Healthcare Contracts: How MSOs Can Handle Contract Complexity Across Many Locations

Ten years ago, your average contract involved one healthcare organization and one insurer. Nearly all handled only fee-for-service models that tie payment to services provided – a straight exchange. These contracts were free of the quality metrics, patient satisfaction scores, readmission rates, and total cost of care measures common in today's value-based contracts. Those older contracts also featured simpler bundling and claims processing rules. 

Today’s contracts — particularly for MSOs working across specialties and states – are far more complex. 

While contract management requires labor and budget investment, the advantages are many. Favorable contracts improve revenue, contain costs to collect, improve operations, and put providers on an equal footing with payers during negotiations. Good contracts lay the foundation of healthcare organization stability and growth. According to World Commerce & Contracting research, good contract development and management can save an average of 9% of a company's annual revenue. 

Review how you can attack payer contract complexity without overwhelming staff. You stand to improve the bottom line as well. 

MSOs face intense contract complexity

Today, management services organizations overseeing a range of physician groups and practices across several states struggle with far more complicated contracts. According to a study published in Becker’s Hospital Review, 62% of healthcare executives feel they lack full control and understanding of their contracts. 

It’s no wonder.

First, each state has its own regulations governing healthcare contracts. Then there’s the variation in contract types. Medicare’s in-network contracts are called “par” for “participating,” and “non-par” for providers not participating in the federal system. On the commercial side, contracts are either in-network or out-of-network. “Capitation” and accountable care organization (ACO) contracts add extra levels of complication. 

Further complicating matters, each of these contract types has its own service payment models –  either “case rate” or “fee-for-service.” It would take a mathematician to calculate the number of unique contract types resulting from these six variables. Throw in state stipulations and the variety of contract types multiplies even further.   

That’s not the end of the chaos. Ongoing changes from both payers and federal entities make keeping contracts current backbreaking. CMS updates annually, but it also releases quarterly updates to fee schedules, which can include changes to payment rates, coding guidelines, and coverage policies. Commercial payers update throughout the year, and providers often miss the notifications. Worse, they execute their amendments often without provider approval. As MGMA Vice President Tracey Watrous tells Rev Cycle Intelligence, 

“Most payer contracts say that the payer can amend the contract at any time. In the worst case, they say that no approval is required from the provider at all. In the best case, they’ll say, ‘We are amending this contract and you have 30 days to object to the amendment in writing or it automatically goes into effect.’”  

As a result of this complexity, MSOs must create, manage, and monitor payer contracts far more carefully than a physician group or even a health system limited to one state. Given visit volume, a one percent difference in a rate or a slight difference in clause wording can result in hundreds of thousands or millions of lost revenue. Meticulous contract supervision is just the price of doing business for MSOs. 

What are healthcare contracts?

Healthcare contracts are legal agreements between healthcare providers and payers that define the terms of service delivery, reimbursement rates, and operational requirements across various states and regulatory environments. These contracts encompass a range of agreement types, including:

1. Fee-for-service agreements

2. Value-based care contracts

3. Capitation arrangements

4. Bundled payment models

5. Pay-for-performance contracts

6. Accountable Care Organization (ACO) agreements

7. Medicare and Medicaid contracts

8. Commercial insurance contracts

9. Employer-sponsored health plan agreements

In addition to all the variables listed above, MSO executives must manage these diverse contract types according to the needs of different physician groups within their portfolio.  

Why it's important to understand the extend of healthcare contract complexity

It's crucial for management services organizations (MSOs) to understand the varieties of healthcare payer contracts. Here’s why:

• Financial impact: Different contract types and terms can significantly affect reimbursement rates and overall revenue for the physician groups an MSO manages. Understanding the nuances allows MSOs to optimize financial performance.

• Compliance requirements: Various contract types may have different regulatory and compliance obligations. MSOs need to ensure their physician groups are meeting all contractual and legal requirements to avoid penalties (and subsequent revenue drain). Civil penalties of up to $500 per day can be imposed for violations of reporting requirements under the Corporate Transparency Act.

• Network participation: Contracts determine which provider networks the physicians can participate in, affecting patient access and volume. MSOs must strategically manage network participation across contracts. Therefore, they must understand them well. 

