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With the time, attorneys, and motivation to devote to meticulous contract scrutiny, payers dominate during contract negotiation.
Because healthcare organizations have patients to care for, historically, they have capitulated to payer changes at contract renewal time and when proposed changes come in dozens of times throughout the year.
According to a recent MGMA poll, a full 33% of providers fail to review their contracts yearly. Another 17 percent report NEVER reviewing them, and 16 percent review contracts every 2 to 3 years or more. The Healthcare Financial Management Association helped a healthcare system with 1,500 beds and $2 billion in net revenue get their revenue cycle back in shape. The system’s contracts, on average, hadn’t been updated for 12 years. We often work with clients who haven’t reviewed their contracts in five years or more.
Today’s active healthcare merger and acquisition environment is helping to fix the payer/provider power imbalance. Healthcare organizations have learned the hard way that the best loan rates, investment, and purchase offers go to those showing the strongest P&Ls and EBITDA. Revenue improvement takes getting payers to meet their contractual obligations.
The quickest way to empower payer contract negotiation is contract performance analysis. By thoroughly reviewing existing contracts, providers can identify key areas for improvement, understand their current financial position, and pinpoint specific clauses that require modification. Only through critical examination can healthcare organizations compare their fee schedules against industry standards, evaluate reimbursement trends over time, and assess the impact of various contract terms on their revenue cycle.
Moreover, comprehensive contract analysis enables providers to develop data-driven payer contract negotiation strategies. By scrutinizing payment terms, quality metrics, network adequacy requirements, and regulatory compliance aspects, healthcare organizations can build a strong case for improved contract conditions.
If your practice is not regularly examining and renegotiating contracts with insurers, you are abandoning revenue.
You can stand toe-to-toe with payers during contract negotiation when you get hard data on payer terms, rates, denials, underpayments, and hassle. The points in this article helps ensure you’re doing everything you can to swing the payer contract negotiation process your way.
Take a quick, self-guided tour through a powerful contract management and underpayments recovery tool:
You have a right…to fight
Where payers have typically relied on provider overwhelm to write terms and rates that favor them, providers are starting to fight back against payer tactics with lawsuits.
- A recent federal lawsuit against UnitedHealthcare, filed by SpecialtyCare physicians, accuses the insurance giant of intentionally employing a "deny, delay and underpay" strategy. This alleged practice has reportedly resulted in over $900,000 of unpaid awards from independent dispute resolution (IDR) processes.
- In a recent landmark case, Blue Cross Blue Shield reached a settlement with Alabama hospitals and healthcare organizations, agreeing to pay $2.8 billion for historical underpayments. This unprecedented settlement not only addresses past financial discrepancies but also requires BCBS to implement new business practices designed to ensure fairer claims resolution moving forward.
Your interactions with payers don’t have to turn into a lawsuit, however. Simple awareness of points in your contracts where you have negotiating room is a responsible first step in winning more fair reimbursements.
What is payer contract negotiation?
Payer contract negotiation is a critical process in healthcare revenue cycle management where healthcare providers engage with insurance companies to establish and/or revise the terms of their reimbursement agreements. It’s a complex interaction that involves discussing and agreeing upon various aspects of the provider-payer relationship, including reimbursement rates, payment terms, covered services, and performance metrics. The goal is to secure fair and sustainable financial arrangements that support the provider's ability to deliver high-quality care while maintaining financial viability.
Effective payer contract negotiation requires a deep understanding of market dynamics, thorough analysis of historical data, and clear communication of the provider's value proposition. It often involves leveraging data analytics to identify areas for improvement, benchmarking against industry standards, and proposing innovative payment models.
Prepare, Negotiate & Track to Win in Payer Contract Negotiations
These steps and strategies focus on thorough contract analysis, fee schedule evaluation, and data-driven preparation providers can use to position themselves for more effective and advantageous payer contract negotiations.
Prepare: Before the Contract Negotiation
Once you’re aware of where payers fashion terms that keep more revenue in their pockets, you can negotiate assertively. Remember to start negotiations well before contract expiration dates.
