Healthcare Contract Lifecycle Management: 7 Stages MSOs Must Optimize

Good news for PE-backed management services organizations: interest rates are coming down, making portfolio expansion attractive again. 

According to Bain & Company’s 2024 Global Healthcare Private Equity Report, 

“Stubborn inflation, high interest rates, geopolitical and economic uncertainty, and labor shortages exacted a toll on private equity markets in 2023, and healthcare private equity was not immune. ..Now there are signals that momentum is picking up, as evidenced by a rising deal volume relative to 2022. Buyers and sellers have a vested interest in bridging valuation gaps to make 2024 a year for catching up.” 

As exciting as finding an ideal new practice acquisition target can be, any investor must enter the roll-up process with their exit plan in mind. A survey from Health Affairs Scholar reveals that just 43 percent of practices remained owned by the initial private equity investor for three to seven years after the first investment. In fact, the median investment holding period was just 2.9 years. 

Central to attracting a buyer is EBITDA. 

Proactive healthcare contract lifecycle management feeds into EBITDA by ensuring that contracts with payers are meticulously managed, leading to timely and accurate reimbursements. It reduces the time spent on payment collections and minimizes revenue leakage.

Review how you can optimize every stage of the healthcare contract lifecycle so you can reap the benefits of improved revenue and reduced costs to collect. 

EBITDA, value-based care, and payer contracts 

 Doug Brown, managing partner of Black Book analyzed responses from 522 contract managers in provider organizations. He found, 

"The majority of US health systems are struggling with manual contract tasks and fragmented contract processes,"their survey of  "Value-based care reimbursement is forcing financial leaders to implement more comprehensive contract lifecycle management solutions onto one single platform to afford them accelerated, innovative agreements through automated compliance and to drive growth, or in some cases, survival."

The majority of respondents claim their organization requires a solution to enable a more effective and intelligent transition from traditional fee-for-service to fee-for-value reimbursement.

Ten years ago, payer contracts were shoved in a drawer and forgotten. Physician owners dominated the ambulatory space in healthcare, and they were paid relatively reliably by insurance companies. Upon retiring, a physician-owner may sell to a more junior doctor, sharing a basic bookkeeping system. Today, as more practices consolidate, 30 percent of provider revenue comes from patients, practice locations are getting traded like playing cards, and investors hire financial and legal experts to scrutinize balance sheets, statements, and payer contracts. 

Buyers will be looking for evidence that your contracts are centralized and transparent and that you can access and search up-to-date contract information in real time. Seeing evidence that you monitor contract performance and compliance status gives your location a competitive edge. 

As the transition to value-based care continues to surge, refining the practice’s EBITDA – the primary way buyers evaluate revenue and cost-to-collect reduction potential – becomes imperative. 

What is healthcare contract lifecycle management?

Healthcare contract lifecycle management (CLM) is the oversight of an organization’s contracts from initiation through creation, negotiation, execution, performance, and renewal or expiration. CLM ensures that all contracts are efficiently executed and maintained throughout their lifecycle.

Contracts set the guard rails on payer and provider decisions and behavior. They also establish reimbursement rates, and legal terms. Many healthcare organizations still manage contracts via manual, spreadsheet-centric processes carried out by staff. Those determined to modernize use outsourced contract specialists and companies, contract specialists they bring in part-time or full-time, or contract management software. This software automates routine tasks such as contract creation, approval processes, and renewals, reducing the administrative workload and allowing staff to focus on more strategic activities.

It also analyzes contract performance, ranking best and worst payer performance which gives you negotiation leverage. Today’s contract lifecycle management solutions include automation, artificial intelligence (AI), cloud computing, and blockchain. These advanced technologies are extending the capabilities of CLM solutions beyond the basic storage, search, and tracking benefits. 

Automation of routine tasks such as contract creation, approval processes, and renewals reduces the administrative workload, allowing staff to focus on more strategic activities.

How to optimize the 7 healthcare contract lifecycle stages

The process of creating and renewing healthcare contracts is complex, requiring many stakeholders to submit, correct, approve, and sign legal documents. A streamlined contract management process helps you avoid delays and errors. 

