Healthcare Contract Modeling Software: Getting the Upper Hand With Payers

At contract renewal time, payers are often content to sit quietly and keep rolling over the previous year’s reimbursement rates. 

Providers let them do it, too. 

According to an MGMA survey of 389 physician group leaders, 16% review payer contracts every two years or more and 17% never review contracts. 

Meanwhile, providers continue serving their patients in an environment where healthcare labor costs increased by 20.8% and supply expenses rose 18.5% from 2019 to 2022. The upward trend continued to wreak operating havoc from 2023 through the first half of 2024, according to another recent MGMA stat poll.

If you go into 2025 with 2022’s reimbursement rates (as 20 to 30% of providers do based on the MGMA survey above), your revenue will shrink. A Boston Consulting Group study reported in HFMA concludes that, 

“Hospitals that have traditionally just taken whatever rates payers will give them can no longer afford inaction. The typical health system needs a rate increase of 5% to 8% each year across all payers to break even by 2027.”

Given the widespread revenue cycle staffing shortage, progressive physician groups and managed services organizations are turning to automated contract modeling capabilities to model contracts in real-time using historical data so they can understand proposed rate change impact on revenue. The accurate data the automated contract modeling software renders fuels their demands for higher reimbursements and better terms. 

Automated healthcare contract modeling software offers a proactive approach to financial management. It gives you a complete picture of your healthcare organization's current and future performance and analyzes the impact of various payer-related elements on margins.

Get up to speed on how healthcare contract modeling software gives you the data and tools to assertively negotiate with both top and bottom performing payers. Your current and future performance with different payers – and your revenue – depends on it.

What is healthcare contract modeling software?

Healthcare contract modeling is the process revenue cycle staff undertake to analyze the potential impact of rate changes on their revenue streams. Through rate modeling, these teams can determine whether a payer's proposed modifications will ultimately benefit or harm the organization's revenue and by how much. RCM staff can also feed their own preferred changes into their contract modeling system to see which rates and terms combine for optimal revenue. The software can process unlimited scenarios. 

The data and insights gained from contract modeling exercises enhance the team's negotiating position. Data-driven projections help the organization more effectively and confidently advocate for favorable terms and push back against potentially detrimental changes. Add this feature to contract management software’s ability to analyze each payer’s contract performance and rank all payers by that performance, and providers bargaining power burgeons. A proactive and assertive approach to contract changes and renewals helps safeguard the organization's revenue.

For some physician groups and MSOs, contract modeling software features come as part of their contract management software. This system helps unburden RCM staff and streamline payer contracting by storing contracts and eliminating time-consuming data gathering, as well as executing eligibility verifications and good faith estimates. 

Revenue cycle leaders are recognizing how scrupulous management of payer contracts and forceful, honest negotiation will build the foundation of their success going forward.  Grandview Market Research predicts that the global healthcare contract management software market size, measured at over one billion currently, will grow at a compound annual growth rate of 22.8% until 2028 when it will reach USD 4.59 billion in 2028, nearly quadrupling. 

You can model exactly how proposed payer changes will impact your revenue. Experiment with your own changes in unlimited scenarios. Take a quick tour of efficient contract modeling in action here: 

How payer contract modeling software benefits providers 

Contract simulation tools also provide your organization with other benefits.

Negotiate better contracts with payers

Contract simulation tools allow you to model thousands of reimbursement combinations to understand the influence of proposed payer contractual terms on your bottom line. As a result, you can negotiate better contracts and avoid pitfalls.

To illustrate, the Owensboro Health system used contract modeling software to model a contract that was expected to net $12 million and found it would result in a $12 million loss instead. This allowed them to negotiate a counterproposal that would get them a profitable contract.

Improve your margin and financial performance

Contract modeling also helps you improve your margin and financial performance. It analyzes the impact of various elements — pricing, methodologies, payer mix, shifts, and changing regulations — on margins rather than net revenue alone. In other words, it shows you whether there will be a profit and when services will be profitable.

Increase staff productivity

Lastly, healthcare contract modeling software can boost staff productivity by gathering contract information into an accessible hub that everyone can access.

Your staff can work faster with instant access to contract information and analytics at their fingertips. They can promptly address payer notices if they know the contract deadlines and terms and manage contracts better when they can determine which payers routinely underpay and which have more denials.

Contract renewal and update pitfalls 

Payers downplaying the results of small percentage changes

Pitfall: Payers often suggest that small percentage changes won't significantly affect a provider's bottom line. However, for healthcare providers, even minor rate adjustments can translate to substantial revenue changes, especially when applied to high-volume services.  

Payers tend to argue that a 1-2% increase in reimbursement rates is minimal and shouldn't greatly impact a provider's finances. They might present this as a reasonable compromise during negotiations, emphasizing the need to control healthcare costs.

