Healthcare Contract Management: Best Practices 

Effective contract management improves provider net revenue and operational efficiency, raises patient satisfaction, provides potent decision support, and helps contain payer denials. 

Why, then, do so many healthcare organizations neglect their contracts? Just 58 percent review them yearly. Sixteen percent review only every two to three years, and 17 percent never review their contracts. 

This neglect puts providers at the mercy of payers, organizations driven by maximizing their profit –  often at providers’ expense. Negligent contract review leaves you open to lower rates, eligibility errors (payers regularly change contracts often without provider approval), and compliance issues.

In today’s high-scrutiny environment, potential investors and buyers seek evidence of careful accounting and revenue optimization at your healthcare organization. The key to achieving both is proactive healthcare contract management. 

Barriers to contract management

Finding, centralizing, and examining your contracts can feel like a Herculean task, however, particularly when payers drag their feet on your requests to send updated copies. Add a healthcare staffing shortage and a lack of staff contract experience and it’s no wonder contracts get shoved in drawers and forgotten. We’ve dealt with clients who admit they haven’t updated or even looked at their contracts in five years. 

The good news is that some effort invested on the part of a dedicated staff member will put you on the path to optimized revenue for years to come. This article covers all steps a staff member needs to optimize contract terms. Prevent payers from running roughshod over your revenue when you understand your terms, timelines, and rights. Impress buyers and investors with your dedication to contract integrity when you finally gain control and understanding of your contracts. 

What is healthcare contract management? 

Healthcare contract management is the strategic planning, negotiation, and implementation of agreements between healthcare providers and payers. The payers can be either commercial or public (Medicare/Medicaid). Clear-eyed contract management defines the terms of service delivery, payment rates, and performance expectations. It is crucial for ensuring financial stability, regulatory compliance, and high-quality patient care. 

Who handles healthcare contract management?

That many hospitals still juggle paper contracts speaks to how behind healthcare is in the adoption of modern, automated technology. The average hospital juggles 52 payer contracts, and, despite their resource advantages, some still fail to keep their contracts current. 

Once you determine that you’ll invest time into contract management, you’ll need to find someone to spearhead efforts. 

Contract specialist 

A contract specialist can come from your current team or via a hire from outside.  If your team members do not have experience, consider finding training for them before giving them contract management responsibilities. 

 A trained contract specialist not only has a legal background but also possesses a thorough understanding of healthcare regulations and compliance, significantly lowering the risk of contract-related infractions.  Enhancing your practice’s net revenue reflects on their expertise and wins them continued work. To achieve revenue improvements, they will negotiate for better rates from payers, discover and rectify underpayments, and challenge denials. 

If you don’t you don’t have 52 contracts the way the average hospital does, you can probably hire a contract specialist on a part-time basis. A part-time contract specialist reduces overhead costs, helpful for practices looking to evaluate the benefits before committing to a full-time position. Such specialists can also suggest the best contract management software to streamline operations.

To find a part-time contract specialist, look on LinkedIn or the consulting arms of organizations like HFMA and MGMA. 

Third-party contract management software 

If managing multiple contracts overwhelms you or your team, contract management software can step in to shoulder some of these tasks. In addition to acting as a basis for eligibility verification, it automatically analyzes your contracts, providing insights like: 

• underpayments by specific payers or for certain CPT codes
• payers offering the most favorable fees and terms
• recommendations for enhancing future contract negotiations
• contracts generating the highest revenue
• the financial impact of potential contract modifications
• upcoming contract renewals, guiding you on which contracts need attention and when

Often, the contract management software provider takes on the initial task of uploading your contracts, relieving your team from this chore. Recognizing the pressures on your time and resources, these vendors aim to minimize the effort required from your side, ensuring a process that demands minimal direct involvement from your team. You'll primarily receive essential data and notifications for action. Moreover, these services can highlight the potential financial recovery, giving you a clear perspective on the software’s performance and its return on investment, which is usually positive.

 The tasks involved healthcare contract management

Healthcare organization staff avoids contract management for a reason. It takes persistent effort to keep payers honest about reimbursements they owe providers.  Terms and deadlines change regularly. Change notices must be acted upon quickly before deadlines expire. Still, once a contract specialist understands the tasks involved in the job, taking these revenue-preserving steps becomes rewarding.  

Prepare 

Once you resolve to review and maintain your contracts, you need to hammer out your workflows and frequency. 

Start by learning critical payer contract terms, particularly  all terms that payers use to optimize their own revenue. Be wary of terms like “lesser of,” “stop loss,” “reduction of charges,” and more. These almost always favor payers. Consider preparing a contract template that includes terms most favorable to you. Compare any contracts coming in from payers to this template. Be ready to stand your ground on terms that risk your organization’s revenue significantly. 