Contract creation

Healthcare contract lifecycle management stage #1

For too long – and particularly during the pandemic – health systems overburdened by providing care with a skeletal staff signed payer contracts originating without any analysis. 

Given health systems’ thin margins, this habit cannot continue. 

Concerned about rocking the boat with payers, some healthcare organizations can be hesitant to push back on contracts. While payers do send patients to providers, it’s the providers who are creating revenue streams in aggregate for payers. Increased provider actions against payers for underpayments and more are putting payers on notice that providers no longer accept contracts and contract changes without participation in contract creation.  

Have contract templates on the ready

While payers typically originate healthcare contracts, it doesn’t have to be this way. 

If you have a contract that has demonstrated robust performance, consider turning it into a template. You can also outmaneuver a payer by presenting a new contract to them first. Healthcare contract management software includes multiple templates that can get you started creating your own contract. Save time and effort with pre-approved templates, eliminating the need to start from scratch.  

Should the payer send a contract over to you, review it closely watching for tricky terms like these:

• “Lesser of” language
• Percentage reduction of charges
• Stop losses
• Implants and supplies definitions
• Claim filing time frames
• Arbitration
• Parties’ responsibilities
• Overpayments, underpayments, and recoupments

Arm yourself for payer shenanigans when you read the details of how payers swing these terms in their favor in our payer contract negotiation post. Simple awareness of points in your contracts where you have negotiating room is a responsible first step in winning more fair terms.

Pay particular attention to the fee schedule in the payer contract. Compare the reimbursements they’re offering for each CPT code for those your best payers return. Payer contract management and modeling software can provide these comparisons quickly and without cumbersome spreadsheet juggling. 

Take a quick, self-guided tour through a powerful contract management and underpayments recovery tool that automatically alerts you to payment variances:

Contract negotiation

Healthcare contract lifecycle management stage #2  

According to a 2023 MGMA poll, 33 percent of providers fail to review their contracts yearly. It’s astonishing that 17 percent report NEVER reviewing contracts, and 16 percent review them every 2 to 3 years or more. Of the 58 percent that do review annually, we do not know how many negotiate aggressively. Our experience with clients tells us it’s just a fraction of that. 

Start your contract negotiations with the fee schedule. 

The fee schedule is the most crucial part of the contract. Begin by identifying the top codes in your organization that generate the bulk of your practice’s revenue. Typically, around 20 codes will account for 80% of your revenue. Focus your strongest negotiation efforts on securing the best rates for these high-impact codes. Don’t let payers offer favorable rates only on services you rarely provide, as these won’t significantly contribute to your revenue.

Be cautious if a payer suggests reimbursing you at an average of, for example, 160 percent of Medicare. While this may sound appealing, they are likely averaging across your entire fee schedule, which could include over 500 codes. Instead of focusing on averages, pay close attention to the reimbursement rates for your most frequently used CPT codes.

Next, negotiate the rates that each payer is currently paying you for the CPT codes you bill regularly. Compare these rates to Medicare’s reimbursement rates as a benchmark. You can access Medicare’s reimbursement rates for all physician services here (note that Medicare does not negotiate its rates).

After rates, come terms. Some terms, particularly “lesser of” language and claim filing deadlines, can lead to limitations that decimate your net revenue. Have a list of term changes you want. 

With your goals for reimbursement levels and terms, you’re ready to dive into the negotiation.  

Inform your payer that you intend to negotiate approximately 30–60 days before the contract renewal date. Consider organizing terms and fee changes into categories: “must-haves,” “like-to-haves,” and “ideal.” For items on the “must-have” list, be prepared to negotiate assertively. If the payer doesn’t agree to a “must-have,” decide if you’re willing to walk away. 

Draft your proposal letter with the adjusted terms and rates you seek. 

Remember that most negotiations start with a “no.” Payers may initially refuse to engage in talks, but don’t be discouraged. Persist in your efforts to amend the contract terms. Focus on the facts, avoid letting emotions influence the discussion, and reference terms and rates from other payers. Keep in mind that renegotiating these contracts is essential to securing the resources needed to provide excellent care to the insurer’s subscribers. Remind them that they have a responsibility to serve their subscribers.