For the provider, however, these seemingly small percentage changes can be profound. 

Consider: 

1.  High-volume services: When rate changes affect commonly performed procedures or services, the cumulative effect on revenue is amplified. For instance, a 2% increase in reimbursement for a service performed thousands of times annually can result in significant additional revenue.

2. Compounding effect: Over time, even small percentage differences compound, leading to substantial revenue disparities compared to providers who secured better rates.

3. Medicare rate comparison: Private insurance payments average 254% of Medicare rates for hospital services, according to Rand Corp. A few percentage points can make a significant difference in maintaining this margin above Medicare rates.

Consider an MSO or physician group that performs 50,000 of a particular outpatient procedure annually. 

- The current reimbursement rate is $1,000 per procedure.

- The payer proposes a 1% increase, but the provider needs a 2.5% increase

- Current annual revenue: 50,000 * $1,000 = $50,000,000

- Revenue with 1% increase: 50,000 * $1,010 = $50,500,000

- Difference: $500,000

- Revenue with 2.5% increase: 50,000 * $1,025 = $51,250,000

If the provider gets its 2.5% increase, it will get $750,000 more in reimbursements that year. That’s one revenue-producing physician or a sweet piece of new equipment!

Solution: Use contract modeling to get the exact figures each change enacts on revenue – by both percentage and dollar amount. 

Constant rate and term updates get overlooked or lost

Pitfall: Payer contract changes come in continually throughout the year. Because manual contract monitoring requires staff or contract managers to actively seek out payer rate changes, it can get deprioritized. Staff have to take the initiative to sort through various channels – portals, newsletters, Availity, or physical mail.  It requires staff or contract managers to actively seek out payer rate changes.

After his survey of 522 contract managers showed 502 felt their organization had no dependable contract system, Doug Brown of Black Book concluded that the manual approach is disjointed and inefficient, resulting in an estimated annual cost of $157 billion to the healthcare industry.

Solution: Automated contract management solutions cut staff work significantly. While staff still need to actively stay on top of contract updates coming in from payers, with a contract management system, they only need to enter the change once to have it apply across their system.

Lack of clarity on ranking of payer mix

Pitfall: When complex contracts combined with insufficient RCM staff for underpayment recovery make contract modeling impossible, providers’ negotiation stance weakens. This lack of clarity can result in missed opportunities to negotiate better rates with high-performing payers or address issues with underperforming contracts. Ultimately, the inability to effectively compare payer contract performance can lead to decreased profitability, compromised patient care quality, and hindered ability to invest in necessary improvements or expansions. 

Solution: Contract management software evaluates payer contract performance by automatically analyzing claims data, reimbursement rates, and contract terms across all payers. It compares actual payments received against contracted rates to identify underpayments or areas where revenue can be optimized. The software also provides insights into which payer contracts are most profitable, tracks key performance metrics, and generates reports that allow healthcare providers to make data-driven decisions about contract negotiations and revenue cycle management.

Benign neglect

Pitfall: Regrettably, many payer changes and even completely new contracts get accepted with little to no challenge or negotiation from providers. Payers are notorious for relying on provider overwhelm. 

Solution:  When RCM staff can key in proposed payer changes (or even an entire new contract at renewal time) and see the revenue consequences within minutes, providers are less likely to accept unfavorable rates and terms without a fight. With the help of advanced technology, more providers are pushing back against static and insufficient rates. In a recent HealthLeaders article, “There’s a Surge in Provider / Payer Disputes,” writer Amanda Norris reports that not only is there “a notable uptick in payer/provider disputes,” but “disagreements over reimbursement rates and contract terms have also garnered more media attention in the last year.” 

Features of payer contract modeling software

The available features of payer contract modeling software vary depending on which kind you get. However, most have some common basic features.

Fee comparison

Payer contract modeling software lets you quickly compare how contracted payers will adjudicate service combinations. For example, it can show how a private insurance company compares with Medicare regarding certain sets of laboratory services or diagnostic imaging. It can show these metrics tabularly and graphically in seconds.

Scenario modeling

Your payer contract modeling program should also come with a scenario modeling module. This module combines a historical data warehouse with a scenario modeling engine to project the impact of changing insurance agreements. Use this data to engage in data-driven, systematic negotiations that exceed insurers' capabilities.

Charge analysis

When your healthcare company or system needs to revisit its chargemaster, use your payer contract modeling software to reduce or eliminate time-consuming and labor-intensive data gathering. This automated analysis module should:

• Give you the relevant data for making sound financial decisions, such as errors leading to revenue loss
• Automatically analyze charges for every service to spot instances where contracted payers are reducing their payments

This tool can help you increase revenue by holding insurance providers accountable to their contractual agreements without increasing patient out-of-pocket costs.

