Four Essential Steps to Effective Payer Contracting

Your relationship with your payers may be contentious. You’ve experienced slow prior authorization approvals, incorrect reimbursements, delayed or lack of reply during disputes or claim reviews, and high denials that risk patient lives. Your payers may say your team provides inaccurate patient data and claims filled with errors. But the data’s on your side. 80% of healthcare organizations say their experience with commercial payers is getting worse. Less than 1% say their experience is getting better.

These two sides often go head-to-head, but they must come together. The solution is payer contracting. It can improve your relationship with the payer and turn into a true partnership. 

Here are the four steps to payer contracting. During this time, you’ll be able to establish clear relationships with your payers. This will help you achieve the fees and terms your healthcare organization needs to remain sustainable. 

Effective Payer Contract Management Benefits Your Organization 

Proactive, focused payer contracting is the only antidote to complex data, changing legislation, and increasing payer restrictions. Taking time to implement an efficient contract management system benefits healthcare organizations that do for years. 

Effective control of payer contracts has many benefits. It results in enhanced reimbursements and compliance, timely renewals and renegotiations, and valuable insights into payer performance and contract adherence. This leads to more informed business decisions, improved collaboration with payers, and increased staff time for patient-centered care. It ultimately fosters greater financial transparency for patients. At the same time, effective control of payer contracts reduces compliance penalties, underpayments, payer disputes, and administrative costs. In all these ways, effective contract management leads to enhanced revenue cycle management. 

Effective contract management provides these benefits. But more than 30% of medical group leaders don’t review their contracts regularly.  Most are unable to devote enough time to contract renewal and expiration dates. About 60% of medical group leaders review payer contracts each year. Yet many leaders accept fees and terms initiated by the payer. 

Step 1: Assess Payer Performance 

Need-to-Know Metrics 

The foundation of payer contracting is exploring your contracts and documenting key metrics. Having your contract documents saved in one place makes them easier to review. This also allows you to calculate the revenue contribution from each payer, an important first step in assessing payer performance. 

Understand Your Payer Mix  

You've centralized your contracts and calculated payer revenue contributions. Now you’re ready to document your payer mix. 

1. Use your fee schedules to check reimbursement rates and terms for the most performed services.  
   
2. Explore your patient demographics and trends. 
   
3. Perform a financial analysis to assess the profitability of each payer. 
   
4. Assess the risks associated with each payer. 
   
5. Benchmark against industry standards. 
   
6. Use analytics tools to track key performance indicators (KPIs). These include reimbursement rates and claims denials. 

The insights you compile from this process power your negotiations. Data from your top payers and best terms let you know how other payers compare. Understanding favorable rates you’re getting from one payer to other payers gives you leverage. You won’t have data for any new payers you’re considering. You can evaluate them through references. 

Assess Difficult Payers 

Though metrics provide important intelligence, the numbers aren’t the entire story. Next is understanding the perspective of your revenue cycle and front desk team. They understand payers on a different level. They have insight into things like denials and prior authorization demands. Have your staff evaluate each payer on how difficult they are. Difficult, disorganized payers can result in delays, excess work, and more hires. You can't learn any of this from reviewing your contracts or payer mix. 

Use this knowledge during negotiations. Let payers know if their difficulties are frustrating your staff. These can include delays, denials, and requests for excess documentation. The payer may have heard these complaints before. But they'll understand that ending the relationship will bring relief to your team. 

Time Since Last Negotiation 

When was the last time you negotiated your contracts? Payers may keep their terms and fees static each year, and most payers will automatically renew terms unless initiated by the provider. There are benefits to renegotiating every year. Many organizations renegotiate every three years. If you haven’t renegotiated in more than three years, mention that to the payer and insist on increases. Tell them that you’re bringing all your contracts up to date to stay in compliance with their stipulations and federal regulations. 

Review Contract Terms 

Examine the language in your contract. The includes addressing "lesser of" language, reducing charges, implementing stop-loss measures, managing charge loss, defining implants, making contract modifications, and resolving disputes. 

Some contracts allow payers to change the contract without provider approval. How frustrating! Providers may have 30 days to object in writing, but that’s not sufficient. If the deadline’s missed, changes are automatically applied. Payers can add clauses that allow them to change a contract without provider consent. 