• Quality metrics and incentives: Many modern contracts include quality-based metrics. When MSOs understand these, they help physicians meet performance targets, a move that attracts investment.

• Negotiation leverage: By understanding contract variations, MSOs can more effectively negotiate favorable terms on behalf of their physician groups.

• Risk management: Some contracts shift more financial risk to providers. When MSOs understand the risks written into contracts, they can negotiate assertively to limit them.  This payer contract negotiation article lists all the tricky terms payers write to favor themselves and drain revenue from you before. Understand them before you go to the table.

• Operational alignment: When MSOs must check that their operational processes and systems can support the requirements of diverse contract types, they have a stronger stance during payer contracting. 

• Market competitiveness: Understanding prevalent contract types in a market helps MSOs position their physician groups competitively and negotiate strategically.

By thoroughly understanding the landscape of payer contracts, MSOs better support their physician groups in navigating the complex healthcare reimbursement environment, optimizing revenue, and delivering high-quality care.

Healthcare contract management: the MSO responsibility

As an MSO, your company is charged with doing a better job on the finance side than the acquired practice or physician group can. Therefore, it’s your responsibility to thoroughly understand all the permutations of contracts. It’s also your job to catch contract amendments coming in from commercial and federal payers throughout the year. Then, you also need to evaluate and respond to every one – within the stipulated timeframe. The work involved in contract management necessitates serious effort and oversight into contract management – even if your acquisitions or other health systems have historically deprioritized it. 

A Boston Consulting Group article explains,

“To offset the double-digit cost jumps and structural economic challenges faced by health systems, the typical health system needs a rate increase of 5% to 8% each year across all payers to break even by 2027.” 

Healthcare organizations that have traditionally just taken whatever rates payers will give them will face negative margins unless they evaluate contracts and insist on better reimbursements and revenue-preserving terms

The size and structure of legal teams in Management Services Organizations (MSOs) depend on the organization's scale and scope. Larger MSOs often maintain comprehensive in-house legal departments, while smaller entities may depend on a single attorney or outsourced legal services. MSOs with a broader range of services or those operating across multiple states generally require more extensive legal support due to the complexity of their operations and varying regulations. Regardless of size, all MSOs need attorneys well-versed in healthcare laws, regulations, and contract management to effectively navigate the intricate healthcare legal environment.

Many MSOs adopt a hybrid approach to legal support, combining in-house counsel with external expertise for specialized or complex issues. This model allows for flexibility and access to a wide range of legal knowledge. 

Compliance remains a critical focus for MSOs of all sizes. They must prioritize adherence to healthcare regulations, including anti-kickback laws and corporate practice of medicine restrictions. As MSOs grow, they often need to scale their legal resources to manage the increasing volume and complexity of contracts effectively.

Preserve reputation in an MSO-leery environment

With robust healthcare consolidation occurring over the past seven years, state and federal legislators have erected corporate practice of medicine (CPOM) laws. 

Driving CPOM doctrine is legislators’ vision of a potential conflict between a practitioner's obligation to provide optimal patient care and a business entity's goal of maximizing profits while minimizing expenses. Some states have also implemented fee-splitting restrictions, which prohibit healthcare professionals from sharing their service fees with non-licensed individuals or entities. These laws strive to maintain the integrity of medical decision-making by keeping it separate from profit-driven business interests.

Healthcare MSOs face a complex web of regulatory challenges that require constant vigilance and expertise to navigate. Taking these steps will reassure patients and legislators that your prime directive is providing the best care. 

• Navigate complex healthcare regulations: MSOs must comply with various state and federal laws, including corporate practice of medicine (CPOM) restrictions, anti-kickback statutes, Stark Law, and fee-splitting prohibitions. Violating these can result in severe penalties.

• Maintain proper boundaries:  Carefully structure your roles and relationships with medical practices to avoid exerting too much control over clinical operations or physician decision-making, which could violate CPOM laws. .

• Establish compliant fee structures: Keep your management fees consistent with fair market value (FMV) and not structured in a way that could be seen as inducing patient referrals or violating anti-kickback laws.