Healthcare contract management software and negotiation 

Not only does contract management software centralize and inventory all payer contracts, but it also streamlines collaboration and redlining during contract negotiation. It ensures multiple stakeholders access the contract simultaneously to make real-time changes and comments. Its redlining features spotlight contract changes, so all parties can track revisions. Contracts can be automatically routed to the appropriate stakeholders for review and approval, with configurable notifications and reminders to ensure timely action. Convenient collaboration speeds up the negotiation process, reducing confusion and accelerating contract finalization. 

Contract execution

Healthcare contract lifecycle management stage #4

Just because it’s written into the contract doesn’t mean payers abide by it. They make mistakes by:  

• making processing errors (one AMA study put payer processing error rates at 19.3 percent)

• missing agreed-upon annual escalators in the payment

• bundling services incorrectly 

• leaving out the late fees that have accrued due to their failure to meet negotiated payment timeframes

• incorrectly interpreting carve-out services and attributing payments to a secondary payer  

• incorrectly combining accounts

Insights into which payers are paying what they’ve contractually promised not only put payers on alert about your diligence, but they reveal whose contracted rates lag those of their competitors. These data points give you the ammunition to explore and rectify the root cause of revenue shortfalls and underpayments.

Two ways to leverage payer underpayments

Once you’ve revealed that payers have underpaid you by a certain amount, you can either ask them to rectify these errors or use this information in contract negotiations. 

When one large orthopedics group tossed their manual contract management workflows, their new system uncovered that payers owed them 10 million dollars. It took this group just a few months to recover this revenue. 

Other healthcare organizations choose to use the proven underpayment amounts as a contract leverage point. If a payer turns in a contract with a certain fee for a CPT code, the provider can point out that their fee is not adequate. They can make a deal, however, that states that they won’t pursue underpayments, as long as the payer increases the fee for certain CPT codes by 10 percent or more. The MSO can then share the good news with the doctor that they got the payers to increase compensation for those CPT codes, a move that underscores the MSO’s value. 

Contract performance

Healthcare contract lifecycle management stage #4

When you gather specific data on how your physician group contracts perform, you can advocate for favorable terms and optimize net revenue. 

Evaluating contract performance empowers you by:

• verifying that actual payments align with the terms outlined in the contract

• assessing the impact of proposed rate changes before agreeing to them

• comparing payer terms against industry benchmarks to gauge their competitiveness

However, tackling these tasks can be challenging, especially when you are reviewing dozens of contracts. 

When you gather specific data on which of your contracts:

• experience the highest levels of underpayment,
• have the lowest levels of underpayment,
• adhere to the agreed-upon payment timelines,

...you can make informed decisions about which payers are worth partnering with. This data can also be a powerful tool in contract negotiations, especially if you're leveraging benchmarks from Medicare/Medicaid or industry standards.

Additionally, it's important to consider the ongoing investment required to maintain a contract. Be mindful of setup costs, recurring costs, fixed costs, unit costs, and your organization's internal expenses. A payer’s “hassle factor” or high denial rates, long phone-hold times, and extensive documentation requests also feed into whether they are a worthwhile partner. If a contract demands substantial staff time but yields little revenue, it may not be beneficial for your organization.

Contract management software provides insights into contract performance, allowing you to identify cost-saving opportunities and negotiate better terms with vendors and suppliers. With streamlined contract management, healthcare providers can focus on patient care.

With a clearer understanding of your top-performing contracts, you might decide to stop accepting patients from certain payers. When discontinuing these contracts, it's valuable to conduct a post-contract evaluation, much like an “exit interview.” This process offers key insights to help staff identify which contracts align best with your organization. It also ensures you have documented reasons for ending the contract, which can be useful when explaining your decision to other executives.