Step 2: Identify Your Organization’s Value – and How It’s Unique 

A contract describes a two-way relationship. In this instance, it’s the one between your healthcare organization and a payer. Step one was about determining a payer’s value to your organization. Now, you need to define your value and what differentiates your organization from competitors. 

Other unique differentiators include offering unique specialties not available locally, catering to specific patient populations (e.g., seniors, executives, chronic conditions), and providing extended hours. Additional strengths include cost-containment strategies, modern revenue cycle automation, and patient education through updates and webinars. Enhancing convenience with digital tools (text messaging, secure portals, telehealth), transparent cost information, and flexible payment options are also critical. Furthermore, digital access, recognized clinical expertise, high ratings on platforms like ZocDoc, and concierge services contribute to a strong competitive edge. 

Now turn that list of all the things that make your organization valuable into a paragraph. Keep in mind your payer’s goals. Practice this so you can communicate your organization’s value to your payer rep. Your payer rep will be more likely to remember a concise value statement. They will be able to repeat it to decision makers, providing the backup to get the contract changes you want. 

Step 3: Identify Your Contract Priorities 

You’re centralized and evaluated your current contracts. You understand what value your payers provide. Now it's time to understand your contract priorities. 

Start with the contract most in need of fee increases and term changes. Compare it to the contract with the most favorable fees. During negotiations, your goal should be seeking a 3 to 5% [MF3] increase in every procedure every three years. If your contracts don't have the terms or fees you want, research what other organizations in your area have. You can always benchmark against Medicare. 

Establish Target Rates for Each CPT Code 

Make lists of all your desired changes with categories must haves, like to haves, and ideal. If a payer won't make your  must have changes, that contract isn’t worth renegotiating. A payer’s first response to a request is usually no, and you may need to file an extension – or multiple extensions. 

Every time you interact with the payer, remind them that you’re determined to change fees or terms. Be prepared with your data, including your other payers’ rates and terms. Let them know that your organization can continue to provide excellent care to their members only with these changes. 

Step 4: Contract Negotiation 

Payers can be slow communicators. If you’re prepared, you will compel them to act. Have your contract renewal dates, extension terms, and termination dates on hand. 

Find the negotiation window in your current contract. Most contracts allow for negotiations within 60 or 90 days of the contract renewal. Know when you can legally exit the contract. 

When planning to challenge fees and terms, first send a certified letter notifying them of key dates. Let them know that if they don’t respond within the timeframe, you won’t renew. Persistence will encourage your payer to respond. 

Ask for Higher Reimbursement 

Asking for more money makes some uncomfortable. Remember you’re using this money to deliver care. Your healthcare organization’s patients are counting on you. 

And you shouldn’t feel bad for asking. Most payers are making hundreds of millions, if not billions, of dollars in profit. Their profit margins are at least 3 percent. Hospitals’ operating margins average two percent. One payer’s profits were $5.5 billion on $22 billion in revenue. Another’s was $9.3 billion with a net margin of $1.5 billion.  Healthcare organizations can demand fair revenue. 

Communicate with Clarity and Respect 

Negotiating with insurers can be frustrating. But you should view your payer rep as an ally. They need to take your case to their superiors for authorization. The more prepared you are, the stronger of a case you make, and the easier their job is. 

Counter Their Counter 

Review the payer’s response but continue with extensions and terminations. Reassess what your organization really needs and counter with rate changes for particular billing groups or specific codes.  A contract renegotiation can take a year and many extensions. Your team may get fatigued. Consider engaging an external contract expert or utilizing contract management software. A fresh start and a new perspective can reinvigorate the negotiation process. 

AC3’s Payer Contract Intelligence Solution Drives Your Contract Negotiation 

Revenue cycle management, including contract management, takes effort. Many healthcare organizations don’t have experience in intelligence and data. And it takes supercharged insights to negotiate with payers – and win. 

AC3’s service and software solution helps your healthcare organization manage contracts with features like the payer contract matrix, contract repository, and fee schedule look up. AC3 delivers visibility into your payer contracts. You can realize the revenue you’ve already earned. 

Schedule a demo to see how AC3’s software and service can take your contract management to the next level.