• Respond quickly to varying state regulations:  Set up Google Alerts on “new healthcare legislation in [state],” “CPOM laws,” and foster positive payer relationships to be one of the first to know when contracted rates and terms change. Adapt quickly to avoid payers’ claims that you missed deadlines – a common excuse for shortchanging you.  Because the healthcare regulatory landscape is constantly evolving,  you must continuously update their compliance programs and practices 

• Manage audits: Audits come in from both payers and regulatory bodies. Prepare for this eventuality before you get the notice with this revenue cycle audit guide.

• Maintain proper documentation:  Your careful documentation will demonstrate your dedication to compliance during audits and investigations.

• Ensure data privacy and security:  The Change Healthcare debacle cost UnitedHealth Group between $2.3 billion and $2.45 billion in 2024. After paying $22 million to attackers, it reimbursed $4.7 billion to affected providers since the incident. This hack disrupted the healthcare system, delaying critical care and decimating practice reputations across the United States. 

As healthcare consolidation continues and regulatory scrutiny intensifies, MSOs must remain vigilant in navigating the complex web of state and federal regulations, including CPOM laws and fee-splitting restrictions. By maintaining proper boundaries, establishing compliant fee structures, and staying adaptable to varying state regulations, MSOs can effectively manage contract variety across multiple states while upholding the integrity of medical decision-making.

7 ways contract management software supports MSOs

In the complex landscape of revenue cycle management, contract management software has emerged as a crucial tool, allowing MSOs to avoid expensive legal and contract specialist consultant fees.  Contract management software empowers MSOs to effectively handle the intricacies of healthcare contracts, from automating routine tasks to providing critical insights for strategic decision-making.

Take a quick, self-guided tour through a powerful contract management tool:

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• Centralize contract storage and management: contract management software leverages cloud-based central repositories to store all contracts in one searchable location. This reliable centralization improves accessibility and prevents contract misplacement.
• Automate contract creation and workflows: the range of templates software offers allows MSOs to originate contract creation so that payers don’t get the upper hand from the start.  Automated workflows streamline contract creation and approval processes that reduce the time spent on drafting and reviewing standard agreements.

• Implement version control and tracking: software version control and tracking of contract changes reduces risks associated with using outdated or incorrect contract versions.

• Automated alerts and reminders: Software generates alerts for important dates like contract renewals, expirations, and compliance deadlines. Using these reminders, MSOs  avoid the missed deadlines payers rely on to drain provider revenue. 

• Leverage data analytics and reporting: contract management software extracts key data to generate actionable for justifiable decision-making. This data helps track performance, identifying trends, and making informed decisions about contract negotiations and renewals. 

• Enhance collaboration and communication: robust contract software allows multiple stakeholders to access and collaborate on contracts simultaneously.  

• Implement AI-powered features: Use only contract management software with built-in AI functionality to help streamline contract drafting, negotiation, and review analysis. Advanced technology significantly reduces staff manual work, improving efficiency.

•  Integrate with other systems:  reliable contract management software integrates with existing systems like CRM, ERP, or financial software. Seamless data flow eases workflows.  

• Standardize contract processes: explore your contract software’s pre-set templates and workflows for different contract types to maintain consistency across the organization and reduce errors.

• Implement robust security measures:  contract management software developers take every precaution to protect sensitive contract information. No one wants to re-experience the Change Healthcare crisis.  

By implementing these strategies, MSOs can significantly streamline their contract management workload, improve efficiency, reduce risks, and ultimately focus more on their core services and growth strategies.

Use contract management software that specializes in healthcare contract complexity

 Ultimately, MSOs that prioritize compliance, documentation, and data security will be best positioned to thrive in this challenging regulatory landscape, ensuring they can continue to support healthcare providers in delivering optimal patient care.

MD Clarity’s RevFind  streamlines payer contract management by consolidating and digitizing all agreements into a unified platform. This system meticulously analyzes each payment, comparing it against contracted terms to identify and flag any discrepancies for prompt resolution. It also enables benchmarking of reimbursements against national standards, including Medicare rates.

By providing comprehensive insights, RevFind empowers healthcare organizations to approach contract negotiations with data-driven insights. The system not only facilitates the recovery of underpayments but also helps pinpoint systemic issues, preventing future revenue leakage. To experience how RevFind can help maximize your earned revenue, you can schedule a demonstration of its capabilities.

To experience how RevFind can increase the revenue agreed to in your contracts, schedule a demo that addresses your organization’s unique payer challenges.

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