Payer Contract Audits: Steps to Writing Robust Revenue into Agreements

 Twenty-five percent of medical practices never audit their payers’ contracted rates, according to an MGMA Stat poll. 

Without regular payer contract audits, these organizations risk:

•  reimbursement shortfalls due to underpayments and contractual discrepancies
• regulatory non-compliance resulting in monetary penalties and sanctions
• unanticipated audits by the Centers for Medicare & Medicaid Services (CMS) and commercial payers leading to financial recoupments
• escalation in claim denials and subsequent revenue cycle disruptions

Contract audit failures occur at all levels in the healthcare industry. Reluctant to turn away from patient throughput, small practices deprioritize contract management. Even some large hospitals still can’t locate – let alone analyze – their contracts. The Healthcare Financial Management Association worked with a large healthcare system with contracts that hadn’t been updated for 12 years on average.  

Given the recent rise in operational costs, healthcare organizations must press payers for higher reimbursements. Health system margins still lag compared to pre-pandemic levels for many locations.  

A Boston Consulting Group study explains,

“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.”

Healthcare providers have more ways to improve revenue at their fingertips than simple rate increases. With updated, closely monitored contract audits, you can realize higher revenue by:

•  recouping underpayments from insurers and other payers
•  leveraging up-to-date market data and benchmarks to negotiate more favorable reimbursement rates 
•  preventing revenue loss from expired contracts by tracking renewal deadlines
•  mitigating compliance risks and associated penalties through systematic contract oversight
•  streamlining revenue cycle operations and reducing administrative burden

Locating, consolidating, and analyzing payer contracts can be an overwhelming task, especially when faced with delays from payers in providing updated agreement copies. 

Still, dedicating resources to this critical task can build the foundation for optimized reimbursement for years to come. Here, you’ll get insights on how you can conduct payer contract audits that stop payers from exploiting you and finally get the revenue you’ve earned.  

What are payer contract audits?

Payer contract audits are reviews of payer contract rates and terms in comparison to actual, received payments. These audits involve a detailed examination of the provider's financial records, claims data, and payer contracts to identify discrepancies, underpayments, and potential areas for improvement in the revenue cycle.

Contract audits are crucial for maintaining financial health and compliance, as they help uncover issues such as improper payments, coding errors, and violations of contract terms that could lead to revenue leakage. In addition to keeping payers honest, audits serve as a vital component of a provider's compliance program, helping to ensure adherence to federal and state regulations. 

Steps to the successful payer contract audit

From establishing a consistent review schedule to utilizing data analytics for trend identification, these elements work in concert to create a robust audit process. By implementing these components, healthcare organizations can transform their contract audits from reactive into a proactive strategy that drives continuous improvement and financial optimization.

Assign a contract auditor

In-house

You can audit contracts in-house by hiring from outside or reassigning a current staff member’s tasks, re-deploying them as your contract specialist. If your practice has a lower volume of contracts (under five), engaging a part-time specialist may be sufficient. Part-time specialists can also provide valuable recommendations for effective contract management software. 

A large healthcare organization with over a dozen contracts may want to consider creating a payer relations department that leads healthcare payer contract management. These executives will handle payer relationships, contract negotiations, regulatory compliance, data analysis and reporting, strategy, and staff training. 

Third-party contract management companies

Healthcare-specific contract management services utilize a combination of advanced software solutions and a team of specialized professionals, including contract experts, legal counsel, and financial analysts, all well-versed in the complexities of payer agreements. These specialists collaborate to ensure that contracts are equitable, legally robust, and aligned with the organization's strategic objectives. Additionally, dedicated compliance officers within these services work diligently to verify that all contractual arrangements adhere to the evolving landscape of healthcare regulations and legal requirements.

Contract management software

For provider groups and MSOs grappling with contract complexity but hesitant to pay consultants’ high fees, implementing specialized contract management software can affordably organize the process. 

Advanced platforms offer comprehensive insights into reimbursement shortfalls, unfavorable payer terms, and the fiscal implications of contract amendments. Additionally, they provide automated tracking of renewal deadlines and generate critical alerts. To ease the implementation burden, some software providers offer initial contract upload services, minimizing the strain on your internal resources. Typically, these solutions demonstrate a favorable return on investment by uncovering tangible financial recovery opportunities and enhancing overall revenue cycle performance.