Patient scorecards

Finally, your payer contract modeling app should provide easy-to-read patient scorecards. These scorecards focus on the patient perspective of your healthcare company, including what they want and how well your organization is serving them.

You can use patient scorecards to:

• Identify and understand short and long-term goals
• Evaluate your healthcare provider or system's responses to physician needs
• Set performance targets
• Track process improvement efforts
• Map a patient care strategy for improving patient satisfaction, patient loyalty, and technical support

Key performance indicators you can model with payer contract modeling software

Contract simulation tools are also a great way to model healthcare revenue cycle key performance indicators — measurable values that show how effectively an organization achieves key business objectives.

You can use KPIs to create:

• Targets for teams to aim for, such as decreasing the number of payment errors
• Milestones for evaluating processes, such as a timeline for increasing payment accuracy rate
• Insights for helping staff across your company make better decisions — for example, if your error rate for a specific type of surgery is too low, you can use these insights to improve accuracy.

Calculation accuracy rate

The calculation accuracy rate is the most important KPI for any net revenue projection analysis.

You can use this metric to ensure data integrity in:

• Collections
• Contract negotiations
• Price setting
• Cash flow projections
• Estimates

Error rate

The error rate is the number of treatment errors divided by the number of total treatments times 100. It measures the number of mistakes made by personnel in your facility when treating patients. This is vital for understanding the effectiveness of your staff. Error rates are usually broken down into categories, including the type of therapy, medication, and recommended dosage amount.

Contracts current rate

The contracts current rate is an accounting of whether contracts are correct and up to date. You can use it with other contract KPIs to determine contract effectiveness. Examples include:

• Number of contracts: Tracking the number of contracts by vendor, client, location, and other characteristics will give you insight into how certain contract types perform compared to others. You can then spot which metrics are declining or improving, such as return on investment and profitability.
• Contract renewal rates: This metric oversees the value of your company and contract quality by assessing contract renewal rates. Higher rates usually mean higher vendor and client satisfaction. On the other hand, if your rates are low, you should improve your contract life cycle management system.
• Contract scoring: This metric notes the various attributes of your contracts based on qualitative measures. Use these data points to evaluate your contracts' effectiveness and compare them to others.

The best way to use this metric is to implement a spreadsheet or dashboard for current contracts, visible to all stakeholders. To ensure everyone's on the same page, tabulate every existing contract and use an organizational system like color coding to make each contract's timeline and status apparent. For instance:

• Green for new contracts that are the furthest away from termination
• Yellow for contracts with termination dates in the distant future
• Red for contracts with a close termination date

Payment accuracy rate

The payment accuracy rate measures the payments you receive from patients and payers against the amount you're supposed to get. The biggest variances and irregularities to look out for are:

• Underpayments from or to payers or vendors relative to your adjustments or contracts
• Rejections and denials of payments by, to, or from third parties like creditors and insurers
• Overpayments from or to payers or vendors, including overestimations and duplicates

Cost of healthcare payer contract modeling software

The cost of healthcare payer contract management software depends on the structure of the software. If your platform is stand-alone, the costs will probably be lower. However, it will likely be more expensive if it's part of a larger suite that includes other healthcare tools, such as cost estimate software.

Contract modeling software vs. using spreadsheets to do the same

Contract modeling solutions aren't the only way to model contracts. If you don't have the budget for a contract modeling tool, you can use Microsoft Excel or Google Sheets spreadsheets to do the same. Spreadsheets also offer other advantages, such as the ability to make immediate updates and changes to data.

Here's a breakdown of the pros and cons of contract modeling solutions vs. using spreadsheets.

Pros of using spreadsheets

The pros of using spreadsheets include:

1. Real-time changes: Whenever you make calculation changes, the sheet automatically updates the changes for users. Modeling in Excel or Google Sheets is also faster if you know what data sets you want to model.
2. Portability: Google Sheets and Microsoft Excel are both hosted on the cloud, which means you can access your spreadsheets from any device, including mobile phones. Meanwhile, many contract modeling solutions only work on computers.
3. Cost-effective: As mentioned above, spreadsheets are much more cost-effective than contract modeling software. Google Sheets is free, while Microsoft 365 Business costs only $6 to $22 per user per month, depending on your chosen tier.

Cons of using spreadsheets

Unfortunately, using spreadsheets to model contracts presents certain disadvantages, including:

1. Prone to errors: Contract maintenance in Excel and Google Sheets requires manual maintenance, which increases the chance of users entering inaccurate data into your spreadsheets. Spreadsheets also don't come with a way to identify errors in a timely manner, so you have to do the vetting yourself. If you fail to identify errors promptly, your credibility will quickly plummet, leading to customer dissatisfaction, decreased customer loyalty, negative reviews, and lower revenue.
2. Requires more time to model payer contracts: Spreadsheets can be time-consuming. You may:

1. Spend a lot of time building and rebuilding the calculation changes and rules for outpatient and inpatient services.
2. Spend a lot of time querying data from your contract management system to link to your spreadsheets if you model your contracts in different ways.
3. Experience data limitations due to spreadsheet limitations, which may force you to model with a smaller data set, leading to inaccuracies.