Focus on the fee schedule
The fee schedule is the most critical aspect of the contract. Start at your organization by listing your top codes that drive the majority of practice revenue. It’s likely that 20% of your codes generate 80% of your revenue. Fight hardest for the best rates for that 20%. Don’t let payers offer good rates just for services you rarely provide. Most likely, you won’t see much revenue coming in from those services.
Be careful if a payer proposes reimbursing you, for example, at an average of 160% of Medicare. It sounds good, but they are likely quoting from across your fee schedule of hundreds of codes or more. Avoid the averages and pay most attention to the reimbursement rates of your most common CPT codes.
The next step is to negotiate what each payer is currently paying you for each CPT code you bill. Benchmark your payers' rates against Medicare’s rates. You can find Medicare’s reimbursement rates for all physician services here. (Medicare does not negotiate its rates.)
Create a spreadsheet like this one to compare your payers’ payments by CPT code.
Of course rates will vary, and payers will have justifications about why their rates are lower than their competitors. Present your findings respectfully but firmly, and prepare to compromise on some of your terms.
Other items to document include:
- whether any rates from any payers are below Medicare rates. This figure should be zero as, on average, private payers pay 224% above Medicare rates, according to a recent Rand Corporation study.
- the portion of your revenue each payer contributes. Negotiate most aggressively with your biggest payers.
- rate escalations for each payer over the last 3 years. Aim for a 3 to 5 percent increase every three years.
- the most frequent, most lucrative services you provide. These you want to assertively negotiate to get good rates.
- the least frequent, least lucrative services you provide with this payer. Winning lower reimbursement for these will be more palatable.
While these steps require significant time investment upfront, the benefits roll in for years to come. Further, once your system is in place, the time it takes to update it each year diminishes significantly.
The automated fee schedule
Consider a plan to automate the payer fee schedule to improve both financial and operational benefits.
Automated payer fee schedule management leverages specialized software to efficiently handle the complex task of managing fee schedules from various commercial insurance payers. This innovative approach streamlines the processes of monitoring, updating, and implementing fee schedule changes. It significantly reduces manual labor and minimizes the risk of errors that often occur when dealing with intricate and frequently evolving fee schedules.
Financial benefits of the automated payer fee schedule include:
- underpayments identification, aligning actual and contracted reimbursements, and ensuring appropriate payment capture.
- reduced administrative expenses associated with manual fee schedule management
- avoidance of costly retroactive adjustments.
- faster claims resolution and payment, reducing days in accounts receivable.
Operational benefits of the automated payer fee schedule include:
- staff freedom to focus on higher-value, patient-centric activities
- reduced risk of payer audit findings or regulatory issues
- fewer payment disputes and appeals
- enhanced decision-making capabilities achieved via analytics that evaluate payer performance and profitability
- identification of trends that help optimize revenue strategies
Overall, automated fee schedule management streamlines operations, improves accuracy, and allows healthcare providers to allocate more resources to patient care.
Determine your revenue per visit to negotiate payer fee schedules
The next step in preparing effectively for payer contract negotiations is to get a firm idea of the figures you refuse to go below for each CPT code. When setting your lowest acceptable rates, consider the profits you need for organization viability. Then determine the prices for each service.
To get a ballpark idea of the lowest rates you’ll accept, add up your revenue for the past 12 months. Divide that number by the number of patients your organization negotiated. If your practice remained profitable and your 12 physicians brought in 2.4 million dollars, each office visit brought in $200. A contract management software system can provide the data to help you with these calculations.
Spreadsheets v. contract management software
When quarterly revenue underperforms, providers go on a hunt for revenue leakage points in the contract. By then, it’s often too late. It’s better to track how every contract is performing in real-time. This way, you can jump on any leakage points before they get out of control.
Manually compiling spreadsheets to track payer fees and terms typically occurs after revenue cycle specialists have noticed revenue leakage.
Payer contract management software alerts give your real-time visibility into contract performance. It reads, ingests, and learns contracts. It automatically alerts you to:
- where you’re being underpaid (the amount you received vs. the amount the contract stipulates you’re entitled to receive).
- which payers offer you the highest fees and terms.
- how you can improve future contracts.
- which contracts are returning the most revenue.