Take a quick, self-guided tour through a powerful contract auditing, management, and underpayments identification tool:

Centralize contracts

Organize and consolidate all payer contracts and related documents in one accessible location. For missing contracts, notify your payer rep that you need the most current contract sent to you within two weeks. Should they fail to comply, you can repeat this request or even use the squeaky-wheel approach and threaten to file complaints with state insurance and health departments. However, some attorneys like Ross Burris, JD, of the Polsinelli Law Firm caution against going straight to these oversight organizations. In the video Trends in Payor Audits and Disputes, Burris compares taking that route to calling the police on a neighbor who’s leaving sprinklers on too long when going over and asking them to take care of it would suffice. In Burris’s experience, going to the state is overkill and just makes everybody – particularly payers – angry. 

Instead, consider exploring your legal options to address contract delivery delays. If you don’t have in-house counsel, healthcare attorneys like those at the firm above specialize in payer-provider relationships. 

Create a regular review schedule

Work with your contract specialist to set up a calendar to conduct contract audits consistently, whether monthly, quarterly, or at least annually. Contracts renew and get updated throughout the year. Set Google calendar alerts or make use of the alerts available in your contract management software system if you have one. 

Establish contract audit KPIs

“What gets measured gets managed,” says management consultant and author Peter Drucker. KPIs measure the performance of your contracts — how much more money they’re bringing in after you’ve made key changes. Take baseline measurements for: 

• Underpayment recovery rate
• Denials due to contract-related issues like incorrect rates or non-covered services
• Average time to resolve underpayments
• Time spent on manual contract review
• Days in A/R
• Turnaround time for contract updates
• Clean claim rate
• Financial impact of identified contract discrepancies
• Net collection rate
• Payer performance comparison
• Contract compliance rate

We discuss the key insights rendered as well as the benchmarks to shoot for in each of these KPIs in depth in our contract compliance monitoring article. 

Comparison analysis

Compare actual payments received against expected contractual reimbursements for key CPT codes.

Underpayment analysis

One of the most lucrative contract audit goals a provider can strive for is the identification and recovery of payer underpayments. Healthcare organizations are pushing back and winning against payer greed.

TeamHealth won $10.8 million dollars in their underpayments case against UnitedHealthcare. When a 30-location orthopedics group finally uncovered their underpayments, it recouped $10 million. Becker’s Hospital Review reports that Albany Med Healthcare is suing Capital District Physicians Health Plan (CDPHP) for $50 million, accusing the payer of withholding $2 million per week from them. The 100 Alabama hospitals now suing Blue Cross claim the insurer underpaid them by $5 billion. 

Even the average provider or MSO stands to gain via underpayment recovery. A study published in Becker's Hospital Review indicates that underpayments account for a loss of one to three percent of annual revenue for the average healthcare organization.

Another industry analysis suggests that revenue leakage due to underpayments could be as high as 11%. In our experience working with healthcare providers, some clients have reported underpayments reaching five to seven percent of their net revenue. These figures underscore the significant financial impact that underpayments can have on a healthcare organization's bottom line and highlight the importance of robust contract management and auditing processes.

A relatively simple contract auditing process that pinpoints underpayments can win your group or MSO enough to add the revenue streams from an onsite lab or additional services or even additional physicians. 

Compliance verification

A key part of contract auditing, compliance verification ensures adherence to contract terms, regulatory requirements, and internal policies. 

Technology utilization 

Every location in your group or MSO should be working toward modernized, centralized technology. We cover the  Leverage contract management software and data analytics tools to streamline the audit process and identify trends.

In the current healthcare landscape, many physician groups and MSOs are shifting their strategic focus from acquisition-driven growth to enhancing operational value. To achieve this, some are leveraging innovative revenue cycle management (RCM) technologies to reduce labor costs and improve cash flow. By automating processes traditionally performed by staff, these advanced RCM solutions cut through the complexity of manual file management and spreadsheets to precisely identify:

• sources of revenue leakage
• instances of payer underpayments
• areas where patients require support in understanding and fulfilling their financial obligations
• opportunities to enhance EBITDA margins, net revenue, and cash flow

The impact of these initiatives is becoming increasingly evident. In Deloitte's recent Global Intelligent Automation survey, which included 479 executives, respondents reported an average cost reduction of 32 percent attributed to automation. 

Similarly, Black Book survey of 1,302 healthcare organization financial professionals revealed that those implementing revenue cycle automation software achieved a 27% decrease in cost-to-collect, along with a six percent increase in net patient revenue.

Furthermore, the 2022 National Association of Healthcare Revenue Integrity's State of the Revenue Integrity Industry Survey found that 85 percent of respondents reported a positive impact on their revenue from automating revenue cycle processes over the past 12 months.

While these statistics indicate that many healthcare organizations and MSOs have initiated or are in the process of implementing revenue cycle automation to enhance operational efficiencies, there remains significant room for further adoption and optimization within the healthcare sector.