Find and centralize your contracts. Contact payers for any missing or old contracts and insist they remit these within two weeks. 

Once your contracts are all in and centralized, review each contract for:

• price management mechanisms 
• milestone payments
• retentions
• incentives
• rewards
• price variation mechanisms. 

You also need to review contracts for proprietary/protected information of both parties. 

Ensure contracts define ownership of assets and intellectual property.

Determine who will mediate contracts should disputes arise. Have a few unbiased, third-party mediators ready to recommend. Do not simply accept the mediator the payer proposes. 

Document deadlines for submitting claims as well as deadlines payers must follow for  making reimbursements. Create reminders to automatically send these dates to you as renewals approach. 

Document how you will discover and address underpayments. 

Confirm the following points:

• all payments and clauses were properly addressed, resolved, closed, and terminated. 
• contract evaluation and analysis procedures were undertaken properly so that obtained experience will be considered for future contracting efforts. 
• contract includes a provision regarding termination, both for with and without cause. 
• invoicing and payment methods. 
• awareness of any potential risk-sharing issues 
• that the contract protects against payer insolvency. 
• the contract’s term and renewal information meets your organization’s standards and needs. 
• any and all amendments, attachments, and modifications. 
• parties signing the contract are authorized to make decisions on behalf of the organization. 
• corporate legal oversight person has reviewed and approved contract. 

Contract Monitoring 

While your contracts are active, you must be working to fully optimize them. This means you’re constantly examining and documenting any update notifications coming in from payers, as well as how well all payments match with the fee schedule and your charge master. Underpayments are widespread. A study published Becker’s Hospital Review found providers lose one to three percent of their net revenue when commercial payers don’t reimburse at their contracted fees. Other studies put that figure as high as 11 percent. Our clients that actually track their underpayments commonly report that this failure to meet contracted rates saps five to seven percent of your revenue.

There are two ways to uncover underpayments. Contract management software tracks them automatically, alerting staff to discrepancies so they can notify payers as soon as possible. Without software, staff must manually check the payment that came in against the chargemaster and/or the fee schedule. 

Another initial step is to set expiration and renewal notifications for each contract, whether you use spreadsheets or contract management software.

During the period,  make sure to capture and track any rebates, discounts, and incentives you negotiated in the contract. Should a dispute arise, follow the documented dispute process. 

Contract performance and analytics

A key task involved in contract management is measuring contract performance. When you get concrete data on which of your contracts:

• have the highest underpayments
• have the lowest underpayments
• keep to the payment timelines agreed upon

…you can make solid decisions on which payers you want to work with. You can also use this data in your contract negotiations, particularly if you’re using benchmarks from Medicare/Medicaid or industry statistics. 

Another aspect you should consider is the ongoing investment it requires to maintain a contract. Take into account the set up costs, recurring costs, fixed costs, unit costs and the organization’s internal costs. Should a contract require abundant staff time but fail to generate much revenue, it may not be worthwhile to your organization.  

During this period, it’s wise to regularly check that the contract authorized total dollar value has not been exceeded. Forward financial reports to key stakeholders. 

Your contract analysis also reveals the demand for certain services. Make sure to keep tabs on these trends. 

Contract Renewal 

Because payers' contract renewal dates take place throughout the calendar year, an alert system is a must. 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. Because of these tasks, your alert system should trigger weeks before the final renewal date. 

This is also a good time to review the contract changes since the last renewal. If they payer is frequently sending updates, call them on it. 

Once you’ve completed these steps, set up your next review date to comply with the date you've negotiated with the payer. 

Post-Contract Period 

Now that you can see just which contracts perform the best, you may decide to stop accepting patients using one or more payers. When you terminate contracts with these payers, it wise to conduct a post-contract evaluation. Like an “exit interview,” this process renders useful information that help more staff understand just what types of contracts work for your organization. It also keeps a documented rationale for terminating the contract on the ready so that you can justify your actions to other executives at your organization. 

Automate your underpayment discovery and contract performance measurement

Medical practices must balance exceptional patient care with the demands of administrative responsibilities. Turning a portion of these administrative tasks over to automation frees them to focus on care. Recovering underpayments and measuring contract performance can yield significant financial benefits, freeing up case for investments in new staff, advanced equipment, or software enhancements that streamline operations.

MD Clarity's RevFind offers a solution for managing payer contracts by digitizing and centralizing all agreements in a single location. This system scrutinizes each payment against the terms of the contract, highlighting any discrepancies for immediate action. Additionally, it facilitates the comparison of your reimbursements with national benchmarks, including those set by Medicare. RevFind not only equips you with the necessary insights for proactive negotiation but also guides you through the process of recovering funds and identifying systemic root causes to avert future underpayments. Schedule a demo to see how RevFind sweeps in the net revenue you’ve already earned.