- how proposed contract changes will impact cash flow.
- contract renewal dates, notifying you when you should start reviewing which contract.
With this automation, you can reduce staff time spent on contract administration and data entry. You can go into your negotiations with all fees and terms laid out in front of you in clear terms.
Compare terms by payer
Fees are not the only aspect of your contracts you should track. Terms favoring payers also diminish revenue. When Oregon’s Community Care Partners found two CPT codes from one payer being reimbursed $5 below contracted rates, the payer agreed to reimburse $80,000.
Creating a spreadsheet where you can track the terms of every contract also helps you know what aspects need to be renegotiated. Below, you’ll see the start of such a spreadsheet. You will have many more entries on both the X and Y axes as you add your payers.
Mark the payer that has the most favorable language for each term and work to get all payers closer to that. Below, we list many contract terms and the improvements you can make to the language to preserve more of your net revenue.
Prepare for tricky terms
Don’t let payers hide behind legalese to establish fees and terms that favor them most. The following terms are most likely to take the biggest bites from your net revenue, so examine them closely. When you manage to improve them all with the “how to negotiate” suggestions below, they can add up to significant additional net revenue.
Another way to gauge what you’re entitled to is to talk with other physicians in your local area to get a sense of the terms they’ll tolerate and which they won’t. Contacting your state’s medical association can help, too.
“Lesser of” language
"Lesser of” clauses in payer contracts state that the payer will pay the lesser of the charged amount or the contracted rate. For example, if a service costs $100 and the contracted rate is $150, the payer only reimburses you $100.
How to negotiate
Scan your contracts for “lesser of” language. If they exist, review your most charged codes. Are your fees higher than the contracted rates in all cases? If not, update these fees immediately.
Another option is to review just which payers include “lesser of” clauses. If some of your payers do not include them, let the payer that does include them know. Propose that they, too, remove all “lesser of” terms.
Percentage reduction of charges
Some contracts allow payers to reduce charges by a certain percentage for specific services. For example, a contract may call for the organization to be paid on a DRG basis but stipulate that for all claims in excess of $75,000, the payer will pay the claim at 80% of charges.
How to negotiate
Make sure your billing amounts on your fee schedule are higher than the insurer's reimbursement rate.
Stop losses
A stop loss sets the maximum amount that the insurer will pay. If a patient’s treatment costs $75,000, but the stop loss clause stipulates $50,000 for that treatment, you (and/or the patient) will be on the hook for the remaining $25,000.
How to negotiate
Review the stop loss amounts surrounding your most common CPT codes. Compare these limits to what the procedures have cost you and other payers in the past. If this payer's stop loss amount falls far short of that, use documented fees and charges to negotiate higher stop loss levels.
Implants and Supplies Definitions
Non-alignment on the definitions of the terms "implants" and “supplies” can get providers underpaid. A healthcare provider may classify a medical device as an implant and charge accordingly. However, if the payer's policy has a different definition for the item and denies coverage for it as an implant, they may refuse to pay the full amount. For instance, UHC does not consider certain materials, such as hemostats, sealants, bone morphogenetic protein, catheters, staples, and clips, to be implants.
Similarly, providers and payers may have different ideas of what constitutes “supplies.” Specifically, while a healthcare provider may consider certain specialty bandages as supplies, the payer may not recognize them as such and could refuse full reimbursement.
How to negotiate
Review contracts for language surrounding supplies and implants. If your definitions don’t match the payer’s, use competing payer contracts to impress upon them that your reimbursements should be based on your more reasonable definition.
Contract Modifications
One term that troubles revenue cycle managers is the payer's ability to modify the contract without provider approval. Payers often give providers a short 30-day notice to object to amendments, but many providers cannot get the tasks completed in time. Payers may write into the contract that if providers miss this deadline, they will implement their amendments automatically.
Furthermore, payers may add stipulations that eliminate the need for provider approval altogether. It’s tough for staff and revenue cycle managers to understand these stipulations during a staffing shortage. When amendments are received, many provider groups simply accept them without negotiating, assuming the effort will be futile.