Collaboration across departments

Involve finance, coding, compliance, and clinical teams in the audit process. 

Prepare for negotiation

Use audit findings to inform and strengthen future contract negotiations with payers. Our payer contract negotiation article covers how you have a right – even a duty – to fight for better terms. It goes over how you can effectively prepare, negotiate, and track your payer contracts in depth. 

Corrective action planning

Prepare your team for this regrettable reality: payers make all kinds of mistakes. They:

• commit claim adjudication errors (an AMA study revealed payer processing error rates of 19.3 percent)
• neglect to apply contractually agreed-upon annual fee schedule increases
• inappropriately bundle or unbundle CPT codes
• omit accrued interest penalties resulting from failure to meet contractual claims payment timelines
• misinterpret services as carved-out benefits and erroneously attribute reimbursements to secondary payers designated for those specific services
• improperly merge patient accounts, leading to claim reconciliation discrepancies

These common payer errors can significantly impact a provider's revenue cycle performance.  Payer shortcomings necessitates contract management and claims auditing processes to ensure accurate reimbursement to keep your organization thriving. 

Establish continuous education and training

Keep staff updated on contract terms, coding requirements, and industry best practices.

Appeal process management

 Set up a systematic approach for appealing underpayments or denials identified during the audit.

By incorporating these components, healthcare organizations can conduct thorough and effective payer contract audits, ultimately optimizing their revenue cycle and improving financial performance.

Because payers audit contracts, too…

Beyond wringing the last dollar of revenue from your agreements, conducting payer contract audits stands to help you avoid a whole lot of hassle. Commercial insurers and Medicare are increasingly leveraging sophisticated data analytics to identify outlying provider behavior and unusual billing patterns, triggering audits that can significantly impact a provider's bottom line.

Payers, driven by the need to control costs and ensure program integrity, are intensifying their audit activities. The Centers for Medicare & Medicaid Services (CMS) has implemented the Targeted Probe and Educate (TPE) program, ostensibly to reduce claim denials through one-on-one provider education. However, this process can be arduous and time-consuming, potentially lasting anywhere from a few months to several years. 

Commercial payers, on the other hand, often conduct contract-driven audits that scrutinize every aspect of claims submission, from the cost of individual medical supplies to complex procedural coding.

For MSOs and physician groups, the implications of these payer audits are profound. Ignoring or mishandling audit requests can lead to severe consequences, including payment recoupments, pre-payment review status, or even license revocation in extreme cases. To mitigate these risks, providers must adopt a proactive approach to contract auditing.

By implementing robust internal audit processes, healthcare organizations can:

•  Identify and rectify potential compliance issues before they trigger payer audits
• Ensure accurate coding and documentation to support billed services
• Optimize revenue cycle performance by addressing underpayments and denials promptly
•  Strengthen their position in payer negotiations by having data-driven insights into contract performance

Moreover, proactive auditing allows providers to maintain a reasonable level of revenue while demonstrating their commitment to compliance. This approach not only helps in fending off expensive payer-initiated audits but also positions the organization favorably in the event of an audit.

For MSOs and physician groups, investing in advanced contract management and auditing tools can significantly enhance their ability to navigate the complex landscape of payer audits. These solutions can automate the monitoring of contract terms, flag potential discrepancies, and provide real-time analytics to support audit responses and contract negotiations.

Fuel payer contract audits with robust contract management software

As the healthcare landscape continues to evolve, organizations that prioritize effective contract auditing will be better positioned to navigate inevitable modernization demands, negotiate favorable terms, and maintain a healthy bottom line. Ultimately, a well-executed payer contract audit program serves as a reliable revenue engine, empowering healthcare providers to thrive in an increasingly complex reimbursement environment.

RevFind, MD Clarity's advanced automation solution, empowers MSOs and physician groups to optimize their revenue cycle performance. By consolidating all payer agreements into a centralized repository, RevFind facilitates comprehensive analysis of reimbursement data against contracted terms across the entire provider network. The platform automatically identifies discrepancies between actual payments and expected reimbursements based on contractual obligations for all managed practices. This automated detection of underpayments enables providers and MSOs to initiate prompt payer notifications and recovery processes for earned revenue.

By eliminating the need for manual payment reviews against contract terms, RevFind enhances MSO executive productivity and improves operational efficiency organization-wide. The system's robust contract comparison and benchmarking capabilities allow MSOs to evaluate reimbursement rates for their managed practices against industry benchmarks such as Medicare. This data-driven approach equips MSOs with the insights needed to conduct more strategic and effective payer negotiations on behalf of their entire provider network.

Schedule a demo to see how RevFind can simplify and optimize your contract auditing and modeling processes.

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