Contract execution and monitoring

Healthcare contract lifecycle management stage #5

Even with contracts signed, healthcare organizations cannot take their eyes away from contract management. As short-staffed as providers, payers are notorious for processing errors, oversights, and more. Still, healthcare organizations need to be paid for services rendered. Underpayments – where payers reimburse at a rate below what’s stipulated in the contract – are widespread. Research indicates that healthcare organizations lose one to three percent of net revenue each year in underpayments and payment variances. One study published in Becker’s Hospital Review found providers lose one to three percent of their net revenue annually due to commercial payer underpayments. Some of our clients report underpayments as high as seven percent of net revenue, and other studies put the figure as high as 11 percent.  

Healthcare organizations are done with losing these levels of revenue. The following cases reveal just how underpayments can reach levels in the millions. 

• Louisiana-based Allegiance Health Management filed a lawsuit against data analytics firm MultiPlan. Allegiance claims Multiplan works with payers to fix prices on 370,000 out-of-network claims daily for more than 700 payers. Allegiance claims Multiplan is generating $22 billion in underpayments for them annually.  
• Physician group TeamHealth won $10.8 million dollars in their underpayments case against UnitedHealthcare.  
• Over 100 Alabama hospitals have begun a lawsuit against Blue Cross, claiming they’ve lost $5 billion due to underpayments.

Contract management monitoring software

Contract software enables healthcare organizations to monitor contract compliance by providing automated alerts and notifications for key contract milestones,  renewal deadlines, and expiration dates. Reminders ensure that staff reviews contracts on time, reducing the risk of contract lapses or non-compliance. Additionally, contract lifestyle management software can track contract changes and modifications, ensuring that all amendments are properly documented and approved.

Contract renewal / termination

Healthcare contract lifecycle management stage #6

Because payers' contract renewal dates occur throughout the calendar year and most MSOs are juggling dozens of payer contracts, an alert system is a must. You can effect these manually via a Google or Microsoft Office calendar. 

Make sure to have these alarms trigger 60 to 90 days before the renewal date. You want to have plenty of time to review contract terms and come up with any changes you think will enhance your revenue. Most likely, the payer will also send along changes they want to make. You need time to explore these as well. 

This is also a good time to review the contract changes since the last renewal. Check each and note the response time. Evaluate every change and use contract modeling to determine how each will impact your revenue. 

Contract management and modeling software

Healthcare contract lifecycle management software streamlines the contract renewal process, providing automated reminders and notifications for contract expiration dates and renewal deadlines, eliminating the risk of contract lapses. 

Some contract management software also include contract modeling. Healthcare contract modeling helps providers assess the financial impact of different payer contracts on their revenue. By simulating various scenarios, contract modeling software helps organizations predict the effects of changes in rates, terms, or patient volumes on overall profitability. This data-driven approach aids in making informed decisions about contract negotiations and renewals, optimizing reimbursement rates, and ensuring compliance with financial goals. Ultimately, contract modeling supports strategic planning and enhances financial stability for healthcare providers​. 

Contract management software, modeling, and renewals

 Manual management of contracts too often leads to errors, inefficiencies, and missed revenue opportunities. Paper-based contracts and spreadsheets are prone to errors and inefficiencies. 

Contract lifecycle management reinforces net revenue and margins

Automating contract lifecycle management helps healthcare organizations significantly reduce contract cycle times, eliminating delays and bottlenecks. With CLM, contracts can be created, reviewed, and approved in a fraction of the time it takes with manual processes. 

RevFind makes managing all the stages of the healthcare contract lifecycle clear and efficient. By automating contract management, RevFind helps healthcare entities identify their best and worst payers, detect payment trends, uncover underpayments, and marshal evidence for negotiation. This system scrutinizes each payer payment against contract terms, alerting staff to discrepancies. By identifying systemic issues, RevFind helps prevent future underpayments and reveals how payer changes will impact your revenue. It centralizes all agreements, automates alerts for renewal dates, and provides detailed reports comparing reimbursements by CPT code and provider location. By including Medicare benchmarks, RevFind offers a comprehensive comparison of payer contract performance and reimbursements.

 Schedule a demo to see how RevFind creates full contract visibility and contract management execution. 

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