How to negotiate
Below, we include the AMA’s guidance on contract modification language. You’ll see that the language favorable to providers does not include a time limit. The language that benefits the payer most has the clause, “the proposed amendment will take effect unless Physician notifies the Payer of its termination of the Agreement.” In other words, should the payer write in a modification and the provider miss it, that modification rolls out automatically.
Claim filing time frames
Watch your contracts for 30-day filing limitations. With high staff turnover, filing claims within 30 days of the service can be a challenge, and missing a deadline can result in withheld payment.
How to negotiate
If you can’t win longer 45- or 60-day deadlines, ask for a clause that excuses late filings during exceptional periods like staff turnover or organization overload (e.g. during a COVID variant surge.)
Hold Harmless
“Hold harmless” clauses appear frequently in payer contracts. These clauses state that one or both parties agree not to hold the other party responsible for financial or legal liability.
While the clause sounds equitable, payers often use hold harmless clauses to escape financial liabilities. In a courtroom, this clause can increase your level of liability and trigger financial penalties.
How to negotiate
Negotiate for a mutual clause that shares liability between you and the payer. Emphasize the unfairness of a one-sided agreement and stand firm that a reciprocal clause better represents the interests of both parties.
Arbitration
When disputes arise, payers most often prefer to use arbitrators rather than taking the case to court. Arbitration clauses that appear in your contracts too often benefit the payer.
How to negotiate
Examine your arbitration clause for:
- Payer control over choosing an arbitrator. You bet they’re going to find one more amenable to their position. Negotiate to add language about using a neutral professional arbitration organization like the American Arbitration Association.
- Any inconvenient location that would require you to travel while resolving a dispute.
- Any limitations of your legal options.
Parties’ responsibilities
Review your contracts closely for just what the payer deems is their responsibility versus yours. Watch closely for language that puts the burden of many tasks on you. You are both working together for the ultimate well-being of your patients / their subscribers. You should share the load.
This sample payer contract language was taken from the American Medical Association’s Payer Contracting 101 toolkit:
Eligibility
Overpayments & Recoupments
Contract Modifications
Payer Policy Changes
Negotiate
Now that you have a grasp on the potential pitfalls in payer contracts, you are ready to negotiate to win more equitable terms.
As you begin to take inventory of your contracts, consider starting with just one payer, possibly the one you suspect offers you the best terms. Compare other contract terms to those in this contract. Comb through every line of your contract and envision what each term could mean for your organization. Don’t be put off by a payer saying something like, “Oh that’s just standard legalese” or “this is the standard boilerplate stuff.” Contracts have the ultimate power where it counts: in the courtroom.
The path to the negotiation table
- Gather all your contracts. If you can’t find a contract for any payer, contact them and ask them to get it to you quickly. You are entitled to your contracts so don’t let them intimidate or stonewall you.
- Complete the tables you’ve created or use your contract management software to analyze the fees and terms in each. Document the effective dates of your contracts. Once you have assembled all of your data, you can compare payers.
- Let your payer know you want to negotiate approximately 30–60 days in advance of the contract renewal date.
- Once you’ve received any new contracts, review and document exactly what fee or term you want changed. Consider categorizing your changes into “must-haves,” “like-to-haves” and “ideal.” If an item is on the “must-have” list, prepare to negotiate assertively for it. If the payer won’t accede to a “must-have,” determine whether you’re ready to walk away.
- Draft your proposal letter with adjusted terms and rates.
- Reassure yourself that most negotiations start with a “no.” Payers may even refuse to open up talks. Press on, and don’t give up. Simply restate your determination to amend contract terms. Stick with the facts, avoid emotion, and bring up other payers’ terms and rates. Remember, you’re renegotiating these contracts so that you have the capital to provide excellent care to their subscribers. The insurer has an obligation to serve these people.
If your date for negotiation is approaching and you’re feeling overwhelmed, ask for help from someone who isn’t as emotionally invested as you are. Consider contacting an attorney or negotiation coach for tips.
Justifying your changes
Payer negotiators will put up roadblocks to any proposed changes that limit their flexibility or trim their share of net revenue. Providers have many ways to substantiate their requests.
