors for years, that have accepted modest annual increases, that have never had an external data point to push back against. There is a smaller cluster at the upper end — practices that have negotiated aggressively, that have threatened to walk away from networks, that have had the information or the leverage to demand better terms. And there is a wide spread in between.

The spread between the bottom and the top of that distribution, for the same CPT code, from the same payor, in the same metropolitan market, is routinely 30 to 40 percent. In some markets and some specialties, it is wider. This is not a data anomaly. It is the structure of a market in which prices are not publicly disclosed — or were not, until recently — and in which information asymmetry favored the payor in almost every negotiation.

Why the gap exists

The mechanism is straightforward. When a medical group renews a payor contract, the payor's starting position is almost always the current rates plus a modest increase — somewhere in the range of 2 to 4 percent annually. For a practice that has no external reference point, that offer may feel reasonable. Healthcare costs are rising; a 3 percent bump seems like something. They sign.

A practice at the bottom of the market distribution, compounding 3 percent annual increases from a below-market starting point, does not catch up. It falls further behind, because the practice at the top of the distribution is also getting annual increases — from a higher base. The gap widens slowly, year after year, with neither party particularly focused on it. The payor has no incentive to close it. The practice has no data to force the issue.

This is not necessarily the result of bad faith on the payor's part. It is the predictable outcome of a market structure in which one side had systematic access to information and the other did not. Price transparency legislation has begun to change that structure. But the change only matters for practices that actually use the data.

What changes after the first look

Practices that go through a rigorous peer rate analysis for the first time consistently describe a shift in how they approach payor relationships. Several things change:

The conversation with payors changes

The most fundamental shift is in the nature of the negotiation itself. Before external benchmarking, a practice making a rate request is essentially expressing a preference — we want more. After benchmarking, the same practice is making a market-grounded case — we have seen that comparable practices in this market are being paid X, and we want to align with that. These are very different conversations. The first can be deflected. The second requires a response.

Prioritization sharpens

Not every contract gap is equally significant. A benchmarking analysis reveals which payors and which codes represent the largest opportunity — measured in actual dollar impact on annual revenue. Practices that go through this process typically walk away with a ranked list of contract priorities that looks quite different from what they would have assumed going in. The payor they thought was their biggest problem is sometimes fine. The one they never focused on is sometimes leaving the most money on the table.

The organization's relationship with data changes

Once a practice has seen what external rate benchmarking reveals, it is very difficult to un-see it. CFOs and revenue cycle directors who go through this process rarely revert to managing contracts purely from internal data. The question — where do our rates sit relative to the market? — becomes a standard part of how the organization evaluates its payor relationships.

A note on what this doesn't mean

Understanding the reimbursement gap is not a guarantee of closing it. Payor negotiations are consequential, and the path from "we are below market" to "we have a better contract" requires strategy, preparation, and in some cases a willingness to make credible threats about network participation. The data provides the foundation for that work — it does not replace it.

What it does do, reliably, is change the information position of the practice going into the negotiation. The payor knows what it's paying everyone. Now the practice does too. That is a meaningful shift in a market that has been structurally asymmetric for decades.