1. Requires staff with high spreadsheet skills: Using spreadsheets to model complex contracts requires expert-level proficiency in Microsoft Excel and Google Sheets. Case in point: spreadsheet modelers must be able to build models with thousands of lines to handle outpatient calculations. Admittedly, not every spreadsheet user needs to be an expert, but you need at least a few to create complex charts and formulas and draw insights from results. If you don't already have such experts, consider hiring some. Enrolling existing staff in boot camps and online courses can only do so much.
2. Limited reporting capabilities: Spreadsheets do calculations at a formula level, which is not detailed enough to generate useful insights. Additionally, spreadsheets aren't linked to relational databases, which can limit your reporting abilities.
3. Lack of predictive analytics: Unlike healthcare contract modeling platforms, spreadsheets don't provide predictive analysis — that is, they don't use statistics and modeling techniques to predict future performance and outcomes. As such, you will have fewer insights about your practice.
4. Lack of automated notifications: Spreadsheets don't have automatic notifications that tell you that a contract is about to expire, and you may miss a lot of deadlines.
5. Security risks: Spreadsheets lack encryption features for protecting sensitive patient and business data. It's easy for threat actors to gain access to your spreadsheets and falsify, manipulate, and steal data. These crimes put you and your patients at risk of identity theft and extortion, and they can also lead to lawsuits, fines, and prison sentences for violating the Health Insurance Portability and Accountability Act's security rule. HIPAA requires healthcare providers to protect patients' electronically stored health information by using appropriate technical, administrative, and physical safeguards to ensure their information's integrity, confidentiality, and security.

Pros of contract modeling software

Contract modeling software provides many advantages, including:

1. A secure and centralized hub for keeping track of contract versions: It's easy to make mistakes when organizing and managing contracts in Excel and Google Sheets. This means you can easily run into problems when locating a contract that is not stored where your spreadsheet says it is. A contract modeling platform gives you a centralized and secure repository for storing and keeping track of your contract versions and any changes. Additionally, anyone from your organization can use the platform to locate contracts immediately.
2. Faster results: Contract modeling apps are faster than spreadsheets for several reasons:

• Users can set up contracts faster on the front end, empowering them to build models more quickly. They must start from the baseline in Microsoft Excel and Google Sheets.
• Users have a clear dashboard with drop-down boxes and contracts they can copy to make changes to terms and rates.
• Contract modeling systems are connected to contract management data, so users can quickly spot and create modeling data sets to run calculation simulations.
• Users spend minimal time aggregating data since it's imported in real-time.
• Users can generate reports with beautiful visualizations and executive summaries quickly.
• Users can also use an intuitive dashboard to pull massive amounts of data from specific codes, payers, and other categories.

1. Faster contract modeling and management: Contract modeling apps make it easier to select data sets and present multiple simulations simultaneously. That's because the software uses payer contract data to establish the modeling baseline. Contract modeling software also automates and simplifies other aspects of contract management, including performance reporting. Most contract modeling apps offer various modeling approaches, including assessment of proposed and current contracts, Medicare break-even computation, assessment of pricing changes, and comparison of nontraditional and traditional reimbursement.
2. A shallow learning curve: Contract modeling platforms require minimal training compared to Excel and Google Sheets. Users generally become proficient in contract management tools after three to five days of training.
3. Ironclad security: Unlike spreadsheets, contract modeling platforms are encrypted, making them incredibly secure. They empower you to authorize access to relevant contracts for certain employees. You can also use the platforms to manage and control access to data using functions and roles.

Cons of contract modeling software

Despite their advantages, contract modeling apps have a few drawbacks:

1. Higher cost: This is the main con of contract modeling software. Contract management software can be prohibitively expensive, especially for smaller healthcare providers and systems with limited resources.
2. Potentially slower calculation run time: Your contract modeling software may be slower than Excel, depending on the vendor.

Model your contracts with MD Clarity

Insufficient staff bandwidth and lack of access to technology-enabled analysis leave providers incapable of pushing for favorable rates and terms. When payers give you just 30 or 60 days to respond to change notices, quick action and accurate data is critical. With it, you can stand your ground with confidence during payer negotiations.

MD Clarity’s RevFind contract modeling features empowers physician group and management services organization teams to model the impact of potential rate changes on revenue. As part of our automated contract management solution, it also brings transparency across your revenue cycle by:

• Showing how your insurance contracts are performing
• Projecting cash flow impacts of contract changes
• Comparing performance across payer contracts

Don’t let your payers sneak an insufficient rate increase or unfavorable term by you again. Book a demo today.

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