Time passed since last rate increase
The first rationale to bring up is the time period that has passed since your reimbursement rates went up. Again, reimbursement rates should rise by three to five percent every three years. Have the increase in rates your best payers are paying you at your fingertips to justify increases. Contract management software helps you marshal these figures quickly.
Provider viability
As mentioned above, payers and providers both owe their ultimate duty to patients. Providers can only stay in business if they can afford to. It’s the payers’ job to make sure they can.
You can pressure payers by emphasizing the financial challenges you’re up against. It’s no secret that labor, operating, and supplies costs have soared. Asking for a one to two percent increase falls far short of greed. While payers are well aware of these facts, there’s no harm in repeating them, particularly when you can compare these financial pressures to the payer’s previous year’s revenue (easily found in a ZoomInfo or Google search.)
Your value
Payers have goals of their own when including you in their network. When you establish your unique value with a payer, they are more likely to meet your terms.
Take an inventory of what you provide that your nearby peers may not. Are you the only local practice with weekend and evening hours? Does your practice have one of the few oncologists available in a 10-mile radius? If you’re an ACO, research via ZocDoc whether there are more ACOs nearby. If not, your payer may consider you valuable.
You can also make headway with payers by bringing up the influence you have in your community. Do any of your physicians appear on local news outlets or write columns? Have you won any awards recently? Explain how your success can reflect upon them.
Consider going to your payer’s website to research the types of providers they consider are the best fit for their subscribers. Talk up your important alliance during your negotiation.
Track payer performance after the contract is signed
Your spiffy new contracts should start bringing in additional net revenue right away. Still, you must monitor and assess the effects of contract changes and updates on your revenue cycle by tracking results. Utilize key performance indicators (KPIs) like net revenue, accounts receivable, cash flow, denials, and compliance to analyze performance. Compare outcomes with budget and forecasts to identify areas for improvement. Share your findings with the revenue cycle team and stakeholders, and take appropriate action as needed.
Win more in payer negotiations with contract modeling
When contract renewal time comes around, payers often attempt to change rates and terms in their favor. They typically present these changes in the following ways:
Subtle modifications
Payers may introduce subtle changes to contract language or policies that can significantly impact reimbursements. These modifications might include:
- adjustments to fee schedules
- changes in covered procedures
- updates to payment processes
Limited transparency
Payers sometimes make changes without explicitly notifying providers. This lack of transparency can lead to:
- surprise policy alterations affecting claims
- modifications to manuals or written procedures that providers may overlook
Auto-renewal tactics
Some payers rely on auto-renewal clauses to implement changes. Don’t let:
- contract terms change without your provider's active consent
- rates get adjusted without clear communication
Unilateral policy changes
Payers may attempt to make unilateral changes to policies or procedures. These can include:
- language permitting down coding of services
- alterations to authorization processes
- changes in reimbursement methodologies
Timing strategies
Payers often present changes close to renewal deadlines, which can:
- limit your time to analyze the impact of proposed changes
- pressure you to accept terms without thorough review
To protect against unfavorable changes, providers should carefully review all contract documents, including associated policies and manuals, and consider incorporating protective language such as requiring written agreement for policy changes.
You can model exactly how proposed payer changes will impact your revenue. Experiment with your own changes via unlimited scenarios. Take a quick tour of efficient contract modeling in action here:
MD Clarity backs up your payer contract negotiation strategy with concrete data and insights
Once providers fully understand where and how they can advocate for themselves in their contracts, they can rebalance payer contract negotiation and improve revenue.
Thorough contract analysis equips healthcare providers with the insights to engage in informed discussions, anticipate potential challenges, and strategically pursue negotiations that lead to mutually beneficial agreements, ensuring financial sustainability.
A contract management solution like RevFind brings transparency to your contracts, improving your net revenue and even the patient experience. RevFind’s payer contract management capabilities consolidate your contracts into one place and digitize all terms and fees for easy accessibility. It alerts you when a payment has not reached its contracted rate and even benchmarks your reimbursements against national standards like Medicare. Its analysis function renders an overall contract performance metric for each payer.
By providing the contract insights you need to negotiate proactively and in real-time, RevFind supports you through the recovery process. Get a demo to see it in action.
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